Introduction
In mid nineties Saatchi & Saatchi included a great number of creative agencies, many of which did not contribute to the successful organizational or financial performance of the company.
For a very long time, this company had been considered as the market leader; in the previous decade, Saatchi & Saatchi grew rapidly through a serious of acquisitions and due to the excellent quality of services. However, economic recession which occurred in early nineties, pointed out financial as well as organizational weaknesses of this company. In fact, Saatchi & Saatchi found itself on the verge of bankruptcy.
Hence, the management had to implement changes in order to survive. The management set several objectives which related to financial performance. One of them was to increase their revenue base, in other words, they wanted their sources to come from a great number of sources.
The main intention was to diversify the revenue stream. Moreover, the management intended to convert 30 percent of incremental revenue into operating profit and increase their earnings per share. The last two objectives are closely related to one another. The thing is that by increasing the operating profit of an enterprise, one can enhance the demand for its stock. These were the most important financial strategic objectives which were set by the management of Saatchi & Saatchi.
Analysis
The agencies that were incorporated into the structure of Saatchi & Saatchi were divided into three groups drive, lead, and prosper (Greenhalgh, 2004, p 4). The strategies of the management were based on the so-called stretching goal. For instance, the so-called “prosper” or small creative agencies were required to achieve very high-margins.
Drive or middle-size agencies had to maintain or slightly grow their profitability. Finally, the largest or lead agencies were required to maintain their growth rates. The amount of capital, invested in each of the business units was directly proportionate to the size and revenues of an agency. Furthermore, the management was willing to improve the company’s relationships with the customers.
Their intention was to enhance customer loyalty. They wanted their customers to become “Permanently Infatuated Clients” (Greenhalgh, 2004, p 4). We they also learned that 30 percent of the customer base constituted approximately 70-80 percent of their revenues but they insisted that equal attention should be paid to the need of its client.
This principle lied at the core of their strategies. The management of Saatchi & Saatchi could decide to pay more attention to a very limited group of clients but they rejected this alternative since by acting in this way, they would have destroyed their reputation and provided more opportunities for their competitors. The decision taken by Saatchi & Saatchi was probably the only viable solution under those circumstances.
Conclusion
It seems that the financial strategies were not quite suitable for different units of Saatchi & Saatchi. They were beneficial to that extent that they stimulated financial growth among those creative agencies which were not growing their revenues or customer base. In this case, we need to speak most about the so-called “prosper” agencies. Nonetheless, one may argue that in some cases, the goals set by the management might not be realistic.
The thing is that the revenues of a creative agency depend not only on its efficiency but also on the demand for its services. In sharp contrast, those units which had a higher capacity for growth were required to dramatically increase their revenues. The requirements set of each of creative agencies should be based on the analysis of its structure, market, and intensity of competition.
This approach would have been more reasonable. Nonetheless, we can argue that the adoption of Balanced Scorecard has been of great benefit to Saatchi & Saatchi. By adopting this approach, the management was able to obtain a set of performance management tools, which enabled them to better design financial and customer strategies. The acquisition of Saatchi & Saatchi by Publicis did not change the results of this company as well as its main strategies. This fact indicates that they were successful.
Evaluation
On the whole, it is possible to argue that the management has to reconcile customer perspective strategies with financial strategies. As it has been said previously, the bulk of Saatchi & Saatchi came from a very limited group of customers no more than 30 percent (Greenhalgh, 2004, p 5).
Yet, the management decided that it was impermissible to give preference privilege customers and overlook others. The logic is quite understandable because only in this way, the company could retain its reputation of a good creative agency and a good business partner.
If they had chosen to focus only on a separate group of customers, they would have lost a substantial portion of their profits and their position in the market would have weakened. Thus, this example shows that customer perspective strategies only re-enforce financial performance of an organization. If we look at the case of Saatchi & Saatchi from this perspective, we can say that the changes were implemented properly.
Reference List
Greenhalgh, C. (2004) Building a Strategic Balanced Scorecard: Saatchi & Saatchi Complementary Case Study. Business Intelligence Company. Web.
Niven, P. (N.D.) Financial perspective. EPM Review. Web.
Wilson S. & Pemural A. (2009). Waging War on Complexity Costs: Reshape Your Cost Structure, Free Up Cash Flows and Boost Productivity by Attacking Process, Product and Organizational Complexity. NY: McGraw-Hill Professional.