Thursday, September 29, 2005

The Day Dreaming Public Relations People

Two small facts spotlight one of the reasons merged companies fail to sustain their potential and show a massive deficit in the capability of the PR industry.

Research undertaken by the Accenture High Performance Business Institute, in conjunction with the New York based intellectual capital and business value consultancy, AssetEconomics Inc, shows that as of May 2003, some USD$7.6 trillion, or 58% of the aggregate value of the US stock market, as measured by the Russell 3000 Index, is based on perceptions of future value arising from intangibles.

Intangible Assets

  • Knowledge-creating capability

  • Innovativeness

  • Quality and experience of senior management

  • Strategy execution

  • Quality of corporate governance

  • Appropriateness of organisational design

  • Organisational and personnel reputation

  • Brand strength

  • R&D productivity

  • Informal networks

  • Employee loyalty

  • Customer loyalty

  • Informal processes

  • Problem-solving ability

  • Capabilities

  • Know-how

  • Tacit knowledge

In 2003, a study by Jeffrey Krug of 473 merged and non-merged companies revealed that the annual executive attrition rate for merged companies was twice that of non-merged companies for nine years after the deal closed. Merged firms registered about 20 percent executive turnover per post-merger year, compared to about 10 percent executive turnover per year for non-merged firms.

This would suggest that for nearly a decade, some of the principle factors involved in the value of companies (measured by stock value) leach away. Key intangible assets are at risk in mergers such as quality and experience of senior managers, change in corporate governance, organisation and personal reputation, informal networks, employee loyalty, customer loyalty, informal processes, problem solving ability, capabilities, know-how (and know what) and tacit knowledge are all at risk.

Not surprisingly these are the elements of intangible assets that are exclusively relationship based. In addition the other intangibles only contribute to wealth when operating in relationship groups.

So why is the value of relationships not included among the intangible asset?

It is a glaring omission and a missed opportunity by the people whose job it is to manage relationship management. The Public Relations management function is completely to blame and this is a problem for staffers and consultancies.

The Public Relations industry is day dreaming its way out of a job. Pity really, such nice people.

But what is the PRSA and CIPR doing about it? Well here is the big push from the PRSA and the latest campaigning news from CIPR. Its really stunning stuff. Now compare that with the campaigning attitude of the Chartered Institute of Accountants.

Krug, Jeffrey A., "Why Do They Keep Leaving?" Harvard Business Review, February 2003.

Picture Rossetti, Dante Gabriel, The Day Dream 1880 Victoria and Albert Museum, London