Agency Business Report 2010: Road to recovery

Following a year in which client budgets and agency revenues decreased, industry heads are cautiously optimistic about the outlook for 2010.

Click here to find the 2010 Agency Business Report rankings, individual agency profiles, and special features, including a video interview with Richard Edelman and Ogilvy's Chris Graves.

Following a year in which client budgets and agency revenues decreased, industry heads are cautiously optimistic about the outlook for 2010. 

It's amazing the difference a year can make. Last spring, there was a palpable tension in the air as agency CEOs tried to predict what type of business outcomes 2009 would bring. Faced with the uncertainties of reduced client budgets, stalled RFPs, and holding company-mandated hiring freezes, agencies hunkered down for a tough year.
 
And though there were some bright spots (as evidenced by this year's agency's rankings), it was indeed a tough year. Quarter after quarter, holding companies reported declines in PR and advertising revenues, agencies went through layoffs, and large AOR assignments were few and far between.
 
Cause for optimism
Fast forward 12 months and it's a vastly different environment – and the change is immediately noticeable in discussions with CEOs at agencies of all sizes. There is optimism in the air. It's a “cautious” optimism, as everyone will offer as a caveat, but optimism nonetheless.
 
Andy Polansky, president of Weber Shandwick, says that Q1 2010 has already shown a strengthening of the business from last year.
 
“The business pipeline is much improved,” he notes. “We will see it steadily increase throughout the year.”
 
Marian Salzman, president of Euro RSCG Worldwide PR North America, says that in recent months she has noticed decisions being made on previously tabled RFPs, as well as a number of new business opportunities.
 
“You're seeing people wake up,” she notes. “You're seeing the economy have feet. It may not have arms and legs, but it has feet.”
 
Although 2009 was tough for the industry, Richard Edelman, CEO of Edelman, says there were some positive signs that are continuing in 2010.
 
“It's the first time in a recession that PR outperformed advertising,” he says. “For the first time, we had access to the money that is digital. I like our chances in a world where we're not the tail on the dog again. We're at the table.”
 
And in what could be viewed as a boon to PR firms, the events of the past 18 months have continued a trend of companies making corporate reputation a top-of-mind issue.
 
“The positive lasting effect is that companies are much more focused on their corporate and brand reputation, which can carry them through economic downturns,” Polansky says. “We play a large role in supporting companies in those areas.”
 
Edelman agrees that the financial industry in particular will be a good growth area for business in terms of reputation work.
 
“There's got to be more spending in financial services to regain trust,” he adds. “This merging of brand and corporate reputation all plays to PR.”
 
Liz Kaplow, CEO of Kaplow PR, says there are other ways that the new environment created by the recession could ultimately have a positive effect on agencies.
 
“[Last year] made the idea of value and getting the most out of high performance come to life,” she notes. “That discipline wasn't a bad lesson for the industry.”
 
Indeed, as the industry begins to show signs of life again, a number of familiar themes surface as necessary for growth. One of these is an emphasis on measurement, especially in a digital age.
 
“Measurement is exploding in importance,” reports Ketchum CEO Ray Kotcher, adding that his firm's research and measurement group is “extraordinarily busy.”
 
“In 2009, it was [about] making sure you could show the ROI on the work you were doing,” he adds. “In 2010, it's still about measurement, but also about research and forward-looking insights.”
 
Paul Taaffe, CEO of Hill & Knowlton, agrees that measurement is a key area on which firms should focus.
 
“Marketing clients are increasingly demanding the measurement and ROI piece,” he says. “If you're doing a whole series of experiments, you must be able to record what's working and not working really quickly.”
 
“The idea of PR on its own is really gone,” adds Kaplow. “We are accountable to C-suite executives. With that, PR will be expected to measure its contribution to identifiable business objectives.”
 
The digital picture
Digital is another area that continues to be on agencies' radar, as they look to invest in both talent and technology.
 
Mark Raper, CEO of CRT/tanaka, says the investment in digital and social media must continue for agencies to compete in the new landscape.
 
“The past 18 months have been the wake-up call for agencies,” he explains. “The future will be dictated by how they used the time the past 18 months.”
 
As a private company, CRT/tanaka chose to make investments in the social media space, despite the recession, acquiring Livingston Communications, a boutique social media firm, in April 2009. “The whole idea of investing is important,” Raper says.
 
Though digital is still a competitive space, Taaffe says PR agencies will continue to take an increasing share as the market expands.
 
“The reason PR can be competitive is that if clients are going more tactical, they need to do that on an opportunistic basis,” he adds. “That's not the speed that most ad agencies can move at. In the world of PR, that's a traditional skill.”
 
Though many firms are investing more in the technical capabilities associated with digital, Euro RSCG's Salzman says PR's real benefit in this space will be from the traditional skills in its wheelhouse.
 
“We'll have to prove value in the message creation department,” she adds. “We won't win the tech wars.”
 
Kotcher adds that measurement is going to be the key for PR to succeed in the digital arena as well.
 “
As an industry, what we need to be mindful of is that when you take a look at the other digital disciplines, they have very sophisticated analytics they can apply,” he notes. “That will be a make or break [issue].”
 
In an industry where revenue is based on idea generation, it is vital to maintain a high level of talent, especially for agencies.
 
“It really does come down to talent,” says Kotcher. “That is the most potent driver and differentiation for an agency.”
 
Hill & Knowlton's Taaffe says that as the PR economy opens up a bit, there will be a lot of movement in the marketplace. “That's an issue for an agency's retention of talent,” he adds.
 
Salzman says her agency has had to be creative in keeping staff motivated throughout the downturn. It has turned to the idea of “microbonusing,” offering gift cards worth a couple hundred of dollars for a job well done. And being part of Havas' global network, she's also been able to offer global assignments and travel as incentive for some employees.
 
“People have to feel like they own what they're doing,” she explains.
 
Edelman argues that especially when motivating his younger staffers, the new generation has a unique opportunity to take the leading role on the programming of campaigns, particularly given their expertise in digital.

“My job was simply to call reporters and get stories placed,” he says. “Their job is literally to be involved in conversations. It's such a better job.”

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