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Evan Davis on... the scale of WPP

Updated Saturday 14th March 2009

The Bottom Line presenter Evan Davis asks if there's risk as well as wisdom in the scale of WPP.

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Evan Davis: I had an interesting discussion with Martin Sorrell about his business, WPP, and the advantages of it being big - remember it is probably the biggest group of advertising and communications businesses in the world - and I was trying to get from him why that matters.

Now, superficially, people think big is good. Big means bigger profits, means more employees, bigger turnover, but of course it does. Are you really creating value by being big, though? And the right way to look at this issue is not, "are the profits bigger on a bigger scale?" it's "if you combine two separate businesses in one business, are the profits of the new business bigger than the sum of the parts would have been before you combined them?" Are you really adding value to this business and to this business by putting them into one business?

Now, for a manufacturing company, it's often very easy to see advantages from being a large concern. You can have bigger production runs and there are those economies of scale that come with large factories.

Martin Sorrell suggested some synergies - that "two plus two equals five" principle applying to his business. He mentioned the fact he can move resources around and configure resources more efficiently, and he has a buying power. He has a buying power from his very large business that he might not otherwise have. But, in a service company, in a service company as his, I think one has to be very clear about what the advantages of scale are before one embraces them too enthusiastically.

 

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