Jacob Ides Paper 2

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Saatchi & Saatchi: Navigating in a Shifting Landscape

This case was prepared by Martin Deboo, Prof. Dominic Houlder and Prof. Michael G. Jacobides. The case

study is prepared as a basis for class discussion rather than to illustrate either the effective or ineffective

handling of an administrative situation.

2006 London Business School, Regents Park, London NW1 4SA, United Kingdom


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Saatchi & Saatchi in 2006

Throughout its thirty-six years, Saatchi & Saatchis corporate history had generated enough

drama and excitement to qualify as a soap opera - one rich not just in personalities but also inlessons about managerial innovation, turnaround and the transformation of both a business and a

sector.

By 2006, the Saatchi & Saatchi story comprised four acts:

Act One: Hubris (19701988)

Following its foundation in 1970, Saatchi & Saatchi rose rapidly to become the doyenne of the

resurgent UK advertising industry. To this day, the words nothing is impossible are carved into

the entrance of its UK headquarters on Londons Charlotte Street. Propelled by this mantra,

Saatchi & Saatchi prosecuted its strategy with a verve and brio that cemented its fame. At the

heart of the plot was a track record of creative excellence that resulted in famous advertising for

signature clients such as British Airways and, most famously, the UKs Conservative Party under

Mrs Thatcher. Saatchi & Saatchi had legitimately taken a share of the credit for Mrs Thatchers

election victory in 1979, which in turn gave them a stake in the reshaping of the British political

landscape that took place in the 1980s.

Along with creative excellence came rapid expansion to global leadership. This tracked the

Saatchi brothers vision that successful agencies would be those that achieved global scale to

match global clients with global brands. The vision played out across an ambitious acquisitions

programme. Gaining access to the UK stock market in 1975 via a reverse takeover, Saatchi &

Saatchi wasted no time in tapping the public market to fund a string of deals embracing

advertising, other marketing services and management consulting. It was an acquisition model

that was both breathtaking in its aggression and entirely of its time: acquisitions contributing toearnings growth to drive a rising share price which in turn allowed the Saatchi brothers to issue

more equity to fund more acquisitions.

Act Two: Nemesis (19881995)

Saatchi & Saatchis abortive bid for the one of the UKs major retail banks - Midland (now part of

HSBC) - and the ensuing stock market crash in 1987 marked a watershed in the business

fortunes. The aggressive acquisition strategy had not been complemented by a cogent integration

plan for what was by now a sprawling management services empire. Between 1988 and 1991

Saatchi & Saatchi shares lost 98% of their value. Successive restructurings failed to stem the

crisis until January 1995 when the unthinkable happened and Maurice Saatchi was removed from

the board, with Charles following in protest (see Exhibit 1). Six months later new CEO Bob

Seelert a turnaround leader with 20 years experience at General Mills arrived to take on a

company that was poised on the brink of oblivion. The Saatchi & Saatchi story has glamour,

money and that vital transatlantic connection, said the UKs BBC News in 1995. It has power

and politics, pretty and successful wives.But so far it has no ending and the plot could still go

any way.


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Act Three: Regeneration (19952000)

Contrary to the expectations of many, Seelert pulled off the turnaround he was hired to achieve.

The Group was rationalised, costs were cut and for the first time, a credible top down business

planning process based on a 10% margin target was imposed. Seelert refinanced the business via

a heavily discounted rights issue that was taken up enthusiastically. Critically, through it all,

Seelert maintained the old Saatchi & Saatchi culture and spirit under the slogan of preserve

whats best, purge the rest. By 1997 the Group was healthy enough to be demerged into two

profitable publicly quoted entities: Saatchi & Saatchi and Cordiant Communications.

With the immediate crisis over, Seelert needed to set a new direction for a resurgent Saatchi &

Saatchi and in 1997 he recruited Kevin Roberts as CEO. Roberts had built his career as a client,

working at Mary Quant, Gillette, Pepsi, Procter & Gamble (P&G) and latterly at New Zealand

brewery Lion Nathan. His approach to business was colourful and direct: he had earned the

nickname Rambo Roberts after incidents such as dressing in a commando uniform for Lion

Nathan meetings, bringing a lion cub to a conference and firing live ammunition into a Pepsi

machine on stage at a convention. He brought his considerable charisma to bear on the business

immediately by securing and then growing Saatchi & Saatchis key P&G relationship and setabout rebuilding the agencys reputation for creativity.

In September 2000 Saatchi & Saatchi was acquired by French advertising group Publicis. In a

little under three years since the demerger, Saatchi & Saatchi had provided shareholders with a

return of over four and a half times their money. Now part of a major marketing services group

with global ambitions, Roberts and his team could proceed with renewed confidence and pride.

Act Four: Achievement (2001-2006)

Six years on from the Publicis deal, the Saatchi & Saatchi network covered 143 offices in 83

countries with 7000 staff. Saatchi & Saatchis parent company (see Exhibit 2) was continuing to

prosper and the travails of the mid-1990s finally seemed a long time ago. Having consolidated its

position within the critical P& G, Toyota and General Mills global account rosters, Saatchi &Saatchi had headed the sectors Global New Business league table in 2002 and gained new blue-

chip clients such as Novartis. By 2006 Saatchi & Saatchi worked with 60 of the top 100

worldwide advertisers and over half of the top 50 most valuable global brands. The business was

increasingly admired and respected. In 2002 Saatchi & Saatchi had been named Global Network

of the Year by bothAdAge andAdweekand had been the top award-wining network at the

Cannes Advertising Festival in both 2001 and 2002. In 2006, Cannes put Saatchi & Saatchi in

second place (after BBDO) worldwide and in Australia Saatchi & Saatchi was named Agency of

the Year for an unprecedented third year running.

Behind the glamour of the awards, Roberts had driven substantial and enduring change in the way

that Saatchi & Saatchi did business. Roberts knew that driving change would be hard but was

unconvinced by the traditional prescriptions of organisational consultants and academics. Insteadof looking at successful companies, Roberts and three academics from Waikato University in

New Zealand colleagues looked at successful sports teams such as the New Zealand All Blacks,

Bayern Munich, the Atlanta Braves and Williams Grand Prix. The result of the study was a clear

perspective on what a Peak Performing Organisation (PPO) should look like (see Exhibit 3).

