The recession caused corporations to adopt a “bunker mentality” when it came to public relations, according to a new study released the USC Annenberg Strategic Public Relations Center. In response to tough economic times, most companies adopted “the most cautious, defensive, short-term, non-innovative mode of operation possible—a modus operandi dedicated to self-protection rather than aggressiveness, survival rather than achievement,” says the second PR Generally Accepted Practices (GAP) study.
While anecdotal evidence suggests that conditions may be gradually improving for the PR profession in early 2004, the authors of the study say, “the scope and sustainability of the recovery clearly remain to be seen.”
If there’s good news for the profession, it’s that the most admired corporations in America continue to demonstrate a greater commitment to public relations than their peers.
One of the major, and most apparent, setbacks to the profession in 2003 involved shrinking budgets. Companies appearing on Fortune’s Most Admired Companies list cut spending on public relations by about 5.5 percent, after cuts of around 3.3 percent the year before. Fortune 500 PR departments saw headcount decline too, by an average of 15 people, although the most admired companies continue to maintain larger PR departments than their peers: an average of 66 people, versus 40 in those companies that did not make the list.
Practitioners believe the decline in budgets and staffing levels reflects a lack of commitment on the part of their management. According to Jerry Swerling, director of the USC Strategic PR Center and lead author on the GAP II study, “PR lost ground vis-à-vis practitioners’ estimates of how their senior managements perceived PR’s contribution to organizational success relative to other corporate functions such as finance and marketing. While PR still remains in sixth place, ahead of HR and security, its Contribution to Success score slipped, and its edge over seventh place HR has dwindled to almost nothing.”
Similarly, management support for PR eroded. The function’s Management Support score suffered significant erosion, from a strong cumulative score of 6.2 (on a 1-7 scale) to a relatively weak (though still positive) 5.4 among “Most Admired” companies, and from 5.9 to 5.2 among all other respondents.
Among the other setbacks for the profession:
PR’s recommendations were taken less seriously: The score for the extent to which PR recommendations were taken seriously dropped from 5.9 to 5.3 among “Most Admired” companies, and from 6.0 to 5.4 among all other respondents.
PR contributed even less to strategic planning: The score for the extent to which PR contributed to organizational strategic planning dropped from an already low 4.7 in 2002 to a dismal 4.2 in 2003 among the most admired, and from 4.8 to 4.0 among all others.
PR reported less often to the C-suite: Among most admired companies, the percentage of PR operations reporting exclusively to the executive office dropped by 14 percent, while it dropped by 15 percent among all other Fortune 500 respondents. Among the Fortune 2000, PR reported to the executive office 49 percent of the time among the most admired, versus 57 percent among all others, and to marketing 23 percent of the time among the most admired, versus 17 percent among all others.
The study found significant benefits for public relations departments that report to the executive office, including greater support from senior management, PR recommendations being taken more seriously, senior PR people being more involved in organizational decision-making, being seen as a greater contributor to organizational success, making more of a contribution to strategic planning, and being better integrated with other communications-related functions.
Agency usage: less strategic, more tactical
The agency sector suffered too, the report says. While use of agencies remained high, a number of red flags appeared in terms of how and why clients work with agencies, and their concerns about those relationships. In particular, there has been a shift in the reason companies hire agencies. In 2003, they cited “extra arms and legs” as the biggest reason for hiring an agency. Says Swerling, “This is a significant shift from 2002, when ‘strategic and/or market insight’ was the number one reason.”
Clients also expressed serious concerns about working with agencies. The single greatest increase was in concern about “return on investment,” which was cited as a concern by 48 percent of the most admired companies in 2002 and an overwhelming 80 percent in 2003. Among all respondents, it was cited by 52 percent in 2002 and 83 percent in 2003.
Similarly, concern about “cost” increased from 76 percent to 82 percent among the most admired and from 78 percent to 88 percent among all other respondents.
“The GAP II data, coupled with substantial anecdotal evidence and the experience of the authors, suggest that the agencies may be in a ‘Catch 22’ situation,” says Swerling. “Cost conscious clients who rely on their agencies solely for execution—arms and legs—rather than strategic services may ultimately decry the lack of added value and fresh ideas coming from their agencies—products for which they may not be paying.
“Nonetheless, it appears that agencies need to do a better job of defining and measuring the intellectual added value they are capable of generating, and proactively offering that added value to their clients, if only in self defense.”
To get a different perspective on agency usage the authors grouped respondents’ reasons for working with agencies into two group: The strategic group, which includes respondents that use agencies for “strategic market insight,” “objective point of view, and “ability to quantify results,” and the tactical group, which includes respondents that use agencies to “offset limitations on internal headcount,” because they are “cheaper than adding staff,” and to provide “additional arms and legs.”
The authors then ran statistical correlations for these two groups with their answers to all of the other GAP II questions and found that the higher a company scored in terms of strategic agency usage (i.e. the greater the extent to which it adhered to strategic reasons for working with agencies), the greater the likelihood they were to report, among other things, stronger support from senior management, better integrated communications functions, performing the marketing PR function (though not necessarily reporting to marketing), and increased budgets.
By comparison, the higher the score on the tactical agency usage (i.e. the greater the extent to which a respondent adhered to tactical reasons for working with agencies), the greater the likelihood they were to report, among other things, smaller PR/GR ratios.
