The gurus of globalization keep insisting that the world is getting smaller. So why does it keep getting harder to make sense of what's happening in the new world of business? As recently as 10 years ago, most business leaders thought that they had figured out the logic of global competition. The 21st century would belong to Asia, whose fast-growing economies would eclipse the slower-growth markets of Europe and North America. The 21st century would belong to Japanese companies, which had perfected a model of management that their U.S. rivals were scrambling to copy. The 21st century would belong to a small collection of dominant global brands, as ever-higher barriers to entry would put even the most savvy entrepreneurs at a crucial disadvantage.
What a difference a decade makes! Asia is in retreat, Japanese companies are struggling to mimic their American rivals, and the Internet has unleashed an explosion of startup-driven challenges to established players in almost every industry.
Martin Sorrell, 54, chairman and CEO of WPP Group PLC, has enjoyed a bird's-eye view of the changing logic of global competition. Back in 1986, he left the high-flying British ad agency Saatchi & Saatchi, bought a shopping-cart manufacturer -- Wire and Plastic Products PLC -- and turned it into a vehicle for assembling one of the world's most powerful advertising conglomerates. He acquired J. Walter Thompson and Ogilvy & Mather. He bought the public-relations giant Hill & Knowlton and moved his company into management consulting. Today, WPP is a marketing-services colossus, with 33,000 employees, revenues of $3.2 billion, and offices in 92 countries. Its clients include several of the world's most powerful companies -- Ford, IBM, Unilever -- and its operations affect some of the world's best-known brands.
How does Sorrell decode the logic of competition at the turn of the century? "What we're experiencing is not just the globalization, but rather the Americanization, of the world economy," he says. "You see this in every industry: The strongest global franchises belong to companies that have strong franchises in the United States. If you're not strong in the United States, it's hard to be strong elsewhere." The real promise of globalization, he adds, has less to do with "leveraging economies of scale" -- selling the same products the same way all around the world -- than with "leveraging economies of knowledge and coordination": developing, refining, mastering, and implementing cutting-edge business ideas. "That's why America is so important," he says. "For the time being, at least, the United States is where we are creating the most knowledge about how to compete in the future, how to market in the future, how to use the Internet to reshape entire industries."
But even as his company prospers -- its share price has more than doubled since 1997, and its market value exceeds $6.5 billion -- Sorrell worries about the leadership challenges that globalization poses. "Are we building organizations that are unmanageable?" he wonders. "Every CEO wants to run a company that's totally focused on its customers. Every CEO wants to instill a can-do spirit, a sense that nothing is impossible. Every CEO wants to run a business that has not only the power of scale but also the soul of a startup. But bureaucracy gets in the way. The big-company way of doing things gets in the way."
In an interview with Fast Company, Martin Sorrell reckons with the promises and the perils of globalization -- for companies, for leaders, and for employees.
Your company has offices in 92 countries. Your clients control some of the world's best-known brands. What's your current thinking on the status of globalization?
What we're experiencing is not just the globalization, but rather the Americanization, of the world economy. You see this in every industry: The strongest global franchises belong to companies that have strong franchises in the United States. If you're not strong in the United States, it's hard to be strong elsewhere. To dominate an industry -- whatever the scale, whatever the business -- you simply have to have strong representation in the United States.
There are so many examples. All of the professional services -- auditing, accounting, consulting, investment banking -- really are dominated by American companies. Morgan Stanley and Goldman Sachs today control the lion's share of the world's M&A transactions. Just those two firms! Meanwhile, some powerful European brands -- Morgan Grenfell and Warburg -- have virtually disappeared overnight. What does Deutsche Bank, which owns Morgan Grenfell, do about that? What does UBS (Union Bank of Switzerland), which owns Warburg, do about that? The leading European franchises need to be asking themselves those kinds of questions.
You can see the extent of Americanization very clearly in my own business. My home base is London. But at WPP, we run our operations from New York. Why? Because that's where the power is, that's where the knowledge is, that's where the expertise is. Take the advertising business, which accounts for about 50% of our total operations. In terms of expenditures, something like 40% to 50% of worldwide advertising is done in the United States. But I'd argue that as much as two-thirds of all advertising takes its cue from the United States -- and, in particular, from a compact corridor that starts in New York, passes through Detroit, and stops in Chicago. In this corridor are most of the world's most powerful agencies and many of its biggest advertisers. You cannot be a major global player in the advertising business and not have a major presence in that part of the world.
