Radical change is coming, says heir apparent to Sorrell's WPP ad empire

By Kate Holton

CANNES, France (Reuters) - WPP, the world's largest advertising group, needs radical change to stay ahead of the digital revolution ripping through the industry and its clients, according to the man tasked with running the group after Martin Sorrell.

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 some major contracts, almost 30 percent of its market value and in April, its founder and chief executive Sorrell over an allegation of personal misconduct.

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 and Facebook 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 realised 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 IS IN THE AIR

Clients at all the holding companies, including Omnicom, Publicis, IPG and Dentsu, 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.

They want one bespoke team handling all their communications needs, a challenge for WPP 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.

"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.

The unexpected departure of Sorrell, the world's most famous advertising man who was rarely out of the headlines, has catapulted Read into the spotlight. He describes the last 10 weeks as "eventful" and says the company now needs leadership.

Sorrell has denied any wrongdoing and the company has not divulged the nature of the complaint against him.

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 verdict of some observers that the traditional advertising industry 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."

(Reporting by Kate Holton, Editing by Mark Potter)