When the management consultancy firm FTI Consulting bought FD for £139m in 2006, the deal was seen as a watershed for the PR industry. Finally, PR was recognised for having the level of influence it always claimed to possess. At the time, analysts, including Teather & Greenwood and Numis, predicted a surge in management consultancies snapping up PR agencies.
But nearly four years on, this has not materialised, despite mounting evidence that reputation is becoming an increasingly important concern for CEOs and their companies.
In fact, it was marketing services firm Iris that bought management consultants Concise in 2008, and integrated marketing comms agency Engine Group that purchased Digital Public, a consultancy that specialises in helping firms design and launch new services, the year before. So, what is happening? Are management consultancies proving slow to wake up to the importance of reputation management, or are they cutting out PROs and providing this service themselves?
There is evidence to suggest PROs should fear management consultants moving into reputation territory. While they may not be setting up separate divisions or directly selling these services, they are certainly discussing communications.
'We're finding that reputation is increasingly part of the conversations we are having with clients,' says Gavin Houlgate, KPMG UK director of comms, corporate issues and strategy. He believes business leaders are far more concerned about their image thanks to the financial crisis and subsequent loss of consumer trust. 'Reputation is part of a package of services that we can provide, particularly to clients working in certain areas such as risk management,' says Houlgate.
KPMG has frequently turned to its in-house comms team to provide this advice. 'In recent months, members of the internal corporate comms team have increasingly been used in an advisory capacity for reputation management and dealing with crisis situations,' says Houlgate.
Alan Leaman, CEO of the industry trade body Management Consultancy Association, says KPMG is not unique: 'It is not explicit, but reputation is increasingly part of the strategy and business-building offer.'
This sounds like worrying news for the humble PR agency, but Leaman disagrees. Management consultants, he says, do not see reputation as a core service. 'Management consultancies enable a company to be more efficient and profitable, and they operate projects that a firm would not be able to do themselves. Along the way, they may advise a company to put a good reputation strategy in place, but that is not the main thrust of their business. There is a great debate in the sector about how far full service consultancies go. But they would not consider PR techniques, and the heavy lifting of doing PR, to be their business,' he says.
While the larger management consultancies have marketing divisions that will advise on branding and customer insight, both McKinsey and KPMG say they are not looking to buy a PR agency. McKinsey also denied speculation that it was eyeing up the investor relations market.
Man Bites Dog MD Claire Mason, whose agency represents about 20 per cent of the management consultancy market, including the Hay Group and Roland Berger Strategy Consultants, says the recession has focused consultancies on core business opportunities - technology, operations, strategy and business advisory services. 'The simple truth is that the profit margins aren't there for them in PR/reputation management and, in a highly competitive market, they are focused on defending their position and targeting more lucrative markets,' she says. She believes a key reason for this is that reputation management often sits in the marketing function, meaning the budgets are too small to support a management consultancy business model.
So, if management consultants are not focusing on reputation, perhaps PR agencies should be attempting to form more strategic alliances. KPMG recommends PR agencies to clients for specific work, while Mason says she often gets referrals from her management consultant clients. Perhaps partnerships will lead to more lucrative accounts, and respect, for PROs.
HOW I SEE IT - CHARLES WATSON, CEO, FD
We are constantly hearing that management consultancies are looking at reputation, brand value and shareholder value. I see this as a positive thing for the PR industry. Anything that shows clients are thinking more strategically about reputation enhances the market. It shows the market is growing up - that is great news. I'd love to go into a pitch against a consultancy such as McKinsey.
Creating a partnership with a management consultancy was a logical thing for us to do. Strategic consulting is often a sequential process. We follow in after the management consultants present their strategy. What management consultancies will never do is move into advocacy. They will do a major piece of work, but they would bring in a PR agency to make it happen.
Management consultants and PR consultants bring similar things to a business. We employ very smart people, we place great importance on intellectual capabilities.
We can do quantitative analysis, but also qualitative analysis by speaking to senior business journalists daily.
FIVE THINGS PR AGENCIES CAN LEARN FROM MANAGEMENT CONSULTANCIES
PR agencies and management consultancies share one key principle; both need to sell, and prove the value of, intangible services. 'Management consultancies have the same debates that PR agencies have about position and whether they are being brought in at board level. They also discuss how to demonstrate they are adding value and what success looks like. The sector has done a lot recently to focus the client's mind on how to use them to secure the best outcomes so they don't have dissatisfied clients,' says Management Consultancy Association's Leaman.
But management consultancies are commanding larger budgets and have senior level buy-in that many PR agencies would die for. What can PR agencies learn from the way management consultants sell their services?
1. Embrace client conflict
Man Bites Dog's Mason believes avoiding client conflict harms PR agencies because it prevents the development of in-depth sector insight. 'The PR profession needs to develop a more mature attitude to client conflict. Having insight based on a deep understanding of similar firms in the same sector is a key selling point for management consultancies,' she says. She adds that her management consultancy clients believe her specialist knowledge of the market gives them a competitive advantage over an agency where they are one of a kind. 'When you have that depth of knowledge, clients are willing to pay for it,' she says.
2. Do not compete on price
It is an old point, but it is pertinent nonetheless; haggling over fees drives down the value of PR. 'As a profession, we need to be more confident in our value and charge accordingly. Management consultancies understand the power of premium positioning and, certainly at upper levels, will fiercely resist competing on price,' says Mason. Unlike management consultants, PR agencies often work to a budget that has been determined before the pitch or planning process. This leads to a temptation to crowbar all activity into a fixed retainer. 'The budgeting process for a management consultancy would be based on outcomes rather than starting with a fixed budget. The consultancy would develop recommended activity and price accordingly, with costs then being approved by the decision-maker,' she says.
PR agencies must also ensure they are not too busy satisfying clients to make a profit.
3. Focus on the bottom line, not the column inches
Management consultancies link their value to the bottom line business impact they can provide, focusing, for example, on how much money they can save a business. But much of the PR industry still thinks in terms of coverage values. PR agencies need to think more commercially and demonstrate their impact in business terms.
'The rise of payment by results is also commercially problematic for agencies that are often paid based on AVE results, rather than the full commercial upside they have generated for clients in terms of business,' says Mason.
4. It is not just who you know, it is what you know
Ironically, PR has a reputation problem. There is still a perception that PROs are networkers who are prized for their media/influencer contacts but not their strategic ability. 'For many people in business, rightly or wrongly, PR agencies represent media and media alone,' says Houlgate. 'We would not decry the undoubted skills that PROs bring in terms of reputation management, but management consultants have a range of skills that might be put in a higher order in the boardroom than media.'
PROs need to prove the value of reputation and the value of their advice. Leaman says: 'If people are giving top advice at the top of their game, then they should be at the top table. What both PRO and management consultants need to bring is a real understanding of what is driving the marketplace and how people are responding.'
5. Recruit the best minds and train them to think commercially
Another way of changing that perception is for PR agencies to ensure they are recruiting the best minds, training them in business practices, and promoting this as a commercial asset.
FD's Charles Watson says: 'Access and influence is very important and you'd assume a PR agency had that. But what makes an agency exciting is if you can inject really good minds who can be present in a boardroom to advise clients on big problems.'
He adds: 'The means and methods of how reputation is impacted have been revolutionised by digital media. The world is changing rapidly and you need very smart people to be able to keep up, and actually anticipate, these changes.'
Mason believes the PR industry should be more open to hiring people from different career backgrounds. 'Management consultancies hire from their target industries so that they really understand their clients. The PR industry needs to be open to more unusual career paths,' she says.