Philippe Krakowsky: IPG’s growth shows ‘a way forward’ for holding company model

Making integration work – but without “brute force”

IPG “laid the groundwork” for its current growth “three or four years ago”, according to Krakowsky, who joined the company in 2002 after stints at BBDO and Y&R and oversaw strategy for many years under Roth’s leadership.

The key strategic insight was to recognise that brands need greater help and co-ordination in a “more complex marketing world”. 

Krakowsky talks about “helping clients thrive in a digital economy” and how IPG can be a “high-value business partner to our clients”.

Combining creativity and narrative storytelling with data and technology matters because communications are more powerful “if you’re better able to understand precisely the impact that it’s having or who it’s reaching”, he says, in a nod to the Acxiom acquisition.

That, he adds, creates “a virtuous circle”, because a granular “understanding of the audience” at an individual level helps to “inform” the strategic thinking and the communications, which, in turn, leads to “all sorts of information” being fed back.

During the first phase of the internet, the challenge for agencies was to build up their skills, so that they could help clients articulate their message in this “far more complex media environment”.

Now we are in a second phase, where agencies need to integrate those skills and underpin them with “a really strong foundation of data” in order to join everything up seamlessly for clients.

But how does IPG get integration to work in practice? “I don’t think we believe in a brute force approach,” Krakowsky says, without explicitly referring to rivals such as Publicis Groupe or WPP, which have been keener to push holding-company-type solutions.

“We think there’s a balance” because “it’s important to have strong agency brands”, he explains. “It’s integration of complementary strengths, it’s not integration in a way that ignores the strength of the various [agency] partners that you’re pulling together.

“The strength of the agency brands allows you to get really top-notch talent into your organisation and then to keep that talent happy and engaged and growing because they’re getting a breadth of challenges and because they’re with people who are experts [in their area of expertise],” Krakowsky continues.

The trick is to get “a best of both worlds”, with the agencies and the holding company in harmony – rather than having “pandemonium and bedlam” as every agency does its own thing or, at the other extreme, the holding company making itself the reference point rather than focusing on “the places where the client really engages and the places where the work really gets done”.

Winning the consolidated global pitch for Cigna, the pharmaceuticals firm, this year is an example of how IPG expanded its remit from incumbent agencies McCann and R/GA to include Initiative, Acxiom and precision marketing arm Kinesso. 

IPG has used the phrase “open architecture” for more than a decade to describe its approach to integration. Krakowsky says it helps that the company’s structure is “pretty flat” and it is open to different remuneration models that might range from a single P&L for a client to having “a significant component” of an executive’s compensation linked to collaboration.

New revenue streams (such as data and technology) and new commercial models (such as sharing in the financial upside of a client’s financial performence) “take us into a bigger addressable universe of opportunities” and allow IPG to increase its profit margin, he says.

Acquiring new skillsets

IPG has shrugged off the worst of the pandemic in 2021 but its decision to cut 4,100 jobs last year represented a 7.6% reduction in headcount – significantly deeper than its 4.8% decline in organic revenue.

Was that a mistake, especially when the ad sector has bounced back so fast and there is now a war for talent?

No, Krakowsky says, insisting the restructuring was “not driven by cost”. Instead it was “strategic in nature”, as IPG and the wider sector is “in the process of evolving” and the jobs that were lost were not replaced in a “like for like” way when IPG began hiring again.

Many of the redundancies were legacy roles in companies that were “built to provide a set of services or in a way that isn’t necessarily in keeping with the services that are now required or the ways in which you can [deliver services]”, he explains.

“Now what you’re seeing [with the new roles] is a shift in the skillsets and in the talent. The hiring is coming on-stream in different places than perhaps some of those [areas where] decisions that were taken last year [to cut jobs].” 

How much is Acxiom driving growth?

Krakowsky, who will turn 60 in August, is widely credited with being the architect of the Acxiom acquisition and is comfortable with data and technology.

He earned money while a student at Harvard by sorting out programming “bugs” in Atari computer games in the early 1980s and went on to work at an artificial intelligence software company that was sold to Apple, before he moved into advertising.

He describes Acxiom as “a solid, growth business” but won’t disclose any numbers – unlike Publicis Groupe, which has credited double-digit growth at its own data business Epsilon, which it acquired in 2019, for helping it to weather the pandemic.

A lot of Acxiom’s value is broader than just generating revenue as a data unit: it “connects” into new places in client organisations beyond marketing services and “helps us to differentiate our offerings” across IPG, particularly in “high-growth areas”, although Krakowsky avoids specifics.