Roberts then applied these principles to Saatchi. At the centre of the resultant strategy was a

simple goal: to create permanently infatuated clients (PICs.) Get this right, thought Roberts,

and revenue growth would follow.


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As always the real challenge had been to get traction on this new direction within the

organisation. This was even more of a challenge in a creative business where the balance between

individuality and collective harnessing to an organisational task was difficult to strike. And

Saatchi & Saatchi was a more change-weary business than most.

Roberts had put a number of processes in place to support change but one that some of his team

members saw as especially effective was the RASCI discipline. RASCI was a tool for drivingempowerment, accountability and teamwork and was an acronym for Responsible, Approve,

Support, Consult and Inform. Under RASCI, an ad hoc team was formed around a strong

community of interest in delivering on a project or task. This could embrace both a new idea or

campaign, or an internal operational task. At the outset of each project, each member of the team

would be assigned a respective role within the RASCI framework and would retain this role

throughout the process. The principal benefits for RASCI were that it was non-hierarchical (in an

organisation where the notion of a hierarchy could be problematic) and, crucially, that it created a

mechanism for working in an aligned way across the traditional agency silos of creative, planning

and account management. RASCI went hand in hand with another discipline called CompaSS.

This was a balanced scorecard that focused team attention on the central goal of creating PICs.

Time to reflect

Contemplating progress from his Hudson Street office in New York City, Kevin Roberts could

take real pride and satisfaction with what had been achieved in his ten years of stewardship. 2005

had been the best ever year for both revenue and profits. Since the Publicis deal, operating

margins had consistently reached 15% with faster-than-market growth. But by no means did

Roberts see the task as over.

This was an industry that still largely envisioned itself as a purveyor of advertisements for brands,

particularly thirty-second TV commercials, and in which the hallmark of creative success

remained the award for the best ad in TV or other specific media. Roberts had long questioned

the limitations of this conventional wisdom. Within 100 days of his arrival at Saatchi & Saatchi

he had rebranded the agency as an ideas (as opposed to just an advertising) business1, anddefined a compelling vision: to be revered as the hothouse for world-changing creative ideas that

create sustainable growth for our clients. Understood narrowly, this could mean concepts, images

and designs that played across the media spectrum. More broadly, it could mean any idea that

enabled growth.

More recently, Roberts had given this vision fresh emphasis through two books that articulated

what world-changing ideas could mean in practical terms. The first,Lovemarks (2004), argued

that traditional brands were dead and that, in the future, successful brands were those that created

loyalty beyond reason (see Exhibit 4). In the second book, Sisomo (2006), Roberts observed that

the traditional thirty-second commercial was becoming obsolete and that brands would need

increasingly to manifest themselves in sight, sound and motion across a range of media (see

Exhibit 5).

Roberts understood that, in a business that comprised 143 local offices, transformation would be

first and foremost a question of prioritisation. 12 key geographic markets were therefore

1 Saatchi & Saatchi plcs 1998 Annual Report recognised that advertising is only one tool for the client, and

advertising is just one expression for something more valuable: an idea.


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identified where Saatchi & Saatchi would be looking to step-change performance and build its

global reputation. Within these markets, offices would first need to make sure that they could

deliver brilliantly around both traditional advertising and best-in-category creativity. When

proven at this level, offices could then set about evolving themselves into fully-fledged ideas

businesses. In lead markets such as the UK, by 2006 Saatchi & Saatchi was starting to make this

come to life through the creation of new specialised business units such as an R&D lab (forstrategy and innovation), industry@saatchi (which provided clients with growth strategy advice),

gum@saatchi (creating youth entertainment content for brands) and Saatchi & Saatchi X (a unit

tasked to drive creative ideas into the in-store environment).

Love was in the air this spring for Kevin Roberts and JC Penney, saidAdAge in September

2006, attributing JC Penneys decision to move $430m of business from DDB to Saatchi &

Saatchi to the premise of theLovemarks and Sisomo philosophies. Until last week,AdAge went

on to say grudgingly, It could be argued that the premise was more successful at conferences and

on op-ed pages than with business development. The following month the Lovemarks philosophy

scored another win with a successful bid for Sony-Ericssons business by Saatchi & Saatchi in

London, while Saatchi & Saatchi X won a mandate from P&G to create and deliver a new in-

store approach across Wal-Mart.

Despite these successes, Roberts was not complacent about the magnitude of his task. This was a

dual challenge: serving core, long established clients like P&G and Toyota (which accounted for

approximately 50% of worldwide revenues, mostly in the United States2) and at the same time

keeping Saatchi & Saatchi at the forefront of the global marketing services sector, which was now

in an acute state of flux. The world of marketing and advertising was being transformed. The

future would be exciting, but the direction and pace of change were far from clear.

Setting the course of action in a dynamic environment

The global marketing services landscape was now a very different one to that which Charles and

Maurice Saatchi had surveyed in the go-go years of the 1980s. Writing in 2006, theEconomist

observed that the advertising industry is going through one of the most disorientating periods in

its history.3

The changing nature of marketing and advertising

In one important respect the Saatchi brothers original vision had come to pass: marketing

services was increasingly a global marketplace. Most major consumer goods and services markets

were becoming consolidated at a global level, with procurement of marketing services following

this trend, albeit at some lag. For example in 2006 in the UK, 15% of all client-agency advertising

agreements were on a global basis, up from 11% in 20034.

