THE TOP 150 PR CONSULTANCIES 2002: The PR Downturn - Bucking the trend. The bigger the agency, the more tricky it has been to survive the downturn in PR spend. How have those agencies with growth figures done it? Adam Leyland reports

Lewis Communications is another tech agency that has prospered in the bleak times. Lewis has a full-time staff photographer, so that every release comes with 'sexy' photo-desk imagery; and a controversial commitment to be measured and rewarded based on qualitative and quantitative objectives.

'If you have a CEO who wants to be in the FT ten times, we'll promise that - provided we are given the budget,' explains Booth. 'Clients like that - it's very black and white.'

If the performance of the industry during 2001 illustrates anything, however, it is the depth and range of solutions that can be used to buck a trend. And as some predict a change in fortunes for the marketing industry for later this year, there are those who see their recession-beating strategies as an approach to preserve for the time being.

Fuller believes a recovery is too early to call. 'It's tough right now. There are precious few greenshoots. We were ahead of the game but everybody else has got their house in order. It's been a massive wake-up call.'

Healthcare has proved a boon for many agencies, and is proving one of PR's most recession-proof sectors. Specialist agency Shire Hall enjoyed a 25 per cent increase in PR income to £8.7m. Fleishman-Hillard owed a similar debt to healthcare, and had a 20 per cent increase in business from the likes of AstraZeneca, gsk and Lilly.

It was once said of tech PR that 'anyone with a pulse' could make money. But that claim could have been equally applied to almost every sector of PR during the past few years as a strong economy gave a five-year lease of life to some frail PR businesses.

It was a very different story in 2001, however. The dot.com bubble burst; M&As and IPOs almost ground to a halt; and while consumer spending remained surprisingly buoyant, retailers increasingly became locked in a price-promotions war as an air of caution descended over clients. The atrocities of 11 September further undermined confidence.

With budgets slashed, and some clients going out of business, a programme of layoffs took place among top consultancies, as the talent shortage turned to a talent surfeit, and agencies focused attentions on damage-limitation. The Top 150 confirms the newly-chastened environment, with average growth limited to eight per cent in the top 50 firms.

But while the trend was downbeat, some firms bucked the trend, posting double-digit growth reminiscent of the old times. There are some common qualities that link these companies.

This was not a good year to be big and publicly-owned. Not one of the top five heavyweights reported an increase in fee income. Of the top ten consultancies, only Burson-Marsteller, GCI/APCO and Edelman PR Worldwide reported growth. And of those, just the latter - the sole-remaining independent - reported double-digit growth, with fee income up by 20 per cent.

The number of smaller agencies reporting double-digit growth, on the other hand, was much higher. Outside the top ten consultancies, almost 50 per cent of the top 100 consultancies grew by double digits.

Of course, this isn't entirely surprising: in percentage terms, a £1m increase in fee income for a major firm doesn't have anything like the same impact as it does on a small one.

But since many of the big boys failed to even grow at all, it's equally fair to say that a number of smaller consultancies are doing something very right. So what exactly is it?

After years of being almost overshadowed by consolidation and an ever-widening size gap, there are many factors that currently favour the smaller firms. In many cases, they are more flexible. They also don't have to pay lip-service to the stock market.

This fixation with profits (or at least the enforced adherence to high margin demands from the parent company) means top agencies will always struggle to compete on price against smaller agencies.

'The disadvantage of the large agencies is they have very large overhead costs to sustain, most of which are located in Manhattan skyscrapers, comprising people who don't write press releases or add value to the business,' says Clive Booth, head of comms at Lewis Communications - a £5.2m shop whose fee income was up by 24 per cent in 2001.

Many of the large consultancies have been working hard to address a concomitant problem - accountability. 'Clients have complained about not having access to senior staff, and it was a fair gripe,' says one top CEO. 'We've worked very hard to ensure senior staff devote more time to servicing clients and, to be honest, that's easier now that we're not so busy.'

