Shops better at doing more with less

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Call it multitasking or just picking up the slack. Many ad agency employees have had to take on additional responsibilities the last two years as more and more of their colleagues have joined the more than 20,000 employees let go since August 2000, the industry's high-water employment mark.

U.S. agency employment stood at 182,500 for the third quarter, according to the U.S. Bureau of Labor Statistics, the eighth consecutive quarter of a decline that has lopped off 10% of the total agency workforce.

Likewise, the total "core" agency headcount among Advertising Age's top 40 agencies by employment (see accompanying chart) is down 8.4% in October, compared with October 2001. That drop is even greater than the 7.9% decrease recorded by the top 40 in last year's report.

When the employment pullback began in late 2000 some of the initial cuts came out of expansion due to the economic boom of the late 1990s. After all, agencies had boosted their rolls by more than 50,000 workers since the last significant employment downturn in 1994. But when cuts go deep enough, they eventually hit the bone. Several large agencies reported 20% to 30% staff reductions this year.

"In 2001 and 2002, we learned to be more efficient," says Richard Riley, exec VP-chief financial officer at Sawyer Riley Compton, Atlanta. "People are doing jobs here they didn't do three years ago because of downsizing. In finance, we've rolled accounts payable and billings into one task. Human resources now includes HR, compensation and IT management."

Even restructuring can only go so far before agencies eventually need to rehire, especially if business picks up in 2003 as most agencies expect. Nearly three-quarters of the 228 agencies participating in the annual Advertising Age Salary Survey expect gross income to increase next year, with 39% indicating that growth will be 10% or more. Reflecting this optimism, 62% of agencies surveyed plan to hire new employees in the coming year, mainly due to their expectations of an uptick in new business (See charts on Page S-4).

Many agencies have gotten by on the slimmed-down ad budgets of existing clients, but at times staff reductions and the lack of new business have fed on each other. "Employment cuts may have forced some agencies to virtually rely on existing business in 2002 because new business people were among those let go," says Steve Renier, associate director of human resources at Martin-Williams, Minneapolis. New business executives may have been expendable because "potential clients weren't receptive to prospecting," he says.

Despite the bleak overall picture, some agencies added full-time employees in 2002. Thirty-one percent of agencies in the Salary Survey say their staff levels increased, adding an average seven people. (See chart at right).

The economic downturn has been severe enough, and long enough, to force many agencies to make permanent adjustments. Most are approaching the issue of staffing up with caution. "A leaner staff gets used to wearing more hats. In rehiring, we're asking ourselves if we absolutely, positively need that position," says Mr. Renier.

"Yet, this is a crazy business," says Mr. Riley. "All it takes is a $10 million account, and we're all off to the Bahamas for the weekend."

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