Omnicom says talent will be the ‘differentiator,’ but plans $1bn in labor cost cuts

Up to now, post-merger “repositioning” prices ensuing from mass layoffs (circa 4,000 roles), contract cancellations and actual property reconfiguration have price Omnicom $1.12bn.

It didn’t report natural development figures or its outlook for 2026, however mentioned extra detailed estimates will comply with at its investor day in March. Nonetheless, it should take a while earlier than a real like-for-like quarterly comparability will be made because of the completely different reporting buildings at Omnicom and IPG.

“We now have been simplifying and realigning our portfolio to place Omnicom Group for stronger, sustainable development and profitability,” CEO John Wren mentioned. “Our core focus is to ship built-in providers connecting media, artistic content material, commerce, consulting, information and expertise. These linked capabilities, underpinned by Omni, deliver collectively high-growth strategic providers that drive enterprise outcomes for our shoppers.”

Wren mentioned shoppers have met the merger with extra “enthusiasm” than he anticipated and cited latest wins, together with American Categorical, Bayer, BBVA, PNY, Clarins, Mercedes and NatWest, as proof of the “vital progress made as a brand new group.”

He added: “Greater than ever, we’re seeing manufacturers ask for an enterprise-level companion that may orchestrate their advertising investments throughout platforms and optimize efficiency throughout all the shopper journey from engagement to gross sales.”

‘Synergies’

Wren had beforehand mentioned that “synergies” from the IPG acquisition would ship financial savings of $750m over the subsequent 30 months. He’s now doubled that to $1.5bn, with $900m forecast in 2026. 

He mentioned: “The important thing areas for these synergies are as follows: $1bn from reductions in labor price by the elimination of duplicative company, community and operational features; streamlining our regional, nation and model construction; and optimizing utilization by shifting to a extra unified resourcing mannequin, together with accelerating outsourcing and offshoring.”

Final yr, 3,200 roles have been reduce at IPG in preparation for the Omnicom deal. Omnicom has beforehand introduced 4,000 roles will probably be reduce within the group on account of the merger. 

Wren later added that developments in its AI capabilities will imply it should proceed to remove sure positions. Nonetheless, he concurrently insisted that AI isn’t “a risk to jobs,” arguing that it permits its workers to do extra. 

Simply take marketing campaign planning. Chief expertise officer Paolo Yuvienco was put in entrance of analysts to tout that, due to AI, it may possibly take a look at 50 ideas synthetically to know the affect and worth of that work. 

“We will predict that earlier than we even spend a single greenback on media. The power to do extra with higher confidence is de facto what’s driving the entire generative AI ecosystem round us. It isn’t essentially about how we cut back the variety of folks round this.” 

It displays the tough place companies are in as they promote their AI-backed choices to shoppers. Wren has beforehand mentioned AI received’t kill the company’s worth proposition. 

But, this narrative is failing to convince Wall Street. AI, shoppers in-housing and platforms like Meta and Google pushing additional into promoting are, of their eyes, eroding the mannequin. Justin Billingsley wrote that these are signs of the “Nice Compression and never the merger” however “Omnicom now will get to bundle them into an integration narrative, name them ‘synergies’ and current as strategic execution what’s in vital half structural inevitability.”

Wren returned to the thorny issue of the FTE model, which is below mounting pressure as headcount is diminished. He mentioned Omnicom is negotiating fee phrases wherein it’s compensated for the efficiency of the work it delivers to shoppers (ie, outcome-based), moderately than the hours folks spent creating it. He added that with all companies now primarily utilizing the identical instrument, differentiation from rivals comes right down to the mental functionality of its workers.

“We now have all these instruments and we’ve got them at such a scale that it’ll be very tough for a lot of rivals to catch up at this level for a great lengthy whereas,” he mentioned. “However in the event you gave all people doing all your job the identical instruments, what’s going to differentiate one among you from the subsequent? That’s the reason we’re embracing it, as a result of we all know how good we’re and we all know how deep our capabilities and abilities go. And that’s the reason I believe we will probably be a winner in all of this.”

Jay Wilson, vice-president of Gartner’s advertising follow, mentioned Wren’s feedback present that he is aware of storytelling, artistic pondering and innovation – not the tech stack – would be the final decider between the winners and losers within the company world. And but roles are being eradicated on account of AI, monetary uncertainty and merger exercise, particularly on the junior or executional ranges.

“As Wren famous, many of those roles will turn into totally automated. This creates the chance of a longer-term expertise pipeline scarcity, with fewer and fewer expert junior and entry-level entrepreneurs coming into the company world,” Wilson warned. “Finally, the drying up of the expertise pipeline might drive companies to look offshore for low-cost, entry-level expertise and, certainly, Omnicom famous that it’s accelerating its offshoring focus into 2026 and past.”

Company sell-off

Additional consolidation of its company roster can be on the playing cards. Omnicom mentioned it had recognized sure smaller markets and operations that aren’t strategic to its enterprise and which it plans to promote or exit.

At the moment, these underperforming operations ship roughly $2.5bn in annual income. After it completes the consolidation, it says these it retains a minority stake in will signify roughly $700m in annual income.

This course of has already begun. World experiential company Jack Morton (previously a part of IPG) was bought earlier this month. It expects to execute the remaining gross sales and exits over the subsequent 12 months.

In the meantime, any investments will deal with “strategic tuck-in acquisitions” in media, content material, commerce, consulting, information and AI.

Wren mentioned media will doubtless contribute no less than 50% of its income going ahead, whereas its promoting division will quantity to “barely much less” than 20% of its complete income.