Now, please don't misinterpret my remarks. I am not suggesting that companies should worry only about the U.S. market. If you are the CEO of a major company and you are under pressure to improve your earnings by 20% a year -- and to keep increasing your return on capital employed -- then you have no choice but to spread your business around the world. The Asian markets will continue to be a major force for growth. By the year 2020, nearly 55% of the world's population will be from the Asia-Pacific region. I just got back from a tour of India, Thailand, and Singapore. It's hard to come away from that part of the world without a sense that this will be an increasingly significant market. Especially China. For us, if you exclude our investment in Asatsu (which is the third-largest ad agency in Japan), China will surpass Japan this year as our number-one Asian market: Our billings in China will be bigger than our billings in Japan. So we ignore the rest of the world at our peril.
That's a remarkable mind flip, given how people saw the world as recently as 10 years ago. What's changed?
The original idea of globalization -- or at least the way that most marketers thought about globalization -- was invented by Professor Ted Levitt, of Harvard Business School. His argument (and I'm simplifying, of course) was that companies could basically apply the same marketing methods everywhere, because consumers were becoming more and more alike. In fact, I believe that consumers are more interesting for their differences than for their similarities. No more than 15% of the business that we do at WPP is truly "global" -- if by "global" you mean that we use the same marketing methods throughout the world.
The power of globalization is not about leveraging economies of scale. It's about leveraging economies of knowledge and coordination -- figuring out how not to reinvent the wheel everywhere you do business, how to benefit from knowledge created and knowledge shared. Again, that's why America is so important. For the time being, at least, the United States is where we are creating the most knowledge about how to compete in the future, how to market in the future, how to use the Internet to reshape entire industries.
When you combine the competitive dominance of established U.S. companies with the explosion of startups on the West Coast, you end up with something that's very powerful. You can't explain what's happening at Cisco, Dell, Schwab, Intel, and IBM without recognizing that we are living through a fundamental change in how companies operate. It will be interesting to see how the U.S. lead in digital technologies does or does not reinforce America's global position.
You paint a picture of tremendous competitive power. Of course, power tends to breed arrogance, and arrogance invites competition. Are U.S. companies about to get a comeuppance?
There are enough competitive threats out there to keep even the most successful big companies from becoming arrogant. The real challenge is more profound: Are we building organizations that are unmanageable? Every CEO wants to run a company that's totally focused on its customers. Every CEO wants to instill a can-do spirit, a sense that nothing is impossible. Every CEO wants to run a business that has not only the power of scale but also the soul of a startup. But bureaucracy gets in the way. The big-company way of doing things gets in the way. Every CEO I know worries that his or her company is becoming slow, bureaucratic, lazy, unresponsive. That's always been a problem, of course. But this problem has never been more urgent than it is today.
Why is it more urgent now?
Because the people at the so-called "bottom" of an organization know more about what's going on than the people at the top. The people in the trenches are the ones in the best position to make critical decisions. It's up to leaders to give those people the freedom and the resources that they need to make those decisions. Let's face it: CEOs of big companies rarely get told the truth. We are surrounded by people whose job it is to look after us, to make our lives easier. For the leader of a global organization, it's all too easy to get out of touch with what's really going on.
In our business, there are tremendous opportunities for big agencies -- if they can demonstrate the ingenuity and the flexibility that small agencies are known for. Meanwhile, small agencies have to behave like big ones: They have to demonstrate a depth of resources, a breadth of coverage, and a knack for coordination. The issue isn't "big or small" -- it's "big and small." The great thing about the new digital technologies (email, intranets, electronic knowledge networks) is that they make it possible to be both big and small. They let you break up a big company into a massive number of small units, and they cut and slice the data so that you can still see the whole picture. At least that's the theory. In our industry, most clients aren't convinced yet. They tend to believe that the bigger you get, the less creative you get. It's up to us to change their minds.
