The view from adland

A decade after it hit the top of their shopping lists, ad agency groups are sensing new value in PR.

A decade after it hit the top of their shopping lists, ad agency groups

are sensing new value in PR.

Ad agencies buying PR agencies was one of the defining trends of the

1980s. The recession may have promoted a more cautious approach but, as

the likes of Omnicom and Abbott Mead Vickers have proved, PR is once

again emerging as the fashionable accessory for any self-respecting

advertising agency group.

For the PR people themselves, however, the relationship has often proved

to be an unequal one. ‘People in advertising tend to think because they

deal with billings that they are more important, whereas we see PR and

lobbying as both dealing at a fairly senior level,’ says Martin Sorrell,

chief executive of WPP Group - parent to Hill and Knowlton and Ogilvy

Adams and Rinehart.

Meanwhile John Wren, president of Omnicom - parent to Ketchum, Porter

Novelli, Countrywide and GPC Market Access says: ‘If you go back ten

years in the US and look at the difference between PR and advertising, I

think there was misunderstanding about what each side did - there wasn’t

a great deal of respect. As we went through the recession in the 1990s,

communications became more focused and PR really stepped up to the

world stage.’

According to Ed Meyer, president of GCI parent Grey Advertising and by

his own admission a late convert to PR, this increased interest in PR is

symptomatic of a shift in the way clients are thinking - and spending.

‘Advertising used to be considered by far the most important of the

communications disciplines, ’ he says. ‘But in the last 10 years there

has been a glacial change. Companies have grown to understand the

contribution made by related communications disciplines like direct

marketing and PR.’

At MacManus Group - the renamed holding company of ad agency DMB&B and

PR firm Manning Selvage and Lee - PR still represents only eight per

cent of total revenues. Although as chairman and CEO Roy Bostock, points

out, that figure is growing - by three per cent in the last two years.

Bostock says this growth demonstrates the strong demand for PR services

as clients have shifted their marketing spend away from traditional

media advertising.

But he believes PR isn’t just seen as a way of capturing some of the

money leaking out of the advertising business, it has its own business

rationale. ‘Margins are better in PR than in the ad agency business -

because it is exclusively a fee business,’ explains Bostock. ‘It is

easier to negotiate a profit margin on fee business than on commission


That might seem a bit rich over at WPP, where PR has just slipped into

profit for the first time in four years. ‘Advertising is more profitable

in our business,’ admits Sorrell. ‘But not historically. If you go back

to the late 1980s, the margins on PR were ten to 11 per cent.’

For an ad agency looking for a safe bet, however, Sorrell’s advice is to

look elsewhere - at least in terms of international development.

‘Because it’s a highly local business, it tends to be volatile. It has

to grow up, become more institutionalised, less dependent on

individuals. There are only two businesses which are institutionally

strong -Hill and Knowlton and Burson-Marsteller.’

For all its brand strength, B-M has, however, had its problems. Fernan

Montero, chairman of Young and Rubicam Europe, says the group’s star

performer is direct marketing agency Wunderman Cato Johnson, while ‘B-M

is growing against a small base- it is attempting to redefine itself’.

Yet, he adds, PR is an important part of Y&R’s offering and has a lot to

teach the advertising industry. ‘The fact is that the consulting skills

of the PR industry, are what the ad industry needs,’ he says.

So you want to be in PR, but do you need to start a separate agency to

do it?

‘Specialisms in advertising agencies have not been overly successful,’

Sorrell points out. ‘Separate branding encourages a strong tribal sense.

It makes the discipline stronger, but it also makes it more difficult to


For Meyer, separate branding is about making clients feel comfortable:

‘In our case most of the business of the PR company is not shared with

Grey Advertising. We want it to have its own identity because we want it

to be easily accessible to clients’.

For Montero, separate branding and operational independence is key to

Y&R’s philosophy of a partnership of strong entities. ‘Burson-Marsteller

is a significant organisation in itself - it can attract the best

people, and offer a genuine career path,’ he says.

One UK agency which is ignoring conventional wisdom, however, is McCann

Erickson. Brian Child, CEO of McCann Erickson (UK),which launched its

own PR network this year, is convinced that using the McCann name is an

advantage. ‘I’ve spoken to a lot of PR people who would kill to get

their hands on the McCann Erickson name,’ he says. But, he is equally

insistent that the PR agency must grow as a stand-alone operation.

The challenge for McCann Erickson PR is to sell itself to its own ad

agency colleagues. The truth is that business referrals are often much

less forthcoming than one might imagine - as any ex-Rowland staffer will

tell you.

Bob Seelert, chief executive of The Rowland Company’s parent Cordiant,

admits there was a breakdown of communication between Saatchi and

Saatchi and Rowland, but says that Cordiant agencies are now encouraged

to use Rowland and adds: ‘Almost half of Rowland’s revenue comes from

clients who also do business with Bates or Saatchi.’

According to Y&R, about 27 of its 36 top accounts worldwide do business

with both B-M and Y&R Advertising. Montero says using any other PR

agency is ‘more than discouraged’.