Still, while not minimizing the obvious hit the profession took in 2003, the GAP II authors emphasize the importance of looking at the situation in context.
“The last year or two have been extraordinarily tumultuous for society in general and the PR profession in particular,” Swerling says. “It was a period of great economic uncertainty, new legislation like Sarbanes-Oxley, litigation like Kasky v. Nike, numerous corporate crises and scandals, intense scrutiny by the media and interest groups, the constant threat of terrorism, and the war in Iraq.
“All of this melded together to create a pall of uncertainty that hung over all elements of American society. In that kind of an environment, is it any wonder that PR suffered through a ‘bunker mentality’ while more defensive functions like finance and legal did relatively better?”
New budgeting tool?
One long-term consequence of the study is the development of a new budgeting tool, which the authors call the PR/GR ratio (the ratio of public relations spending to gross revenues). In 2003, the PR/GR ratio was $588 per $1 million among most admired companies and $564 per $1 million among all others.
“Our hope is that the PR/GR ratio will become as important a measure of, and guideline for, PR budgeting as the A/S, or ‘advertising to sales’ ratio, is in advertising,” Swerling commented.
The study also reveals that, among the Fortune 1000, when the PR/GR ratio is higher, PR is perceived as making a greater contribution to organizational success and the most important metric for evaluating PR is “influence on organizational reputation.” The converse is also true: the greater the perceived contribution to success, the higher the PR/GR ratio.
According to the authors, the link suggests that there is a correlation between the extent to which PR is seen as an important contributor, the resources committed to it, and the importance of reputation as an asset. This reinforces the belief that the greater the extent to which PR functions as a strategic contributor (in support of organizational goals and objectives), the greater the tangible support it receives in the form of a higher PR/GR ratio.
“A dichotomy that we first explored in GAP I seems to have been exacerbated by the conditions encountered in 2003,” says Dr. Ian Mitroff, associate sirector of the Strategic PR Center. “The profession seems to simultaneously hold two views of itself that are somewhat at odds with each other.
“The first is that if PR is viewed as making a significant contribution to the strategic objectives of an organization rather than focusing on purely tactical activities like building awareness for its own sake, then it is better perceived by senior management, and better supported in the form of a higher PR/GR ratio.
“The second view, which stands as a potential barrier to the accomplishment of the first, is that senior management sees PR as contributing less to organizational success than most other functions, and that PR actually lost ground to those functions in 2003.
“The bottom line problem seems to be that PR understands what it must do, which is to conceive of itself and to function in a strategic fashion, but at the same time PR sees itself as being either barred from, or incapable of, functioning strategically due to its perceived second class status. There’s a very complex ‘cause and effect’ dynamic at work here,” Mitroff added.
Little progress on evaluation
Public relations evaluation, meanwhile, made little progress, but again most admired companies put greater emphasis on employee morale, less on media metrics. As was the case in GAP I, “influence on corporate reputation” remained the most commonly cited metric, despite the lack of a generally accepted methodology for measjuring that influence.
Overall, most admired companies scored a total of 10 possible evaluation metrics above 4 (neutral) on a 1-7 scale, while non-MACs scored only 5 above neutral, suggesting that the most admired are more aggressive about evaluation. Furthermore, most admired companies ranked “influence on employee morale” second, while this was a distant fifth among other companies, and most admired companies placed less emphasis on media-related measures (“clips,” “media impressions,” “ad equivalency,”) than did others.
The measures potentially leading to the greatest degree of support from senior management (“contribution to sales,” “contribution to profitability,” “contribution to market share,”) were at the bottom of the usage rankings.
To get another perspective on evaluation, the authors grouped various types of metrics into four categories (culture/strategy, corporate reputation, media tools, and sales), determined which of the categories respondents fell into, and then developed descriptions of the likely common characteristics of each of the four groups.
The data clearly show that those companies that fell primarily into the culture/strategy group (which included metrics for influence on corporate culture, employee morale, business rankings, corporate strategy, and crisis avoidance/mitigation) were more likely to report that they get greater support from senior management, more likely to report PR recommendations are seriously considered, and more likely to say PR contributes to strategic planning, and more likely to have their PR budgets were increased.
“When viewed collectively the data on evaluation and strategic orientation underscore the need for the profession to focus on two things: improving its performance as a strategic, rather than tactical player, and measuring that performance in terms other than simple media outputs,” says Swerling. “It’s inherently contradictory to position ourselves as strategists who do more than media placements and then rely solely on media placement-related metrics—even the most sophisticated of them—as gauges of our success.
“The time has come for the profession to stop whining defensively about an inability to measure and take aggressive action to crack the measurement code.”
Finally, when asked about the extent to which the various communications-related functions within their organizations are integrated and coordinated, the average scores were only somewhat positive: 5.0 for most admired companies and 4.6 for others. According to the authors, companies should be concerned about lack of integration because a comparison between companies with more and less integration reveals that the more integrated companies were significantly more likely to see themselves as democratic, visionary, proactive, and strategic.
The GAP studies are a product of the USC Annenberg Strategic Public Relations Center. The mission of the SPRC is to advance the study, practice and value of public relations by means of practical, applied research conducted in partnership with other visionary organizations. SPRC sponsors include Avery Dennison, General Motors, Home Depot, Lohan Media, Nissan Motors America, Raytheon, SC Johnson, and Weber Shandwick Worldwide.