Posted at 11.23.2018
Companies need a competitive advantage to be able to make it through. Saatchi & Saatchi didn't overtly identify their creative gain. It was, probably, their capability to produce original and creative advertising, but this has not been highlighted in the event study. Their management did not identify how they would maintain their competitive benefit, through their acquisition spree, nor does they identify other strategic choices to keep up their competitive benefits, for example organic and natural growth and the development of in-house creative skills.
Saatchi & Saatchi's success was because of the understanding of specific marketplaces and creative advertising, however as they grew they appeared to lose touch with what their multinational customers required, for example; no issues with competitors and the multinational customers lack of involvement in the consulting arm.
Saatchi & Saatchi possessed an insurance plan of acquiring other businesses in order to expand into an 'all marketing communications' business. Saatchi & Saatchi bought many contending advertising agencies with no obvious plan, other than to expand. This lead to concerns of confidentiality using their company main customers, Proctor and Gamble and Colgate-Palmolive (Mintzberg, 2003), which in turn caused the loss of a substantial amount of the company's advertising revenue.
The departure of the most notable company financial professional was a blow to the attempting company; his departure signalled the increased loss of essential knowledge and was the first sign of managerial decline. This insufficient expertise was proved when Saatchi & Saatchi bought Ted Bates for an 'exorbitant' price (guide the paper). The financial exec role was not replaced, which left a void between management and shareholders, presenting the distinct sign that Saatchi & Saatchi 'were interested in other things besides Saatchi and shareholder value' (Mintzberg, 2003) and didn't have a coherent strategy, as you might expect that a chief financial officer (CFO) was critical to a acquisition strategy. This will have hit shareholder self-assurance hard.
Saatchi & Saatchi did not appear to have dealt with how they would manage their broadening global business and in turn how they would achieve synergies through scale, which is generally part of a global strategy. Alternatively the opposite, they seem to be to have left the attained businesses to run themselves, with earn-out intervals, which would lead the prevailing management to make an effort to make short term profits because of their own advantage rather than help build a global business.
The next thing in their downfall was the attempted bet for both British banking institutions. This move was completely disconnected from any strategy to build an 'all communications' business. This will need to have signalled to the marketplace and also to shareholders that that they had no coherent strategy and a definite lack of concentrate. The fact that this eventually failed may have also signalled to shareholders the managerial weakness of not having a CFO. This insufficient shareholder confidence continuing to grow, which, in conjunction with the reducing show price, signalled the downturn of the business.
Saatchi & Saatchi had relied on its high stock price, and a weak dollar for its expansion in the 1980s. Without these catalysts Saatchi & Saatchi's first 1 / 2 year income of 1989 was placed to decline by 40% (Mintzberg, 2003).
The Saatchi & Saatchi strategy was always to be the largest, and didn't appear to travel much beyond that. This very hazy strategy left the business enterprise with little course to move in, and appears on paper to have bought a range of random companies in a short space of time to be remembered as the biggest. Saatchi & Saatchi were attempting to grow the business through acquisitions, but this kind of development has associated problems. High staff turnover in particular is noted in the case study as a plaguing problem. One might expect that the creative skill of the staff within an advertising business was an integral asset and burning off personnel is effectively losing competitive advantage, so that it is unsurprising that signalled the decrease of the business enterprise. These people issues are common in acquisitions with high rates of management turnover associated with poor acquisition performance (Hambrick & Cannella, 1993) and the possibility of your culture clash (Child et al, 2000) Can't find research!!!.
It must have been an integral part of these strategy to talk to their staff, to identify their vision for the future and what would make their business successful and why it would be a great location to work, when one looks at (Mintzberg, et al. 2003) strategic leadership charts, it appears that Saatchi & Saatchi acquired more ego involved with running of the business than anything else. Within strategic management or a 'head as artist' (Jha, 2010) a innovator of the company must follow; 'Provides ideas that govern corporation, Crafts purpose, Develops perspective and Forms core prices' (Jha, 2010). Regarding Saatchi & Saatchi, it appears that as they sort to grow the company at such a fast rate, they lost perception of these principles, which explains why the company in the end failed.
Strategic leadership is particularly crucial in a people business, where in fact the skill of the staff is the only property. In other businesses such as making you are simply selling something, the manufacturing collection is quickly replicated to make the last product. In advertising you are selling the skills of any team of individuals. It is not possible to instruct an totally new person how to advertise in a brief time; this shows the value of experiencing a team of high skilled folks who are able to come into the new advertising businesses and initially help the change over period while the home based business aligns itself with the Saatchi & Saatchi thought process.
