ANALYSIS: Internal Communications - Morale and new business key toholding firm in 2002

PR firms face a tough 2002 - of that there is now no doubt. But, as

John Frank finds out, a focus on new business and showing ROI could

still enable agency growth.



Long-range business planning is at best an inexact science. With the

incredible range of economic and political variables overhanging the

economy today, long-range planning has become an even more difficult

task for PR firms looking ahead to 2002.



This year, most suffered from the tech wreck and from the general

slowing of the US economy. "What we've done is move from the 'new

economy' to the 'get real' economy," says Bill Ryan, chairman of Niehaus

Ryan Wong (NRW). And that was happening before September 11, he

adds.



The catastrophic events of that day and the nation's response caused

clients across the country to reevaluate practically everything they do

in terms of communication. Some programs were postponed, others

cancelled.



The concept of "proper tone" suddenly was on everyone's lips. For a few

days afterwards, the business came to a virtual standstill as clients

and agencies worked out what role PR could play in a world suddenly

racked by terrorism. Planning at that point extended only a few hours or

a few days into the future. "Most of our clients are still waiting for

the correlation between the world economy and recent events to become

clear," says Lynn Casey, CEO with Padilla Speer Beardsley in

Minneapolis. "Until then, there will be little discretionary spending.

The first quarter of 2002 is up for grabs."



But as the initial shock has subsided, PR agencies have started the

difficult process of planning for 2002. Many have done so by

concentrating on economic and business factors, leaving themselves the

flexibility to react quickly to political or international events that

could again radically change the world in which they operate.



"Before, we were able to develop one- and two-year plans. Now, our

long-term planning is what we're going to do next month," says Ann

Garrity, founder of The Garrity Group in Minnesota.



John Graham, CEO and chairman of Fleishman-Hillard, states the obvious

when he says, "If there's another terrorist attack, it will no doubt

have some impact on the economy." But Fleishman's planning, for now,

focuses on economic fundamentals, and assumes the recession will bottom

out in the first quarter of 2002, and that a recovery will begin in the

second quarter. Sudden changes in the economy in the first quarter could

cause Fleishman to create a new planning scenario. But for now, Graham

is looking for 10%-15% growth from his firm next year - considerably

higher than he expects to finish with this year. "The overall momentum

of PR will continue as times get better," he forecasts.



Golin/Harris International's CEO Rich Jernstedt says, "We're planning

very conservatively," looking for 2002 revenues at about the same level

as this year. Golin, like many firms, has cut staff this year. Jernstedt

notes that one of the major lessons of 2001 for the business is "that

things can get worse before they get better, so plan accordingly."



For many, that's meant layoffs and widespread efforts to cut

expenses.



"We're doing our budgets for 2002, and looking at every line item and

every expense," notes Sabrina Horn, CEO of The Horn Group.



Why this time is different



Unlike past recessions, clients this time around aren't formally

dropping their agencies. Rather, they're simply curtailing and

postponing PR spending.



That means the firms that have managed to hold their revenues at 2000

levels this year have done so by bringing in new business. Graham says,

"We are seeing a lot of new business right now. It's coming from applied

technology companies trying to show markets they're viable, and it's

coming from basic industries that are still discovering the value of

PR."



Jernstedt looks at current business conditions as a good time for PR

firms to show clients just how valuable they can be. "Clients are

streamlining their organizations with fewer suppliers. We want to show

them that we want them to consolidate with us," he says. That means

branching into new business consulting and strategic planning areas PR

firms may not have tried in the past.



At NRW, "business intelligence has been a very profitable side of our

business. We've done a number of projects recently for Lockheed Martin

designed to help them understand certain markets," says Ryan.



Graham recalls that Fleishman's internal communications practice grew

out of the last recession, and the realization it brought was that

companies needed to communicate with their employees in hard economic

times. "I've seen some of our best growth initiatives come out of times

like this," Graham says.



Another consequence of current economic conditions is that clients are

increasingly asking to see the worth of the PR they commission from

agencies.



Major PR firms have been falling over each other to introduce new

measurement tools this year. Horn's firm, for example, hired a director

of research to help document results for clients. "It's all about making

sure that whatever you are doing is helping the company achieve its

business goals," says Horn. "People just weren't focused on it before. I

don't know if it would have prevented any of this from happening, but

people sure are paying a lot of attention to it right now."



Keeping spirits high



Another area firms need to pay attention to is employee morale. Layoffs,

consolidation, and the resulting disappearance of longtime PR firm names

spells unsettled employees. Add the impact of September 11, and "all of

a sudden, you have a lot of frustrations that you have to help your

people understand and work through," says Ryan.



At Fleishman, "we've tried to over-communicate to our employees," says

Graham. He's done webcasts with senior managers along with company-wide

phone conferences. The agency also encourages local managers to talk

directly with their staffs. "All the principles of internal

communications say the best communication is from a direct supervisor,"

Graham explains.



Golin's New York office hosted a conference call with a trauma disorder

expert for other agency offices. Furthermore, employees have been

encouraged to get involved with client fundraising efforts for families

of September 11 victims, as well as other volunteer work. "There's a lot

of energy for involvement," says Jernstedt.



The business is dealing with a generation of PR people who haven't lived

through a recession before, let alone a recession worsened by

terrorism.



"The challenge from a people standpoint is to keep people motivated and

the morale up," says Ryan.



That could become the biggest challenge the industry faces next

year.



Sure, there will be the need to hold expenses in check while looking for

new sources of business, but that sort of hard work and pavement

pounding can only be done effectively by a motivated workforce. The

hardest job PR firms face in 2002 may be keeping their own houses in

order while they try to convince clients of their worth.



"It doesn't mean we can't be optimistic and even aggressive," says

Jernstedt, "but I think it will be tempered with the reality of the past

year."



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