However, in most other respects, the landscape of the early 2000s was very different in ways that

the Saatchi brothers could not have foreseen. The most important change was the fragmentation

of communication channels. As recently as 1999, the average US citizen had spent nearly 800

2Source: Saatchi & Saatchi Globalisation Analysis, Villanova 2004

3 The Economist 24 June 2006

4 This figure is based on the number of agreements rather than their value, so almost certainly under-estimates the real

significance of global agreements


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hours per year watching traditional network television 24% of their total eyes and ears

directed at consumer media. By 2006, this had fallen to 680 hours and 19% of eyes and ears (see

Exhibit 6). Correspondingly, viewing of (multi-channel) satellite and cable TV had risen from 630

hours per annum to 870 hours and consumer internet had risen from sixty-five hours in 1999 to

176 hours in 20045. The power of the traditional thirty-second network spot to both reach and

influence the body politic was waning.This change in consumer habits was beginning to influence marketing spending patterns

profoundly (see Exhibit 7). In 1999, close to 90% of US advertising expenditure had been in the

traditional media of broadcast television, broadcast radio, newspapers, magazines and outdoor. By

2009, this was forecast to fall to just under 74%, with the new media such as the internet, cable

and satellite TV and product placement in films and computer games accounting for the rest6.

Outside paid-for media, the cultural impact of things like blogging and internet communities such

as myspace.com was growing. Viewed in the round, the shift was from traditional mass and

passive communication channels to personal and interactive. In the words of Rishad

Tobaccowala, Chief Innovation Officer for Saatchi & Saatchis owner Publicis, clients and

agencies have been classically trained, but now were in a jazz age7.

The consequence was a tension between a client business model which increasingly focussed on

brands of scale at the local and, increasingly, global level, set against a communication landscape

which was becoming fragmentary, almost individual, in its character. Many industry

commentators thought that this would increasingly favour creative ideas that could travel not

just across geographies but also across media media neutral in the industry argot. Lovemarks

and Sisomo had given Saatchi & Saatchi an intellectual stake within this dynamic. But who knew

how far it might go?

The declining status of marketing and the risks for the traditional agency

Since its invention by P&G in the 1950s, brand management had become the dominant business

philosophy of consumer goods and services companies. The model based on a strong focus on

brand positioning, its expression in mass media and resultant high and sustained investment in

advertising had proved durable and successful.

However by the turn of the millennium the brand management model was coming under pressure

and the leaders of consumer goods and services companies were asking questions about the value

it was creating. The disruptive change had been the growing power of the retail channel across

most consumer goods categories. With growing retailer concentration came growth in private

label, which had exposed the weakness in many brands. The result was stagnant profitability and

low rates of organic growth for the brand owners.

In striking contrast to the faltering track record of marketing, other functions within consumer

goods and services companies had responded with alacrity to the challenges posed by retailer

power. The supply chain management function (often shaped by specialised consultants) haddelivered major benefits and had arguably defended profitability from retailer pressure. Radical

5 All data in this paragraph is from the Veronis Suhler Stevenson Communications Industry Forecast 2005

6 Veronis Suhler Stevenson, op cit

7 The Economist 8 July 2006


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and innovative approaches to manufacturing and distribution had simultaneously lowered unit

costs, reduced inventory and raised in-stock availability. This had driven real and demonstrable

benefits to the bottom line a language that supply chain managers and advisors were only too

happy to speak. By contrast marketers were perceived by some CEOs as unaccountable,

untouchable, slippery and expensive8.

Retailer power was also forcing consumer goods and services companies to rethink theirorganisation models. Whereas in the past the route to market was largely a matter of arraying

brands against consumer segments, confident in the belief that a largely supine retail channel

would provide availability, firms now had to plot their way through a matrix with consumers and

brands on the one side and retailers and categories on the other. With this changing balance of

power came relentless negotiating pressure from the retailer. Clients were therefore struggling to

maintain their investment in consumer franchise-building activity in the face of relentless

demands from the channel for funding of tactical price discounts, on-shelf promotions and listing

fees. For large grocery suppliers in particular, trade funding was approaching the same order of

magnitude as consumer franchise-building spend and was growing at a faster rate.9 Marketing and

advertising were losing their prominence.

In order to cope with these changes, clients were beginning to subordinate their consumer

marketing function to a broader commercial function with broad profit responsibility and the

authority to make trade-offs between consumer and trade marketing. In a recent survey10, search

consultants Spencer Stuart had talked of the death of the (Chief Marketing Officer) as the Chief

Advertising Officer. One CMO quoted in the survey estimated that the traditional marketing skill

set, while still important, now accounted for around 25% of his role. Another described himself as

the Chief Demand Creation Officer, responsible for growth.

Compounding this changing role was the shift in the high ground sectors within consumer

marketing away from traditional fast-moving consumer goods and towards customer lifetime

value categories such as financial services and telecoms. In lifetime value categories, the identity

of an individual customer could be known, enabling micro-targeting and micro-management by adiverse range of communications channels over their lifetime. These channels were less likely to

be traditional media, and more likely to be direct mail, call centres, personalised web pages and e-

mail. Clients in the lifetime value segment were more likely to reach for direct marketing

agencies or customer relationship management (CRM) solution providers than traditional

advertising agencies.

The final and interrelated phenomenon was that clients were now focusing more than ever on

accountability and ROI from their paid communications. The impact of (highly auditable) trade

promotion and the pay per click model of internet advertising was rapidly changing marketers

expectations of what was possible. In particular, the impact of the 2001 recession on client

behaviours had been profound. In the words of one analyst, instead of simply hunkering down

and spending their limited media advertising budgets on traditional advertising vehicles until thestorm passed, marketers took a hard look at their media spending patterns, and decided that they

8As quoted in Muir, The Real Case for Brand-based Investment, Admap, March 2005

9 Source: Casewriters estimates

10Spencer Stuart: The Changing Role of the Chief Marketing Officer 2006


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needed stronger measures of return on investment (ROI) in advertising and marketing

campaigns11. An important consequence of this was that agency remuneration increasingly

featured a payment by results component alongside the more traditional fee element. One of

Saatchi & Saatchis key clients, Procter & Gamble, had led this trend. In the UK, by 2005 56% of

agency agreements were now in this form12. Increasingly, clients insisted on competitive bid

processes for even long established agency relationships and referred agency fees to theirprocurement specialists.

I cannot remember a time, in the 25 years or so years I have been in the industry, when clients

have been so focused on cost, said Sir Martin Sorrell, CEO of WPP, parent company to a number

of Saatchi & Saatchis competitors13. It is true we must improve our processes and eliminate

waste, but can you buy ideas or our peoples creativity in such a mechanical way? The

procurement process seems to be based on the idea that what we provide is low value-added, and

that because we are dependent on significant revenues from large clients, we can be squeezed.

