At a time when the PR sector is enjoying a boom, with the great
majority of large and medium-sized consultancies experiencing
inflation-busting annual rises in fee income, it may seem strange to
address the issue of cost-cutting. But despite the favourable market
conditions there have in recent weeks been a number of instances in
which organisations have cut back on costs.
Shandwick has axed senior staff including group chief executive Dermot
McNulty and UK and US chief executives Colin Trusler and Larry Kaplan
and further casualties are expected.
Global rival Burson-Marsteller slashed 40 jobs at its Hong Kong and
Jakarta offices and has sold its operations in Hungary, the Czech
Republic and South Australia to their management teams. Meanwhile,
in-house at the communications department of UBS 18 jobs are to go
following the merger with fellow Swiss banking concern SBC.
Behind each of these actions lies a differing set of circumstances. As a
listed company, Shandwick has for a considerable period been under
shareholder pressure to reduce its debt and improve performance. Culling
a few of its highly-paid senior executives, it seems, is one means of
trying to appease investors.
B-M’s actions, coloured to some extent by the Asian financial crisis,
may be seen as prudent housekeeping and they come at a time when its
parent company Young and Rubicam wants to tighten up the management of
its entire operation prior to flotation.
The UBS job losses, meanwhile, are the almost inevitable outcome of a
merger driven to some degree - as indeed are most mergers - by the logic
of increasing profitability by slashing central costs.
There are, then, diverse factors lying behind each of these cost-cutting
exercises. But taken together, do they form a trend? Have agencies and
in-house departments reached a level of maturity where they are looking
to clamp down on costs even when the market is in good health?
’It is very easy to allow wage inflation to get out of hand. If the
industry responds in a sober way to high growth, it’s a sign of it being
grown up,’ says Fishburn Hedges chief executive Neil Hedges.
’There’s been quite a lot of change in the last few years in the types
of people consultancies are expected to deliver to clients,’ says
Edelman managing director Tari Hibbitt. ’And it may be that some
consultancies are asking themselves do we have the right people for our
clients? There is more of a need for people who are specialists in
particular disciplines within PR.’
Another agency head, who in this case wishes to remain nameless, takes
Hibbitt’s point about staff even further. Consultancies that need to
’raise their game’ to attract top notch clients, he argues, might prefer
to claim they are cutting costs when dumping staff rather than telling
individuals they are not up to the job.
’Cost-cutting is actually less important than revenue generation,’ says
Dewe Rogerson chief executive Tony Carlisle. ’No amount of cost-cutting
can make up for loss of revenue - and if you want to motivate people at
a company then the top line and the bottom line have to move ahead. But
people need to feel comfortable about not carrying any unnecessary
overhead or dead wood - that sort of thing just builds resentment.’
Claire Walker, managing director of IT specialist Firefly believes there
is little need for cost-cutting in present circumstances. Indeed, she
feels that cost-cutting during the last recession caused the industry’s
biggest problem today.
’The big problem for the industry is not keeping down costs but
recruiting good people,’ she says. ’And we would not have that problem
if people hadn’t been so rash in cutting back their training programmes
in the early 1990s.’
Adrian Wheeler, managing director of GCI Group London and chairman-elect
of the PRCA, also thinks that cutting expenditure ’to the bone’ during
the downturn actually damaged the industry. His belief is that
cost-cutting is not a major factor at this point in the economic
’There’s not any industry-wide process of cost-cutting going on,’ says
Wheeler. ’Quite the reverse. Most of us are spending more. I believe the
accent is on investment, I really do.’
But margins in the PR business - compared to other sectors such as
advertising or management consultancy - are relatively low; so any fat
that can be trimmed has a marked impact on the figures.
Countrywide Porter Novelli chairman Peter Hehir believes that PR
consultancies are more cost conscious than ever. Since it was acquired
by Omnicom, Countrywide has been able to ’tighten up’ its cost controls
because it has gained access to information on the performance of
similar firms within the group.
Since joining Omnicom, Countrywide keeps a closer eye on cost by doing
its sums every month, rather than once a year.
Hehir and Wheeler feel that cost is a bigger issue at those companies
that are either listed on the stock market or subsidiaries of bigger
’Owner-proprietors are in no way amateurs,’ says Wheeler. ’It’s just
that the interest of a remote shareholder has to be about the
Indeed the only levers they can pull are to set limits on expenditure
and targets for things such as margin improvement.’