Acxiom “is now incorporated into all of the work that we do that involves top-20 clients and all of our significant ‘open architecture’ pitches and opportunities,” he says. “It’s clearly helping us.”

Other IPG agencies have to pay a subscription to use some of Acxiom’s high-end services – for example, in behavioural science. That’s because other agencies would seek its help “for every new business pitch” and the resource could become too stretched.

By buying a subscription, it commits an agency to thinking about using the data not as mere “window-dressing” to win or retain an account but as an integral part of supporting the client.

“That’s fuelling growth in places that you wouldn’t see or imagine,” Krakowksy says, explaining how that means IPG is engaging clients in new ways, thanks to Acxiom – from audience insight and segmentation, to driving performance media through Kinesso, to big software engagements to rebuild a company’s entire data infrastructure. 

The continued importance of creativity

Despite investing in Acxiom, Krakowsky remains optimistic about the role of creativity and believes IPG’s success rests on bringing “high-quality content” and “narrative storytelling” together with data and technology.

Some other agency groups have been downbeat about the challenges facing traditional ad agencies and WPP took the unusual step of revealing last year that all four of its creative networks had seen revenues shrink in the five years before the pandemic.

That’s not a picture that Krakowsky recognises at IPG’s creative agencies. “What we have said previously is that they’re growing and, for the last quarter or two, they’ve been growing nicely,” he says. “The creative agencies are still an important part of our story and they’re performing well.”

Demand is growing all the time for more “entertaining” and “instructive” and “inspiring” content for brands. But the creative agencies will do better if they are connected to other parts of the business.

It has been “frustrating” that agencies have been producing “great ideas” but they have sometimes been “undervalued – because we haven’t been able to clearly demonstrate the impact that they have”, he admits.

The creative execution still matters. But the big opportunity is for that creative output to be “part of a bigger whole”, when it is linked with media and data and technology, and that will make it more “cohesive” and “powerful”.

Expansion and M&A

Krakowsky, who was born in Mexico City, has an international outlook. His first language is Spanish and he is fluent in English and French.

However, he maintains that international expansion is not a priority for IPG, which brings in 65% of its net revenue from the US and 35% from the rest of the world. By contrast, Omnicom brings in 53% from the US and 47% from elsewhere and WPP about 37% from North America and 63% from the rest of the world.

“I don’t think geography is the lens through which you want to think about growth,” he insists. “The lens [through which] we think about most important decisions is, what do our clients need? And then the question becomes: are we able to support them and help them to accomplish what they’ve got to accomplish?”

IPG’s agencies are “very competitive internationally” in terms of services and client relationships, he says. “We’ve got scale.”

(Even so, WPP, which has twice the number of staff globally, recently beat IPG and other groups to win the majority of Coca-Cola’s global integrated account, partly because of its greater “global scale”, according to the client. A source close to IPG maintains that wasn’t a decisive factor.)

Krakowsky says data is one area where IPG could expand internationally, because Acxiom has its roots in the US.

In any case, IPG is more likely to expand organically, rather than acquire, because “we’ve shown over a long time that we can build it”, although “if we felt there was a gap somewhere, then, yes, we’d address that”, he adds.

What about large-scale M&A, as Vivendi has a lot of money after selling Universal Music Group? “We’ve always focused on what we can control,” Krakowsky replies, noting “there was a very big deal” between Publicis and Omnicom “that didn’t quite consummate” in 2014.

The marketplace has moved on since then and has broadened to include more than the big six groups, with digital upstarts, such as S4 Capital and You & Mr Jones, growing fast, as well as other big players, such as Accenture, entering the sector.

Krakowsky is “not surprised” that these new entrants see opportunity, because IPG has been moving into the same space in response to changing consumer behaviour.

“We’ve been building adtech and martech and addressability, and so on, into our portfolio. It’s been an important driver of our performance going back a couple of years now.”

IPG’s teams have started to come up against these new entrants in some pitches, and Krakowsky says he believes "that is increasing over time”.

But “we’ve got many of, if not all of, the same skillsets” and have advantages because of IPG’s bigger “ecosystem”, he adds, even if these upstarts will claim they can “move more quickly than we do” – an acknowledgement that he is not complacent about the threat. 

“I can’t speak for the industry”

IPG Mediabrands, the media operation that Krakowsky used to oversee as its chief executive, has been vocal about the flaws in the digital advertising ecosystem and has urged clients to follow its “media responsibility principles”, including around inclusion, hate speech, misinformation and data usage.

But has the agency sector done enough to hold the big tech platforms to account or has it been too much trouble to challenge them properly?

