Paul Holmes 21 Feb 2009 // 12:00AM GMT
Despite global economic woes, public relations agency principals from around the world remain broadly optimistic about the prospects for growth—although not quite as optimistic as last year—and continue to list the ability to attract top talent as the greatest obstacle to their future performance, although economic conditions now rank second on the list of concerns.
The Holmes Group gathered data from more than 300 public relations firms around the world as part of its second ever global rankings project—a list of the world’s leading agencies ranked by fee income that appeared in last month’s edition of The Holmes Report’s PR World—and revealed high levels of confidence in the future of the business across all regions.
When asked to agree with the statement that they were optimistic about the future of growth of the public relations industry in their own market, respondents from the developing markets around the world were the most optimistic. Those from the Middle East were the most optimistic of all (8.76 on a scale of one to 10), followed by those in Eastern Europe (8.36, down from 8.40 in last year’s survey. There was optimism too in the Asia-Pacific region (8.06, the only region where agency principals were more optimistic than they were last year, when the region was the least optimistic of all, scoring 8.03).
Those in more developed markets were somewhat more cautious in their prognostications. In continental western Europe, confidence in the future was down from 8.31 to 7.57; in North America, optimism declined from 8.13 to 7.45; and in the U.K.—the least optimistic of all the regions around the world, and the region that showed the most dramatic decline—optimism was down from 8.16 to 7.16
“It is clear that the financial crisis that has been making headlines over the past nine months has dampened the optimism of public relations agency leaders,” says Paul Holmes, editor of The Holmes Report’s PR World and CEO of the The Holmes Group. “At the same time, when asked whether they were optimistic about growth, the average answer was 7.56 on a scale of one to 10. That’s down from last year, but it indicates that PR agency principals remain fairly bullish about the future of the business.”
Obstacles to Growth
Agency principals around the world were united in their agreement about the biggest obstacle to future growth: the difficulty of attracting the best people. But there concern about the economy was apparent in the fact that two questions related to financial factors displaced the ability to retain the best people to round out the three biggest concerns.
Their continued concern about staffing was evident in their responses to two questions. The first asked whether they agreed that there was a plentiful supply of intelligent, well-educated talent in their market, and elicited the lowest scores (6.07 on a scale of 1 to 10) among 10 questions designed to assess attitudes toward public relations and potential challenges facing agency managers.
The second question asked them to identify the three largest obstacles to growth and invited them to select from a list of 17 factors: the difficulty of recruiting top talent was selected by close to two-thirds of the respondents globally (63.9 percent, down slightly from 67.8 percent in 2007) and was seen as the most significant obstacle to growth in every single region. The ability to attract good people was identified as a greater obstacle in developed markets. In the U.K., it was among the top three concerns by 76.3 percent of respondents; in North America by 66.7 percent; and in the Asia-Pacific region by 61.1 percent. It was viewed as slightly less of a problem in Eastern Europe (54.6 percent) and even western continental Europe (58.0 percent).
But the troubling impact of economic conditions became apparent via a significant increase in the number of people identifying overall economic conditions as one of the top problems, which soared from 11th on the list of concerns last year, identified as a concern by just 7.9 percent of respondents, to second on the list this year, identified by 27.9 percent of respondents—more than three times as many.
The reluctance of clients to allocate sufficient funds for public relations activities, which was sixth on the list of agency concerns last year (17.7 percent), rose to third this year, and was mentioned by 21.3 percent of respondents. That meant that the ability to retain the top talent dropped to fourth on the list of worries, even though it was mentioned by slightly more respondents (18.8 percent in 2008, compared to 18.7 percent last year).
Worries about short-term thinking on the part of clients, which was third on the list last year, declined significantly and was mentioned by just 13.5 percent of respondents. There was also considerably less concern about the lack of client understanding about the role of public relations (15.2 percent) and the inability to effectively measure the impact of public relations activity (11.5 percent).
There were increases, however, in concern over the competition from other PR firms (15.1 percent); competition from other marketing disciplines (10.2 percent); competition from clients themselves, preferring to take PR tasks in-house (7.0 percent); and competition from other professional service firms (4.5 percent)—although in the latter two cases the increases were small and the threat remains relatively low.
There were also interesting regional differences.
In the Asia-Pacific region, the ability to retain staff remained the second largest concern, identified as a problem by 44.4 percent of respondents, while concern about economic conditions was lower (16.7 percent) than in other parts of the world.
