For many corporate communicators, the annual budgeting marathon is not a happy time - particularly in cases where senior management views the PR department as little more than
a tactical cost center that easily could be outsourced.
It was this sort of dynamic that led to the overhaul of Royal Bank of Canada's communications department in 1993. "We produced great employee newsletters, corporate videos and
news releases," says David Moorcroft, senior VP, corporate communication at the bank's Toronto headquarters. "But we were not very good at integrating communication into business
unit priorities [and] advising management on how best to change employee behavior...If we wanted to survive, we knew we had to reinvent ourselves as a strategic resource which
could deliver bottom-line value."
So Moorcroft restructured his 35-member department in the likeness of an agency. The way it works is familiar: account managers now serve as strategic communications advisors
for the bank's divisional vice chairmen. Acting as liaisons, the account managers delegate tactical execution to inhouse experts in areas such as media relations, organizational
change and event management.
Royal Bank of Canada is hardly alone in its operating philosophy. Inhouse agencies have always been common in the fashion industry, where big-name designers - a la Calvin and
Donna - like to keep the arbiters of their haute images in close check.
And the inhouse agency blueprint lends itself nicely to corporate conglomerates with diversified businesses (read: clients). "The client for us is the brand manager for a
particular fragrance or product line," says Arthur Gallego, director of corporate communications and PR for Coty, Inc., the New York-based umbrella corporation that manages
licensed fragrances such as Adidas cologne, Davidoff, and Isabella Rossellini's Manifesto worldwide. "The unit I work for is called Ideas and Image. It functions as an internal
agency that provides counsel on PR, advertising, packaging, design and marketing ."
Only now, the "I'm not-an-agency-but-I-play-one-inhouse" trend is spreading well beyond Seventh Avenue. In a recent multi-industry survey of 120 corporate communicators
conducted by the DC-based Public Affairs Group, more than 60% of respondents described themselves as "internal consultants," and 55% used the word "client" to describe the
business units they serve inside their respective corporations. "Most companies are moving in this direction because it fosters accountability and helps align communication goals
with the overall strategic business plan," says Edie Fraser, CEO of the Public Affairs Group.
Who Needs Inside Agents?
The metamorphosis into an inhouse agency model accelerates teamwork, and, as such, can solve an array of PR staffing conundrums - including those that fall at seemingly
opposite ends of the spectrum. Restructuring helped Moorcroft's account teams become more entrenched (thus more indispensable) in Royal Bank's business units. At Georgia-
Pacific, the shift to an agency model helped unwedge staffers who were too firmly entrenched in their own fiefdoms to work collaboratively.
Before the change, the Atlanta-based forester had separate PR departments for each of its divisions - a feudal system that made it tough to maximize PR resources. "In any
given community, we might have multiple business groups represented," says Greg Guest, senior manager of external communications. "We might have a pulp and paper mill, but also a
building products facility. It was important for communicators to work together to represent one Georgia-Pacific in that community." But they weren't.
Georgia-Pacific's inhouse PR agency now houses a "business unit support group" which appoints senior-level advisors to counsel "client" divisions of the company. But the
department also maintains four staffers for corporate-wide external relations. Having a central PR nucleus facilitates the sharing of best practices, and affords more staffing
flexibility, Guest says. "Now we can pull in extra people for big corporate-wide projects such as an acquisition or a crisis."
The Budgeting Game
Of course inhouse agencies are not the same as outside agencies in one critical respect. "No matter how you paint them, they are cost centers, not profit centers," says
Jack Bergen, president of the Council of PR Firms, who has worked in both agency and corporate environments. "And capitalism doesn't work in a cost center. When an internal PR
department tries to act like an agency and earn billings from other internal departments, they find their budgets going down. Internal clients will say, 'Well, I'm not going to
spend that kind of money.'"
For this reason, most pioneers of the internal agency model have eschewed the literal practice of billing out projects to other departments. Each of Georgia-Pacific's business
units has a PR line item in its operating budget (hard costs are decentralized, while administrative expenses fall in the main corporate PR budget). At Royal Bank of Canada, all
PR expenditures are managed through a central budget - although allocations must be approved by heads of each corporate division during the annual budget planning process. "I call
it a system that meets halfway," Moorcroft says. "We have to convince the department chairs that the amounts we're budgeting for PR are necessary, but my staff don't have to
worry about time sheets and billable hours."
Having a central PR budget also protects reserve funds for corporate-wide initiatives such as reputation studies. "Each division is worried first and foremost about its own
profitability. There are some PR strategies that are in the corporation's best interests, but not necessarily a top priority for each division," Moorcroft notes.
Inside And Out
Do inhouse agencies preclude the need for outside agency support? No - they merely ensure that internal staff time and expertise are maximized before dollars are spent
elsewhere. Most proponents of the inhouse agency philosophy say they still outsource during periods of heavy workflow, e.g., during acquisitions, crises or product launches.
The main goal in creating an inhouse agency isn't so much to cut external agencies out of the picture as it is to foster greater accountability and ROI inhouse. Moorcroft
explains the rationale behind his move by quoting GE's legendary leader Jack Welch: "I am convinced that if the rate of change inside an institution is less than the rate of
change outside, the end is in sight."
Funny how the word "restructuring" has so often been construed as a management consultant's euphemism for "layoffs." Today's savvy corporate communicators are finding that it's
often the best means of keeping staff - and budget dollars, and the strategic function - in the house.
(Bergen, 877/773-4767; Gallego, 212/479-4300; Guest, 404/652-4739; Fraser, 202/463-3766; Moorcroft, 416/974-0520)
A Case For Inhouse Agencies
When Royal Bank of Canada diversified its business lines through a series of acquisitions, the company hoped to tap its existing base of 9 million personal banking customers as
a means of increasing referrals to its new services, which included mutual funds, full-service investment advice and estate planning. "It sounded like a brilliant strategy and it
was in the business plan, but nothing happened," says David Moorcroft, SVP communications at the bank. Why? Because employees weren't behind the plan. In fact, branches were
expected to reach certain benchmarks for deposits each year - an expectation that created a disincentive for branch staff to refer business to other arms of the company.
Organizational change experts on the PR team assessed the roadblocks and devised a series of strategic solutions. The team created a tracking system for referrals, a revenue-
sharing system (so that bank divisions wouldn't be competing with each other), and a bonus system that offered incentives to employees who made referrals. One year later, Royal
Bank logged $900 million (Canadian) worth of referrals. "And for every dollar we transferred from one part of the company to another, we brought in an additional $2.30 in new
business from competitive lenders - because customers were happier when they felt like we were putting their interests first," Moorcroft says.