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Analysis: What's Next For Waggener Edstrom?
Aarti Shah
Holmes Report
COO & Senior Editor

Analysis: What's Next For Waggener Edstrom?

While Waggener Edstrom has benefited from Microsoft’s success, it may now be suffering something of a hangover from being too invested in a single, albeit iconic, client.

Aarti Shah

Analysis: What's Next For Waggener Edstrom?

That Waggener Edstrom is grappling with a prolonged period of change amid Microsoft's extensive restructuring is unsurprising. After all, the story of WagEd is interwoven with Microsoft’s rise to tech dominance in the 1980s.

Microsoft, of course, was the anchor client for co-founders Melissa Waggener Zorkin and Pam Edstrom when they launched WagEd. The agency is credited for landing Bill Gates his first cover story in 1984 in Time Magazine, in which Gates is balancing, on his fingertip, the now-dead floppy disk.

Fast-forward 30 years, and it is clear that while WagEd’s business has benefited from Microsoft’s success, it may now be suffering something of a hangover from being too invested in a single, albeit iconic, client. Microsoft is believed to account for at least two-thirds of WagEd’s overall revenue, a proportion that has at times exceeded 75% of the firm’s income.

Few would conclude that this is the healthiest state of affairs for any agency, but it has become especially problematic because Microsoft’s spend has either remained stagnant or, more commonly, declined in recent years. In 2013, for example, abrupt cuts from Microsoft resulted in WagEd cutting 5% of its global workforce.

Accordingly, WagEd has sought to establish an identity beyond the technology behemoth, which has seen it move into new sectors like healthcare, consumer and public affairs. Despite these efforts, though, the firm has found it difficult to compete with the big full-service multi-national agencies. Instead, WagEd has struggled to deliver consistent growth in its key North American market, which makes up around 84% of its total income.

In 2013, tellingly, global revenues dipped slightly to $117.6 million, dragged down by a US revenue decline of 3% to $98.3 million. These figures come on the back of several years of sluggish growth — in 2009, for example, the economic crisis saw revenues slip by about 15%, followed by several years of modest single-digit increases.

“In 2013, my favorite word became resilience,” Zorkin said. “We saw changes and we had to become a company that could go through dips and peaks. At the halfway point in 2014, projections are still soft but we’ve made alignments to our workforce and have decided to take the bull by the horns and make next year a good one with a focus on profitability – and then investments.”

These are fighting words from Zorkin but she will be aware that, at a certain point, the need for resilience can presage decline. Clearly, WagEd has yet to reach this point, not least because its operations in Asia-Pacific and EMEA remain in decent shape. But the focus on survival means that its efforts to bounce back and grow beyond tech have met with limited success.

Indeed, technology has been the only bright spot for the firm, growing 12% in 2013, while all of WagEd's other practices were dealt a hard blow. Healthcare slumped 11.2%, consumer dropped nearly 13% and social innovation (which includes public affairs) fell by 10.2%.

And while tech revenues are stable, even that practice has endured some hits. This year, the firm lost long-time client HTC to Golin and T-Mobile put its business up for review. Amid this, WagEd retains clients beyond Microsoft like Honeywell, AVG and Volvo.

If Zorkin is clear of the need to turn around WagEd, she will also know that this effort will be led by, in most cases, a new set of leaders. Since last year’s layoffs, there has been a parade of high-profile exits from the firm. Among these were North American leader Jenny Moede, who left after 20 years with WagEd, and longtime chief client officer Claire Lematta. Other exits have included Asia-Pacific CEO David Ko; editor-in-chief David Patton; UK GM Caibre Sugrue (as part of a London exodus); and Austin GM Cheri Winterberg.

All of these departures mean WagEd is well positioned to bring in a new breed of leaders.
Zorkin seems to realize the resilience that she refers to likely hinges on who she selects to lead the critical North American operation. An executive recruiting firm has been enlisted to secure the new leader by the end-of-the-year. Meanwhile, Zorkin and EMEA head Chris Talago have brought in former Grayling and Shandwick CEO Michael Murphy to play an advisory role, focusing in particular on talent and acquisition.

According a the source familiar with the agency, Zorkin is well aware of the urgent need to change and become more aggressive in the marketplace. The exodus of senior leaders, says the source, provides the ideal opportunity for a fresh approach.

“They see it as an opportunity to bring in some fresh blood — it’s always a risk,” the source said. “They recognize the need to bring in people from outside the culture.”

Yet, even new leadership won’t — on its own — remedy the cultural and business issues that WagEd struggles with because of its reliance on a single client. 

“There’s the Microsoft factor,” the source pointed out. “That brings its own challenges. It creates an intersection that wouldn’t be typical of other agencies. They’ve probably not had the confidence to do a lot of the things that they need to do.”

With that in mind, the US operation could probably do worse than look overseas at how WagEd has survived and, in many cases, thrived without notable Microsoft backing. In EMEA, the firm continues to grow without much Microsoft business. There is more Microsoft activity in Asia, yet the agency’s presence in that region has demonstrated impressive expansion into consumer and digital.

From Innovation To Introspection

In fact, WagEd’s reliance on Microsoft may have resulted in an agency culture that, once synonymous with innovation, has become rather more risk averse, particularly when it comes to promising initiatives. For example, the firm showed considerable foresight in acquiring Maloney & Fox but it became clear the two shops clashed culturally and a rocky integration ultimately resulted in the deal falling short of its potential.