Statistics show that over 60% of acquisitions' in tightly related sectors failed (Porter, 1987). The Saatchi brothers were going for a significant risk purchasing so many companies in that short space of time. This extended their resources very thinly, and still left them in dire need for cash. The fact that their acquisition strategy didn't appear to dwelling address how they would manage and incorporate the new acquisitions to create a worldwide network, still left them without a plan to achieve short-term profit advancements, normally key to the success of acquisitions (McGovern, 2010). Their poor profitability forced these to a distressed deal of their consulting arm. This put them in an awful position for negotiating with businesses considering purchasing the consulting group that resulted in Saatchi & Saatchi finally reselling their consulting arm for approximately 150 to 200m (Mintzberg, 2003) less than they thought it was worth.
If that they had had an idea to deliver short-term profitability it could have given them longer to assess your options for the consulting arm. This may have led to a better deal process, realising more value, or an effective integration of the attained business.
Saatchi & Saatchi's approach to globalisation was to give a 'one stop shop' (Mintzberg, 2003) for many communication services for clients already using Saatchi & Saatchi. How they intended to accomplish this, apart from by running a stock portfolio of marketing services companies, is not yet determined in the paper. Their purpose was to encourage clients of these advertising firm to outsource their immediate marketing, pr and general market trends to their 'one stop shop'. Saatchi & Saatchi should have had within their strategy the local execution of the 'one stop shop' idea, to master the theory in a local market. The chart below (ref: ) shows how a global business strategy evolves. Saatchi & Saatchi would be sighted in the beginning in the bottom still left as a UK based mostly advertising agency. If, their true goal was to develop a global 'one stop shop', they should have included how they would perfect the model in their lead market, the UK and a set up way to role the model out into other countries, ie moving from bottom left on the chart to top remaining. The acquisition strategy didn't talk about this and organisationally that they had not tackled how they would manage the progression from bottom remaining to top kept and hadn't even described how they would proceed to top right, the truly global position.
They were acquiring companies without sure style of how the 'one stop shop' works, nor how they might effectively control global client conflicts. This leads one to believe that to a certain degree Saatchi & Saatchi were simply making decisions as they proceeded to go without any real strategy.
Saatchi & Saatchi had acquired a lot of different companies functioning in various countries but they hadn't built a coherent network that could offer their 'one stop shop' theory, for example their press services company didn't operate in the United States (Mintzberg, 2003), which limited their international charm, particularly as most international companies will aim for the united states as it's the biggest economy. Saatchi & Saatchi had not even built a 'one stop shop' in an area market, so they did not have a local strategy that these were trying to extend globally.
Companies often go global to avoid politics or financial risk (McGovern, 2010), in Saatchi & Saatchi's circumstance their transfer to the global market actually increased the risk due to the way they financed their acquisitions and having less clarity in their strategy.
There is not a mention in the event analysis of any competitors by any means, or how Saatchi & Saatchi expect to compete. To be able to win deals over other advertising companies Saatchi & Saatchi must offer something no other competitor can and their 'one stop shop' must be at least as good as the prevailing clients' current service provider. However the companies that Saatchi & Saatchi acquired weren't top players in their marketplaces (Mintzberg, 2003). Display 9 in the paper demonstrates the non-advertising companies were #6 6 or less on the market, so without development, which was not tackled in the strategy, it isn't clear that they designed to build them into a 'one stop shop'.
The companies purchased (Display 9) might lead one to presume that Saatchi & Saatchi were seeking to build a network to service major clients like P&G and Philip Morris. However, throughout your client list in Exhibit 9 there are major bank account conflicts, eg BAT & Philip Morris that could make their 'one stop shop' difficult to do.
Exhibit 9 also implies that their acquisitions were mainly mid-sized and with limited global reach. The major Bates only helped bring a number 6 slot in the USA (Display 8). The acquisition strategy was therefore delivering neither a 'one stop shop' nor a global reach.
The acquisition strategy also brought with it a number of client issues. This pressured Saatchi & Saatchi to create a dual organization approach in order to get around the situation of offering advertising to competing companies. This was not envisaged in the beginning and must have put into their costs and even though a remedy to problems, this goes resistant to the integration benefits which would justify similar company acquisitions.