You've hit on one of the defining tensions of business at the turn of the century. Being a global competitor means being a big company. But the logic of the Internet and the logic of innovation argue in favor of startups. What does it take for a big company to turn its size into an asset rather than a liability?
All of the CEOs whom I work with are wrestling with three make-or-break issues: overcapacity, new channels of distribution, and internal communications. Those are three of the defining issues for big companies as we enter the 21st century.
Overcapacity plagues every industry -- from automobiles to computer chips to beer. Quite simply, we are producing more stuff than people can consume. So it's harder to differentiate yourself. It's harder to charge premium prices. And it's harder to innovate -- because product improvements get copied at light speed.
Channel issues pose an even bigger problem. History teaches us that no old channel of distribution ever adapts quickly enough to the emergence of a new channel. And with the rise of the Web, new channels of distribution -- along with entirely new business models -- are being created faster than ever before. Traditional assumptions about strategy, pricing, and selling are under fierce attack. The Web threatens to turn every industry upside down and inside out.
Last year, WPP issued $300 million worth of corporate bonds through Merrill Lynch and J.P. Morgan. The whole process took three to four months and involved an army of accountants, lawyers, investment bankers, and brokers. Today, there's a Web site, called IntraLinks, that works with the big finance houses. It distributes details of a corporate-bond issue to a closed loop of investors on, say, Monday morning. It then asks for a buy/no-buy decision by the end of the week. That's the power of the Web.
So overcapacity and disintermediation -- the development of new distribution channels -- are two big challenges. But the toughest challenge by far is internal communications. We wrestle with it every day: How do we get the 33,000 people in our wholly owned and affiliated companies to face in the same direction, even as they stay loyal to their colleagues, to their clients, and to their home offices? How do we create a "network economy" inside WPP -- a social system in which people know, like, and respect one another, and are willing to share ideas quickly and openly?
What steps are you taking to improve internal communications?
For one thing, we keep working on strategy and structure. The WPP Group employs 33,000 people -- but equally important, it consists of 60 or 70 companies, each one different from the next. We stretch from Ogilvy & Mather Worldwide, which has 9,000 people, to Geppetto, which started 18 months ago with 3 or 4 people. From established businesses to startups, we're building a collection of strong, small tribes.
We also keep experimenting. We now have 21 organizational "test beds" around the world -- offices in which we're piloting new approaches to client service, new ways of working, new forms of office design. The J. Walter Thompson office in Frankfurt is an example. That office has grown enormously over the past few years; it now has more than 400 people. That's a sign of great success, of course -- but it creates problems. There was a time when everyone knew everyone else: People were friends, not just colleagues. With 400 people, that's no longer possible. Meanwhile, the more smart people we sign on to work with us in Frankfurt, the more people we have who are eager for promotions and new challenges. And if there's only one CEO in Frankfurt, only one set of account supervisors, that limits opportunities for growth.
So we split the Frankfurt office into four agencies. Each agency has its own CEO, its own set of accounts, and each agency has profit-and-loss responsibility. This restructuring lets us operate on a more human scale, it pushes responsibility downward, and it quadruples the number of senior management positions. It's been an extremely successful experiment.
But all of that is at the level of structure. The real action is at the level of individual mind-sets. There is no more powerful weapon for a company than an army of engaged, excited people -- especially in the era of the Web. Many years ago, David Ogilvy was lamenting the fact that his firm had grown to the incredible size of 350 people. At first, he thought that this was a huge problem. Then it dawned on him that if each of those people were really excited to be at Ogilvy, and if each of them had 10 friends, then there would be 3,500 people walking around New York, broadcasting positive messages about his firm. Those 3,500 people, in turn, would go to cocktail parties and business meetings, talk about Ogilvy, and create powerful word of mouth. The Web multiplies that "network effect" by a huge order of magnitude. But it's hard to project a sense of greatness if people don't feel great about working with you.
So how do you keep people charged up?
