Andrea Cunningham faced the same problem most service companies do:how do you keep, and grow, your only real asset -- the employees whose talents determine your fate? She even knew how to solve it. Eventually

At 10 o'clock on a cloudless Monday morning in October 1989, Andrea Cunningham -- just back in the office from her first vacation in the four years since she'd launched her 24-person Santa Clara, Calif., public-relations agency -- sat down with the deputy she had left in charge during her absence.

Cunningham had been gone three weeks, and she'd needed all of them. She had phoned the company daily, of course -- at the insistence of her number two, who now sat facing her. And she had read suitcase-loads of business books -- despite the ostensible diversions of the French countryside where she and her husband had bicycled and the Italian farmhouse where they'd later lodged. But even if the trip hadn't taken her as far from Cunningham Communication Inc. (CCI) as she might have hoped, it did help her restore some of the energy -- not to mention perspective -- that had dissolved over the long previous year.

True, CCI appeared to be doing just fine. It was one of Silicon Valley's hot agencies, boasting clients such as Motorola, Hewlett-Packard, and software mammoths Borland International and Aldus Corp. Billings had reached $3 million -- well beyond the boutique status most PR shops never transcend.

But Cunningham herself was fried. The company's clients still relied on her, personally, to deliver most of the advice and insight they'd hired CCI to get, and her supply of hours and ideas was exhausted. In her own mind she'd failed at delegating, failed at nurturing talent, and failed at creating the sort of caring, growing organization she'd been so hell-bent on building in the first place. The two people she'd hired to comanage the company "hated" each other, fighting openly despite her efforts to keep peace, and the people she'd promoted to manage accounts had made little progress convincing clients -- or other CCI employees, for that matter -- that much could be done without the hands-on presence of Cunningham herself. As 1989 dwindled, CCI, for the first time in its history, was about to post an unprofitable quarter, and Cunningham considered giving up.

Maybe an outsider should take over, she thought. Maybe only a new president could figure out how to leverage Cunningham's competitive strategy -- which rested on a "redefined" concept of PR -- and grow the company beyond the work load Cunningham could personally carry. "I felt torn up," she says quietly today about her impulse to step down. "But I just did not think I could do it anymore." Still, by the time she returned from Europe, she felt better than she had in months.

Then came the Monday-morning reentry.

She had given her deputy a list of things to do, "and lo and behold, he had done none of them." He didn't even mind telling her so. While Cunningham was away from CCI, it turned out, he'd fomented a mini-insurrection -- at one point crumpling up Cunningham's written mission and vision statements and throwing them on the floor in a managers' meeting. "We're going to start over," he had told the assembly. "I'm running the show now."

Cunningham listened as he reviewed the disregarded task list, and, she now recalls, something snapped.

" 'Now let's talk about you,' I said. And he kind of looked at me funny. 'I want you to leave the company, and I want you to leave right away.'

"He was floored. Finally, he turns around, grabs a pad and pencil, and goes, 'OK, start.' He was going to sue me for wrongful firing."

He didn't, in the end. The two managed to curb their hostilities, and the parting proceeded smoothly. "But," Cunningham recalls, "that was definitely the moment I said to myself, 'OK, I'm back in charge again.' I finally resolved to figure out how to do this, how to manage my company -- or I was going to be in worse trouble than I already was." It was time, she decided, to trust her instincts about what her company should look and feel like, and about how to attract, keep, and nurture the kind of employees that could grow CCI.

Nearly every convention of the public-relations industry would seem to undercut Andrea (Andy to most people) Cunningham's strategy for how CCI could offer superior, and competitively differentiated, PR services. Like that of most service businesses, CCI's fate rests on the quality of its employees. But for Cunningham's particular strategy to work, she needs to do more than make high-quality hires. She needs to keep those recruits around long enough not just to learn CCI's tactics but to earn and keep the client confidence that CCI's approach depends on. As elementary as that strategy sounds, in the public-relations business, it's practically revolutionary.

