Balanced Scorecard During the Mid-90s, the Advertising

Balanced Scorecard

During the mid-90s, the advertising firm of Saatchi & Saatchi was facing a crisis both in terms of its core mission and also in terms of its 'branding' within the industry. Once a financial pioneer, the creative cohesion between the different branches had been lost. The agencies existed as "competitors only connected through common ownership" (Greenhalgh 2004:3). The organization set specific benchmarks for financial improvement: "growing our revenue base better than the market; converting 30% of that incremental revenue to operating profit; [and] doubling our earnings per share" and also strove to offer its core base of customers a more consistent product branded with a unique Saatchi style (Greenhalgh 2004:3).

Analysis

The company segmented its agencies to prioritize high-growth markets. The three categories were those of lead, drive, and prosper' agencies. Each category had different strategic challenges. The vast majority of Saatchi agencies fell into the 'prosper' category of possessing less than 50 employees (Greenhalgh 2004:4). These agencies were not assigned ambitious growth targets and were merely required to expand the margins they accrued from clients, rather than to grow their revenue base. Drive agencies were mid-sized and were expected to modestly grow their base of clients and increase their margins. Most of Saatchi's energies were focused upon 'lead' agencies in large cities such as New York and London. These agencies were supposed to dramatically grow both their margins and their client bases (Greenhalgh 2004:5).

As well as focusing on a relatively narrow base of agencies, Saatchi also chose to focus on a relatively narrow base of clients, or Permanently Infatuated Clients (PICs). This was justified by the fact that "20-30% of Saatchi & Saatchi's client base made up 70-80% of its revenues" (Greenhalgh 2004:5). All agencies were instructed to focus on a few large clients, rather than on a large array of small clients. These clients were said to need 'Big, Fabulous Ideas (BFIs) or high-quality ideas that really made a splash in the advertising world. These BFIs would be used to elevate the company's reputation in the advertising world once again as well as to solidify client loyalty.

Conclusion

On the surface, there seem to be several obvious problems inherent to Saatchi's strategy. First and foremost, it is problematic because focusing on a very small number of agencies is a poor strategy of risk management: if one lead agency begins to falter, then it can dramatically affect the entire corporation, because of the disproportionate allocation of resources. Also, small 'boutique' agencies could provide lucrative services to clients who were not be located in major cities or did not have enough money to patronize one of the larger agencies. These companies could still be the subject of eye-catching campaigns and generate revenue for Saatchi by bolstering the agency's brand image. Instructing these 'prosper' agencies merely to grow their margins seems unwise, given that it may be difficult to garner money from small clients, but possible to expand their array of smaller potential clients. Smaller clients could still generate BFIs that could elevate Saatchi.

A focus on PIC also seems unwise in terms of risk management: it gives great power to a very small array of clients. Saatchi justified this fact because 20-30% of Saatchi & Saatchi's client base made up 70-80% of its revenues (Greenhalgh 2004:5). Rather than attempting to change this state of affairs, Saatchi sought to capitalize upon this strength and emphasize it. Lead agencies and PICs were seen as the key to increasing company profits. This seemed to be justified when Saatchi announced that it had "achieved our Wall Street goals by June 2000, which was six months prior to our December 2000 deadline" (Greenhalgh 2004:6). However, it is uncertain if, over the long-term, the focus on a handful of clients would have restored the agency to its former glory. A single failed campaign or scandal involving one of the clients could have seriously compromised Saatchi's reversal of fortune.