With IESE’s MBA program now entering its fifth decade, long-time friend of the school and WPP CEO, Sir Martin Sorrell, joined IESE alumni and guests at London’s Royal Institute of British Architects to celebrate.
But this was no retrospective. The future was very much on the agenda. And the first question on the table was: "What keeps you up at night?"
Despite the myriad of issues facing the CEO of a multi-billion dollar business, his answer was relatively straightforward. The insomnia-inducing issue for him was "bottom line". Or, as Sorrell put it, "the remorseless focus on cost."
As his choice of phrase suggests, Sorrell isn’t keen on what he considers to be the "slavish focus on cost reduction" that has gripped the business community since the demise of Lehman Brothers some six years ago.
His logic is simple. While many of today’s global brands are hitting their bottom line targets, their top lines remain somewhat elusive. "You can’t cut your way to growth," he said.
And Sorrell should know. Having set out 30 years ago to build a multi-national business in his lifetime, his communications group WPP now has a presence in over 110 countries, more than 3000 offices and 180,000 employees. In 2014 the Group reported billings of £46.2 billion, and had a market capitalisation (as of April 2015) of £20.5 billion.
Taking the Longer View
It’s safe to say that Sorrell has achieved what he set out to do. And the secret of that success, he insists, has not been the aforementioned fascination with cost reduction. He’s succeeded, he says, because he’s taken risks, worked hard and believed in taking the "long view."
This was a strategic theme that event host, Professor Jordi Canals, Dean of IESE Business School, also touched on in his introductory remarks.
According to Canals, one of the greatest challenges facing the business world today is the "short-termism" of many shareholders. The desire for the "quick return" is, he believes, at odds with the responsibilities that firms hold - not only to shareholders and employees, but to society at large. This is why IESE is so driven to develop leaders, he said, with a strong sense of collective responsibility, integrity and service.
What the Future Holds: 10 Trends That Will Define Business Practices
What then did Sorrell think were the big issues facing the business world today?
He highlighted 10 key trends to keep on the radar.
First off, Sorrell cited the very real shift in economic power from New York. Power – economic, political and social – is migrating South, East and South-East; to the so-called BRIC countries and beyond to Africa, the Middle East and to Central and Eastern Europe.
The second key trend is the continued dominance of production over demand. That is, except where it really counts in the higher echelons of companies: in talent. This shrinking talent pool will become, according to Sorrell, of even greater significance over the next 10-15 years as demographic changes put yet greater pressure on its supply.
Of course, it’s not just a falling birth rate that concerns Sorrell. The growing dominance of web giants like Google, Amazon and increasingly Alibaba is having a tremendous impact on the supply chain – removing chunks of it in order to engage more directly (and at a lower cost) with the consumer. This phenomenon of disintermediation will have far-reaching implications, he said.
Similarly, the importance of the developing relationship between manufacturer and end-user is important – and number four on Sorrell’s list. As market dynamics change, the once all-powerful retailers like Walmart, Tesco and others will begin to lose their advantage. e-Commerce now offers manufacturers a much more direct route to the customer, while the increasing number of city-dwelling consumers is the catalyst for greater proximity marketing efforts and the growth in smaller, local, convenience-led outlets. But Sorrell was clear that the window of opportunity is closing fast. If manufacturers and other interested brands don’t act soon the web giants could very well become "tomorrow’s Walmart or Tesco."
Internal communication made fifth place on Sorrell’s list. This is something, he said, that is particularly vital in this time of change when the ability to articulate company strategy, direction and perhaps even culture, becomes harder as firms expand across the world.
And on that topic, Globalisation was next. But with a difference. Sorrell floated the idea that the center of the organization cannot possibly know everything that’s happening across the office network. He pointed to a growing dissemination of responsibility and accountability to the local level, contrasting it with the disappearance of the middle men and woman at the regional level who, he felt, acted as a buffer to the flow of information between the core and the edge.
The discussion then came back to the disconnect between top and bottom lines. "Do the number-crunchers have too much clout?" he asked. For firms to grow and succeed, cutting costs will only get you so far. At some point, said Sorrell, you need to look to investment-driven top-line growth – which has the potential to be infinite.
More than 50 per cent of the world’s GDP is generated by the public sector. The importance, therefore, of governments as regulators, investors and clients is vast, he said.
Sorrell closed his session with two final points: Paying "lip service" to sustainability and social responsibility is no longer acceptable (and will become less so in years to come), while continuous consolidation will become a fact of life.
He was quick to point out however that big isn’t necessarily beautiful. And that some businesses, particularly the creative ones, fall foul of dis-economies of scale as they grow.