The secret sauce behind the rise of WPP

London-based WPP is a self-proclaimed ‘world leader in marketing communications’ that drives its clients’ marketing and advertising efforts. It certainly is the most prominent of its kind, with a formidable 165,000-strong workforce (including associates), operating from 3,000 offices in 110 countries.

Following are some key observations on the rapid rise of WPP, wherein we will analyse the media conglomerate's modus operandi and its growth strategies. We will try and distil replicable pointers to success for other firms that are seeking inspiration for their own acquisition strategies.

WPP has grown from rather humble beginnings - on the back of a takeover of UK wire basket maker Wire & Plastic Products in 1985. Sir Martin Sorrell, former group finance director of Saatchi & Saatchi, had sought out a public entity to build on by snapping up firms to create a full marketing service offering to multinational companies. Renamed WPP Group, it has gone on to purchase 300 businesses (so far), operate under several separate brands, and report international billings of over £44 billion in 2012.

The company’s high growth aspirations were clear from the beginning. Sorrell was appointed CEO of WPP in 1986, and launched pretty much headfirst into making acquisitions within the advertising industry. One notable early purchase was the well known, yet poorly performing, J. Walter Thompson Group (JWT) for $566 million (£371m) in 1987, which was worth 13 times that of WPP at the time. Sorrell pushed forward with an opportune hostile takeover, winning JWT within a fortnight. The success of the JWT turnaround delivered the confidence and funds to push forward with WPP’s acquisition trail.

These days, the marketing giant’s business purchases are just as audacious and are geared to bring up to five per cent growth to WPP’s revenues and profits each year. Sorrell puts this into perspective: “You are talking about adding a very big agency - a multinational global agency – to our base every year.”

You may wonder how all these acquired businesses are integrated and managed. Sorrell says that he asks WPP-owned companies to work together yet push against each other at the same time. “We get them to compete and cooperate – to kiss and punch,” he illustrates.

Cooperation and competition are also encouraged amongst staff, though this proves to be challenging. He says, “Getting good people to work together is very difficult. The paradox is, the better they are, the more difficult it is to get them to play together.”

The business leaders Sorrell has worked with have also been instrumental to WPP’s continued growth. Mr Burt Manning, chairman of JWT for many years, led its turnaround after it was bought by WPP. While Shelley Lazarus, chairman emeritus of Ogilvy & Mather (another WPP-bought firm), led growth over 20 years at the enlarged group.

Sales at WPP shot up by 3.5 per cent in 2012, seemingly unaffected by the continued economic downturn. Its monumental growth partly stems from its investments in digital media, including social media, search engine, mobile and web development.

Digital media accounted for a third of its total sales during 2012, an increase from a tenth in 2000. Digital media is on course to overtake traditional forms of media, and will no doubt be helped along by WPP’s large-scale activities.

The marketing giant also has a strong focus on developing markets, and a broad presence across the globe, with roughly a third of sales derived from North America, a third from Europe and the remaining third from the rest of the world, mainly from emerging markets. The upcoming FIFA World Cup in Brazil and Winter Olympics in Russia in 2014 are expected to further boost growth for the UK-headquartered WPP.

Indeed, observing and following changes in the marketplace has been an instrumental part of the group’s success. Understanding current trends has enabled the organisation to predict growth areas with a reasonable degree of accuracy. Sorrell says he understands that change in the industry is fundamentally either technology or geographical in nature.

WPP’s business structure has ensured minimum dependency on any one of its companies and also benefits from positive relationships with its key clients, who include Coca Cola, Nestle and GlaxoSmithKline. Its far-reaching conglomerate structure is also expected to see it take on larger portions of its clients’ marketing budgets.

Another aspect of the group’s success lies in the strategic autonomy of its companies. For example JWT, a WPP-owned operating company, recently announced its own purchase of a majority stake in Thai digital agency Thomas Idea. The group can now consider Thomas Ideas’ 45 staff and clients, including Reckitt Benckiser and TIPCO, to be part of the WPP empire.

WPP is no stranger to taking up strategic stakes in companies in order to take advantage of the latest growth areas. It took a small stake in dance and music events business SFX Entertainment in March this year to gain a foothold into this fast growing multi-million pound industry, with its abundant sponsorship and branded entertainment possibilities for WPP-owned companies and clients.

Looking ahead, Sorrell described WPP’s focal point for 2013 as “revenue growth from leading position in faster growing geographic markets and digital, premier parent company creative position, new business, ‘horizontality’ and strategically targeted acquisitions.”

Sorrell’s watchful, and bold proactive approach to inorganic business growth has been of huge benefit to the empire that WPP has become as well as, it seems, the companies it has bought. Final pointers arising out of this study of WPP’s expansion include the importance of continual monitoring of trends and events in your industry; the ability to act quickly, including taking immediate advantage of any opportunities that may appear; and to build and nurture relationships with key professionals you come into contact with as they may one day prove instrumental to your own business’s success.

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