In Eastern Europe, lack of client understanding about the role of PR (45.5 percent) remains a significant challenge.
Firms in western continental Europe feel the pressure of competition from other marketing disciplines most acutely (14.5 percent).
In the U.K., staff retention remains a significant issue (34.2 percent).
And in North America, economic conditions are most troubling of all, cited by 35.3 percent of respondents, and there is more concern about competition from other firms (20.7 percent).
“The big shift this year is that people are suddenly more concerned about external threats,” says Holmes. “Last year, the big worried all revolved around internal industry issues, and particularly those revolving around the ability to attract and retain top talent. This year, the perceived threat to the industry of issues beyond our control—overall economic conditions and client budgeting, as well as increase competition, are much bigger concerns.”
But if there are short-term concerns about the impact of a worldwide slowdown on the fortunes of public relations firms, there’s also considerable cause for long-term optimism, because the survey suggests largely positive attitudes toward public relations among key stakeholders in senior management—although agency principals still believe that marketers under-value the role PR can play in building brands.
There was widespread agreement that client CEOs are taking corporate reputation seriously (7.51 globally on a scale of one to 10, unchanged from last year), that companies are taking corporate social responsibility more seriously (7.34, up from 7.17 last year), that companies understand the need to balance the demands of shareholders with the interests of other stakeholders (6.65, up from 6.48 last year), and that clients are willing to turn to public relations firms for non-traditional services such as digital communications, advertising and word-of-mouth (6.78 percent, up from 6.69).
But when agency principals were asked whether marketers were increasing their spending on PR relative to other marketing disciplines, they were far less impressed. The average level of agreement around the world was a mere 5.74 percent, up only slightly from 5.61 last year.
“We have seen a number of studies in the U.S. in the recent years that look at the marketing mix and conclude that PR is still under-funded,” says Holmes. “The return on investment for public relations spending is typically better for PR than it is for advertising, for example. But we are still not seeing that reflected in the reallocation of significant funds to PR programming, although there are signs of a shift in the more sophisticated PR markets.”
The good news is that respondents from the more developed public relations markets were significantly more likely to see improvements in pretty much all of these areas. In North America, for example, agency principals were more likely than average to agree that CEOs are taking corporate reputation more seriously (7.90), paying more attention to corporate responsibility (7.72) and understand the need to balance the demands of shareholders with the interests of other stakeholders (7.12).
CEO appreciation of the importance of corporate reputation was rated most highly in the U.K. (7.92) and was more of a concern in Eastern Europe (6.36).
Despite the frequent complaints about the relationship between public relations professionals and the media, most PR professionals seem relatively content with that relationship. And despite complaints about media corruption—ranging from the increased blurring of the line between editorial and advertising in the U.S. to the continued practice of pay-for-play in the emerging markets—there were few complaints about media corruption.
Both media cynicism about public relations and media corruption ranked among the least troubling issues when respondents were asked about obstacles to growth (17th and 15th out of 17 factors globally, where media hostility was considered an important issue by fewer than 1 percent of respondents). Even in Eastern Europe, where there has been considerable focus on so-called “black PR” in recent years, media corruption was mentioned as a concern by only two respondents, while in Asia-Pacific it was not mentioned by even one.
And there was widespread agreement (6.61) when respondents were asked whether the media in their markets operated with integrity and impartiality, although there was a significant drop in confidence in media integrity in western continental Europe, where the score declined from 7.06 last year to 6.33. Agreement was strongest in North America (7.17), and lowest in Eastern Europe (5.27).
Similarly, most PR people feel that the media respect the role public relations plays in the information process. Again, agreement was strongest in North America (7.03), and lowest in Eastern Europe (6.36).
“On the whole,” says Holmes, “it looks as though the relationship between PR and the media is a healthy one. At the same time, there are still some troubling issues in both the developed and the developing world, and while some PR people might welcome the short-term efficacy of blurring lines between editorial and advertising—which can create opportunities—they should worry about its long-term corrosive effect on the credibility that PR delivers.”
Sectors and Industries
The revenue numbers submitted by participants in our rankings survey suggest a healthy mix of business in terms of both practice area and industry sector.
