NEWS ANALYSIS: Pouring money down the drain

Research shows major organisations are wasting a quarter of their PR budgets due to a lack of planning.

Major organisations' understanding of budgeting for multi-national PR campaigns is so poor that a quarter of their PR money is wasted before it is spent.

This stark statistic - which is the view of both clients and agencies - is one of the initial findings of research carried out by Gyroscope for The Communication Directors' Forum and ICCO (the International Communications Consultancy Organisation).

The survey, carried out in February and March 2007, shows that only 23 per cent of the PR agencies that actually deliver multi-country campaigns on the ground believe that clients have a ‘reasonable' understanding of the budgets required.

Meanwhile, 54 per cent rate their clients' understanding as ‘weak' and 20 per cent simply rate it as ‘poor'.

The 39 agencies that took part in the survey range from global networks to regional and single-country independents, and operate in every part of the world.

Inadequate budgets
While 17 per cent of agencies say cli­ents plan their budgets ‘reasonably accurately', and three per cent believe they overestimate the budgets ­required ‘to a small degree', 29 per cent say they under­estimate to a small ­degree and a remarkable 49 per cent say they underestimate significantly

With inadequate budgets generally meaning an inability to plan, or deliver, effective campaigns, agencies suggest that the average multi-national client harnesses the value of only 76p of their PR pound, with 24 per cent of their budget totally wasted.

This might not be surprising. After all, one might expect agencies to complain about their clients' budget limitations. But the harsh fact is that client organisations agree with them.

More than a quarter (27 per cent) of multi-national clients believe their budget is ‘a little too low' for their needs and 25 per cent say it is ‘much too low'. Three per cent say their budget is totally unrelated to their needs, and five per cent have ‘no idea' what level of budget might actually be appropriate. Just 39 per cent believe their budget is more or less appropriate for their organisation's needs.

It is worth noting that the respondents to the survey were carefully screened, and that only senior managers with multi-national responsibility within major multi-national organisations were included. This group might therefore be expected to have a mature, informed and rational point of view.

The reason may lie in clients' PR budget planning process. While around half (53 per cent) review their budget annually, according to their needs and circumstances, 21 per cent base their budget on the previous year's spend, plus or minus a few per cent, and 13 per cent have no specific planning process at all. Five per cent of clients say PR spend is a fixed proportion of their ­total communications budget, while two per cent base their PR spend on a fixed proportion of corporate turnover.

Yet even among those who review and recast their PR budget annually, only 48 per cent believe their PR bud­get is appropriate, while 26 per cent ­believe it is ‘a little too low' and 22 per cent believe it is ‘much too low'.

Strangely, just over half (51 per cent) of clients believe their overall PR planning process is generally effective, and 18 per cent that it is neither effective nor ineffective. One in 10 (10 per cent) believe their planning process to be ineffective, and five per cent say it is completely ineffective.

With operations in every region of the world, those organisations that supplied complete and comparable data on their communications spending have a combined turnover of £87 billion; around 243,000 employees; a total communications spend of £976bn; and a total PR spend of £86 million.

The average PR spend of these ­organisations therefore represents almost exactly 0.1 per cent of their turn­over; 8.8 per cent of their total communications budget; and £353 per employee. The average spend on internal communications was around £106 per employee.

Wide variation
Of course, these figures should be viewed with some caution. Despite their surface similarities as multi-national organisations, the respondents actually display enormous variation: their turnovers range from £16.4m to £27bn; employee numbers range from 200 to 65,000; and annual PR budgets range from £19,000 to £49.9m.

If anything, these headline findings highlight the risks of using any kind of benchmarking to plan global PR spending or structures. The PR budget, and the structures through which it is deployed, cannot be - and indeed must not be - factors of an organisation's size, ad budget or workforce: instead they must reflect the organisation's business objectives, and the potential for PR to deliver against these objectives.

These issues are currently being explored further in the second stage of the study, through in-depth interviews with a sample of the respondents to the first stage.

However, even at this stage one thing is very clear: if PR is to deliver a valuable return on the investment in its activities, then both the desired return and the required investment must be very much better understood by clients and agencies alike.

Tom Wells is managing director of ­Gyroscope. The full findings of this study will be revealed in a series of workshops as part of the Communication Directors' Forum next month. The CDF takes place aboard the Aurora cruise ship, from 9-12 May 2007.

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