It appears that Saatchi & Saatchi's only desire in the global market place was to be the largest, glorified empire building if you will. There doesn't appear to be any logical behind the firms that they purchased. If they were looking to be the best in their field, you might assume that they might acquire companies which were the best in their field, i. e. the new consulting arm of companies. However from the case study it seems that they simply bought whatever companies were available. The actual fact they bid for two British banks implies that they had no direction apart from being big; the banks would have enjoyed no part in their business and simply highlights their puzzled demise.
In order to decide whether a company will probably be worth conserving, several questions have to be answered. Is the company worth keeping? - Saatchi & Saatchi seemed to assume the business was worth saving as the business is apparently a reflection of the whims and desires to be seen as the biggest. What is the current operating health? - this was not addressed whatsoever in the event study, one would assume since the operating profit acquired lowered by 40% (Mintzberg, 2003) that the operating health of the company was not particularly good and costs were too much. Exhibit 5 shows that within the last two years costs had risen by 17% but earnings acquired only increased by 14% (Mintzberg, 2003). Finally the previous question 'What is the existing tactical health of the business?' - There can be an implication in the event study that the consulting arm is seen as non-relevant hence the quick sales of this arm, however there is no clarity to this which contributes to poor sales timing and lack of value to talk about holders. There will vary operating turn around strategies available: Cost lowering strategy, Asset reduction strategies, Revenue producing strategies and Combo strategies (Hofer, 1980). From the case study it is not clear which strategy was chosen to carefully turn the business around, apart from the deal of the consulting arm.
In conditions of retrenchment, Saatchi & Saatchi shows little proof retrenchment which would have been necessary considering that the company was in a steep decline.
In Saatchi's circumstance problems arose because of poorly defined acquisition strategy and probably terribly executed integration of businesses purchased to form a 'global marketing services company'.
In 1990 Louis-Dreyfus dismissed two mature professionals (Mintzberg, 2003); this provided shareholders more self confidence as it is an indicator that he's completely control of the company, and is completely able to make tough decisions in the best interest of the shareholders. If nothing else this was a good move as it provided the first upwards movement of the business's share price since the original downturn.
Although Louis-Dreyfus implemented a recapitalization plan and sold the consulting business the margins continuing to fall; This would indicate if you ask me that the marketplace was not thinking about this 'one stop shop' of communication services and would be better to return to the key advertising services to be able to raise the presently shrinking margins.
A return to imagination might go somewhere to improving the business's performance, a return to core ideals would suggest to shareholders that the business had a targeted view on the direction in which they wish to move towards in the foreseeable future. This would reassure shareholders and buyers, improving the likelihood of receiving credit and extensions on loans. However, this said, Saatchi & Saatchi have a massive burden of many mis-matched companies to aid which are losing profits on a daily basis and this must be attended to by way of a rationalisation strategy. A go back to creativity alone wouldn't normally stop the deficits carrying on and given the indegent state of the business's finances they may well not survive.
The concept of returning to creative imagination is a means of aiming to increase the advertising offering of the company in an effort to improve turnover, ultimately it is merely an improvement in income that will get Saatchi & Saatchi from the red.
If shareholder and market self confidence is advanced this will help to enhance the company's health in some recoverable format, a return to creativity or center value will remind the marketplace what made the business great but a noticable difference in profitability is key to increase the market's perception of the business's recovery plan.
Although the business hasn't shown a decline for three years or even more a change strategy is still needed. Since Saatchi & Saatchi have been acquiring businesses at an instant rate, this has been masking the true extent with their actual business issues. At the time of drop Saatchi & Saatchi acquired received more business than underneath type of Saatchi & Saatchi could support. In order to appropriate this Saatchi & Saatchi should concentrate on providing services to some key markets, rather than attempting to follow the global strategy. By focusing on a few key market segments Saatchi & Saatchi are better distributing their dwindling resources in the most effective way. By building the business enterprise up in these key market segments and fortify the balance sheet overall, it will maybe allow Saatchi & Saatchi to go to less profitable markets once the business has recovered sufficiently to permit it. In terms of certain requirements of the turnaround strategy the replacing of the principle exec and top professionals was completed (McGovern, 2010) and a culture change (McGovern, 2010) through returning to 'creative ideals' all go to verify that the business was under going for a successful turnaround strategy. The handing over of the advertising business to preferred shareholders will have vanished some way to 'establish and communicate reliability with stakeholders' (McGovern, 2010), which is a key point in a recovery strategy.