This thinking may well be flawed.

The shifting structure of the sector: dis-integration and fragmentation

As clients needs had changed, the tectonic plates of the global marketing services industry hadcontinued to shift. The 1990s had witnessed an unprecedented reshaping of the industrys

structure.

Traditionally, the work of an advertising agency14 had fallen into three broad functional areas:

account management (planning, research and client handling), creative services (idea generation,

graphic design and copywriting) and media planning and purchasing.

Account planning and research provided information to enable the agency to propose an

advertising strategy to its clients. Because the strategy governed all subsequent activities and

spending, the quality of the planning function was an important differentiating factor between

agencies. Client handling focused on building and maintaining a bridge between the planning,

creative and media buying functions within the agency and the clients own organisation. Theclient handler was the face of the agency, presenting ideas to clients and guiding them through

the decision-making process. The personal trust generated and maintained by the client handler

was therefore crucial in gaining and retaining clients. Account planning, research and client

handling typically accounted for 35% of the cost of a campaign in the early 1990s.

Creative services occupied a unique position in the agencys business model, playing a huge part

in creating and boosting the reputations of everyone involved, and accounting for some 45% of

the costs of a typical campaign. Agencies wished to appear creative and adventurous in their

approach, as this was an important area where a unique, qualitative advantage or differentiation

could be established over competitors. Since agencies were often founded and run by creatives,

11 Veronis Suhler Stevenson, op cit

12 Source: Institute of Practitioners in Advertising

13 Source: WPP Annual Report 2006

14As described in Saatchi & Saatchi Company plc: Corporate Strategy, Harvard Business School case study 9-792-

056, 1992


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the creative function received close attention and was often regarded within the advertising

industry as the defining characteristic of an agency.

Although sometimes seen as a Cinderella function alongside the more glamorous creative

services, media buying proved its worth by securing savings for clients purchasing media space,

with the best departments achieving savings of as much as 20% on their clients media spends.

Size mattered in media buying, as the largest agencies enjoyed negotiating advantages simply byvirtue of buying in bulk, although individual negotiating skills also played an important part. In

1990, media production and other overheads accounted for about 20% of a typical agencys costs.

Traditionally, these three functional areas account management, creative services and media

buying were integrated within the advertising agency. While creative ideas might win the

account, the old integrated advertising agencies billed clients primarily through a commission on

the media space they bought for clients, offering media planning alongside purchasing. It was

customary for agencies to be remunerated with a 15% commission on media they purchased on

the clients behalf. However, by the early 1990s the commission was increasingly open to

negotiation by clients, taking the average rate below 15%, although traditionally, agencies did not

compete with each other overtly on price.

But this well established structure was overturned during the 1990s. These years were

characterised by the unbundling of media planning and buying from strategic and creative

services. No agency of any note in any major region had a media planning and buying capability

in-house by 2005: these were run as separate businesses, albeit typically beneath the umbrella of

agencies parent companies. The result was that the global media buying market was concentrated

in the hands of 11 major players (see Exhibit 8) who jointly controlled close to 60% of the

worldwide media market. With the exception of Aegis Carat network, all of these media buying

networks were in the hands of the five major marketing services groups.

In 2005, in the U.K. at least, unbundled media buying companies were delivering superior

operating margins to other marketing service businesses (see Exhibit 9) and had surpassed

advertising agencies in 13 of the last 15 years (Exhibit 10). Also, the one pure play global mediaservices provider, Aegis, generated operating margins of 16%: at the top end of the range amongst

the global marketing services peer group. Nonetheless, some media buyers and agency principals

felt that unbundling might at times have led to a loss of strategic coherence between the

generation of creative ideas and media planning.

Allied to the trend away from vertical integration, on the horizontal dimension the industry had

continued to consolidate as the three traditional majors, WPP, Omnicom and Interpublic, had

continued their agency acquisition spree. While Interpublic had latterly declined amidst a wave of

accounting scandals and subsequent trading difficulties, Publicis had sprung up (against most

peoples expectations) to take Interpublics place at the top table with the acquisition of BCom3

as well as Saatchi & Saatchi. By 2005, approximately 40% of worldwide advertising expenditure

was controlled by the top five groups15 (Exhibit 11).

15 Source: Zenith Optimedia & WPP. Zeniths estimate of global advertising expenditure in 2005 is $406bn. The top 5

Groups have aggregate gross income of $34 bn in 2005. Applying a 4.5x gross-up factor to transform income into

billings (derived from WPPs ratio) yields estimated billings of c. $152m and a resultant five-firm concentration ratio

of 37%


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With media now fully unbundled, further restructuring of the value chain was starting to occur

with the rise of niche specialists in areas such as brand strategy, communications planning and

web design. Here the U.K., while by no means the largest advertising market (Exhibit 12), was in

some respects setting the global pace. In London, Sohos renaissance as the Athens of Marketing

Services16 was plain to see as a diverse and vibrant community of start-ups and spin-outs took

root (Exhibit 13), with new types of firm covering the new needs and niches of the sector.The major marketing services conglomerates had been tracking this trend. Some had continued to

prosecute their generic strategy of acquiring quality niche players in all parts of the landscape.

For example, in 2005 WPP listed over 130 subsidiary companies in its annual report. These

include consulting and below-the-line (i.e. direct marketing and promotion activities) as well as

above-the-line mass-media advertising. In 2005 WPP completed 29 acquisitions, 12 of which

were agencies in developing and emerging markets and 19 of which were specialist digital,

quantitative and advertising investment management companies17.

Models for the new millennium

By 2006, several business and corporate models seemed to be emerging, each with its exemplars.

The global powerhouse.

WPP, Omnicom and Saatchi & Saatchis own parent, Publicis, were all executing variants on the

same generic strategy of building global scale in multiple segments of marketing services. WPP,

led by its deal-making founder and still-CEO, Sir Martin Sorrell, was the arch-advocate of the

globalisation strategy. Over its twenty-year existence, WPP had been busy evolving its value

creation formula.

