Dealing with ‘Model Collapse’
The Winds of Change
A note on two interrelated events on Tuesday::
Mark Read announced his departure as chief executive of WPP after seven years unsuccessfully navigating "tough economic headwinds" and customer demand for "radical change in pitch behavior" from what was once the world's largest marketing services network. During Read’s tenure as CEO, WPP’s share price has fallen by more than half. Rival Publicis Groups, meanwhile, has seen its share price rise by more than 80 percent in that time.
RFK Jr. announced, via a column in the Wall Street Journal, a "clean sweep" of the committee that recommends vaccines, and when and how often adults and children should get them. He said the move was a “bold step” toward solving "the crisis" in public trust. Processed from the perspective of the already-collapsing 'vaccine market' in the United States (think Moderna + Walgreens + Teladoc Health), you could see this as another step in the intentional disassembly of an entire industry ecosystem, a three-legged stool that has never really figured out how to align value and move in the direction of collective self-interest.
Read inherited a chaotic and oversized organization; in a way, so did RFK Jr. (Ditto, for that matter, UnitedHealth’s new CEO Steve Hemsley, Starbucks’ new CEO Brian Niccol, Boeing's new CEO Kelly Ortberg, Nestlé’s new CEO Laurent Freixe, Intel’s new CEO Lip-Bu Tan, Nike’s new CEO Elliott Hill, and whoever will become the new CEO of Novo Nordisk, among many others trying to find and then install better story performance for their businesses. For more Blue Spoon thinking on this, see The “Strategic Direction” Thing.)
Forrester, recognizing WPP’s complexity, urged Read to consolidate its innumerable agencies into a handful of core networks and get its media agencies to “operate as a single GroupM.” Its recommendations proved remarkably prophetic, but this was seven years ago, Cameron Clarke, editor of The Drum, wrote yesterday. "Since Read merged Y&R and VML in September 2018 – the first of a procession of agency mergers that continue today – it is as though the company has been in perpetual transformation mode."
Similar to the perpetual “crisis” and perpetual “transformation” mode in the American Way of Healthcare, now going on 60 years. An entire economic system is floating weightlessly from here to there, without a strong notion of origins or destination.
The Standard Model isn’t "wrong" so much as it's reached its productivity frontier. Rather than management teams simply riding the bouncing ball and fighting gamely to avoid being on the bottom when it bounces, it’s time for “creative" leadership to start working with a different cognitive pattern. “As 2022 draws near, it is time to face the world’s predictable unpredictability,” wrote The Economist in The New Normal is Already Here. Get Used to It, its commentary closing out 2021. “The pattern for the rest of 2020s is not the familiar routine of the pre-covid years, but the turmoil and bewilderment of the pandemic era. The new normal is already here. Any boss who thinks their industry is immune to such wild dynamism is unlikely to last long”.
Aswath Damodaran teaches corporate finance and valuation at the Stern School of Business at New York University. Here he speaks of ‘corporate life cycle’, the idea that every business or brand, just like every human being, is better understood (and managed) as a biological organism: it is born, it grows, it matures. And like every human being, it declines. “Just as human beings don't like to age, companies don't like to get old,” he says.
“The first message I want to talk about is this notion of a corporate life cycle and how trying to fight it is the most dangerous thing a business can do. The second message I want to deliver is the focus of a company needs to change as it moves through the life cycle. More value is destroyed around the world by companies not acting their age, young companies are try to act old and old companies trying to be young again. And there's an entire ecosystem that feeds these companies. Consultants, bankers, I call them the plastic surgeons of business, essentially saying I'll give you a facelift you can be young again.
And companies keep buying into this notion over and over again.
The third message I want to talk about is very specifically connected to the topic I teach which is valuation. When I say valuation, for rmost of you what comes to your mind is spreadsheets and models and numbers. That's what we’ve been trained to think about valuation. In 32 years of teaching valuation, I've learned a very important lesson that took me a while to get [to]: valuation can never just be about the numbers. A good valuation always has a story embedded in it. And one of the things I want to talk about is how that balance between story and numbers changes as a company goes from being a young company to an older company.”
