The financial perspective of the balanced scorecard in corporate strategy

Financial Perspective

Case Analysis:

Despite having an exceptional pace of growth throughout the early years of their existence, Saatchi & Saatchi is facing client attrition and declining revenues. What had happened through their continual restructurings was the corporation lost track of their core vision, mission and values. The distance between these three core attributes of their business and financial performance had drifted apart so far that financial results were showing the increasingly disjointed nature of their corporate culture (Greenhalgh, 2004). The reliance on a balanced scorecard to unify their core vision, mission and values back to financial performance was needed (Niven).

As a result of the continued deterioration of financial and customer performance, management at Saatchi & Saatchi put into place financial and customer-driven goals for the company. The financial objectives included the foundation of their company's resurgence and comeback, including growing the revenue base faster than market rates, converting 30% of incremental revenue to operating profit and doubling earnings per share (Greenhalgh, 2004). As client relationships are core to the company's long-term growth plans, the top management team also set the goal of creating Permanently Infatuated Clients (PIC). This concept was meant to drive greater intensity of effort, passion and focus on results for their many global clients who had began replacing Saatchi & Saatchi through agency reviews or just letting them go and not replacing them at all, just using internal departments to do their work. Saatchi & Saatchi had lost its edge and it was showing both at the structural level of the company, their financial results and attrition of customers. The long-held vision of transforming their clients had been diffused with a lack of focus and accountability. The use of balanced scorecards were initiated after the senior management team of the company met Professors Kaplan and Norton at Harvard, who are credited with creating the concept of linking corporate and customer performance to financial results (Greenhalgh, 2004).

Analysis

As part of their restructuring efforts, Saatchi & Saatchi created three separate classifications of agencies or business units including lead, drive and prosper. The goals, objectives and focus of each of these three classifications were predicate don how effectively they could meet and exceed customer expectations over time. Beginning with the lead status agencies located in the UK, New York and China, the company concentrated the majority of its investment in these locations to drive new business and also retain existing clients in these regions, which are the world's most competitive in terms of advertising and marketing services (Greenhalgh, 2004). The "drive" agencies were the next class of businesses, who often had between 50 and 150 employees and were given the objective of maintaining stability of mid-margin accounts while growing the revenue base significantly through new client development (Greenhalgh, 2004). The third classification of agency was the "prosper" group which is where the majority of Saatchi & Saatchi locations and subsidiaries are members of. This classification of agency has up to 50 employees and is will most likely never become a large-scale agency. The focus however for this classification of agency was given the formidable objective of generating the majority of gross margin growth throughout the company (Greenhalgh, 2004).

In conjunction with the delineation of these operating units, the comp[any also created more aggressive customer-center objectives to put their clients back at the center of their business. These included the Permanently Infatuated Clients (PIC) that were mentioned earlier in addition to emphasis placed on creating Big Fabulous Ideas (BFIs) that had the potential to completely revolutionize clients' businesses, making them more profitable and focus on their own customers at the same time (Greenhalgh, 2004). What Saatchi & Saatchi was attempting to achieve was a restoring of the passion they had at one time had internally surrounding delivering great results for customers. The customer-oriented aspects of their activities were deliberately designed to unleash the passion for customer results they had once had but lost due to fragmented management structures and a lack of creative intensity.

Conclusion

The financial strategies defined for each business unit are well-suited for their specific strengths, particularly with the smaller units more focused on increasing gross contribution margin over time. These smaller agencies will be able to generate exceptionally higher levels of performance due to the personalized services they can offer clients. In addition to these factors, the differentiating aspects of each business unit definition will also provide for greater focus on specific client needs and the aligning of resources to specific client requests. This structure also allows for a more efficient transition to being owned by parent Publicis Group SA, as the modularity of services and focus on specific clients is much more agile and adaptable. This point is also made very clear by the exceptionally high multiple paid of five times earnings paid for Saatchi & Saatchi, which is high for any acquisition in the media and communications industry.