As far as practice areas are concerned, consumer marketing works continues to account for the largest share of the revenue pie (30 percent, about the same proportion as last year); corporate reputation work is up slightly at 21 percent of the business, followed by business-to-business marketing (holding steady at 18 percent); public affairs (down just a percentage point at 14 percent); financial communications (down three points at 9 percent, presumably as a result of the decline in transactions); crisis communications (up a point at 5 percent); and employee communications (still an underutilized discipline, at 3 percent).
As far as industry sectors are concerned, the technology industry accounts for 23 percent of the industry revenues reported in our survey, down quite considerably from 28 percent last year, an indication that the downturn has once again hit the technology sector harder and earlier than the rest of the business world. Consumer companies account for 23 percent of revenues, up a percentage point, followed by healthcare (17 percent, down slightly from 2006 revenue numbers); financial and professional services (up a point or so to 14 percent); industrial companies (up to 12 percent); public sector clients (up two points to 8 percent); and non-profit organizations (about 2 percent of total revenues).
Around the world, public relations agency principals still anticipate greater growth in corporate reputation management than in any other traditional discipline. Principals were invited to select up to three practice areas—from a list of nine—where they anticipated the greatest growth over the coming years, and more than half (52.4 percent, down from 62.6 percent) selected corporate reputation as one of the top three.
But this year, those principals believe that the greatest growth of all is going to come from a non-traditional arena, digital communications, selected by 54.1 percent of respondents, up from 43.8 percent last year.
And in the most developed markets, excitement about the opportunities for growth offered by the burgeoning digital communications sector was even higher. In North America, 61.8 percent of respondents indicated that they expected growth in the digital arena, while in the U.K. 60.5 percent agreed. By contrast, only 33.3 percent of Asia-Pacific respondents expected to see strong growth in digital, and only 36.4 percent in Eastern Europe.
“It’s clear that the shift in marketing—and to a lesser extent corporate communications—dollars from traditional media into new media is really benefiting the public relations industry, at least in mature markets,” says Holmes. “It’s not clear whether developing markets see less growth potential in the digital arena because clients in those regions have been slow to embrace web 2.0 communications techniques, or because they still see plenty of room for growth in categories like corporate reputation and marketing communications that are already considered mature in the U.S. and the U.K.”
PR agency principals also anticipated growth in social responsibility communications (37.3 percent, up considerably from 27.1 percent last year), marketing communications (34.0 percent), and public affairs (20.5 percent). There was less enthusiasm about the growth potential of word-of-mouth communications (12.3 percent, almost all of that support coming from the developed market); financial communications (11.5 percent); and employee communications (11.1 percent), perhaps because many of the firms surveyed do not have practice areas focused on those disciplines.
As far as corporate responsibility is concerned, there were some interesting regional variations. Agency leaders were most optimistic in North America (43.1 percent) and the Asia-Pacific region (38.9 percent) and least optimistic in western continental Europe (31.9 percent). Says Holmes: “Given that European companies are widely regarded as thought leaders in CSR, and given that European citizens are believed to have higher expectations of business behaviour, the pessimism of European PR people is a little peculiar.
“Two explanations occur: one is that CSR is more developed in Europe and so has less room for growth, the other is that European companies are more focused on responsible performance than they are in communicating their CSR activities, perhaps fearful of being seen to brag or over-promise. PR firms need to make the case first that informing consumers and other stakeholders about substantive CSR efforts is absolutely critical if they are to add value, and the second is that clients interested in CSR need to engage with their stakeholders, and that PR people are perfectly placed to lead that engagement.”
When it comes to industry sectors, meanwhile, consumer products displaced healthcare and technology as the sector from which agency principals anticipated the strongest growth. Once again, respondents were asked to pick up to three sectors from a list of eight. The consumer products category was cited by 49.6 percent of respondents, ahead of healthcare (47.9 percent), technology (34.8 percent), and financial and professional services (25.8 percent of respondents). There was less excitement about the potential for growth from the industrial (18.4 percent), public sector (16.8 percent) and not-for-profit (6.6 percent) categories.
There were, once again, interesting regional variations.
The U.K., for example, was least optimistic about the potential for growth from consumer products companies (23.6 percent, compared to 63.6 percent in Eastern Europe, which anticipates the greatest growth from the consumer sector).
The U.S., meanwhile, is particularly bullish on healthcare (54.9 percent) and technology (47.1 percent) growth.