By Lara O'Reilly
WPP Chief Executive Mark Read set out his vision for a turnaround on Tuesday, a strategy he hopes will make the world's largest advertising company easier for clients to work with and better-positioned to contend with the rapidly-changing marketing landscape.
The company said it plans to simplify its structure and increase its investments in the areas of creativity and technology as it aims to deliver organic growth--a key industry measure that strips out currency effects, acquisitions and disposals--in line with its peers by the end of 2021.
Mr. Read said in an interview that the company plans to reduce its 134,000 workforce by 3,500, or around 2.5%, as it pursues annual savings of 275 million pounds ($348.1 million) in annual costs by the end of 2021.
The London-based company said it would incur GBP300 million in restructuring costs over the next three years, a period in which it will prioritize dividends over buybacks.
WPP, like much of Madison Avenue, is facing a multitude of challenges. Cost-cutting clients are asking for more digital and data services from their advertising partners. Meanwhile, new entrants, such as consulting firms, are encroaching on traditional advertising companies' turf.
Some of the company's issues are more specific to WPP itself. WPP's agencies have lost several key client accounts, including American Express, Pepsi and Daimler Mercedes-Benz. The company has also blamed a weakening a weakening of its businesses in North America and its creative agencies for dragging down the group's performance.
WPP, which owns agencies including Ogilvy and Grey, said it will invest an incremental GBP15 million a year over the next three years on its creative leadership, focusing particularly on the United States.
Mr. Read, who took the helm in September, must now convince investors he is well positioned to set a new course for WPP following the abrupt exit of longtime CEO and founder Martin Sorrell, who left the firm in April.
Still, investor patience has waned and analysts have predicted the turnaround will take years. WPP PLC shares, which have more than halved in value over the past two years, rose 5% in early trading in London. In the third quarter, WPP underperformed versus its competitors, lowered its full-year net sales and profit guidance and warned of a tough 2019.
WPP said Tuesday that it anticipates full-year results in line with expectations, with net sales set to fall 0.5%. In October, WPP guided net sales to fall between 0.5% and 1.0% in 2018 and operating margin to decline by 1.0% to 1.5%.
"In three years' time we will look back and see a very different company, but we will get there at the right pace," Mr. Read said in an interview.
Mr. Read had already kick-started a movement to simplify WPP's unwieldy collection of agencies that had been built largely through acquisitions. Last month, WPP combined its iconic creative agency J. Walter Thompson with digital agency Wunderman to create a new shop called Wunderman Thompson. In September, the company made a similar move by merging Young & Rubicam, a creative agency, with digital ad firm VML to form VMLY&R.
WPP is also planning to unload a stake in its underperforming market-research unit Kantar Group, valued by analysts at between 3 billion and 4 billion euros ($3.4 billion-$4.6 billion). The company said that if a transaction is agreed, it will likely be announced in the second quarter of 2019. So far, WPP has disposed of 16 "noncore" investments, raising GBP704 million to reduce its debt.
Mr. Read also plans to neaten the advertising firm's executive reporting lines. Previously, many of the heads of WPP's agencies reported straight to the chief executive, a legacy from Mr. Sorrell, who was known for his meticulous micromanagement of everything from client relationships to identifying deal targets.
Now Mr. Read has established an executive committee for the first time as part of his efforts to implement "a more coherent management structure" that will mean he has fewer direct reports than his predecessor.
Other companies in the space have already undergone reorganizations in an attempt to stay ahead of the shifts affecting the advertising sector and make themselves more efficient for marketers to do business with.
Omnicom Group has also sold businesses and reduced head count. France-based Publicis Groupe has simplified its operations around a strategy it calls "The Power of One."
A fundamental issue affecting the advertising agency sector is that "marketing spending is increasingly becoming blurred with tech-related spending and that marketers are shifting more of the emphasis onto the latter from the traditional style work," analysts at Liberum Capital said in a note on Monday ahead of WPP's strategy update.
Write to Lara O'Reilly at firstname.lastname@example.org