In the first phase the game had been one of squeezing margin and cash from what were

traditionally poorly-run businesses. In the second phase the Centre had begun to operate as a

fulcrum for best practice sharing, talent management and back-office services. In its latest phase,

WPP was beginning to envision the holding company as nothing less than an engine of business

development and service delivery integration. The pivotal event had been WPPs success insecuring HSBC and Samsungs global advertising and marketing business in 2004. The HSBC

and Samsung appointments were unique in that, for the first time, a major global client wanted to

consolidate their business exclusively within one of the major holding companies, rather than in a

specific network such as an O&M, BBDO or Saatchi & Saatchi. This had led Sir Martin to muse

that clients would use holding companies as aportal to access sophisticated sets of resources. In

essence, felt Sorrell, the traditional full-service agency had been reinvented as a full-service

group, with access to a portfolio of specialist skills dispensed via specialist group companies,

rather than as second class citizen functions within the old full-service model18.

Today, said Sorrell19, The new super-agencies have a big opportunity. Clients still require, first

and foremost, creativity and great creative ideas. Secondly, but increasingly, they want better

coordination (although it is no good coordinating a lousy idea). Finally, they want it at the lowest

16 London had been described as The Athens of Advertising during the 1980s

17 Source: WPP Results Presentation 2/06

18 Sir Martin Sorrell: Why should you appoint a global agency group? Admap 10/04

19 Source: WPP Annual Report 2006


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possible price The middle of the road is becoming an increasingly difficult place to be, with

traffic coming form both directions. Those agencies excluded from the super-agency pitches

because they lack the scale and resources must be feeing uncomfortable. Our business is

increasingly polarising between the very big at one end and the small at the other.

The local centre of excellence with global access.

In an industry shaped around global conglomerates at the top end and myriad start-ups,

breakaways and niche players at the bottom, the midfield of larger but still independent

companies was thinly populated. The traditional dilemma facing the maturing start-up had been to

sell or float. The latter option, while popular in the 1980s, had declined in importance given the

challenges of listing and the willingness of the global conglomerates to provide a more

straightforward route to value realisation via the earn-out.

However not all agency principals wanted to renounce their independence for the Faustian

bargain of life within a global corpocracy. In an industry that more than most lives by its

dedication to its craft, independence and freedom is highly prized. Up to the 1990s, the model of

the independent boutique focussed on its own local market had been both viable and attractive,

evidenced by the success of agencies such as Chiat Day in Los Angeles, Crispin Porter in Miami,Fallon McElligott in Minneapolis and Abbott Mead Vickers in London. However as the client

base globalised, the imperative to work with large, prestigious advertisers increasingly forced the

issue of the need for a global route to market and delivery capability.

It was precisely this dilemma that was beginning to exercise the Saatchi brothers. Having left

Saatchi & Saatchi in 1995 to form M&C Saatchi, by the turn of the millennium the agency had

become a highly successful player in the London market, based around the cornerstone British

Airways (BA) account. Spurred by its ambition and the need to service BA worldwide M&C

Saatchi had pursued a distinctive strategy for international expansion. M&C Saatchi preferred the

greenfield approach to local market entry rather than buy and build. Local advertising

entrepreneurs were identified and offered 20% of the equity in a new local M&C Saatchi

operation that they were invited to run. After three to five years, this stake could be converted intoparent company shares. In order to finance this model, M&C Saatchi listed on Londons AIM

exchange in 2004. The strategy had resulted in a global network that employed 750 people in 17

offices in 13 countries. However rivals claimed that the 20% equity share was too low to attract

the right local talent, while M&C Saatchis languishing share price (see Exhibit 14) impacted by

the recent loss of the BA account was compounding this lack of attractiveness20.

An alternative model to Saatchi & Saatchi had been pursued by Bartle Bogle Hegarty (BBH). The

darling of the 1980s wave of London agency start-ups, BBH had refused resolutely to yield its

independence and instead opted to sell 49% of the business to BCom3 (subsequently acquired by

Publicis) in 1997. BBH operated from a small number of global hubs in London, New York,

Singapore, Tokyo and Sao Paolo, relying on the more extensive BCom3 network for access to

smaller local markets.

20 M&C Saatchi sticks to what it knows Financial Times 10/7/06


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The local hotshop.

Despite consolidation, the entrepreneurial impulse of the marketing services industry, combined

with still-sizeable markets for locally bought services, continued to nurture a flow of start-ups and

breakaways, well capable of challenging the majors around the quality of their ideas.

New agencies could be started on the basis of largely sweat equity with a typical working capital

investment of probably less than 500,000 a number well within reach of a group of senior

people working for a bigger agency and looking to break away. The unbundling of media buying

in the 1980s had significantly lowered the barriers to entry because new, creatively led start-ups

could instantly plug in to the resources of a media independent with no upfront investment. The

public nature of the product coupled with the shop window created by the various industry awards

meant that a new hotshop could establish a high profile inside a year or two and soon be

competing with the majors for local business.

Critically, hotshops were often looking to maximise their reputation, rather than short-run profit,

reflecting a value creation model that looked to value on exit (usually via an earn-out deal with a

major) rather than distributable earnings. As a result local markets remained highly competitive,

with local players willing to discount heavily to win prestigious business. (Exhibit 15 showsexamples of three hotshop competitors and sectors in the UK market.)

The global management consultants.

Many global agency principals were envious admirers of what consultancies like McKinsey had

achieved over the past couple of decades, not least because some of their success had probably

come at the direct expense of the agencies, who were widely believed to be operating at a lower

tier in the advisory value chain than they had been in the full-service heyday. Some wondered

whether this was a more meaningful and aspirational success model than those within the

marketing services industry. This interest was not new: the Saatchi brothers had bought (but never

integrated) the Hay Group in 1984 and WPP, Omnicom and Publicis all had niche consulting

businesses under their banner.

