WPP's PR/PA units slipped 1.0 percent during the third-quarter as CEO Martin Sorrell warned investors of slowing industry growth following a good run of seven years.
"It does seem that in the new normal of a low growth, low inflation, limited pricing power world, there is an increasing focus on cost reduction, exacerbated by a management consultant emphasis on cost reduction and the close to zero cost of capital funding of activist investors and zero-based budgeters," wrote Sorrell in WPP's trading update.
He cited the rise of digital search and social platforms, notably Google and Facebook, which account for 75 percent of digital advertising and 30 percent of overall ad spend for disintermediating or disrupting our communications sector, according to Sorrell.
Management consultants such as Deloitte and Accenture are making inroads in the communications business by acquiring small agencies and talent and focusing on costs. "Very few CEOs will resist the suggestion that they may be overspending and the promise of an audit or review that will only cost a proportion of any cost savings generated or a contingency fee," he wrote.
Meanwhile activist investors such as Nelson Pelz at Proctor & Gamble and Dan Loeb at Nestle are pushing the corporate focus on short-term growth and dividend payouts. "Effectively management is abrogating responsibility for reinvesting retained earnings back to share owners," noted Sorrell.
The WPP chief sees a possible easing of marketing investment reduction next year due to spending for the Winter Olympics in South Korea, FIFA World Cup in Russia and mid-term elections in the US.
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