The Maitland Consultancy chairman Angus Maitland certainly believes this is a key to his company's success in recent months. 'We have a different structure from most PR firms in that there's a very high proportion of very senior people,' he says.

Other consultancies have followed suit. Tech firm Bite (part of the OneMonday Group, whose share price has been hammered in the past 12 months) has bucked the trend with a 26 per cent increase in fee income. But with money tight, one of the decisions made by MD Sheryl Seitz when costs needed to be cut was to axe the admin assistant role, and to redistribute the tasks among senior staff. 'We all muck in. It creates a better internal atmosphere, too,' she claims.

Nonetheless, attempts to allocate more senior staff to client service have not been enough to stem accusations that smaller agencies provide better value-for-money, and one of the reasons for this, claims Booth, is because smaller agencies work harder. 'Lewis has got a reputation as a sweatshop - clients love that in a recession,' says Booth: 'The average working week here is 60 hours; when I was at Shandwick you were doing well to get more than 40 hours out of most people.'

David Fuller, MD of The Red Consultancy, the number 22 agency in the Top 150, rejects the notion that the best-performing agencies in a recession prosper because they work their people hardest. 'When the job market picks up again, how much loyalty will you get if you grind people into the ground? There's only so many marathons you can run.'

Loyalty, he says, comes from 'the quality of the accounts and the type of work you're doing.' This is an area where Red's focus on big brands and big assignments has paid off, he adds: 'Everyone's looking for that "punch the air

feeling: clients, managers and employees alike, and focusing on premier accounts certainly gives you that.'

At City PR firm Grandfield, chairman Charles Cook says there's a salutary lesson that has not dawned on many people. 'Anyone who has taken over a PR firm in the depths of a marketing services recession quickly realises that no-one owes you a living in a recessionary climate. You have to fight for every pound of revenue.'

Edelman PR Worldwide international president Alison Canning believes the greatest strength of small agencies is not their fighting spirit so much as their focus: 'Small firms are clear about their brand, and if they hit upon something that's right, they're focused and aggressive, while the big players have to spin lots of plates, and go through a more demanding chain of decisions.'

Canning does not believe, however, that this focus is impossible to instill in a large company, and her own agency, she says, is a case in point.

The biggest factor in Edelman's current success, she says, is neither the sectors it works in, nor complex business mantras. For her, it's about 'positive thinking and focus'.

'Most agencies, whenever you go into recession, drive looking in the rear-view mirror, cutting costs. Our approach is focusing on the top line,' she says. 'You have to know what you have to be and stick to it, and not worry about daily time-sheets and other minutiae. If you spend your entire life looking at numbers, that's not going to win business, is it?'

Canning breathed new life into the sector with her management consultancy experience. Now, she says she's using exactly the same techniques as before: 'We are using the recession and the need to downsize to implement big change initiatives.' A number of new staff are already in place, but later this year Canning expects to announce fresh positioning for Edelman - with a management consultancy product sitting atop of the pyramid - and with an altered structure and identity to cap it off, implementing the concept she developed when she left C&W and set up management consultancy firm First&42nd (which was bought by Edelman last summer).

Of course, much of this vision is still to come, and there's no getting away from the fact that Edelman's success in bucking trends is closely allied to its strength in two sectors. The first is consumer marketing, where margins are lower and many of the big players have exited, giving Edelman a strong position from which to exploit sustained consumer spending growth.

The second strength for Edelman, though, is healthcare. Canning claims that Edelman has the leading healthcare practice in the UK and is also strong around the world, with global accounts from Johnson & Johnson and Kimberly-Clark baby products. Last year also saw the firm launch its first consumer healthcare division in the UK.

But healthcare has proved a boon for many agencies, and is proving to be one of PR's most recession-proof sectors, often protecting big agencies from losses in other areas.

Specialist healthcare agency Shire Hall enjoyed a 25 per cent increase in PR income to £8.7m. And multi-practice behemoth Fleishman-Hillard owed a similar debt to healthcare, and had a 'blazing year', according to new MD Scott Clark, with a 20 per cent increase in business from the likes of AstraZeneca, gsk and Lilly. (F-H's 94 per cent rise in fee income is chiefly explained by the acquisition of Herald Communications and public affairs shop GPC).

