The opening of a new share market by the London Stock Exchange last month signalled the beginnings of sustained economic growth. Design consultancies see the new Alternative Investment Market (AIM) as a potential source of work and growth. The typical AIM company profile – fast-growing young businesses, management buyouts and buy-ins and former expansion scheme companies – could have been tailor-made with design in mind.
So begins post-recession growth. The trends show that design has learned some lessons from the Eighties; furious expansion is not the favoured option in the Nineties as consultancies realise that a massive bust could be just around the corner. Consultancies are aware that cash-rich public groups are not going to invest as they did in the halcyon boom days. Routes of successful expansion are harder to come by, and as a result design’s approach to growth has become more considered.
Ian Cochrane, former Fitch chief executive who runs management consultancy Ticegroup, says: “The UK market is now extremely competitive and pricing is under pressure. So design consultancies are concentrating on adding value to make their businesses grow.” Freelances are still employed to avoid recruitment. And to compensate for the lack of large projects in the UK, consultancies are looking abroad for work. “But often the resources needed to operate abroad successfully in terms of strong brand name, cash, technology and management time are underestimated,” says Cochrane.
City analyst Neil Blackley, who used to monitor design for James Capel and now works for Goldman Sachs, says: “In the late Eighties floating on the Stock Exchange was a tactic to facilitate growth, but there was a severe lack of rounded managerial abilities – and maybe a little greediness as well.”
Cochrane says that these shortcomings are being rectified. “Current trends in the UK design market suggest focusing on tighter margins, stretching resources and targeting international markets. Now tactics like forming strategic alliances and mergers to create a larger resource base are being used for growth.”As activity picks up, how are global design groups boosting their business?
Wolff Olins favours joint ventures with local management consultancies as a low-cost way of getting access to clients through someone with a knowledge of the local client market. But managing director Charles Wright warns that this sort of set up may not have a long life span, as arguments ensue over who controls the offer and the client. “A joint venture has a half life of three to four years, in which time the management consultancy can learn your skills and then they do not need you anymore,” he says. It is working well for the group in Portugal so far, where the joint venture is only two years old.
A long-term example of successful strategic alliances is Minale Tattersfield. “By forming a strategic marriage with our French colleagues Design Strategy, we made a very strong group – Minale Tattersfield Design Strategy Group – which helped us survive the recession,” says group director Marcello Minale. The consultancy then developed its agency business to sell the services of the design offices and formed joint ventures with offices based worldwide.
Forming networks is another popular expansion tactic. Leeds group Elmwood, among others, has started Totem, a network of European design firms which aims to offer clients a pan-European service.
Mega-groups like Euro RSCG Conran and WPP use a variation on the network theme to cash in on hard-to-come-by work. Euro RSCG considers itself the biggest communications group in Europe, with offices in every major European capital. “RSCG Conran Design has access to and support from the local infrastructure in all of these offices and, through networking opportunities created by the group, shares a number of clients,” says consultancy managing director Ian Perry.
WPP design groups have always used referrals from the group’s other arms as a way of bringing in business. But Sam Sampson, WPP’s European design co-ordinator, perceives a trend towards specialisation and this is the track WPP consultancies have been taking. “At the end of the Eighties, clients were looking for designers, but this is less and less the case now. What they now want is a corporate or interiors specialist, and we’re working at developing our expertise to add more value to our clients’ businesses, in order to become more integrated in them strategically.”
Mergers and Acquisitions
Ambitious consultancies like Lloyd Northover, which merged with Citigate at the beginning of the year to form Lloyd Northover Citigate, are taking this route to increase their financial muscle and profile in the marketplace. The consultancy resulting from this merger is owned by parent company, Citigate Communications, which specialises in PR.
Giving senior staff a vested interest in the business is a tactic being used increasingly by consultancies to retain expertise and experience. Fitch adopted this tactic when it restructured last year, with a share incentive package designed to ensure “the success of the company and continued loyalty” of chairman and chief executive Martin Beck and other key individuals, including 20 London employees.
But Pentagram could be called the pioneer of the method. The consultancy chose not to respond to the design boom with rapid expansion, mergers and acquisitions, but adhered to its own recipe for sustained profit. “To a large degree, Pentagram’s success stems from a structure which has its roots in the partnerships of the larger professional law, management and accountancy firms,” says a Pentagram spokeswoman. “Growth comes from an ability to attract like-minded equals to join the partnership. Stability follows and the individual and collective power of the partners attracts clients and enhances the consultancy’s reputation.”
Pentagram now has 14 partners and is continuing to look for second generation partners in what the group hopes will be by “seamless succession”, as the next stage in its growth.