The typical PR professional's résumé looks like a primer on corporate ladder climbing. The trouble is that each rung tends to be located in a different company. "The PR industry is very unstable," says Michael Busselen, currently the PR program manager at $400-million Cadence Design Systems (a CCI client) and formerly a staffer at two large California PR firms. "People switch agencies every year, year and a half." Nick Sturiale, a former Hill & Knowlton employee who is a four-year CCI associate (the company doesn't use titles, a stance that amounts to industry heresy), seconds Busselen's notion: "People will jump jobs every two years to get a $5,000 raise." Maura FitzGerald, head of CCI's East Coast branch, in Cambridge, Mass., attributes some of the frenetic mobility to burnout; most firms, she says, throw new hires immediately into five or six accounts and have them writing press releases and meeting clients without guidance from above.

Agencies are plagued -- as are service companies of all kinds -- by high client turnover, too. "I know some agencies that turn their account base every few years," says Sturiale. Taken together, he says, the job hopping and agency switching result in PR work executed by "really inexperienced people who don't have command of their client's business, or even of business issues in general."

For 35-year-old Cunningham, who talks constantly -- if somewhat hyperbolically -- about "redefining PR," that presented problems. "Ever since I got into PR, I've wanted to make it not such a sleazy business," she says in her calmly intense voice, "to make it important to upper management in a company." A good PR agency, she contends, moves information in not one direction but two. It explains the client to the marketplace, but it also unearths and describes the marketplace's perceptions to the client.

"Clients almost always hire public-relations people because they're not getting enough press or what they're getting is bad," says Cunningham. "They want you to just change their image.

"We, though, will go in and talk with people in the client company and outside it -- a good example is what happened with IBM and the OS/2 account -- and discover why it's getting bad press: it's been late on deliveries, say, or its customers can't stand how they're being treated, or it has a bad product."

At that point, Cunningham says, a good PR consultant is in a very unusual situation. "We've spoken with all of the company's various publics -- the financial community, the press, industry gurus, competitors, customers, and even the client's own employees. We've heard unedited comments about the company -- what amounts to thorough market research -- and we can help identify the real problems inside the company." Step two is to explain them to the client. ("The real PR is figuring out how to get clients to listen to us; convincing them to make changes is the bulk of our work.") Only after the fix has been made, says Cunningham, can an agency take step three: persuasively communicate the improvement to the outside world.

To perform all those functions effectively, though, Cunningham's employees would need the skills to execute a research-intensive approach; broad knowledge of the high-tech industry in which CCI specializes; and an in-depth understanding of how a client's business works. It would take time for employees to acquire those attributes, which meant Cunningham would have to persuade them to stick around.

Cunningham tried to figure out why people think about their agency careers in ways that hurt their companies. She looked at herself. After stints as a journalist and then as a PR rep in Chicago, where she fell in love with the computer industry while working on the Atari account, she had come to Silicon Valley in 1983 to work for Regis McKenna, the high-tech PR guru who helped position and introduce Intel and Apple. Mc-Kenna assigned Cunningham to the Apple Macintosh account six months before the product's January 1984 introduction, and she ran it for two years, working directly with Apple founder Steve Jobs and growing her staff to a dozen people.

When Jobs left Apple, in early 1985, however, things changed for Cunningham. McKenna brought in a new person to be a fresh contact with the changing Apple team. At the same time, Cunningham says, McKenna was shifting the focus of his firm from public relations to marketing consulting. She approached him about starting her own satellite PR firm on a 50-50 basis, but he wasn't interested. So in September 1985 she left -- cordially, with McKenna even sending her two small Apple development companies as starter clients. Within a few months Steve Jobs called Cunningham from his new company, NeXT Inc., and asked her to handle the PR on a suit filed by Apple.

Thanks partly to the stature of the NeXT account, a steady stream of clients came to CCI. Within a year Cunningham was busy enough to pick and choose her clients, taking on a smaller number of prestigious companies that believed in her philosophy of PR. Today CCI's staff (which now numbers 59 employees) services just 17 accounts -- yielding an employee/client ratio of three to one, compared with the one-to-two or even one-to-three ratios common in the industry.