There were a number of attractive features of the consulting firm business model, not least that it

appeared to be significantly more valued by clients than traditional marketing advice and

services. Whereas typical revenues per employee in global marketing services were in the range

70 - 90k, in management consulting they could range from a low of 70k at Accenture (which

had a lot of low value-added outsourcing business in its P&L) to 180k - 250k in high-end

strategic consulting such as McKinsey and BCG. Crucially, these other professional services

businesses were operating on lower ratios of employment costs to revenue, leaving a significantly

bigger value-add margin to reward shareholders or partners (Exhibit 16).

The ability of the top consultancies to realise revenues per employee of three times that of the

agencies was fundamentally attributable to a pricing model that linked professional fees more

closely to the value of a solution rather than the cost of providing it. Consultancies seemed a lotmore attuned to their clients bottom line and had much keener sense of how to capture the value

of their impact on it. Furthermore consultancies seemed much less willing to give away advice for

free (what Sir Martin Sorrell had waspishly described as on pack offers) a positive legacy of

living exclusively off fee income rather than the fat gross profits that the agency commission

system used to allow. For the consultants the benefit of all this pricing gravy was that there was a

much bigger pool of profit from which to reward and incentivise the principals in the business, as

well as to provide a strong economic incentive for those lower down to stay the course to the top.


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13

Some agency principals also envied the management consultants for their ability to create

proprietary knowledge. This was as a result of the consultancies track record in capturing,

codifying and proselytising their intellectual property, be it content IP around things like

industry sector expertise or process IP around how to create and deliver client solutions. In turn,

that seemed to stem from the ability to nurture distinct cultures and capabilities. In contrast to the

fickle and volatile nature of the agency world and its vulnerability to the defection of key talent,the consultancies had championed a more corporatist style with an explicit emphasis on the whole

firm, not just a few talented individuals. This cascaded into high and sustained investment in

talent recruitment and management, a clear up or out development track and a lot of emphasis

on evangelising the way we do things round here. For all the jokes about the Accenture

Androids and the Men from McKinsey, the model was proving durable.

The next act for Saatchi & Saatchi

In 2006, a senior management reshuffle (see Exhibit 17) gave Kevin Roberts the opportunity to

appraise Saatchi & Saatchis progress to date and plot the next stage of its performance and

transformation against this evolving market and competitive landscape.

To drive performance, he appointed Jim OMahony as CEO for EMEA, adding to his existingresponsibility for LATAM and Asia. To drive transformation, Roberts appointed Richard Hytner

as Deputy Chairman, Saatchi & Saatchi Worldwide and leader of the firms Global Strategy and

Planning function. Hytner had been at Saatchi & Saatchi for three years as CEO, Saatchi &

Saatchi EMEA, based in London. He had enjoyed a distinguished career in the marketing services

industry before joining the agency, working with both Maurice Levy, Chairman of Groupe

Publicis (as CEO of Publicis U.K.) and Sir Martin Sorrell at WPP (as CEO of The Henley

Centre). In 2002, he had taken a year out to pursue London Business Schools Sloan Fellowship

programme, as a result of which he had a broad worldview and a strong strategy development

capability.

To date, Saatchi & Saatchi had shown an extraordinary ability to regenerate itself and lay the

foundations of the future. Now was the opportunity to build on those foundations. But what shapemight this take?


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14

Exhibits

Exhibit 1: Satires on Maurice Saatchis departure

Man with glasses leaves job was satirical magazine Private Eyes view. Kate Adie (shown in the

lower cartoon) was a famous BBC war correspondent.


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15

Exhibit 2: Financial data

Groupe Publicis performance 2001-2005

m 2001 2002 2003 2004 2005

Revenues 2,434 2,926 3,863 3,832 4,127

Organic growth +3.1% -3.9% +2.0% +4.0% +6.8%

Operating profit 426 533 677 699 765

Net income 151 147 150 278 386

Source: Annual Reports

Quarterly organic revenue growth rates of the worlds leading marketing service

conglomerates

Quarter Publicis WPP Omnicom Interpublic

Q1 2003 1.2% 0.0% 2.6% -6.0%

Q2 2003 1.6% 0.0% 2.6% -4.5%

Q3 2003 2.0% 1.1% 5.2% -3.1%

Q4 2003 5.2% 1.1% 7.6% -1.1%

Q1 2004 4.4% 1.8% 5.8% -6.0.%

Q2 2004 4.5% 3.0% 6.0% 30.0%

Q3 2004 4.8% 5.7% 8.4% 1.8%

Q4 2004 2.4% 5.7% 6.4% 2.9%

Q1 2005 4.0% 5.7% 5.7% -5.1%

Q2 2005 8.0% 6.2% 7.0% 7.0%

Q3 2005 6.2% 4.9% 8.6% -2.6%

Q4 2005 8.6% 5.1% 7.6%

Source: Publicis analysts presentation 3/3/06


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16

Exhibit 3: Peak Performance

Kevin Roberts places little faith in MBAs and management consultants, since he favours

practical learning over theory. To help him at Saatchi & Saatchi he enlisted the help of two of his

colleagues from the University of Waikato (where he holds a Professorship in Sustainable

Enterprise), Clive Gilson and Mike Pratt.

Their ideas, presented in the bookPeak Performance (2001), are based on the idea that peak

performance in sport can teach us a great deal about peak performance in business, which is

defined as continuously exceeding organizational best in the pursuit of the organizations

purpose21. The sporting parallel is contrasted with the military metaphors of traditional

management-speak, and the sporting world is put forward as an ideal place in which to learn at

first hand what enables people to achieve excellence. The authors explain that they believe there

are general organizational ideas that enable people to work together enjoyably and effectively

toward the organizations greatest imaginable challenge. Where better to search for these ideas

than in the teams and organizations of elite sports, the icons of the late twentieth century? The

book goes on to present accounts and analyses of the successes of twelve high-achieving sports

teams and organisations around the world (mainly in the US, Australia and New Zealand).The closing chapter of the book presents Peak Performing Organisation (PPO) Theory:

There are four key principles: purpose, practice, potency and performance. Purpose

provides intent, meaning and direction for people within organizations [and includes the

inspirational dream and the greatest imaginable challenge]. Practice puts in place the

organizational content, environment and practices that provide the foundations for

sustained success. Potency relates to the processes that occur in consciousness thoughts,

emotions, intuition, desire, will and memory that provide the energy for sustained peak

performance. Performance explains the actions necessary for sustained success.

