PR Budgets Down About 5 Percent in 2009, Study Says
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PR Budgets Down About 5 Percent in 2009, Study Says

Good news from GAP VI Study: PR in taking control of social and digital media. Bad news: Still relatively little investment in measurement and evaluation.

Paul Holmes

While 2009 was hardly a banner year for public relations, the profession was more resilient that many observers predicted and certainly more resilient than in in prior recessions, according to the sixth Public Relations Generally Accepted Practices (GAP) Study, which is published on a biennial basis by the Strategic Communication and Public Relations Center at the USC Annenberg School for Communication & Journalism.

 

Even better news for the long-term prospects of the profession, the survey also found that new digital and social media tools are more likely to be under the sway of PR than marketing.

 

But there was bad news too, specifically in the worryingly low investment in measurement and evaluation and the absence of any broad agreement on the most relevant metrics.


A total of 382 communication decision makers in corporations, not-for-profits, and government agencies participated in GAP VI, for which most data was collected in the last quarter of 2009.

 

BUDGETS

 

In 2009, 20.9 percent of respondents experienced budget increases, 36.6 percent saw little or no change, and 42.5 percent saw decreases. When averaging all the responses, organizations reduced their 2009 budgets by a fairly moderate 5.3 percent. The average change among corporate respondents was -4.68 percent. This year looks like a better, but still very cautious, year: 28.8 percent expected budget increases over 2009, 49.7 percent expected no change, and 21.5 percent expected budget decreases. Averaging all the responses, organizations expect to increase their budgets by just 1.56 percent. Corporate respondents expect an increase of 1.94 percent.

 

According to Jerry Swerling, the Strategic Communication & PR Center’s director: “We should be heartened by two factors. First, an increasing number of organizations are increasing their budgets. Second, from a historical perspective, it appears that we have weathered this recession far better than was the case in prior recessions, as many industry veterans will attest.”

 

Public companies’ PR:GR ratios (the amounts they spend on public relations relative to their gross revenues) remained relatively stable from 2007 (GAP V) to 2009 (GAP VI). For example, the average PR:GR ratio for all public companies larger than $5 billion that responded to GAP VI was 0.07 percent, as compared with 0.08 percent for similar GAP V respondents. This suggests that budgets remained somewhat stable as a proportion of total organizational resources dedicated to communications.

 

Among all GAP VI corporate respondents, internal staff salaries and related costs accounted on average, for 41 percent of the total PR budget, as compared with 44 percent in 2007. Nearly 20 percent was paid to external PR agencies, as compared with 30.37 percent in 2007.

 

GAP VI reveals some surprising data regarding staffing. In 2009, 61.6 percent of all 382 respondents actually increased the size of their internal staffs, 15.1 percent saw little or no change, and 23.2 percent decreased the size of their organizations.

 

Only 23.2 percent of responding organizations reduced their staffs in 2009, with those reductions generally falling in the modest 1 percent to 5.5 percent range. However, in 2009, GAP VI respondents spent a much smaller percentage of their total budget—15.4 percent —on compensation for outside agencies, than the 26.6 percent GAP V participants spent in 2007.

 

ORGANIZATIONAL STRUCTURE

 

PR’s place in the organization, where it reports, the degree to which it is integrated with other organizational functions, and the values it practices, were keys to its success during the recession, just as they are during healthier economic times.

 

Almost half (42.5 percent) of all corporate respondents to GAP VI reported directly and exclusively to the C-Suite (chairman, CEO, COO); 20.5 percent reported to multiple offices; 16.1 percent reported to marketing; 5.7 percent reported to the head of a region or operating unit; and fewer still reported to human resources, law, finance, or strategic planning—findings are generally consistent with past GAP studies.

 

But while 89.1 percent of those reporting to the C-Suite felt that arrangement was appropriate, those who reported elsewhere expressed a great deal of dissatisfaction. Just 48.9 percent of those who reported to marketing deemed that line appropriate, and none of those reporting to HR believed that line to be appropriate. Indeed, 63.6 percent of those reporting to HR described their structure as being inappropriate.