What had Cunningham wanted when she was an up-and-coming PR rep working for others? The chance to make more money, to take more responsibility, and to grow her own business -- she had wanted to be an entrepreneur. So at the beginning of 1989, as Cunningham's work force reached 20, she began dividing the people who worked on accounts into teams, each with its own profit-and-loss responsibility. Those groups, run by Business Unit Directors, or BUDs, would get bonuses driven by their own profit margins: they'd be mini companies-within-the-company. She figured that one day the groups might even break off into satellite firms.

But with the people Cunningham had on staff, the system didn't work -- or it worked too well; it's hard to tell which. The rivalries destroyed companywide cooperation. People at CCI today refer to the BUD period as a time of fiefdoms, unpleasant competition, and bad attitudes. Lisa Goldman, who joined the company in 1988, says that "one BUD would have a staff that was 100% busy and couldn't finish its work, and others had people sitting around. People weren't willing to share resources, because it took away from their potential profitability."

"I discovered that not everyone's an entrepreneur," says Cunningham. "I thought everybody wanted to start a company, because that's what I'd wanted to do. But I was wrong."

In less than a year -- by the time Cunningham returned from her European vacation -- it was clear the system wasn't helping to create the company she'd envisioned. Nor was it making her very happy.

"The end of 1989, into 1990, was very turbulent," says Allison Hopkins, the fourth person Cunningham had hired and now the company's human-resources manager. "But Andy started to become stronger about the decisions she'd make. She became more willing to say, 'No, that idea isn't going to work,' or, 'Yes, we're going to do this.' "

Cunningham, with the help of Hopkins, outside board member Mike Gullard, husband Rand Siegfried, and Ron Ricci (who'd joined the company in mid-1989, bringing an equally strong ideal about culture), began implementing what felt like fundamental and radical changes. Every one of them was focused on keeping and nurturing the kind of talented people CCI's growth, even survival, depended on. Cunningham's ambitions: To provide, inside the company, the sort of career ladder that employees usually traded agencies to climb. Also, to help CCI associates grow as managers and PR consultants, to achieve the sort of stature that would earn client reliance and eliminate the need for Cunningham's personal involvement.

With the help of her advisers, she came up with three plans: (1) a new, goal-driven compensation system; (2) a participative-management derivative that CCI calls "input teams"; and (3) an over-the-top training program.

For several years Andy Cunningham had managed Allison Hopkins with a choose-your-salary compensation system: Hopkins would name the amount she wanted to earn and the requirements she thought were reasonable, and she and Cunningham would negotiate until they reached an agreement. At the end of 1989 Cunningham decided to do the same with her BUDs.

They balked at the new sets of responsibilities. "I presented them with a series of goals I thought they should reach, and I gave them a chance to do so, and then they ended up leaving," says Cunningham. Over a six-month period, in fact, all six BUDs except Ricci -- the entire senior staff other than Ricci, Hopkins, and controller Leon Hunt -- departed. Cunningham maintains she was not particularly surprised -- or unhappy.

"It was hard," says Cunningham, "but they weren't right for the company." Frank Bailinson, one of those who left, and who, as director of corporate marketing for Autodesk, is now a CCI client, says the mass exodus was coincidental. People left for a series of personal reasons. And none of them, he notes, went to another PR firm. "The BUD system didn't do a good job training people to be managers."

Then in March 1990 an employee became incensed over her evaluation during an annual review. Hopkins and Cunningham holed up for the rest of the afternoon and decided to bring to the entire company the same compensation/goal-setting plan Cunningham had set up for Hopkins. They drew up job "modules" -- descriptions of the responsibilities for each of nine levels of associates, with a salary range from $21,000 to $100,000. Associates could choose the salary they wanted to make, based on the responsibilities they could handle. By July the system was in place.

Picking salaries wasn't easy for most people -- as a concept, it's not normal. For one thing, it's more active than the here's-your-raise-here's-your-job structure that's typical everywhere, let alone in California public relations. And declaring what you think you're worth engenders a kind of responsibility for fulfillment that can be daunting at first.