Differently: a dinosaur iin a fur coat is not a mammal.
It’s now easy to see the end of The Standard Model, to grasp intuitively that you/me/we/us/them are collectively standing astride some sort of stark rupture in the historical timeline, a point between rot and genesis, to know that you’ve stayed too long with something that’s not working. Turning that insight into reality — the dirty work of leading and implementation — is another thing entirely. The hard thing is to “break the golden rhythm” of the place in our minds that we know has stopped working for us intellectually, creatively and even philosophically.
Help Wanted: Better Story Performance
We keep re-submerging ourselves in familiar storylines.
Having normalized cliche, "old" narratives have veto power over the new, keeping us running on the watery residue of the past. Incrementalism edges out exploration. We tinker in proven domains. We try to survive in a remnant context.
The Drum’s Clarke again:
Once a narrative builds, it is hard to stop. Each company town hall (increasingly leaked, by the way) becomes a goldfish bowl, each account move a damning blow. The loss of $700m worth of Coca-Cola US media business in March was undoubtedly a sickener for Read and the man who may end up succeeding him, WPP Media CEO Brian Lesser. But the industry post-mortems on this portion of the account moving to Publicis vastly outweighed the coverage of Coke proudly renewing the remainder of its business, worth more than $3bn, with WPP two weeks ago. WPP had delivered “significant value,” said Coke’s global CMO, Manuel Arroyo, in a largely under-the-radar LinkedIn post.
It sounds superficial. But if you want to be the CEO of one of the world’s biggest communications companies, company communication cannot be underestimated. This doesn’t mean you need the bravado of Sorrell (Arthur Sadoun, the CEO of Publicis Groupe, seldom speaks to the press outside earnings updates), but you do need a compelling story.
The only way to "fix" an embedded economic system is to step outside the process sustaining the system. Assuming you know nothing at the start, other than everything works and everything is broken and everyone has personal knowledge of the experience that needs correcting.
Better to step off into a corner for a different review of reality, and then put in place a deliberate process of creative destruction, position yourself as a keystone to manage the tornado of “value” created from an N-sided market. Bring pieces and parts together in a unique pattern, construct a modern strategy from a new bundle of knowhow.
Meanwhile, over at strategically-collapsing Harvard University, the atmosphere is intense, particularly at the Harvard T.H. Chan School of Public Health, which relies on federal funding for almost half of its budget and has a student body that is about 40 percent international. Its management team, like many others sitting astride a stark rupture in the historical timeline, is scenario-planning for the worst, saying the shit-train it now finds itself riding is hurtling toward an “existential crisis” and forcing it to contemplate the previously unimagined: taking out a loan from Harvard to stay alive and aggressively wooing new philanthropic dollars from industry (which, I would argue, is opportunity here for PhRMA.)
In an email to faculty and staff last month, the school’s dean, Dr. Andrea Baccarelli, laid out the obvious: “We must adapt to a new world,” he said. Missing, of course, is the how, the roadmap to shape big system change for yet another brand teetering at the edge.
The adaptive challenge everyone, literally, is facing is this: ‘Strategic fit’ is going to take a whole new orientation. Drawing an analogy from Pulp Fiction, it’s time to slam an adrenaline-loaded syringe into the solar plexus of big market innovation.
A new era needs a new genre in storytelling.
Read's departure is a sign that investors doubt the sustainability of WPP’s turnaround narrative and won’t wait any longer for a change to revive the group’s share price, AJ Bell investment director Russ Mould said in a research note for his clients yesterday. “WPP needs a complete overhaul.”
A lot of that going around.
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John G. Singer is Executive Director of Blue Spoon, the global leader in positioning strategy at a system level. Blue Spoon specializes in constructing new industry ecosystems.