 

In another telling finding, those who reported to the C-Suite also ascribed many positive attributes to their organizations.

 

By means of statistically valid correlations among respondents’ answers to multiple questions, SCPRC researchers were able to identify patterns that reliably reflect true best practices. For example, respondents who reported both an increase in budget in 2009 and a reporting line to the C-Suite (chairman, chief executive officer, chief operating officer), grew by a far-better-than average 8 percent in 2009. They also were far more likely to indicate that they expected their budgets to grow by a healthy 5.9 percent in 2010. In contrast, those reporting to marketing expected budget increases of just 2.5 percent.

 

Likewise, GAP VI respondents who reported an increase in 2009 budgets were more likely to describe their organizations as being long-term/strategic rather than short-term/tactical; proactive rather than reactive; flexible rather than rigid; innovative rather than non-innovative; democratic rather than autocratic; and people-first rather than profits-first.

 

“It has long been argued that PR/Communication must report to the C-Suite to optimize its effectiveness, but those arguments have generally been subjective in nature. While we can’t claim that our correlations have a cause-and-effect relationship, there’s no denying that they are logical, reasonable, compelling, and based on hard data,” says Swerling.

 

As with past GAP studies, GAP VI asked participants how their CEOs would rank nine common functions in terms of their contributions to organizational success. As was the case in GAP V, PR was ranked second, behind marketing but ahead of sales, strategic planning, human resources, information technology, legal, and security.

 

On a related note, the degree to which PR/Communication recommendations are taken seriously by senior management (on a one-to-seven scale) scored 5.8, an all time high for the six GAP studies conducted to date.

 

While these responses may be somewhat biased because they are self-reported, their overall consistency with data from past GAP studies clearly reflects a degree of professional confidence and self-respect that was uncommon in the not too distant past.

 

MEASUREMENT AND EVALUATION

 

The survey also found a correlation between the amount a company spends on evaluation and the likelihood that the chief executive officer believes PR contributes to financial success. A positive correlation also exists between the percentage of the budget spent on measurement and the extent to which the CEO believes that PR contributes to maintaining or increasing sales.

 

But only 4.5 percent of the average budget was allocated to evaluation and measurement, as compared with 5.8 percent in 2007. “While much is being said and written about the importance of evaluation, there is little bottom line evidence to indicate that it is more of a priority today than it has been in the past, at least in terms of the financial resources invested in it,” Swerling says.

 

“While we can’t yet prove a causal relationship between what you spend on evaluation and management’s attitudes, these correlations are certainly compelling and logical. CEOs love hard data. By spending more to get better data you will improve perceptions of your department. If your department is seen as a bottom-line contributor, you will probably do better at budgeting time. And if you do better at budgeting time, you will recoup your investment in evaluation.”

GAP VI also examined the degree to which practitioners utilize specific measurement tools, by asking them to use a scale where 1 is low and 7 is high to gauge their use of those tools. The top metrics:

·         Influence on corporate reputation (5.0);

·         Content analysis of clips; influence on stakeholder awareness/opinion (4.3);

·         Influence on employee attitudes/morale (4.2);

·         Crisis avoidance/mitigation; influence on corporate culture (4.0);

·         Total number of clips (3.8).

 

SOCIAL MEDIA

 

When asked to define, in percentile terms, how much budgetary control PR exerted over digital and social media in their organizations, 25.4 percent of participants said that PR/Communication has 81 to 100 percent of budgetary control. Only half as many — 12.6 percent — said that marketing had that much control.

 

Similarly, when asked to define how much strategic control PR and marketing had over digital/social media, 23.8 percent said that PR had 81 to 100 percent. Just 9 percent said that of marketing.

 

And 25.1 percent of corporate respondents indicated that marketing has no budgetary control, while just 10.7 percent said that of PR; 22.4 percent indicated that narketing has no strategic control, versus just 6 percent who said that of PR.

