AI and offshoring underpin permanent revolution in holding company strategies

AI and offshoring are two solutions agencies are using to manage costs and transform their organizations as they operate in a perpetually uncertain economy staffed by a changing workforce.

In their Q1 earnings reports this week, both Publicis and Omnicom focused their remarks on the future of work and how AI and offshoring factor into that vision.

Omnicom is building campuses in Chennai, Gurgaon and Hyderabad, India, where it’s ramping up its offshore workforce and operations significantly. Publicis, meanwhile, already has 25,000 engineers in India through Sapient, and a growing number in nearshore locations in Eastern Europe and Latin America.

Other holding companies have been talking about offshoring since last year. In its third-quarter 2022 trading update in October, WPP said it is using offshoring as a way to mitigate salary inflation, and is offshoring particularly at production company Hogarth.

And, in August, then CEO Wendy Clark announced that Dentsu would offshore 10,000 jobs – or 20% of its workforce – to help clients fight inflation. Its offshore division, Dentsu Global Services, has 18 “delivery centers” around the world, with the majority of staff in India and The Philippines.

Offshoring allows holding companies to save on salary costs, which make up the bulk of their operating expenses, by employing highly skilled engineering and back-office talent in cheaper locations to support business around the world. It is not a new strategy, and it’s often seen as one driven by a desire to cut costs.

And indeed, there are cost savings to be found. As Omnicom CEO John Wren told investors last week, “One thing that will benefit us is we continue to ramp up in hiring, say, in places like India, which have increased in order for us to become cost efficient for the benefit of our clients, as well as for our shareholders.”

But cost-savings are not the only benefit. As Publicis Groupe CEO Arthur Sadoun told me this week, offshoring is also a strategic move to support agencies as they are expected to service global clients around the clock in an always-on world.

“Offshoring does not mean cheaper. It means qualified people at scale on a flexible model. It’s about scaling our engineers and making sure we have a flexible model that can adapt,” he said.

Another way agencies are mitigating economic uncertainty and embracing change is by going full speed ahead in adopting AI. Wren shared details with me last week about Omnicom’s partnership with Microsoft, which grants enterprise access to ChatGPT to all of its employees, while Sadoun spoke about Publicis’ AI platform, Marcel, and revealed a partnership between OpenAI and creative collective Le Truc.

Meanwhile, in an interview with Bloomberg in February, WPP CEO Mark Read called AI “fundamental” to the business, particularly in media and production.

Learning how to use AI is also a strategic investment for any marketing services firm. As Sadoun put it, “We don’t believe AI and the machine will take the job of our people at Publicis, but we believe that our people need to master the machine if they want to continue to add value.”

With that in mind, most agencies are using AI to automate repetitive tasks and back-office functions, freeing up high-level employees to focus on strategic and client-facing work. But as more tasks are handled by machines, cost savings are an added benefit.

By leaning into offshoring and automation, agencies are embracing a changing marketplace and skilling up a new workforce while addressing the economic uncertainty that’s driving client decisions.

As they do so, their businesses will  begin to take new shapes, as new roles appear (and perhaps disappear) as automation gets baked into the business, and as previous global hubs and centers of gravity for talent, such as New York, San Francisco, London and Tokyo, shift toward emerging cities where offshore investments are being made.

Holding companies have changed dramatically in the past two decades, but in a world where the future is uncertain and technology is constantly disrupting the business, transformation is never complete.