Shifting the focus to stay afloat

Media hype about a downturn is making everybody jittery. Gina Lovett talks to consultancy bosses to find out what’s really happening in design

After a week of discussion about gloomy economic growth forecasts from the Bank of England, dare we say that an air of caution has tightened its grip over the UK market?

Indeed, the past two months have seen a wave of reconfiguration and streamlining at branding and design consultancies across the UK, as they prepare to batten down the hatches ahead of an anticipated slowdown. But while the threat of a downturn hovers over the UK, growth in emerging markets across Russia, the Middle East and eastern Europe remains strong, offering a steady stream of big projects for UK groups willing to roam.

Groups including The Brand Union, Identica, Interbrand, Wolff Olins and Navyblue have either streamlined or reconfigured their internal structures to address the need to refocus on international markets. At the same time, consultancies FutureBrand and Lambie-Nairn, have opened German offices to service the central and eastern European markets, where business is booming.

So, what are the signs of market uncertainty, above and beyond media hype, and how is this affecting design?

Ticegroup chairman and Loewy advisor Ian Cochrane observes that there are signs of uncertainty in the UK generally, centering around clients attempting to fund their marketing activities.

‘I suppose the most manifest thing is that projects are getting deferred. I haven’t seen a lot of belt tightening from my clients, though, and quarter one has been very strong. But looking ahead, the order books are a bit shaky,’ says Cochrane.

Identica chief executive Franco Bonadio agrees projects are taking longer than normal to get signed off. He has also noticed clients redirecting budgets to projects that will yield more obvious short-term sales.

‘In times like this, clients are looking to generate hard sales. These projects have traditionally been the domain of advertising agencies that can boost sales through quick-turnaround campaigns, while the classic brand consultancies have a more long-term approach. Design groups need to be more adaptable and willing to muscle in on ad agency territory,’ he asserts.

Bonadio also points out that the business model on which design consultancies operate – revenue on a project-by-project basis – can also pose problems in a cautious market, with order book projections of just three to four months. He feels that design groups should, like ad agencies, use retained contracts as a way of predicting and planning incoming work, giving them more time to react to fluctuations in the market.

The prospect of economic uncertainty also raises the debate about whether or not it is better to be part of a network, with cost ratios and margin pressures, but equally with greater international reach and opportunity to leverage client contacts across the network.

It’s the difference between private and public groups, however, rather than the difference between small and large consultancies, that affects business, says Cochrane. ‘Private groups can afford to take reduced profitability, as opposed to the larger publicly quoted ones. But public or private, any well-run business will be looking at its costs and order books,’ he adds. ‘It’s better to be either small or large,’ says Interbrand UK chief executive Rune Gustafson. ‘It’s being in the middle, with neither the ability to manage costs nor the ability to operate on an international basis, that will affect a business.’

Indeed, a slew of the larger networked groups, including Wolff Olins, The Brand Union, FutureBrand and Lambie-Nairn, are pursuing strategies allowing them to exploit their international reach and leverage international client opportunities.

Lambie-Nairn managing director Christian Schroeder explains that the expansion of long-standing client O2 into central and eastern Europe has opened up a largely untapped market. ‘Germany remains the gateway to eastern Europe – Hungary, Romania, Slovakia and the Czech Republic can all be serviced from there. Other WPP agencies, like Landor Associates and The Brand Union, will have their own overseas growth strategies,’ says Schroeder.

The Brand Union global chief executive Simon Bolton agrees that consultancies need to be able to capitalise on clients’ increasing globalisation. He points to Wolff Olins’ advance into the Russian market, following its success with Russian telecoms brand Beeline, FutureBrand’s expansion into the German market and The Brand Union’s own move into Latin America through SAB Miller.

Despite the temptation to go after emerging, fast-growing regions, the UK remains a huge market, says Bolton. ‘The UK itself is becoming global – we’re a service economy to the world,’ he points out.

Both Gustafson and Bonadio maintain that many sectors across the UK market are still buoyant. Both highlight the financial services in need of an image shake-up and refer to the host of fmcg brands looking to design for differentiation.

Digital is also holding ground, according to Cochrane, offering clients a higher return on spend. ‘My feeling is that digital is still growing,’ he says. ‘You might be doing traditional print annual reports and struggling to secure work, but if you were to do on-line, you’d be fine. As long as consultancies can expand their horizons across management consultancy, innovation, contract work or advertising, there’s no reason to not keep growing.’

Considerations in a cautious market

Balancing staff and recruitment needs – choosing between freelances with costs built into projects, or permanent staff with costs built into overheads

Having an adaptable client offer – the ability to react to client demands and move into other skills and disciplines, such as advertising or digital

Having a more secure business model – look at ways of securing more long-term revenue

Going after growth – entering emerging markets and operating internationally