Cochrane explains that there are risks involved:”these sorts of alliances require owners to sell or dilute their share ownership, which could mean losing control of the company.” But he ultimately sees partnerships as a motivating factor for increasing profits. He adds that working at the top of a design consultancy is “tougher and more demanding than ever before and requires a huge personal commitment and sacrifice which typically only comes from the partners who have a stake in the business.”
Siegel & Gale feels the need to have designers based in all its overseas offices to service local and multinational clients on site. “They are markets which we do a lot of work in,” explains managing director Malcolm Parkinson.
But some consultancies avoid setting up design teams overseas, relying instead on marketing personnel to drum up work which is executed at the main office. DJPA, formerly Judds, services all of its clients from London, with marketing staff based in Holland and Paris.
Wolff Olins advises against the “man on the phone” based overseas who may lack the commitment of head office staff. This approach failed for the group in Denmark and France.
One of the major trends to emerge is investment in staff. “Whereas the Eighties saw clients coming before staff, this is now changing with the recognition that people will only service clients well if they are well treated by their company,” says Cochrane. “Staff now most definitely come before clients, and investment in training, team-building and coaching is more commonplace.”
Landor, one of the most established global consultancies in the business, sees investment in its people – and the right recruitment tactics – as one of its key strengths. Landor’s London office now employs people of 17 nationalities who can speak 15 languages.
Along similar lines, and to cope with a fragmented market in Germany, Wolff Olins has set up a team of nationals in the London office, servicing German clients. “There is no obvious place in Germany for an office,” explains Charles Wright. The consultancy is planning the same approach with the Italian market, building up a team of three or four, depending on the nature of the work they drum up there.
Siegel & Gale is planning to train up a South African designer in London, who will then go back and service its Johannesburg office which opened in April.
In 1989 Design Week reviewed the Top 10 global design groups and their overseas interests. Six years on, how have they responded to changes in the international market, and with what results?
WPP Group (Design only)
Staff: 729. Offices: London, Manchester, Glasgow, Bristol, Leicester, Oxford, Reading, Chicago, San Francisco, Los Angeles, New York, Mexico, Budapest, Eastern Europe, Western Europe, Caracus, Bangkok, Singapore, Hong Kong, Kuala Lumpur, Taiwan, Toronto. Turnover: 69m.
Concentrated efforts in managing and honing each consultancy’s offer has aided WPP’s effort to maintain its position as one of the biggest players in international design. Not only has the group continued to invest in training its staff, but it is also working at developing links between sister consultancies to pool specialist resources. Add to this the potential for referrals from other WPP companies and the group remains one of the few to have survived the recession with its design arm more or less intact.
Staff: 300. Offices: London, Paris, Helsinki, Milan, Madrid, San Francisco, New York, Chicago, Hong Kong, Mexico, Tokyo, Bangkok, Manila, Miami, Seoul, Sydney, Taipei. Turnover 25m.
At one point Landor worked for more than half the top 25 companies in the Fortune 500. But the group has suffered its share of recession woes, stripping down to a leaner outfit. It still has one of the most comprehensive global networks in design. Landor’s London office now employs people of 17 nationalities who can speak 15 languages between them, which the group sees as one of its key competitive strengths in an over-crowded global market.
The Young & Rubicon-owned group’s 17 design offices must be seen in the context of a broader range of related business operations with considerable strengths. The strong showing of Landor’s European operation has seen it held up as a “model” within the Y&R group.
Staff: 300. Offices: London, Paris, Columbus, Boston; Associates: Central & South America, Europe and Asia. Turnover: 12.5m.
After some much-publicised turbulence which saw the departure of Rodney Fitch and the disposal of the millstone building in King’s Cross, Fitch is stabilising. The consultancy’s
US offices have consistently turned in healthy performances, and the London office is getting back on track. The consultancy continues to trade on the Stock Exchange.
Siegel & Gale
Staff: approximately 180. Offices: Hamburg, Hong Kong, Madrid, Johannesburg, Sydney, Tokyo. Turnover: “significantly higher” than 1989, when it was 20m.
“We are much more focused and professional and bigger,” than in 1989, claims managing director Malcolm Parkinson. The San Francisco office amalgamated with Los Angeles and the Cambridge office with London. The Oslo and Copenhagen offices were merged back into holding company Cordiant’s advertising agencies. All the existing offices were start ups by Siegel & Gale and have or will have their own design teams. The group is considering expanding in the Pacific Rim over the next six months. Parkinson sees the thrust of business as consultancy work more than purely design, as the group handles many more global clients.
