How networked businesses should integrate and collaborate
The likes of WPP need to look beyond the numbers to achieve real integration, writes Ben Rudman
The question of whether ownership drives financial performance has been thrown into the spotlight once again after WPP said it was skewing the pay of its operating company CEOs so they would be incentivised by the performance of WPP’s share price.
Speaking at a recent Morgan Stanley conference finance director Paul Richardson conceded that WPP’s hitherto siloed approach had “caused difficulty in group cooperation on a number of areas” despite WPP’s considerable efforts in recent years to integrate under the now-banned ‘horizontality’ banner.
WPP now wants its various operating companies - from media agency Mindshare to PR company Cohn & Wolfe to creative agency Grey - to think more collectively, as it battles a changing media landscape in which clients are demanding quicker, frictionless services with less bureaucracy.
Or as Richardson put it: "Instead of having the CEOs of each of the verticals being 100 percent rewarded for the performance of their vertical, maybe it's somewhere between half and two thirds and the other portion will be just dependent on the performance of WPP.”
The earn-out norm needs to change
This problem isn’t exclusive to WPP, of course. Any networked business could do more to integrate and collaborate internally, but whilst easily said, it’s hard to do in practice.
At its core, is the classic earn-out model. As a business leader, it’s your P&L that matters, so while collaboration is all well and good a creative agency is more likely to identify a brand problem, a media agency is more likely to identify a planning problem, and a digital agency is more likely to identify a technology problem. And it could be that none of those things is the problem.
It’s instructive that over at S4C, Martin Sorrell seems to favour the equity merger approach. MMT Digital is a part of the Be Heard Partnership - a smaller, more naturally-integrated business than WPP - and doesn’t suffer from the weight of scale and challenge of duplication. But it’s not without its challenges and we all have to work hard to focus less on next quarter’s numbers and on what’s best for the wider partnership in the long term.
By design, our parent Be Heard avoided duplication when acquiring with each agency distinctively different in function. We can collaborate effectively and partner up to deliver briefs when the client needs, if not ‘full service’ then a blended option, for example, as we did when Be Heard partner agencies The Corner (creative), Freemavens (analytics) and Kameleon (content) collaborated to win the Aviva brief last year.
Having acquired five distinctly different companies, the partnership - which also includes agenda21 (media) & MMT Digital (technology) is now working on deeper integration. And like WPP, having a financial incentive plan, so that the operating company partners are rewarded by the performance of the group, is an important part of this.
But better incentivising senior executives is not, in isolation, going to be enough to shift the group towards a more holistic way of thinking.
Speak the same language and rotate staff
Shifting to a more holistic way of thinking means shifting the thinking of the organisation, not just the few at the top, and deep-rooted change through companies.
Those with client facing roles, the individuals who are talking to clients about opportunities across the wider business, also need to adapt to a new way of thinking.
An example of this is introducing a common language to be used across our operating groups, so we’re all aligned when it comes to basic things like progress on client work: for instance, we’ve introduced a four-phase process - discover, define, design and deliver - for how we term the various stages of a piece of work.
It may sound like woolly management speak, but in fact it’s a system which speeds up our thinking, weeds out needless bureaucracy between the various Be Heard companies, and helps forge closer relations with clients. Of course, the less mental energy you have to commit to figuring out how to do jobs, or how to communicate internally, the more you have to do the creative - whether that’s defining a brand, building a great media plan, understanding the customer or rethinking how the company should operate in the digital environment. And, of course, shared language, behaviours and values are critical to creating culture.
Other initiatives include rotating staff in and out of different companies: such as an MMT Digital front-end developer seconded for a month at Freemavens to learn data analytics, so staff understand first-hand the challenges of sister businesses and make suggestions as to how the businesses can work better together.
Similarly, pooling and sharing knowledge between common back-office functions, such IT, HR, sales and marketing will further support our efforts to integrate.
One option to boost staff performance and encourage staff to think more holistically is to create a share scheme for all staff.
Publicis issued 50 shares to 4,000 staff in the UK and other markets in 2011 as part of a four-year incentive scheme. Vested in 2015, the shares were worth around £2,000.
Like other networks, such as IPG and WPP, we don’t currently have such a policy at Be Heard but such a scheme can pull teams together and improve talent retention. This is, of course, the norm in many early stage tech startups, where specific skills are needed but funding is tight, hence employees are offered shares in the business in lieu of a larger salary, though of course, the multiples at exit are lower in a services sector than in a scalable tech business - so the structure needs to be different.
It will be interesting to see how the scheme works out for WPP, and whether equity-merger acquisitions will replace earn-outs as the agency norm. But what is clear is that all clients want great service, collaboration, and impartial strategic advice from people they trust.
Wherever you sit in the industry - whether in a holding company, a consultancy, an independent or a challenger such as ourselves, it’s going to be an interesting year.
Ben Rudman is co-founder of MMT Digital and chief operating officer the Be Heard Partnership