But it is not easy to win healthcare work, says Shire Hall CEO Gloria Gibbons: 'Healthcare has experienced huge commercial pressures in the UK in the recession. A lot of budgets are smaller. And the competition is fierce.'

In the past, the healthcare PR market was dominated by niche players, and a number of them remain. But as becomes apparent from the stories of F-H (which bought CPC in 1999), large agencies are buying these businesses to open the market to generalist agencies.

Other agencies have benefitted from working in a mix of sectors. Fuller believes The Red Consultancy, where 'by far the majority of people are generalists' has been aided by an absence of traditional 'practices' (corporate, healthcare etc.). This means 'you don't have a situation where one practice is working at 20 per cent capacity while another one is killing itself at 150 per cent. Briefs are constantly fluctuating and the absence of practices has bred versatility.'

One day you'll be working on a cause-related assignment for a healthcare client, says Fuller, the next day providing a needed boost to sales at an FMCG client. 'We don't have a culture where people say "we can't help you there; you've got to go to such-and-such department",' he claims.

To be a trendbucker, then, can require just as much innovation and 'positive thinking' if you're in healthcare as in other sectors. Shire Hall has shown this by aiming for global growth, setting up a New York office.

'We've established a point of difference,' says Gibbons, 'because a lot of competitors offer a programme in America, but without the base in Europe, but we've started from over here, and followed our clients over there. Our clients - Pfizer, J&J, Roche, Boehringer Ingelheim are among the wins - want programmes that are executed in Europe, but they want a US office that will deliver that programme.'

One of the hardest hit PR sectors has been the financial market. In the first nine months of 2001, the number of IPOs more than halved, from 228 to 110 (source: Zephus Corporate Finance), and M&A activity shrank by 20 per cent. And hostile takeovers - the most lucrative source of PR revenue - almost dried up.

Nevertheless, there were some creditable performances in the sector. Maitland confirms that PR income grew by ten per cent in 2001, and he has budgeted for growth in 2002. For Maitland, the loss of M&A and IPO work was a relatively minor inconvenience 'because we hadn't tended to do them, and only did them because our clients asked for them.'

In this rarefied atmosphere, it's often the case that it's not what you know but who you know: Maitland picked up its work for Schroders through contacts.

Of all the trends that were bucked, however, it was perhaps in tech PR that the most astonishing tales are told.

For the dot.com downturn - which affected agencies big and small, tech and non-tech - almost brought the entire tech sector to its knees. But when IBM reduced its global roster of consultancies from 60 to just three in the middle of 2001, 'the loss was probably more painful than losing the dot.coms,' according to Maitland.

Even Text 100, which won a massive chunk of the IBM business, has not fared that well, being forced to resign conflict clients only to find that a post-11 September review has reduced the incoming revenue more than had originally been anticipated.

But there were some notable exceptions, as several tech agencies defied the market logic to record double-digit growth: Mantra PR (up 80 per cent); others include Band & Brown (up 26 per cent). Even F-H reports a 20 per cent increase in tech revenues last year, although the loss of the Nortel account towards the end of the year put a dampener on an otherwise impressive year.

Are there any notable strategies among the tech trendbuckers? At AxiCom, up 11 per cent in 2001, Tanner puts success down to a steady decrease in US clients from 90 per cent five years ago, and an increasing emphasis on indigenous European tech companies - Arm, Genient, Commtag, Red Hat - which now account for more than 50 per cent of business.

AxiCom is also putting its faith in wireless infrastructure, which Tanner believes will be active in the next ten or 20 years; and in consumer electronics, which has 'spent ten years in the doldrums, but is exciting again. Before it was PlayStation, and now, just as the PC industry collapses, we're seeing the launch of some remarkable stuff: DVD, Super DVD, digital audio broadcasting, MP3, smartphones ...'

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