Minale Tattersfield & Partners
Staff: 145. Offices: London, Paris, Milan, Sydney, Brisbane, Brussels, Dsseldorf, Hamburg, Zrich, Prague, Oslo, Casablanca, Kuwait, Jeddah, Kuala Lumpur, Hong Kong, Singapore, Osaka, Tokyo. Turnover 10m.
Expanding into niche areas like transport design, with the formation of Transpartners, Minale Tattersfield Acton and Minale Tattersfield Interactive is one of the tactics the group continues to use to keep up. But it had to shut its New York office after a year and half in operation and the Barcelona office, a partnership with Carlos Rolandos, failed after six months.
Staff: 136. Offices: London, New York, San Francisco, Texas, Hong Kong. Turnover: $18m.
Pentagram’s most recent offices were opened last year in Hong Kong and Austin, Texas. The group chose not to respond to the design boom with rapid expansion, mergers and acquisitions. Instead Pentagram stuck to its own recipe for sustained profit and growth, namely attracting like-minded equals to join the partnership. Pentagram is now concentrating on the addition of “second generation” partners.
RSCG Conran Design
Staff: 100. Offices: London, France, Portugal, Argentina. Turnover: 17m.
Conran Design Group was acquired by RSCG in France in 1990, and became RSCG Conran Design, part of the RSCG Design Group. RSCG Conran Design now considers itself part of the biggest communications group in Europe with close links with Euro RSCG Design in Paris. Both groups base staff in each other’s offices.
Managing director Ian Perry views overseas work as part of a total market, not as expansion. The group admits that it had become too UK-focused and since then has striven to be more broad-minded and better organised. The way forward is not to expand overseas, but to use Euro RSCG’s international network of offices, says design marketing director Keith Appleby.
Staff: 90. Offices: London, Lisbon, Madrid.
In 1989 Wolff Olins saw its future as being in North America, but that focus has now switched to Western Europe. Germany is serviced from London. The group is now developing in finance, telecoms, transport and hotels. Its Portuguese office was set up as a joint venture in 1993. Income generated outside the UK has doubled since 1990 and 25 per cent of the group’s staff are from overseas compared to 10 per cent in 1989. Attempts at expansion after 1989 were short-lived, notably a Copenhagen office and others in San Francisco and Barcelona. Managing director Charles Wright is now looking at other countries on a project basis.
Michael Peters Limited
Staff: 72. Offices: London, with representative offices in Paris and Tokyo. Turnover: 5.5m in 1994.
The representative office in Paris is run through a sister company in the group, and the Tokyo office is subsidiary, Michael Peters (Asia-Pacific) Limited. All design work is done from the group’s offices in Holland Park, London.
Staff: 50. Office: London. Turnover: 8m.
In 1994 the management teams of Addison offices in Singapore and Spain became franchise owners, while the San Francisco and New York offices were bought outright. Over-expansion and over-attention to high-profile clients were two of the reasons for the group’s weakened position. After closing its retail arm in February 1994 Addison in London is focusing on its corporate literature business. The group has no further plans to expand.
The picture in 1989…
Staff: 966 Turnover: 72.5m Offices: London, Manchester, Bristol, Cheltenham, Edinburgh, Glasgow, Epsom, Leicester, Oxford, Reading, Southampton, New York, Los Angeles, Miami, San Francisco, Tokyo, Paris.
Michael Peters Group
Staff: 720 Turnover: 40m Offices: London, Cambridge, Birmingham, New York, Minneapolis, Chicago, Los Angeles, Toronto, Madrid, Milan, Helsinki, Stockholm, Tokyo.
Fitch (then known as Fitch-RS)
Staff: 550 Turnover: 19.2m Offices: London, Newark, Columbus, Boston, San Diego.
Staff: 400 Turnover: 30m Offices: San Francisco, New York, Los Angeles, Mexico City, London, Rome, Paris, Hamburg, Helsinki, Antwerp, Oslo, Stockholm, Madrid, Athens, Istanbul, Tokyo, Hong Kong, Sydney, Seoul, Jakarta, Bombay, Taiwan.
Staff: 300 Turnover: 21m Offices: London, New York, San Francisco, Singapore, Paris.
Conran Design Group
Staff: 240 Turnover: 10m Offices: London, Paris, Hong Kong.
Siegel & Gale
Staff: 230 Turnover: 20m Offices: New York, San Francisco, Los Angeles, London, Cambridge, Oslo, Copenhagen.
Staff: 160 Turnover: 12.4m Offices: London, Copenhagen, Barcelona, San Francisco.
Staff: 130 Turnover: 9m Offices: London, Paris, Madrid, Milan, Brussels, Cologne, Casablanca, New York, Hong Kong, Osaka, Sydney, Brisbane.
Staff: 120 Turnover: 12m Offices: London, New York, San Francisco.