The recent publication of the global PR rankings from the Holmes Report confirmed last years’ trend that the big agencies have stalled and had me pondering why? Weber-Shandwick, Ketchum, Burson-Marsteller and Ogilvy are all down. Of the top eight only two, Edelman and Hill & Knowlton, have grown and even this can best be described as anaemic. Overall, the top eight are down by 0.7%
Contrast this with the next eight agencies, which are up on average 7.8%.
|Cohn & Wolfe||246,000,000||224,000,000|
Source: Holmes Report
The Holmes Report takes a much wider sample of midsize PR firms, “defined for these purposes as those within $50m to $250m”, and says they “performed handsomely, illustrating how this tier of agencies have come to lead the market in terms of both growth and innovation”. This group grew by 6.1%.
The growth success of the mid-size agency is self-evident from these numbers, but the innovation success is more difficult to prove. Arun Sudhaman contends that the performance of mid-size agencies in Creative Awards is indicative of this.
Perhaps, but perhaps it is just easier to grow a $200 million firm than an $800 million firm? Perhaps also it is the more surprising stalling of the big agencies that provides the clue to what is really happening in the market. Whilst Burson and H&K cannot be accused of visionary leadership (hence why Burson has been subsumed into a middle-sized agency perhaps) and Ogilvy is now just an operating silo of its big brother ad agency, Edelman and Weber (excuse my bias for my alma mater’s) are excellently managed businesses with visionary leadership teams who have defined the industry. And yet Edelman did 2% and Weber went backwards this year.
One year out from a bloody long stint growing these kinds of businesses I have some thoughts as to why this might be the case.
- For good and bad reasons, clients don’t buy multi-market campaigns or agency relationships like they used to and this alone accounts for most of the recent big agency sluggishness, especially in developing markets. After HP picked Edelman in 2005 we ran 28 markets in Europe for them earning around 6 million euros in fees annually. This accounted for nearly 10 percent of the region’s fees. The implications of the decline of these accounts is huge and goes way beyond the lost fee opportunity. They knitted offices together with real work and meant best practice and culture flowed seamlessly both ways from head offices to ‘outpost’ small offices. It meant those small offices upgraded their skills and head offices learned to do things globally. The change to this happy situation has occurred fast. I have spoken with three of the big agencies and the fee income of their biggest global client relationships plunged on average 40% across their Asia-Pacific offices between 2014 and today. The same is true of Lat Am, though less so for Europe where some of the big client accounts are hubbed. The biggest account relationships of the biggest agencies are now even more disproportionately benefiting their US and London businesses. Despite this, global exclusions are still often signed, which restrains the ability of local offices to win competitive business even though they now more rarely get the chance to work on head office clients. And despite a decade of expectations, very few developing market clients have filled that gap and become significant multi-market clients (with some honourable exceptions). But the big agencies still have to manage big networks of fifty or sixty or even more offices, many of which are now condemned to fight it out with little revenue help from the centre against unconflicted and increasingly sophisticated local players.
- The big PR agencies are on the verge of losing the once-in-a-lifetime opportunity they had to get their share of lead-brand assignments. The rise of social media and the fragmentation and decline of traditional advertising opened the door for us and put the ‘creative’ agencies on the back foot, but for the most part, we were not quick enough to hire or blend new skills. For all the headlines, not nearly enough planners, creatives or media people were brought in and not enough decent studios built and rarely did we succeed in attracting the very best of those talents. This was doubly the case beyond the US and the UK. And the marketing prize was the big prize for the big agencies and the one that, if properly addressed could still save them, because Chief Marketing Officers control between 10 -14 times the fee equivalent budgets of Chief Communication Officers. This was and is THE most difficult of agency management and culture transitions to make so failing is understandable; it’s just that it might also be fatal for the hopes of big agencies to re-ignite meaningful growth again. Tough as it is, it is not a challenge that can afford to be neglected.
- The big PR agencies have a big leadership challenge in the ‘middle’. The diversity challenges at the top in the PR industry are well known (Donna Imperato has just become the only female CEO amongst the top eight firms), but much less discussed is the lack of skill and experience diversity at the country management level, which has (again) become the defining role in big agencies. Once upon a time, the global account people could drive significant big agency growth. Then the global practice and speciality people took over, upskilling and providing products, training and support that underpinned better services at the periphery. Now the local offices (sometimes pretty large and well defined) have to hunt more and more on their own and so whilst the big agency with strong local GMs and office managers should continue to do well, there is no ‘leg-up’ for mediocre offices anymore. This means running an office of a big network comes with lots more challenges, much less help and less real global exposure, but the same unremitting financial pressure. Why put up with that when you can work at a local leader agency with, perhaps, an inspirational CEO at hand, possibly some equity or even for the chance of running your own business?
- If size does not mean a better service for clients and a better place to pursue your career, then it tends to create bureaucracy and politics. I have always believed that size matters in PR offices because an office of 100 can offer planners, studio, crisis specialists, healthcare experts, senior ex-journalist media experts and a creative director and an office of 30 people tends to have 20 generalists. So led well, the 100 person office will mostly win the pitch against the 30 person office and the client should get a better multi-specialist service. And until recently, if you did not have flags on the map, you could not be ‘in-to-win’ those big global accounts. Many of the big agencies now have too many flags on the map and too many undersized and generalist offices.
- Two years of no/slow growth ossifies cultures and that further risks future growth. If an agency is not growing at high single-digit levels then people have to leave to enhance their careers because the business cannot grow fast enough to grow better and bigger jobs for them. Unfortunately, when this happens, the best tend to leave first and the slow-growing agency tends to be left with a higher proportion of mediocre talent. This is true at all levels and is perhaps one of the reasons that Richard Edelman said he will not put up with 2% growth as the ‘new normal.’
- There’s always someone bigger. The ad agencies woke up and got better at many of the things we wanted to do and take off them and they are still much better at planning and creative. They also began to take some of the big PR agencies more seriously in competitive situations and they are ferocious head-to-head competitors especially for PR firms curiously preaching creative and yet still addicted to 40 page PowerPoint decks. And whilst I did not experience losing business to the big management consultancies, I do believe less heavyweight reputation or change communications work is coming our way because they are quietly soaking it up.
Those that don’t break the cycle will either end up like Burson and consolidated or be subjected to merger by stealth like Fleishman, Ketchum & Porter Novelli or will whither ever quicker. But all this said I do believe the best of the big agencies will get growing again because they will re-double efforts to change their approach to meet the new client opportunities that are absolutely out there. And that’s important for the industry because a disproportionate amount of the IP that is used client side and in small and medium firms is generated by the big firms. And no industry can be fully successful if its biggest players are not also.
Over the next few months in one of my new roles I will be getting a perspective on these issues through the eyes of Hotwire and Frank amongst others and in which case perhaps I will care less about the fate of the big guys, but right now, I still think the industry is better for them being confident and growing.