The system has been tinkered with since it was implemented, two years ago. The way it works today, associates choose the salaries and responsibilities they will work toward over the next year. The modules cover dozens of expectations that range from the tangible (such as how many hours a week associates are expected to bill and how large an account budget they're expected to manage) to more intangible professional-growth factors (measured by skills such as "ability to construct strategic memos to clients" and "know the media and analyst circles"). Each associate then meets with his or her adviser each month, to go over the previous month's work and present a set of goals for the coming month -- specifics, such as "develop collateral piece for product introduction" and more fuzzy plans, such as "improve presentation skills." Contrary to the concerns of just about everybody, most people do not ask for salaries that are out of line with what they'd normally make.

The payoff is in the institutionalization of feedback for the growing company. "Every month I pretty much knew I was on track," says Toni Giusti, who joined the company in the spring of 1990. At one point she didn't get the whole salary she'd been working toward. "I got most of it," she says, "and they were holding a couple thousand dollars until my writing and counseling got better. But every month your manager would tell you, 'This is the kind of thing that was great this month, and this is what you need to think about next time.' So it wasn't a surprise."

What's more, the system -- referred to internally as a Management by Objective plan, or MBO -- gives the employees better command over their careers. "Before the MBO system, we did talk about expectations, but this crystallized and regularized those discussions," says associate Lisa Goldman. "Before, goals were less clearly defined, and there wasn't a clear ladder. Now you can get to where you want to be, with more control on your part."

Mike Gullard, a venture capitalist who is Cunningham's adviser, has been a strong advocate. "I worked at Intel, and in the early days that was one of the things that was in place very, very quickly: formalized reviews, goal setting. I think it's one of the reasons Intel was capable of growing as it did without any of the wheels falling off."

Executing MBO programs halfheartedly can be worse than never setting goals at all -- because the message then is that an employee may have ambitions, but management doesn't really care if he or she meets them. But feedback is crucial in rapidly changing companies, Gullard says, precisely because priorities do change. "The last thing you want to find out is that you've been working on something for three weeks that is no longer relevant." The system guarantees cost-effectiveness, too. Associates get the higher pay only when they're bringing in and overseeing more work.

As an adjunct to the compensation program, Cunningham has increased the stakes for CCI's major players. This year she introduced a Partner Program, making Hopkins, Hunt, Ricci, and FitzGerald partners in name and in stock options. It's her way to recognize -- and by recognizing, keep -- people who've been essential to the fiber of the company. "If I died tomorrow, these are the people who'd run the company the way I did," says Cunningham. "They've let their egos out the door: they're people whose definition of success is when other people succeed."

Her criteria for knowing when people are partner material? For one thing, "they don't need career counseling anymore," she says; another tip-off "is when the client calls them instead of me."

Cunningham is disingenuous when she claims she introduced the second leg of her plan, the input teams, so she "wouldn't really have to run the company anymore." What she's done is create a benevolent dictatorship; she sets mandates for the agency and leaves the execution of them to everyone else.

"I sent 15 of the company's top people off-site with Mike Gullard and asked him to find out what's going to keep them at the company," says Cunningham. "And what came out of it was that they wanted a voice in running the company. They didn't complain about money or bonuses or anything else; they wanted to help run the company."

There are six teams: marketing, professional development, strategic planning, quality, fun, and community relations. Except for finances, in fact, every aspect of the company's management has been turned over to teams. Everyone -- from new associates to receptionists, finance staff to senior account people -- serves on at least one team, meeting 5 hours a week. (The leaders spend 10 hours a week and have less billing responsibility.)

Cunningham gives each team a charter -- a defining mission for the year -- and the group of 7 to 11 people comes up with plans, budgets, and strategies for meeting it over the year. For example, the charter of 1992's marketing team is to "increase visibility of the agency among target audiences," including existing clients and potential employees.

