HP Pitch Threat to Indie Mid-Sized PR Agencies

November 15, 2002

HP Pitch Threat to Indie Mid-Sized PR Agencies

By Holly Williams

The result of HP's mammoth global PR pitch signals tough times ahead for mid-sized tech PR consultancies. Holly Williams reports.

HP's decision last month to consolidate agencies during its three-month global PR review sent shockwaves throughout the tech PR community.

Since the announcement earlier this year that computing rivals Hewlett-Packard and Compaq were to merge, agencies have been waiting for the result with anticipation - not just because of its immediate effect on those involved, but because many believe it gives an insight into the future of the tech PR sector at large.

Close to 50 PR firms across the world - from large networks to tech boutiques - have been affected by HP's agency review and, for some, the news has been devastating. There have been just three winners so far - Hill & Knowlton, Countrywide Porter Novelli and Burson-Marsteller. And while these three are celebrating, many more are staring at a bleak future.

Although the merged entity has an obvious right to make whatever decision it thinks is right for its business, whole networks had been tailored specifically to suit HP or Compaq's needs, only to have the rug pulled out from under them.

Independent shop The Hoffman Agency won HP's work just a month after opening 15 years ago. Teams, offices and agency structures were built around what was a flagship client. For Hoffman the decision was, as president Lou Hoffman admits, 'painful'.

The global PR giants that lost out in the review, such as Weber Shandwick and Golin/Harris International, can more easily cope with the gap in fees, while smaller independents are struggling to adapt, especially in a depressed market. The decision is said by many to send a clear signal to tech PROs: it's a bad time to be medium-sized.

There are obvious reasons why HP shunned the smaller indies in favour of their 'megashop' counterparts. HP was unavailable to comment on its decision, but said at the outset that consolidation was key. It was keen to show the merger had created a unified business, and communications needed to reflect that. It's a big blue-chip brand and wanted global PR brands to match.

The process closely mirrored that of IBM's vast PR review last year, which likewise saw up to 50 agencies replaced by just three. Speculation suggests HP used IBM's pitch as a template to follow. Optimists out there say it is pure coincidence that both IBM and HP opted for similar models.

But at a time when consolidation is rife throughout the corporate world, it is a trend of which we are likely to see a lot more.

Brodeur Worldwide's outgoing vice-chairman Jonathan Simnett says consolidation with the PR giants is a symptom of the current economy, but is not likely to go away. 'The tech business is in a downturn and can't afford the overheads of having multiple agencies, in multiple countries with multiple PR managers,' says Simnett, who witnessed first hand the effect of IBM's reshuffle - Brodeur was re-appointed, but on a much smaller brief, forcing redundancies across the agency's US business. 'If you want the big clients, you have to be big yourself,' he adds.

Simnett believes it is just a matter of time before others follow HP and IBM's lead, taking control of their PR budgets and simplifying rosters.

Naturally, this is a view held by the bigger agency networks, who have planned for such a trend. Independents on the other hand are taking a more long-term view. Hoffman is adamant HP's decision does not spell the end for mid-sized independents, but admits we will continue to see consolidation.

It must be noted that he runs a firm that has just lost a sizeable tranche of business, but he says: 'The megashops are so driven by bottom line that they have to structure account teams in a way that creates conflict with delivering good work.'

And on the client side, Hoffman adds: 'Blue-chip companies have a distorted perspective of how they're going to drive a consistent global programme with high quality work - they end up tilting the field towards dots on the map rather than service delivery.'

The theory, according to independents, is that the blue-chips eventually come crawling back as part of a two-year cycle. AxiCom MD Julian Tanner - whose agency suffered at the hands of IBM's agency cull last year - says, having been through three recessions, the patterns are clear: 'There's a long history of big companies making radical decisions over agencies, but there will come a day when it will come back. Consolidation is often a purchasing decision when companies merge or go through a recession, but at some stage common sense takes over.'

The question is: What can medium-sized independents do to avoid this cycle? According to Simnett, the secret lies in growth: 'You have to build around big clients, but you also have to grow with them and fast. Once you've made the decision to grow you have to go hell-for-leather otherwise the cost-base grows, but client business doesn't.'

In a world where size clearly does matter, independents must play blue-chips at their own game and use them to grow on a par with their larger marketing rivals.