WPP eyes huge savings in consolidation

DALIAN, China (Reuters) - WPP (WPP.L), the world's largest advertising group by revenue, could reap huge potential savings from consolidation in its back-office operations and from greater cooperation between its many agencies, its chief executive said on Friday.

WPP employs about 105,000 people directly, working for big-name brands such as Ogilvy & Mather and JWT. But each operates independently, which does not always bring the full benefits of the group to clients, Chief Executive Martin Sorrell told Reuters.

"We have five (advertising) agencies. It is ludicrous that you don't have a common back office. It is the same business," said Sorrell on the sidelines of the World Economic Forum.

"We aren't doing enough. There are colossal savings for our clients and ourselves," he said. "My ideal is you have one back-office for all the brands within 10 years."

Sorrell's comments come amid the backdrop of sagging global advertising revenues as clients cut spending during the economic downturn.

WPP reported a first half like-for-like drop in sales of 8.3 percent, compared to rival U.S. group Omnicom's (OMC.N) 8.8 percent fall and France-based Publicis's (PUBP.PA) drop of 6.6 percent.

WPP had said previously that it would see flat revenue growth in 2010

WPP has already reduced its headcount by 6 percent this year to counter the headwinds, after adding four percent to staffing last year. Sorrell did not say more layoffs were coming, but he noted that people were his biggest investment and would be a focus.

"We have to make the adjustments, primarily in our investment in people," he said, making it clear that employees needed to adapt to change.

"Those people who can't get their mentality around it, probably in the end, will have to go," he said. "There is a revolution from the bottom, the world has changed."

The executive said "the closer to the front lines you get, the more you are in the trenches ... the younger the people are that you talk to, the more enthusiastic they are about these opportunities of working together."

TOUGH MARKET

"The clients want us to work together, the clients want the best people working on their business," he said. "Our people have a loyalty to not only WPP, but primarily to the brand in which they operate."

"Historically, there has been a reticence to work with other brands. That is slowly being dismantled," he said.

WPP is increasingly forming internal groups that cut across the different brands within the group on projects for clients as a way to maximize the group's expertise.

"Just think of the intellectual power you have if you get people to work together," he said.

WPP spends $9 billion annually on people, its biggest single investment, Sorrell said.

"The only thing you can adjust is your investment in people," he said, referring to other costs that were more fixed in the short-term such as property.

"I can't believe we can't improve the way we do things."

While WPP was looking for more cooperation between the different brands in its decentralized structure, Sorrell did not expect the number of brands to be reduced.

"There are no economies of scale for creative businesses," he said, except for in media buying.

Sorrell said he was not enjoying the process of making changes he considers necessary in a very difficult market.

"This is stressful. I think it is stressful for people who have to manage the business. It is stressful for the people who are being managed. Having said that, we have to make the adjustments."

"This is tough stuff," he said, "as tough as it gets."

($=6.83 yuan)

(Reporting by Kirby Chien; Editing by Ken Wills)