 

“While we need to bear in mind that these are the self-reported opinions of PR/Communication professionals, the disparities can’t all be chalked up to professional bravura,” says Swerling. “A very persuasive argument can be made that PR, rather than marketing, is the logical home for these highly personal and social media, because they require a relatively non-commercial approach; they entail dialogue rather than monologue; they often convey objective information rather than product features; and they tend to be free form in nature, which is just the opposite of the highly controlled world of marketing.”

 

Clearly, GAP VI participants are actively experimenting with digital/social media, if not fully adopting these tools, and the expectation is that usage will only increase. Participants were asked about the extent to which they are currently using or planning to use various online channels on a scale where 1 is low and 7 is high, with these results:

·         Online audio (i.e., Podcasts): current use, 2.6; planned use, 3.8

·         Blogging: current use, 2.7; planned use, 3.9

·         Micro-blogging (i.e., Twitter): current use, 3.4; planned use, 4.2

·         Social networking sites (e.g., Facebook): current use, 3.6; planned use, 4.7

·         Online videos: current use, 4.3; planned use, 5.2

 

Conversely, some channels that have enjoyed moments of fame now seem much less promising, at least from a PR standpoint:

·         Once-hot “virtual worlds” (e.g. Second Life): current use, 1.4; planned use, 1.6.

·         Wikis: current use, 1.9; planned use, 2.6.

 

“Most professionals would probably acknowledge that in just a few years digital/social media have forever changed the practice of public relations, but the GAP data suggest that practitioners are still trying to figure out which tools work best in a particular situation,” Swerling SAYS. “While direct, two-way, relationship-building dialogue is the new strategic standard, there is much less clarity about how to tactically achieve that standard. Bright shiny objects like Second Life are out, while experimentation and testing are in.”

 

GAP VI also suggests that involvement in digital/social media goes hand-in-hand with how the PR function is viewed internally. New media users were significantly more likely to report that:

·         Senior management took their recommendations more seriously;

·         Their CEO believes that PR/Communication contributes to financial success;

·         Their CEO believes that PR/Communication contributes to maintaining and increasing sales;

·         They participated in senior-level strategic planning meetings.

 

Interestingly, among the factors associated with greater use of digital/social media, there was a complete absence of such attributes as being more successful; having a better reputation; being more innovative; being more proactive; or having a more long term/strategic perspective. The factors that were associated with greater use of new media showed a very strong sales and marketing orientation.

 

The authors suggest several possible conclusions: “One, the true contributions of these new channels to organizational success and/or reputation remain to be seen. Two, thus far the emphasis has largely been on activities aimed at producing and/or supporting sales, rather than longer-term relationship building and/or reputation enhancement. Or three, while the argument has been made that PR is better equipped to control  new media? than marketing, these data suggest that while PR is indeed heavily engaged in new media, it is doing so primarily for marketing purposes.”

 

CLIENT-AGENCY RELATIONSHIPS

 

Corporate use of outside PR agencies has remained strong despite the recession, with 100 percent of the largest public companies and 65 percent of the smallest public companies utilizing agency services. On the other hand, government agencies and nonprofit organizations have substantially reduced their reliance on outside firms.

 

In addition, the use of PR agencies correlates positively with numerous beneficial organizational attributes, suggesting a pattern of perceptions and behavior that collectively support PR’s role.

The average number of agencies used by corporate respondents to GAP VI has increased, from 2.5 in 2002 to 3.2 in 2009. Most of the increases have taken place among smaller companies. The largest participating companies have generally decreased the number of agencies they worked with, from more than five agencies, down to four or five. Nonprofit organizations and government agencies tend to work with one outside agency.

 

Since 2002, GAP participants have steadily decreased the average percentage of the total PR budget allocated to outside agencies: GAP VI corporate respondents allocated 23.6 percent of their budgets to outside agencies in 2009, which was down from 30 percent for all corporate respondents in GAP I in 2002.

 

However, Swerling points to three factors that may have influenced this trend: 2009 was a recessionary year; there were steady increases in overall PR/Communication spending in the years between 2002 and the recession; and PR:GR Ratios appear to have increased in the pre-recession years.