“I can’t speak for the industry,” Krakowsky says. “From a Mediabrands’ perspective, the point of view that we took on how to responsibly engage with the platforms and the standards that we would recommend holding them to was an important step.”

He adds that, at a holding company level, IPG has incorporated the ethical use of data and other areas of media responsibility into its ESG (environmental, social and governance) policy.

Dealing with the online media landscape is a “very sizeable” and “somewhat intractable” challenge, he admits. “You deal with it from where you sit, so that you can make it better.” 

Agency sector is “a complex business”

Three of the four big agency groups have changed CEO since 2017 and, in each case, they turned to an internal candidate who represented continuity: Arthur Sadoun at Publicis Groupe, Mark Read at WPP and Krakowsky at IPG.

Has the advertising market got so complicated it’s hard for an outsider – as Roth was – to come in? “It is a complex business,” Krakowsky concedes, but he points out most outsiders haven’t tended to fare well when they moved into the agency sector.

Management consultants, in particular, have “always flopped”. He says most industries tend to promote leaders from within and suggests agencies are no different.

“It’s a professional services business, so understanding the dynamic and the culture around the talent is important, and therefore you probably do better if you find somebody who knows their way around.”

Krakowsky himself has a low profile compared with many of his peers and doesn’t seek out the limelight, although he recently took part in an internal, IPG video interview in which he revealed some personal details about himself and his love of the agency business.

He likes the “problem-solving”, “the human side” as teams “come together” and “the competitive aspect”, he told staff, switching between English and Spanish at various points during the conversation.

Michael Kassan, chairman and chief executive of MediaLink, the media consulting firm, says: “Philippe is one of the really smart, thoughtful and strategic thinkers in the business. He’s not a showboater, he’s a ‘get it done’ guy – he has great relationships with his teams.

“He has already demonstrated leadership capabilities. Philippe's imprimatur was clearly visible in the purchase of Acxiom in 2018.”

In his new role, Krakowsky works closely with Ellen Johnson, the chief financial officer, who was promoted from Mediabrands in 2019 and managed IPG’s finances through the pandemic.

Their most notable move has been to merge the healthcare divisions of McCann and FCB to create IPG Health in July but there is a sense that this has been a transition year, as Roth stayed on as executive chairman, before leaving the board in December.

One industry source says IPG’s agency leaders are “still waiting to see who Philippe hires around him” and how he might change IPG. “Then people will need to decide whether they are on the bus or not”, this person suggests.

Krawkowsky is in a good position to make changes because IPG’s share price has risen by about 60% this year to a 20-year high of $37, meaning its $14.4bn stock market valuation is now only just behind that of WPP, Publicis Groupe and Omnicom.

What’s more, the company is rated more highly by investors on a “price to earnings” ratio – IPG's stock price trades on a multiple of 14.4 times earnings versus WPP on 12.4x, Omnicom on 11.2x and Publicis Groupe on 11x, according to Bloomberg data.

Looking ahead, Kassan makes a prediction: “If the realignment of the healthcare operating units at IPG in 2021 is an indication of things to come, I am highly confident you'll see some important structural changes at IPG in 2022.”

Krakowsky himself says he plans “a modicum of simplification”, although he does not want to “smush things together”, which suggests no dramatic, WPP-style internal mergers are in the pipeline.

IPG’s agencies need to focus on “four or so” core competencies, rather than offering a huge buffet of different options, he explains. “It bugs me that a lot of people claim that we do everything.”

Krakowsky continues: “The go-forward challenge is to balance our culture, which values and supports agency brands as magnets for talent and key entry points for clients into the broader franchise, with the growing need for specialisation in evolving areas of the business such as data, tech and commerce.

Philippe Krakowsky in quotes

On whether IPG might be more selective about pitching after a surge in new-business activity across the industry in 2021: “Being thoughtful about where and how you participate makes a ton of sense.”

On the role of the office: “We’ll use the office much more intentionally. We’ll pick times and be clear about why we want people there.”

On the benefits of face to face versus remote working: “Conversations are richer because the interactions happen without being intermediated by the many boxes on the screen or the lag time on the technology. When you ask people to innovate – whether that means to be highly creative or to come up with these new ways of connecting different pieces of the marketing services and data and tech together – it doesn’t work as well when you’re just doing it virtually all of the time.”

On the purpose of the holding company: “It is to understand the needs of clients and to orchestrate the delivery of the right skillsets and resources and capabilities so that we can be a partner to clients in achieving what they have to achieve. It’s to allocate resource internally, it’s to set the direction and the strategy, it’s definitely a team sport.