With predictions of a possible downturn in the economy, budget belts are tightening and Darwinian metaphors of "reinvention" have quickly returned to the lexicon of agency
rhetoric. On the client side, GM is the latest powerhouse to announce it will cut its inhouse staff by 10% and put its 40-some agency relationships under the microscope.
"We may not make any changes, but we are talking to people who study agency setups and asking, 'Is this something that makes sense?'" says GM VP of communications Steve Harris.
This sort of introspection is a natural next step in GM's evolution from what was previously a loose confederation of independent brands (each with its own agency) to a more
strategically united organization, he says. "By and large, all of communication is now reporting under me. That's a change which causes us to look at whether there's a more
efficient way for us to operate."
The very fact that clients are starting to take inventory of their cash flow and search for efficiencies is a definite sign for agencies that the champagne ain't flowing quite
so freely in 2001 (as if this is any surprise).
"In general, agencies are not prepared for a soft landing, let alone a tight economy," says Jon Boroshok, president of TechMarcom in Westford, Mass. Like many smaller firms
serving the tech market, Boroshok hopes to ride out any impending economic storms by doing away with retainers and offering clients more a la carte services.
This sort of "no fat" operating principle will be especially key for PR firms catering to start-ups and small businesses whose coffers were limited even during the heyday.
Michelle Herskowitz, founder of Houston-based Loudmouth PR, an incubated agency that shares space and resources with the VC firm NetStrategy, says she, too, is "modularizing" her
agency's revenue model to offer greater flexibility to clients facing budget constraints. But she also has contingency plans in case the bottom drops out.
"One option is to purchase [NetStrategy's] interest in the company, as would be the case with any investor. But then do we look like a typical agency and go out and get our
own space, in which case our overhead goes up? Or are we like a hermit crab? Do we look for other partners that can offer synergistic opportunities?"
Herskowitz remains bullishly optimistic about the efficacy of her current model (her five-person firm serves high-tech start-ups, but not many dotcoms), but she's nevertheless
keeping a watchful eye out for law firms, management consultancies and accounting firms that might be trolling for PR partners down the road. Just in case.
"PR firms will be wise to look for ways to change their businesses to better reflect the needs of the client and of the business landscape," she adds. "PR firms have come out
of a very healthy time and their pricing has gone up. But consumption is a function of income, and their overhead has increased significantly. They've been bringing in more
money, spending more on advertising, throwing more parties, expanding their offices and hiring more staff. Now it's going to be difficult for many of those agencies to drop their
prices. They're kind of stuck - forced to bill at higher amounts or to lay off people."
Of course the big agencies - those serving the GMs and the other Fortune 500's of the world - are quick to state that they have no intention of going the pink slip route if
this path can be avoided. Rather, each is holding out to be the one stalwart house that remains standing after the client has weeded out the proverbial chaff from its agency
roster.
"I'll be the optimist. I see this as a real opportunity for our industry - especially for the big shops that offer expertise across the board," says Stephen McCauley, senior
VP in the food, beverage and nutrition practice at Porter Novelli DC. "If the economy turns sour, clients will be looking to reduce duplicative work and reduce the resources
they're expending on managing multiple agencies and personalities."
The idea of one-stop shopping will appeal to clients who are looking for ways to streamline, McCauley says. And Porter Novelli - which houses a full-service marcom program
including not only PR, but also research, advertising, creative design and interactive communications - hopes to sell clients on the idea that keeping their eggs in one basket
will mean greater branding consistency and reduced fee hours spent on agency staff orientation.
At least one other big PR shop (and we somehow suspect there are more) is embracing the philosophy that broader is better. The Seattle office of Edelman Worldwide - the only
remaining blue blood agency that hasn't been gobbled up by an ad conglomerate - recently appointed ad agency veteran Gail Anne Grosso to the post of executive VP/creative director
for its Western U.S. region. Grosso, whose credentials include Voicestream's Jamie Lee Curtis campaign, plus advertising work for big brands like Acura, Tide and L'Eggs, has
walked onto the stage touting not advertising, sales promotion or PR, per se, but rather "idea-centric" branding solutions.
"There is a need on the client's part for work that does not live in old-fashioned, traditional silos," she says. "A company cannot say it's dedicated to ideas unless it's
every day overhauling and recreating itself and paying attention to even the smallest little blip in atmospheric condition. I hate using the words PR and advertising. There
needs to be a new word for what we do."
Of course, the client will have the final say on what that word will be. And everyone is waiting for some sort of utterance.
(Boroshok, 978/502-1055; Grosso, 206/223-1606; Harris, 313/667-3532; Herskowitz, 713/570-7487; McCauley, 202/973-3615) Need advice about how to select the
agency partner that's right for you and your biz? Try visiting the Council of PR Firms Web site at http://www.prfirms.org.
All Agencies, Great and Small
In our Jan. 1 issue, online PR guru Don Middleberg waxed philosophical about the fact that "the handcuffs are off" -- meaning territories such advertising, direct marketing
and branding are now fair game for PR firms. It's only natural that bigger, full-service agencies may be the first to embrace this trend toward convergence and beef up their
staffs accordingly with new repositories of expertise.
Does this mean the demise of the small, specialized agency? Hardly. As big shops turn up their noses at small business and start-up accounts, the U.S. Small Business
Administration continues to chart record numbers of new, local businesses on the map. And flexible workplace trends are prompting many a seasoned PR pro to leave "institutional"
life to join virtual agencies and smaller boutiques that follow a consultant-based model (in which all staffers are senior executives). Lower overhead and senior level attention?
That's a tasty proposition for many clients.
"Specialized agencies will always exist because there will always be a need for them," says Stephen McCauley, senior VP at Porter Novelli DC - one of the more jumbo-sized
agencies in the lot. The time is ripe for big firms to claim a bigger piece of the communications pie. But even they can't be all flavors to all people.