Last year the team had a three-page set of tactics and a $110,000 budget, for events and promotions including a lecture series, a "communication-excellence award," and involvement in the national Computer Bowl. The professional-development team organized CCI's off-site "university" program and ran in-house seminars; it also encouraged attendance at industry conferences and use of the $100 monthly stipend the company gives each employee for physical-fitness expenses. The professional-development team's budget last year: $90,000.

"We could be 10% more profitable without the input teams," says Hunt, although that would mean cutting not just perks like free concert tickets (courtesy of the fun team), but training and marketing programs as well. Besides, points out Cunningham, the teams perform the valuable service of demythologizing management. "They learn that it's hard to make choices and trade-offs, and to follow through." The teams help put everyone at CCI on an equal footing. They also, says Hopkins, enable Cunningham and the partners to tell a complaining associate, "Don't bitch. Fix it."

" 'Running the company' is not that critical to me," says Cunningham, who meets with each input team once a month. "The charter is. And making sure the groups stay on track. But people should have a say in what they do, and they come up with ideas I never would have."

The final piece of CCI's organizational puzzle, complementing the compensation system and the input teams, is training. "Training by osmosis doesn't happen anymore, once the company gets to be a certain size," says Gullard. Here's how CCI institutionalizes education:

* It holds several orientation meetings in the first week for every new employee. New hires meet with Hopkins's assistant to go over a detailed company handbook that outlines everything from the firm's history and what's meant by Cunningham Culture, to the sabbatical program (six weeks after four years) and the company's 401(k) plan. Later they meet with Hopkins to hear about the MBO system and input teams. Leon Hunt talks about the finance department and cash flow at CCI, and Cunningham herself tries to make time for a lunch date. Leigh Phillips, the office manager, hands out Franklin Day Planners and delivers her sermon on time management. (All but two people at CCI are Franklin users, if not devotees; " Never," reads Phillips's orientation sheet, "go anywhere without your Franklin.")

* It sends new hires, within their first six months, through a more formalized training program to learn about the company and the business of PR. Called CCI University, the three-day session is held off-site, with seminars run by Cunningham, Hopkins, Hunt, and Ricci.

* It produces an internal newsletter that tracks client information and company news.

* It allots $1,000 for every employee to attend a professional or industry conference. People have gone to seminars ranging from those sponsored by the American Management Association (for managerial-skill building) to electronics or other industry meetings (to build their own reputations, find new information, and look for new business).

* It holds informal "town meetings" every other month, at which associates can describe a PR problem to an ad hoc group of colleagues and collect ideas and suggestions.

* It encourages people to read an hour a day. FitzGerald is particularly keen on that. "Everybody reads the trade and business press and is expected to look through the New York Times, the Wall Street Journal, the Boston Globe [for associates at the Cambridge branch], USA Today, and Investors Daily, every day, on company time."

"What Andy and the rest of her organization have created is a different look for a public-relations agency," says Jim Christensen, a PR manager at Hew-lett-Packard, a two-year client of CCI's. "They have found, and they understand, that the key to success is their people. It is not their name, it is not their knowledge base, but the people working on accounts. The person who works full-time on our account just went to CCI U, and others regularly go to conferences that are related to the business. The company just keeps training them."

In late February Andy Cunningham paid a visit to Boston. Over lunch, on one of the few seasonably cold days of the winter, she waxed contemplative about her agency and her role as its leader.

Life, she says, has become more balanced: she runs five miles a day, and works "only" from about 10 a.m. till 7 p.m. "I love doing what I do," she muses. "Helping people grow, keeping them on track."

Sitting back from the table, Cunningham says her company finally feels stable. "This is the first time it's felt that way, ever," she says. Stable, and exceptional: In 1991 CCI's revenues reached $5.1 million, surpassing the company goal of $4.6 million, and the company was 21% pretax profitable, up from 15% the year before. CCI had become the largest PR firm in Santa Clara County, and had made the 1991 Inc. 500.

