Saatchi & Saatchi Complementary Case Study essay
Saatchi and Saatchi is one of the leaders in advertising industry; currently this company works in more than 70 countries, has 149 offices and more than 6,500 employees (Tungate, 2007). The company was founded in 1970, and in 2000 it was purchased by the Publicis Groupe SA. The considered case relates to the second half of the 1990s, when the recession affected market growth for virtually all companies. The recession posed significant challenges for Saatchi and Saatchi: rapid growth witnessed in 1970s and 1980s stopped, and in 1995 the company was close to bankruptcy (Tungate, 2007). Numerous units which belonged to the company were operating each on their own, and there was no shared vision of the company.
The founders of the company (Saatchi brothers) had left, and in the mid 1990s the chairman was Bob Seelert. He hired Kevin Roberts as CEO in 1997 (Tungate, 2007). Roberts and Seelert together have worked out the new strategy for Saatchi and Saatchi. They have build a detailed plan of the company’s return to the market. Seelert and Roberts have reviewed the company’s vision and strategy, and developed new set of objectives. Two key perspectives outlined by the new leadership were customer perspective and financial perspective. In the balanced scorecard approach, financial objectives determine the bottom line of the business (Niven, n.d.). With regard to financial perspective, the following goals for Saatchi and Saatchi were set: the increase of revenue should be greater than average market characteristics of revenue growth, 30% of the incremental revenue should be converted into operating profit, and earnings per share of Saatchi and Saatchi should double (Greenhalgh, 2004).
Analysis
The new leaders of Saatchi and Saatchi have set new financial goals described in the previous section, and have also set a new customer perspective: the company should become the leader in advertising industry. All diverse units which belonged to the company were reviewed by the leaders and classified in three categories: “lead”, “drive” and “prosper” (Tungate, 2007). The types of units classified as “prosper” were small (50 employees or less) and had little potential for growth. Units classified as “drive” were of medium size (50 to 150 employees), and had the potential of slow increase of their revenue base (Greenhalgh, 2004). The “lead” units were large (more than 150 employees) had significant potential for quick revenue growth.
The new leadership set different strategies for different units. For “prosper” units, revenue growth targets were small, but for these units, high margins were set as targets. For “drive” units, the focus was set on both gradual increase of revenues and gradual increase of profitability. For “lead” units, the focus was on rapid growth of revenues, and these agencies received the largest share of the investments (Greenhalgh, 2004).
The new leaders of Saatchi and Saatchi have also set several customer-related strategies. First of all, they have selected a core base of agency clients (PICs, or Permanently Infatuated Clients), and paid extreme attention to this core base of clients. Secondly, all agencies were instructed to focus on large revenue-earning clients first of all, and should focus on generating “big fabulous ideas” for these clients (Greenhalgh, 2004). These elements of strategy were aimed at gaining customer loyalty and increasing customer satisfaction.
Conclusion
Financial strategies suggested by the new leaders of Saatchi and Saatchi for every unit were rather reasonable and sound. Seelert and Roberts took into account the influence of the external environment (possibility of revenue increase by different units in different locations), and tailored the strategy of each unit to contribute to financial health of the whole company. Profitability and revenue increase were two variables considered for every unit, and for each type of units, the strategy was developed to maximize the financial results of the unit while taking into account unit constraints.
The leaders of Saatchi and Saatchi used the balanced scorecard approach and successfully merged financial and customer-focused needs of the company, therefore maximizing the company’s value and market position. With the help of balanced scorecard approach, Saatchi and Saatchi reached its objectives six months before the target date. The acquisition of Saatchi and Saatchi in 2000 by Publicis Groupe SA proved the effectiveness of the approach chosen by the company’s leaders: the company was sold approximately for a price which was approximately five times its market valuation price (Greenhalgh, 2004).
Evaluation
Two “prongs” offered by Seelert and Roberts (customer and financial perspective) were merged together, and to a certain extent they successfully worked in combination. For example, for “lead” units customer perspective and financial perspective perfectly matched each other. However, for “prosper” units which had less clients than “lead” agencies, the focus on large and profit-bringing clients could be more difficult, because these agencies might not have to deal a lot with PICs. In the considered case, customer and financial approach worked in synthesis, but for “prosper” units, the synergy between two perspectives was not too strong. Overall, Saatchi and Saatchi could work out the customer-focused perspective in more detail (i.e. outline the strategy of dealing with the remaining 70-80% of clients which brought the 20-30% of revenue), and therefore implement more effective synthesis of two strategies. The implementation was done quite effective, especially taking into account the fact that it was done in the face of a recession and bankruptcy, and there are only several minor details which could have been done better. The price of purchase of Saatchi and Saatchi proves the effectiveness of the strategy developed in the mid 1990s using balanced scorecard approach.