Beginning with inspirational players (such as Michael Jordan, who personifies basketball), these

ideas come together as follows:Inspirational players provide a meaningful challenge for an organization and its players that

is both important and stretching and that becomes the focus of the organizations actions

that are undertaken to live the dream, and in doing so a purpose to the organization is

established that must be nurtured for the future through the careful recruitment and

development of the individuals that make up the organization, together with a long-term

commitment to an effective infrastructure that allows the dream to be shared, which builds

an aura of association and sense of belonging and a feeling of family based on trusting

relationships, leading the participants to a sense of harmony with self and others, and

allowing a passionate commitment to the purpose of the organization that establishes an

environment with the potency for peak flow or optimal organizational experiences, leading

to catching the last detail and imagining game-breaking ideas that enable the continuousexceeding of organizational best in the endless pursuit of the organizations shared purpose

and ultimately to sustaining peak performance.

Linking Peak Performance ideas to his work at Saatchi & Saatchi, Kevin Roberts comments as

follows. Saatchi & Saatchi was a famous brand, with some great people, but it was in dire straits.

21 Gilson, C. et al, Peak Performance (HarperCollins Publishers, 2001), p. 368


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17

Its founders had left the company in disgrace, frankly, and people were embarrassed to pick up a

newspaper and see what was happening next. Clients were leaving us, and we were close to

insolvency. Our margins were 6%, in an industry where the average is 13% and the gold standard

15%. Our biggest client, P&G, was taking brands away from us, and competitors were circling

like sharks. As a new CEO I had the task of coming into the company and inspiring people to lift

their game and be the best they could be. I couldnt find anything in the theory of managementand leadership that was of any use whatsoever. We didnt need a book of lists or another

management consultancy. Instead, I worked with Mike [Pratt] and Clive [Gilson] on studying

peak performers, and we discovered some important things. Inspiration is at the core of what

great organisations achieve, and having a shared dream is integral to sustained success. We had to

redefine the spirit of the company and what made us special. And we did something new by

taking actions in harmony with academic research Id have an idea, Mike and Clive would go

off and research it and report back on what worked and what didnt, and wed continuously

improve.

He goes on to point out the successes achieved with the approach. When we demerged with a

share price of 110p, we set a target to double the share price in three years. Well, we did better

than that, selling the company for 500p. Our margins are now close to 15%, weve improvedrevenue and market share every year and weve gone from being P&Gs smallest agency to being

their biggest agency. Were probably one of the top three creative performers in the world, year

in, year out. Weve done it all through constant adherence to our purpose, our inspirational dream

and our values. Now were focused on perpetuating Lovemarks (see Exhibit 4), and we continue

to practice and teach peak performance ideas.22

22 Edited quotes from Kevin Roberts taken from video interview used in Richard Hytners presentation to

London Business Schools EMBA programme, March 17 2006


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Exhibit 4: Lovemarks

Kevin Roberts bookLovemarks (2004) explains that in 1997, Saatchi & Saatchi was focused on

three great ideas: becoming an ideas company, delivering peak performance and answering the

critical question: what comes after brands?23 The answer, says Roberts, is Lovemarks. In the first

days of commerce, products were simply products. Later, trademarks evolved to identify products

made by specific, reputable companies. However, intense competition reduces the impact of

trademarks and erodes their power to differentiate, with the result that they become

commoditised. Brands provided an answer, embodying and expressing the stuff that has meaning

for consumers: consistency, quality, performance and value. But in a world where consumers are

saturated with unsolicited marketing messages, even branding is no longer enough. Brands that

boast about benefits (bigger, brighter, better, stronger, faster, easier, newer) can no longer cut

through the media barrage that surrounds people every day. Brands are overused, lack mystery,

fail to engage with consumers intelligence, are often formulaic and/or conservative, and compete

with each other ever more fiercely. Brands, Roberts argues, are out of juice they cant stand

out in the marketplace, and they are struggling to connect with people.

The smart response is to drive more emotion into customer interactions. People are looking fornew, emotional connections they have higher expectations. Emotion has become legitimised as

a subject for business and management thought in recent years, because executives have realised

that human beings are powered by emotion, not reason. In marketing and branding, this

translates into the quest for Lovemarks brands that inspire Loyalty Beyond Reason. Lovemarks

are brands that evoke or generate emotion in both the marketing of a product and its actual use

(what Procter & Gamble terms the two moments of truth).

In line with the concept that it is consumers love that creates a Lovemark, a Saatchi & Saatchi-

run website (www.lovemarks.com) allows visitors to nominate their own candidates for

Lovemark status they range from the predictable (iPods) to the unexpected and largely un-

commercial (Fado, a style of Portuguese music).

23 Roberts, K:Lovemarks (Powerhouse Books, New York, 2004): p21


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Exhibit 5: Sisomo

Lovemarks (see Exhibit 4) embody mystery, sensuality and intimacy, and according to Kevin

Roberts, the principal way in which they do so is through sisomo (sight, sound and motion).

Sisomo, the follow-up book toLovemarks published in 200624, makes the case for the

combination of sight, sound and motion, as delivered through media such as TV, cinema, video

games, mobile telephony and the internet, being the new way to engage people everywhere.

The screen in its many forms is key, because of its penetration into every aspect of our lives and

the unique ways in which we interact with it. As with Lovemarks, the critical element in

connecting to customers is emotion, rather than simple technical innovation; sisomo is about

creating high-impact emotional content on screen.

According to Roberts, the context in which old-style brands succeeded was the attention

economy. Brands that got attention, either through creative originality or the brute strength of

mass media, also got sales. (This was, of course, the world in which the old Saatchi & Saatchi

prospered.) By creating sisomo content and building Lovemarks, marketers can carve out a niche

in what Roberts terms the attraction economy, the new reality in which consumers choices,

rather than companies intentions, are the key determinants of success.

