What Edelman layoffs, restructuring mean for the PR industry

The news of Edelman’s decision to layoff 330 employees, more than 5% of its global workforce, sent shockwaves through the PR and communications sectors.

Edelman is one of the biggest agencies in the world, with 60 offices, more than 5,000 employees and an annual revenue stream of more than $1 billion.

CEO Richard Edelman shared a public message that the restructuring – which also included sunsetting several of its specialty brand firms – was about “simplification” of the organization’s structure to accommodate modern client demands. The statement also points to a desire for further integration of client services.

But the question remains: If Edelman is laying off employees, what does that say about the health of the sector overall?

“In general, the PR industry is navigating a very transformative period,” said Rafael Matos, a lecturer in integrated marketing communications in the Medill School at Northwestern University.

“There are new economic pressures, technology is causing disturbances in the industry, different types of disruptions,” he added. “Combined, those things are leading to major changes in client expectations.”

Economics have changed

Given the state of the communications, the Edelman cuts don’t come as a surprise to Edward Russell, advertising department chair at Syracuse’s Newhouse School of Public Communications. He noted that PR firms, much like ad agencies, operate on tight margins.

“Now, they have to bunch everything together as much as they can to save as much as they can to increase their margins,” Russell said.

Financial pressures on all communications companies are immense and getting worse, Russell said. He gave the example of WPP and Publicis, both of which have merged most of their agencies into singular entities.

“Companies that used to be competitive with each other are now effectively one big agency sharing services and trying to pretend this is a benefit to clients,” Russell added. In reality, it’s about navigating those slim margins.

As a result, PR firms are seeking greater operational efficiencies. That’s why although Edelman is keeping open its 60 global offices, it’s sunsetting several of its boutique brands – Edible, Revere, Salutem, Mustache, EGA and Delta.

“You probably have a better chance of making a profit on that business by moving it into Edelman, where you don’t need duplicate staff for accounting, administration and all that kind of stuff,” said Russell.

He views the current situation with communications companies as following the lead of tech companies, with over-hiring and then layoffs.

“I think that (the firing of the tech workers) spooked the communications industry into thinking the sky is falling,” Russell said. When he worked at Saatchi & Saatchi in New York City, there were 1,200 people in the office. Now, it’s about 300.

“You can collapse a lot of that and, if you can maintain the client relationships, then you basically increased your profitability without a cost.”

The death of niche?

Despite those changes, Matos doesn’t think the need for niche services is going away anytime soon.

“It’s got to be very strategic,” Matos said. “They’ve got to look at their clients and where they experience the most success, focusing on those markets.”

While he understands the closure of Edelman’s brands in theory, Russell does view their closure as “a tiny surprise.” After all, they exist for a reason – whether it’s providing an excellent product, brand legacy or client relationship.

“Whether it was industry expertise or whatever service they offered provided, there are relationships there,” he said of those soon-to-shutter brands and their clients. Russell went on to say that these clients “didn’t hire Edelman” and may not receive the same value from Edelman as they did from the boutique Mustache brand, for example.

“If you’re a client of the boutique firm, you hired them for a reason; you didn’t hire Edelman,” he said. “Give it six months to see if there are client defections as a result.”

Offering clients more of what they need

Many agencies already offer a range of services to their clients that extends well beyond PR. And Russell believes that trend will continue moving forward.

Edelman, which also has an advertising branch of its business, announced as part of its restructuring that it plans to align corporate affairs, marketing and government affairs on the client side.

“We are skating to where the puck will be — everything is interconnected now,” Richard Edelman wrote, calling his company a “leading integrated communications advisory firm.”

Russell views the PR industry as following the same “integration” path advertising agencies have been journeying across for the past three decades – bringing more capabilities in-house to provide clients with a one-stop shop.

True integration can be difficult to achieve successfully because it often requires starting from scratch and developing a new reputation of success in those areas. However, there are definite and obvious advantages to that approach, Matos said, and it’s a natural trajectory for many agencies.

To attract more top-tier clients, agencies need to offer everything clients want in one place. It’s just as much about differentiating themselves from competition as it is efficiency.

“That’s what they’re looking for,” Matos said. “As companies get bigger, and if they’re trying to attract more clients or different top clients, they need to provide everything clients need in one location.”

Casey Weldon is a reporter for PR Daily. Follow him on LinkedIn.