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."
