ANALYSIS: Agency Management - PR prudence targets sustainable growth. Business is booming but many PR agencies are nevertheless committed to keeping a tight rein on expenditure, showing a maturity that was absent during the growth of the late 1980s

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.

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

cycle.



’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

groups.



’Owner-proprietors are in no way amateurs,’ says Wheeler. ’It’s just

that the interest of a remote shareholder has to be about the

figures.



Indeed the only levers they can pull are to set limits on expenditure

and targets for things such as margin improvement.’



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