Cunningham's challenges now, she knows, are keeping excitement alive in the firm and continuing to communicate its vision. But, as board member Mike Gullard says, Cunningham has a personality advantage: "She's an evangelist," he testifies, "and she's building a very strong following." She has also shed some possessiveness. "Andy's layers of ego and ownership are a little smaller now," says Ron Ricci, "and that was hard for her to do." It's true, Cunningham says. "I've finally gotten to the point where I don't have to do everything to feel good about myself."

She had come to Boston, in fact, to spend a few weeks coaching Maura FitzGerald, who wants help shedding some of her possessiveness. "If you're the account rep, as Maura is -- and as I was -- you feel you don't have the time to teach people to do things, or boost morale," says Cunningham, pushing her long hair back behind her ears. "PR people are very ownership oriented; you think that if you do it, it'll get done right, and Maura's still that way. It takes a lot to get someone out of that mode, to move up and look at the big picture and guide people."

Three weeks earlier CCI's Santa Clara staff had gathered at a local comedy club for its annual update and planning meeting. Dressed in a bulky white sweater and blue jeans, Cunningham herself had told her staff that she's still learning how to do her job.

"Basically, the management team of this company is just five regular people who know nothing more about running a company than any of you do," she told them. "It's just that we spend more of our time doing it. We make a lot of mistakes; we do our experiments; we change things. We're not perfect." CCI will have to change more in 1992 to grow, she said, and change is uncomfortable. "But," she added, looking serene and happy and, at last, utterly convinced of what she was about to predict, "it will be OK."

Martha E. Mangelsdorf contributed to the reporting for this story.



National Regional
firms competitors
CCI (medians) (averages)
Age of firm 6 years NA 9 years

Number of employees 52 14 10

Revenues $5.1 million $1.3 million $870,000

Pretax profit margin 21% 15% NA

Revenue per employee $98,000 $93,000 $87,000

Revenue per client $319,000 NA $71,000

Employee/client ratio 3:1 NA 1:2

Sources: For CCI -- 1991 financials. For national firms -- 1990 industry medians from James E. Arnold Consultants and the Public Relations Society of America. For regional competitors -- 1991 averages based on ranking of largest agencies in Santa Clara County, Calif., reported in the Business Journal, of San Jose.


Inside Cunningham Communication Inc.

Hiring: An employee is paid $1,000 if a person he or she recommends is hired. In 1991 CCI handed out $10,000, which partner Allison Hopkins considers a bargain. "Between 1988 and 1989 the company paid $75,000 to a headhunter," she says. "If we'd used her in 1991 for all our hires, we probably would have paid $150,000."

Values: In the summer of 1991 Andy Cunningham had her first child -- McKinley, known as Mickey. Cunningham hired CCI employee Alex Chisholm to be her "manny" after he proofread her nanny application and asked for the job. Although he cares for Mickey full-time, half that time he's at the CCI office with her perched on his hip as he edits the company newsletter and helps Cunningham research a book on the industry. Seeing him fly down the hall with baby in tow reinforces CCI's attitude about the importance of extra-CCI life in general. When one visiting three-year-old drew a masterpiece on a wall and announced, "Look what I did!" Cunningham replied encouragingly, "Oh, that's nice. . . ."

Networking: Monthly, a group of about 15 heads of Silicon Valley PR companies, which calls itself PR Principals, gets together to shoot the breeze. "There's a new breed of agencies that are much friendlier with each other," says Cunningham. "It's fun to get together and gossip about the PR industry." In 1989 Hopkins organized a salary survey for the group, getting an outside firm to compile information confidentially.

Mistakes: Partner Leon Hunt once told the staff that the company had finally accomplished one of its goals, paying down its line of credit to zero. One associate misinterpreted the triumph and told a potential client that her agency had a zero line of credit. Hunt had to reassure the client that, indeed, CCI was an operating business with the confidence of its bank.

Collections: A CCI goal for 1991 was to get accounts receivable down from 88 days to 70. By year-end they were down to 66 days. How did CCI associates do it? In many cases, says Hunt, they just asked. "We've got relationships with our clients, and we just explained to them that our bonus was tied to how well we handle our receivables."