After another year of 25% growth and a continuing pace of consolidation through acquisition, the public relations agency industry can expect the pundits to once again decry
that firms are becoming big businesses at the expense of strong client relationships. The critics - and some small agencies - say that big is bad for client service; others say
that big is better.
Who is correct? Neither. There are good and bad big firms and small firms, just as in every industry. And frankly, the conventional wisdom that the PR industry has become too
big and too much of a business to serve its clients well is both wrongheaded and dangerous.
Actually public relations firms have a long way to go to approach the size of firms in other professional and marketing services industries. The entire US PR industry is
less than one-half the size of a single management consultant, PriceWaterhouseCoopers; and Anderson Consulting's revenues are double the sum of all PR agencies' revenues
worldwide. The largest global public relations agency, Burson Marsteller, would rank 47th among management consultants and 17th among ad agencies in total revenues.
Increasing our size relative to those other industries should actually enable our firms to improve client service.
Like those other service industries, PR is driven to consolidate by technology, globalism and competition for talent. In earlier days, a firm could keep up with client and
market demands for new services by growing capabilities internally. Today, a shortage of industry talent and a business clock running on Internet time forces a firm to acquire
capabilities and to integrate them quickly. Speed and scale have become strategic imperatives.
Firms seek the economies of size and the investment capital of public holding companies to cover the increasing cost of technology, to develop new services and to expand their
new global markets.
That consolidation, however, also spawns new small firms, staffed by professionals who prefer a more entrepreneurial culture, many of whom leave the consolidated firms.
Serving clients that are not interested in the added capabilities of large firms, many of those start-ups thrive, particularly in specialty niches. They eventually grow, create
services attractive to larger firms and achieve valuations that encourage their entrepreneur owners to sell. The business economic cycles driving today's public relations
industry are no different than those of any other vibrant industry.
What's different about public relations is that business success has been made to appear incompatible with good client service. In the past decade, public relations firms have
indeed become very successful businesses. Margins and multiples have risen steadily, now surpassing the profitability and valuations of advertising agencies (proportionately). Why
must agency executives apologize for being the good business people that client companies respect in their own industry?
Weak businesses are bad for clients. In the agency recession of the early 1990s, poorly run public relations firms were unprepared to address the changing market and
preoccupied by internal concerns. Their clients suffered the consequences. Imposing layoffs to trim bloated staff costs, driving away quality employees by salary freezes and
quality vendors by failing to pay bills, and scrambling for revenues, those agencies penalized their clients.
Successful agency executives know that outstanding client service is essential to - not incompatible with - strong profitability. The foundation of a solid bottom line is a
growing top line. And, in the PR agency business you can't grow the top line profitably without satisfied clients.
It's true that some agency executives keep their clients happy by keeping their fees - and profits - low. Others base their client relationships primarily on friendship rather
than business imperatives. Aside from putting their clients at risk if (that is, when) the next recession comes, those executives are also losing out in the competition for the
talent they need to offer top quality service to their clients.
Good people want to work for profitable, high growth firms. They know they'll get better training, faster promotions and more generous bonus awards. Good clients should want
to work with those same firms. That's the best way to assure the best account talent and the finest client service.
Jack Bergen is president of the Council of PR Firms. 877/PR-FIRMS. http://www.prfirms.org
Recent Agency Betrothals
August
- Manning Selvage & Lee to buy Atlanta-based Deely Trimble & Co.
- J. Walter Thompson (WPP Group) to acquire the Seattle advertising and PR firm Imagio.
- H&K (WPP Group) to buy SocketPR, which houses offices in Atlanta and Austin.
- Golin/Harris to snag the events firm Creative Event Marketing.
- McCann-Erickson (Interpublic Group), to buy St. Louis-based Waylon Co. and merges it with Momentum Worldwide.
- Canadian PR firm Torchia Communications (Montreal and Toronto) to acquire marcom and special events portfolios from Edelman Canada.
July
- London's Incepta Group to buy the high-tech firm Cunningham Communication (Santa Clara and Austin).
- Golin/Harris to acquire Forrest International, a PR firm with offices in Hong Kong and Singapore.
- British-based Cordiant Communications to acquire Lighthouse Global Network.
- Ira Thomas Associates, based in northeastern Ohio, to merge with Marcus Advertising.
June
- Publicis to acquire Saatchi & Saatchi; Saatchi to sell off Rowland offices to Edelman.
- Golin/Harris to merge with the I/R firm Ludgate Communications (New York, London, Frankfurt).
- CDB (New York) to acquire Kratz & Jensen and Capstone Communications, and merge with ACG Communications, to form Magnet Communications.
- BSMG Worldwide (True North) to acquire Scotchbrook Communications in Asia, as well as London-based Lyons Waddell.
- Edelman to buy Swedish Infokraft Publishing AB.
- Euro RSCG to acquire Internet PR firm Middleberg + Associates (New York).