We work hard to connect people, to keep them working together across organizational and national boundaries. And the best way to make such connections -- despite everyone's reliance on email and the Web -- is through old-fashioned physical contact. We organize all sorts of courses, ranging in duration from a single afternoon to a full week. We'll invite 15 to 25 people from maybe a dozen of the WPP companies. We might spend half a day wrestling with one question: How is the Internet reshaping public relations? We might spend several days wrestling with a Harvard Business School case study of WPP. We might bring in clients to discuss a major strategic issue that they face -- a live case study, if you will. These sessions are quite substantial. But the real value lies in the interaction among people who don't usually interact. It creates a kind of social glue. One way or another, about a thousand people go through one of these sessions each year, and we've been holding such events for three years. Over time, that creates a critical mass of connections between people, and it builds our internal network.
Here's another thing that we do: Because I need to stay connected to our organization -- to let people know what's on my mind -- I write to all of our people once a month (through email, of course). I talk about how the company is doing, I discuss a particular issue, I offer my perspective on (say) new business models for the Internet. This monthly email drives our lawyers nuts! But it's a great way to let people know what I'm working on.
This idea is hardly revolutionary. Jacques Nasser, CEO of Ford, writes a weekly email, called Nasser's Notes, that goes to everyone in the company. Those notes are absolutely brilliant. The idea isn't even all that new. I remember having a discussion with someone at British American Tobacco -- the old bat -- about the history of communications at that company. He said that in the company's early days, its chief executive would write a monthly report to all of bat's country managers. This executive used a fountain pen, and it might have taken three months for the report to reach India. I use email, and everyone gets the message in a nanosecond -- which really makes an enormous difference.
What's the most serious weakness plaguing big, global companies -- American or otherwise?
The battle for talent. Let's start with our business. As an industry, advertising is simply not getting its fair share of outstanding young people. The really talented people are going into investment banking, into consulting, or into Silicon Valley startups. They just don't find the advertising business to be very compelling.
Why is the ad business losing the battle for talent? Because it doesn't try hard enough. It doesn't commit the resources or the attention that Goldman Sachs, McKinsey, and Andersen Consulting are willing to commit to that battle. At WPP, we've been taking steps to compete more effectively. Five years ago, for example, we started the WPP Fellowship Program. We recruit the best of the best for a three-year tour of duty, including one year in each of three different WPP companies. A recruit might spend a year in London with J. Walter Thompson, a year in San Francisco doing market research with Millward Brown, and a year in New York doing pr with Hill & Knowlton. We've received 5,000 applications for a program that has just 50 slots per year. But do you know what I find most surprising about this fellowship program? That it's generated so little response from our competitors.
But don't get the wrong idea: The talent question doesn't just affect our business. There are big, global companies in every industry that seem to operate on an inhuman scale. Young people come into an organization, look up at the heights they have to ascend, and wonder if they'll ever get there. And there continues to be major resistance in big companies to giving young people responsibility early on. I understand that sentiment: If you've just spent 30 years climbing to the top of an organization, your attitude is going to be "Other people should serve the same apprenticeship that I did." You're not going to be very sympathetic to the idea that a 30-year-old can do your job as well as you can.
If that's how you feel, don't be surprised when talented people from Stanford or Kellogg or Harvard Business School flock to Silicon Valley. Everyone has heard of Moore's Law -- the proposition that computer chips will keep getting faster and cheaper over time. There's a Moore's Law of generations too: Younger people are so much more at ease with digital technologies than older people -- they relate so much more naturally to the Web -- that the difference between someone in his or her fifties and someone in his or her twenties can be absolutely profound.
Oracle, working with a couple of our companies, recently surveyed senior European executives about their attitudes toward the Net and toward digital technology. How big an impact did they expect those things to have on their business? How up to speed did they feel? On the whole, these executives had quite a relaxed attitude. There was no real sense of urgency. I think that the roots of this attitude are generational. Most people who run big European companies are in their fifties or early sixties. They're going to be retiring in 5 or 10 years. Why would they want to mess with radical change at this stage of their career? Of course, as Nicholas Negroponte of the MIT Media Lab likes to say, the next generation of leaders is just three 5-year plans away from taking power.
William C. Taylor is a founding editor of Fast Company. You can reach Martin Sorrell by email (firstname.lastname@example.org), or visit WPP Group PLC on the Web (www.wpp.com).