Of all the groups, Omnicom has the most hands-off approach to its

businesses. ‘We’ve always taken the view that each of our companies has

to be a leader on a stand-alone basis and can’t survive purely because

of family relationships,’ says Wren.

‘There is nobody here at Omnicom saying ‘Porter Novelli got the last one

so Ketchum should get this one’. We don’t manage companies in that way,’

he adds. ‘It’s a matter of developing mutual respect, in the same way we

would expect it to happen if we didn’t own a PR company.’

Wren admits that running several different PR operations in the same

country means losing out on opportunities from a cost point of view. The

rationale for doing so in advertising is clear - client conflict. But,

as Wren points out this is much less of an issue in PR which tends to be

more project driven.

Instead, his rationale is that of specialisation, with each agency

offering a different mix of skills relevant to whoever is buying the

services within the client organisation.

Both Wren and Sorrell say that PR is becoming more focused

geographically and more specialist in terms of function. Rowland’s

retreat to what Seelert describes as ‘five core operating areas’ is a

manifestation of the same thinking. Rather than replicate the specialist

skills in every office - concentrate on building centres of excellence

and fly your specialists in when necessary.

All parties are, in a sense, grappling with one of the fundamental

problems of building and maintaining an international PR network - which

is that PR is not yet an international business.

‘If you look at our business in advertising and market research, they’ve

gone global to a significant degree,’ says Sorrell. ‘I don’t think

that’s the case in PR. It’s still a relatively local business - it tends

to be smaller, more decentralised. As a result it tends not to be co-

ordinated as aggressively.’

But Bostock says globalisation of PR is only a matter of time. ‘There

were two arguments made by the nay sayers who argued against the

development of global accounts for ad agencies,’ he says. ‘You have to

have a local agency, which is more sensitive to local culture and you

can’t maintain quality. Both proved to be wrong in the ad agency

business and are now proving to be false in PR.’

Virtual agencies: The new breed

If one-stop shop was the buzzword of the 1980s and integrated

communications its early 1990s equivalent, 1996 is the year of the

virtual agency.

Gone is Y&R’s ‘whole egg’ approach - a term devised to describe the

different layers of the communication process all available within the

one agency. The talk at Y&R these days is of ‘strategic partnerships’.

The virtual agency, or Team Y&R, is a multi-disciplinary team brought

together to work on a specific account either on an ad hoc basis or a

permanent basis as in the case of Team AT&T. The model has also been

adapted by WPP for its ICO account.

The team operates as a separate profit centre and is therefore not as

susceptible to the usual rivalry between the different disciplines.

According to MacManus CEO Roy Bostock, the key flaw in the whole egg and

one-stop-shop idea was that it had more to do with how the group was

organised than any strategic benefit for the client. Although there are

obvious benefits to using one group - they know each other, work well

together and can communicate more easily - it is no good if the

individual elements aren’t up to scratch.

WPP’s Martin Sorrell points out that the real issue is when clients will

start to co-ordinate their own structures: ‘There’s no doubt that

theoretically and strategically it makes a lot of sense in executional

terms but it has to be managed, You don‘t have to be a rocket scientist

to figure out that if you have a strategy where the execution involves

PR, advertising, identity and direct marketing,it helps if it is co-

ordinated.Very few clients are structured so that the person

responsible for advertising is the person responsible for PR and the

same person is responsible for direct marketing.’

Grey president Ed Meyer is lukewarm about the idea of virtual agencies.

For him the question is not a case of how to integrate, but of how much

need there is for daily integration. The key to managing the process

internally, he says is to make it clear that, firstly, all benefit if

the client business grows and, secondly, that management is totally

neutral as to whether the extra funds are spent on direct marketing,

advertising, package design or PR.

‘The question I ask,’ says Meyer, ‘is how did the brand do overall? If

the brand is not doing well, maybe the allocation is not quite right.’

Structuring: Putting the client first

The focus on how best to structure agencies is a common feature of both

ad and PR industries. B-M’s attempt to break down geographical barriers

and make itself more ‘client focused’ by introducing a practice

management structure has been well documented. Rather less so is WPP’s

own experiment in which each of its agencies, Ogilvy and Mather, JWT,

H&K and OA&R, have been asked to allocate two offices as test sites for

flatter, client-led structures.

WPP CEO Martin Sorrell points out whereas PR agencies have traditionally

been organised by geography, by function and by client - in that order -

ad agencies are ‘more client-focused’.

Although he thinks B-M’s practice structure has gone too far he does

think PR agencies will have to change so that they put ‘the client

first, function second and geography third’.

‘The old paradigm of ‘we’ll handle it only in this office’ is not right

and it never was right in the agency business,’ says Grey’s Meyer.

Although he recognises there is a problem in making sure the agency has

its best talent where it needs it, he insists that you don’t need to

tear up the local office management to do that.

‘We haven’t given up country management, unlike a lot of people,’ says

Wren, who adds that Omnicom is very keen on ‘incentive compensation’

where the emphasis is on individual performance. ‘If you are going to

reward people, you have to make them responsible and also give them

authority. If the management structure is too floppy, you can’t get

either,’ he adds.

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