Print Published 28th Nov 2018, 13:50

Whither segment reporting as WPP consolidates?

As WPP continues its policy of consolidating its operating units into larger more comprehensive businesses, how will this impact on the way it reports its performance?

Traditionally WPP has divided up its reporting segments into:

  • Advertising and media investment management
  • Data investment management
  • Public relations and public affairs
  • Brand consulting, health and wellness, and specialist communications

Even those four segments are very wide in scope, but how will WPP now report results for conglomerates like Wunderman Thompson and VMLY&R (see WPP continues consolidation with JWT-Wunderman)?

The group may well argue that those businesses can all be bundled up as part of the advertising and media investment segment, and that nothing has really changed in that respect.  But in reality there is a distinct difference between directly targeted marketing – whether via digital or more traditional channels – and advertising to a market en masse.

There may be operating efficiencies to be derived from consolidating existing business entities, but that makes it even more important to ensure that shareholders can gain meaningful information about how different types of activity are performing within the consolidated whole.

Indeed it may be reasonable to argue that a group with annual revenue of £15 billion should be segregating its business into even more segments.

An operating segment is defined by the International Accounting Standards Board as a component of an entity (a) that engages in business activities from which it may earn revenues and incur expenses, (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available.  Arguably that definition leaves too much scope for interpretation in the hands of company managers.

But how WPP segments its business is only one of a number of issues raised by Mark Read’s consolidation strategy.

History suggests that, the larger a creative business becomes, the less creative it tends to be.   Innovative and creatively talented personnel become more constrained by the scale of supervision and bureaucracy both inside and outside the agency.

Eventually they seek new outlets for their creative energies – hence the past trend towards start-ups, however expensive they may have become.  The agencies themselves become more conservative and eventually their clients’ marketing directors feel the need to find fresher ideas from elsewhere.

Over the next five years it will be interesting to see whether Read has struck the right balance between consolidation and creativity.