Or take the firm’s now largely-defunct digital arm Studio D that was launched with impressive prescience in the mid- 2000s. The division brought in the Wall Street Journal’s David Patton as editor-in-chief and advocate for brands to become publishers with professional-quality editorial in 2009 — years before content became the overhyped frenzy that it is today.

“People think of Waggener Edstrom as a PR agency but in reality for the last three or four years we’ve been investing really heavily in new forms of influence,” WagEd’s former head of Studio D Jen Houston said in a video from 2009. “Number one — it’s about micro-influence; number two — it’s being able to measure that influence; and number three it’s about building beautiful stories on fabulous platforms.”

That insight, it turned out, was too far ahead of its time, at WagEd anyway. After rumors of cracks below the surface, Studio D in the US ultimately crumbled in 2012. That year, Houston parted ways with the firm, along with chief innovation officer Marianne Allison. By the next year, Patton had jumped ship — leaving few remnants of what was perhaps its most innovative initiative to date.

Even while dismantling Studio D, the agency hasn’t outright abandoned innovation. For instance, WagEd has carried on its investment in insight and analytics led by agency veteran Karla Wachter. This year, WagEd launched WE Infinity, a data mining and analytics platform which the firm is seeking a patent against. With basic subscriptions cost starting at $2,500 per month, the platform is clearly diversifying the agency’s competitive sphere. Another recent example of the firm challenging existing PR business modes is its Content360 offering that eschews the hourly-fee model for a flat-fee cost.  

Turbulence At The Top

While WagEd’s missteps certainly haven’t inspired confidence, the firm’s biggest loss over the last few years has been a talent drain that would have been a succession dream-team at any agency. Not that long ago, the firm’s leadership bench featured a number of industry heavyweights who now hold some of the most influential positions in communications.

The talent drain started in 2009 when former president of its Microsoft business Frank X. Shaw went in-house to his client. Following Shaw’s departure, president of account services Corey DuBrowa took the top comms job at Starbucks; SVP of public affairs Torod Neptune went to Verizon; and EVP Matt Reid, now managing director at Sard Verbinnen, left.

Losing not one — but four — professionals of that ilk indicates that Zorkin and Edstrom may have missed a remarkable opportunity to secure the firm in extremely capable hands when they inevitably look to pass along the day-to-day operations of the firm. While neither co-founder has explicitly expressed plans to move on, after 30 years, some sort of succession plan is likely to be on the cards.

“Remember [Shaw and DuBrowa] didn’t start out as heavy hitters when they joined Waggener Edstrom,” said one source close to the agency. “Every agency will struggle to bring people in at a senior level — so there has to be a balance between growing talent and bringing in successful people.”

For an agency that has long prided itself on being ranked at the top of many of the the industry’s best places to work lists for most of the 00s, the lack of viable rising stars is striking. Clearly its recent tumult has seen the agency lose some of the cultural cache of its glory days — but naming a candidate from inside the organization for the top North American job isn’t beyond the realm of possibility.

Zorkin told the Holmes Report that she hasn’t ruled out “an internal candidate coming out of the woodwork.” In fact, this has led insiders to speculate that a bigger plan might be underway to better deploy existing talent.  

Microsoft has long operated as its own profit and loss center within the firm, but since July 1, Zorkin folded Microsoft into its larger technology practice. From an outsider’s perspective, this makes sense: given Microsoft’s contracting spend, shouldn’t talent devoted to the account — especially at the top —  be deployed onto other pieces of business?

“It’s possible top leadership from the Microsoft account could be named as the North American lead,” one former Waggener Edstrom exec speculated. That likely candidate would be Dawn Beauparlant who has been with the agency for 13 years. Other internal names rumored to be in the running are tech practice lead Kimberly Davis, chief operating officer Jennifer Granston Foster and Talago.  

Moving Microsoft into the tech P&L is one thing but there are hints this could the first step in sweeping all of North America into a single P&L. In other regions, WagEd’s P&Ls are allocated by the more common geographic divisions rather than by practice.

“We’re moving in that direction — to be more about one team, one practice,” Zorkin said. “The intent and goal is to look at everything we do across North America.”

Part of this assessment has come about via Zorkin deploying CFO Corey Kalbfleisch to manage the firm's finances more effectively, allowing it to make more strategic investments.

“We don’t have the same access to financial markets or the access to the scale that larger holding companies do,” Zorkin said. “A lot of the emphasis on profitability is around achieving financial resilience. We’re not quite there but are pleased with our progress.”

To Zorkin’s credit, despite the internal changes the quality of the work hasn’t appeared to suffer amid the internal tumult. WagEd has managed to retain, at least part, of the T-Mobile business that went up for review earlier this year. Another longstanding client told the Holmes Report the firm’s work has remained strong.

“They have continued to evolve the team and have gotten new talent for critical roles while also keeping continuity,” the client said. “They have been relatively good and fast at dealing with performance issues on the team — that doesn’t just mean someone doing a bad job, but also ensuring that we’re getting what we need.”

The decisions WagEd makes over the next several months will ultimately define what resilience looks like for the firm. No matter who is brought in as its new North America head, Zorkin is left with grappling with her own legacy at the agency that bears her name.

“The question I often get is, ‘what do you want to be known for,’” Zorkin said. “First, I want to be the best place to grow your career. And second, I want us to be known for extending what we do to other areas and to return to a stronger growth trajectory and, from a profitability standpoint, fuel our investment funnel.”

Assuming WagEd reaches that point of profitability, the question remains— will WagEd manage to make those investments pay-off?

Additional reporting by Arun Sudhaman.

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