 

The net effect on agency revenue may have been that in pre-recession years, growth in total spending offset decreases in the percentage of that spending paid to outside firms.

 

The reasons for working with agencies cited by GAP VI public company participants include:

·         (85.4 percent), “They provide additional arms and legs.”;

·         (72.5 percent), “They provide strategic and/or market insight and experience,” and “They complement our intrernal capabilities.”;

·         (61.1 percent), “They offer unique expertise.”;

·         (55.7 percent), “They have resources in geographies or markets where I need them.”;

·         (52.7 percent), “They provide an objective point of view.”;

·         (40.5 percent), “We have a limit on internal head count.”;

·         (30.5 percent), “They are cheaper than adding staff.”;

·         (26.7 percent), “They provide expertise in digital/social media that we lack internally.”;

·         (22.9 percent), “They provide an ability to quantify results.”

 

GAP VI findings also suggest that working with outside agencies goes hand-in-hand with a pattern of perceptions and behavior that collectively support PR/Communication’s role in the organization. Those participants who worked with agencies were significantly more likely to report that:

·         Senior management took their recommendations more seriously;

·         Their chief executive officer believes that PR/Communication contributes to maintaining and increasing sales;

·         A greater current usage of digital/social media;

·         A greater planned usage of digital/social media;

·         A greater PR:GR ratio, i.e. the amount budgeted for PR/Communication as a percentage of gross revenue;

·         Positive PR budget changes in 2009 vs. 2008;

·         Positive, anticipated budget changes in 2010 vs. 2009; and

·         The PR function is better integrated with other departments.

 

“To get a clear picture of the agency/client situation you really have to look at the data as a whole, rather than a list of individual pieces,” says Swerling. “The percentage of companies using agencies has remained flat or shrunk; the recession has caused clients to reduce the percentage of their budgets allocated to agencies, and some companies – especially larger ones - have reduced the number of agencies they work with.

 

“As for their reasons for working with agencies, clients have consistently told us that the number one reason, by far, is to gain extra arms and legs — an attribute that does not embody a great deal of strategic or intellectual added value. Meanwhile, potential gold mines like ‘expertise in digital/social media’ and ‘ability to quantify results’ rank at very distant numbers eight and nine, respectively, on a list of nine.

 

“But, at the same time, working with agencies correlates with some very important, positive factors, many of which could be leveraged.

 

“All these interrelated factors suggest a message for the agency industry: to avoid the risk of commoditization you need to shake up clients’ perceptions by investing in truly unique and compelling offerings in evaluation, new media, and other high-value sectors. If you are already making those investments, then you need to make clients more aware of them, and of the contribution made to client success by the agency/client relationship.”

 

BEST PRACTICES

 

The study also identified nine specific, actionable strategies, attitudes, and values that constitute true best practices in the PR field:

·         Encourage and support optimal integration and coordination among the communication-related functions (PR, marketing, HR, sales, etc.).

·         Encourage and support optimal integration and coordination between PR and other, non-communication-related organizational functions (operations, finance, Etc.).

·         Invest more than the average percentage (which is approximately 5 percent) of your total budget in evaluation, and invest more of your evaluation budget on metrics other than, and/or in addition to, media outputs.

·         When working with agencies, do so for strategic purposes, rather than solely for additional labor or execution.

·         Champion organization-wide understanding of the relationship between communication, reputation and success, especially within the C-Suite.

·         Encourage and support the organization-wide adoption of a proactive mindset, beginning within the PR function.

·         Encourage and support the organization-wide adoption of a long-term, strategic point of view, beginning within the PR function.

·         Encourage and support organization-wide recognition of the relationship between highly ethical practices, reputation, and success, beginning within the PR function.

·         nine specific, actionable strategies, attitudes, and values that constitute true Best Practices in the PR/Communication field

·         Assure that PR has the most effective reporting line, given the nature and structure of the entire organization; in most cases this will be a direct reporting line to the C-Suite.

 



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