Shops Begin the Year With Layoffs

CP&B, Saatchi, Ogilvy All Trim Workforce This Month

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While the ad industry is treating 2012 with optimism, a number of agencies are starting the year by trimming staff.

Both MDC Partners' CP&B and Publicis Groupe 's Saatchi & Saatchi, New York, this week let go just under 5% of its staff, while WPP Group's Ogilvy earlier in the month laid off a bit less, about 60 people out of its overall staff of 2,000.

The motives behind the agencies' layoffs were varied but pointed to a trend whereby large shops are continually attempting to conduct business in a more nimble way, and are being conservative given the impact of economic uncertainty on client spending.

"The economics of this business are changing," said CP&B CEO Andrew Keller in a statement yesterday. "To continue as an industry leader, we are adjusting our operating model to be leaner and more flexible than ever...Our industry is undergoing a dramatic reinvention, economically and in other ways, and we embrace the opportunity that comes with change."

It isn't the first time CP&B conducted a sizable layoff, but it's gone through the process less than its big-agency counterparts. In May 2009 when CP&B let go 60 of its 900-plus employees, the shop said: "These are extraordinary times and we hope that we will not have to do this again."

In the case of Saatchi, which didn't release a public statement on its cuts, the layoffs were tied largely to the agency's loss of the JC Penney creative account. As the retailer undergoes a dramatic reinvention, it is replacing Saatchi with a roster of smaller agencies.

For Ogilvy, the layoffs were linked to conservatism related to the economy, as well as its attempts to evolve for the digital era, Ogilvy North America Chairman John Seifert said earlier this month in a note to staffers.

So what do these reductions in adland's workforce mean? It depends on whom you ask.

The agencies are part of public companies with shareholders who probably view trimming costs as a good thing. Deutsche Bank analyst Matthew Chesler -- who predicts that there are more layoffs to come at other MDC agencies -- had this to say in a note to clients on Thursday:

"In a perverse way, we actually think that this development is good for shareholders. A key reason for the stock's recent weakness has been concerns about the ability to scale the business profitably, something that came to a head when MDCA announced (on 11/01/11) it would be massively missing FY 2011 guidance due to 4Q revenue shortfalls. The understandable concern was that MDCA had spent itself into a corner, leaving limited flexibility to react timely to protect profits. Now, however, these layoffs are strong signs that MDCA is taking the difficult steps to make the transition from a spend culture to a cost culture. This is good for shareholders."

But while restructuring is a part of agency life, it's not a fantastic thing for morale.

"What's happening is inevitable," Ann Billock, principal at New York-based consultancy Ark Advisors. "Every 20 years or so we have a new generation and this generation is digital." The cuts are affecting "more of the people who've done only traditional and that 's kind of sad because there's a wealth of experience there that 's lost, along with the importance of storytelling and the importance of strategic insight to the consumer," she said.

But, Ms. Billock noted, "in some ways it really echoes what goes on in all of America ... It's the more contemporary skills that are being sought out and some of the more traditional skills are not being used anymore. In manufacturing, it's automation that 's changing things, and in our world, it's digital. Agencies are really going to transform. They have to, it's not by choice."

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