By Kate Holton
CANNES, France (Reuters) - WPP (L:WPP) needs radical change to stay ahead of the digital revolution reshaping the industry and its clients, the man now steering the world's largest advertising group said.
The once glamorous world of Madison Avenue has been forced to confront reality in recent years as the rapid growth of digital platforms opened the industry to new competition at a time when clients are questioning everything they spend.
As the biggest holding company in the sector, WPP has been particularly hard hit, losing major contracts, almost 30 percent of its market value and in April, its founder and chief executive Martin Sorrell over a personal misconduct allegation.
Sorrell has denied any wrongdoing and the company has not divulged the nature of the complaint against him.
The softly-spoken Mark Read, WPP's former digital boss, has been appointed to run the company of 200,000 employees as a joint chief operating officer in the short term, charged with reviewing its structure while keeping staff and clients onside.
"In five years time the business should look radically different but we can evolve ourselves there," he told Reuters at the annual Cannes Lions advertising festival where ad and tech companies go to meet the world's biggest marketing spenders.
The exit of the 73-year-old Sorrell came at a momentous time for the industry, as Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) threaten to cut out middlemen ad agencies and as new challengers like consultants battle to win high-margin strategic and advisory work.
Read says the world's biggest companies are not questioning the value of spending on their brand or message, rather they are changing how they target consumers in a world of mass, but fragmented, content.
"Just like us, clients realized that they needed to more radically examine their costs," he said. "They're not demonstrating a lack of commitment in marketing or marketing spend, they're shifting it from what they used to do to what they want to do in the future.
"In the same way, we need to position WPP to capture the spend of the future."
CHANGE IN THE AIR
Major clients have made clear they no longer want to work with multiple people across multiple agencies to secure market research, data analytics and public relations services, plus ads on multiple platforms.
WPP's rivals Omnicom (N:OMC), Publicis (PA:PUBP), IPG (N:IPG) and Dentsu have been less affected so far than the British-based company which owns more than 400 agencies, traditionally set up to compete with each other.
Read, long seen as a successor to Sorrell after he wrote to him asking for a job in 1989, said he had spent recent weeks talking to colleagues and clients and said WPP would do better at incentivising one-time competitors to work together.
The scale of the challenge is huge, however. After ploughing billions of dollars into online advertising, major brands are now demanding more transparency on how their money is spent, and evidence on how it leads to a transaction.
Clients, under pressure from the digital forces weighing on their own operations, are demanding greater efficiency, particularly consumer goods groups like Unilever (LON:ULVR) and P&G that are served by WPP.
"If you look at the production of content, clients don't want a 5 percent reduction in the cost, they want an 80 percent reduction," he said.
"So it's about redirecting resources and sometimes that requires a more radical examination of your cost to take the legacy cost out and redirect it to the future."
Read admits the company, present in 112 countries, is in a transition phase. He is working with fellow COO Andrew Scott to review the structure, but WPP is unlikely to embark on a major new strategy until the next CEO is in place.
Much of the talk at the annual industry event has been dominated by the travails at WPP and who should take over, with P&G's marketing boss Marc Pritchard and Verizon's Tim Armstrong also seen as candidates.
The unexpected departure of Sorrell, the world's most famous advertising man who was rarely out of the headlines, has catapulted the 51-year-old father of two, Read, into the spotlight.
He describes the last 10 weeks as "eventful" and says WPP now needs leadership.
Less showy than his former boss, Read thought for some seconds before saying he was enjoying the job, and that he didn't accept the view that traditional advertising was doomed.
"It's a challenge," he said, on the terrace of one of the major hotels that look over the seafront, wearing shorts and a t-shirt. "Running a company like WPP, to some extent you need to lead from the front, and I'm happy to lead."