24 Roberts, K: Sisomo (Powerhouse Books, New York, 2006)


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Saatchi & Saa

Exhibit 6: Hours per person per year using consumer media in US

1999 2000 2001 2002 2003 2004 2005 20061 20071

Total Broadcast Television 797 793 744 719 696 678 679 684 678

Total Cable & Satellite TV 630 674 744 800 847 868 869 871 877

Broadcast Satellite & Radio 939 942 952 991 1,003 986 978 975 974

Newspapers 205 201 197 194 192 188 183 179 175

Recorded Music 281 258 229 200 184 185 179 175 175

Consumer Internet 65 104 131 147 164 176 183 190 195

Consumer Magazines 134 135 127 125 121 124 124 122 122

Consumer Books 117 107 106 109 109 108 106 106 106

Video Games 58 64 66 70 75 77 78 82 86

Home Video 41 43 47 57 60 67 76 84 91

Box Office 13 12 13 14 13 12 12 12 12

Interactive TV & Wireless 4 7 11 15 19 26

Total 3,280 3,333 3,356 3,430 3,471 3,480 3,482 3,499 3,517

Source: Veronis Suher Stevenson1Estimate


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Saatchi & Saa

0

200

400

600

800

1000

1200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total Broad

Total Cable

Broadcast

Newspape

Recorded M

Consumer

Consumer

Consumer

Video Gam

Home Vide

Box Office

Interactive


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Saatchi & Saa

Exhibit 7: U.S. advertising spending 1999-2009

$m

Year Television Radio Newspapers Consumer

Magazines

Business to

BusinessMagazines

Consumer

Internet

Yellow

Pages

Outdoor

1999 49,375 17,681 50,689 11,433 10,492 4,621 13,196 4,832

2000 56,208 19,848 53,371 12,370 11,659 8,087 14,267 5,235

2001 50,865 18,369 49,093 11,095 10,085 7,134 15,035 5,233

2002 54,729 19,411 49,079 10,995 9,028 6,010 15,231 5,232

2003 55,863 19,607 50,126 11,435 9,263 7,267 15,366 5,504

2004 62,101 20,022 52,152 12,121 9,845 9,626 15,928 5,834

2005 65,668 20,571 54,090 12,788 10,558 12,629 16,522 6,144

2006 71,499 21,258 56,262 13,555 11,330 16,052 17,274 6,481

2007 75,132 22,120 58,126 14,409 12,115 20,002 18,067 6,849

2008 81,931 23,419 60,204 15,346 12,962 24,062 18,975 7,234

2009 86,612 24,565 62,086 16,347 13,803 28,198 19,973 7,623


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Saatchi & Saa

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


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24

Exhibit 8: The worlds largest media buying networks ranked by projected billings; 2006

Network Owner

Group

Projected

2006 billings

$bn

Market share

%

Starcom MediaVest Publicis 25.6 7.4

OMD Omnicom 24.9 7.2

MindShare WPP 23.8 6.9

Carat Aegis 23.5 6.8

Zenith Optimedia Publicis 19.3 5.5

Mediaedge WPP 18.8 5.4

MediaCom WPP 17.9 5.2

Universal McCann Interpublic 13.6 3.9

Initiative Interpublic 12.3 3.5

MPG Havas 9.8 2.8

PHD Omnicom 5.6 1.6

Total networks 195.1 56.4

Non-network 152.8 43.6

Total 347.9 100.0

WPP total 60.5 17.5

Publicis total 44.9 12.9

Omnicom total 30.5 9.0

Interpublic total 25.9 7.4

Aegis total 23.5 6.8

Havas total 9.8 2.8

Source: RECMA 2006


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25

Exhibit 9: Key P&L ratios for principal UK marketing services sectors on a per employee

basis; 2005

Ad. agencies Media buyers

Direct

marketing &

sales promotion

Public

relations

Branding &

design

Per employee % % % % %

Gross income 97057 100% 70518 100% 77676 100% 81931 100% 78049 100%

Employment costs 54586 56% 38765 55% 47792 62% 48937 60% 50566 65%

Gross margin 42471 44% 31753 45% 29884 38% 32994 40% 27483 35%

Other costs 32104 33% 21231 30% 21447 28% 23949 29% 21583 28%

Operating profit 10367 11% 10522 15% 8437 11% 9045 11% 5900 8%

Source: Willott Kingston Smith


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Saatchi & Saa

Exhibit 10: Operating margins as a % of gross income for the principal UK marketing services sectors; 199

- 1 0 %

-5 %

0 %

5 %

1 0 %

1 5 %

2 0 %

2 5 %

1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5

M e d

Pu b

Ad v

B r a

D i re

p ro m

Source: Willott Kingston Smith

251 Year of data refers to year of publication of the WKS survey. Underlying financial data is from latest company year ends, which genera


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27

Exhibit 11: Sales26 by region and function of the worlds five largest marketing services

conglomerates; 2005

$bn at prevailing exchange rates

Sales by region Sales by functionGroup` Total

Sales

North

America

Europe ROW Ads &

media

Mktg.

services

Principal agency

networks

Omnicom 10.5 5.9 3.8 0.8 4.6 5.9 BBDO, DDB,

TBWA

WPP 9.8 3.8 4.0 2.0 4.7 5.1 JWT, O&M,

Y&R, Grey,

Red Cell

Interpublic 6.1 3.5 1.7 0.9 3.9 2.2 McCann, FCB,

Lowe, Draft

Publicis 5.1 2.2 2.0 0.9 4.0 1.1 Saatchi &

Saatchi, Leo

Burnett,

Publicis

Havas 2.2 0.9 1.1 0.2 1.1 1.1 Euro RSCG,

Arnold

Worldwide

Sources: WPP Annual Results Presentation 2/06; Corporate websites

26 Sales refers to gross income (payments for services), rather than gross billings to clients


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28

Exhibit 12: Worldwide communications services expenditure 2005

$ Billion

Advertising

Market

Research

Public Relations

& Public Affairs

Specialist

Communications Total

US 166.2 9.5 2.9 457.0 635.7

UK 21.3 2.3 1.0 66.7 91.3

Germany 12.6 1.7 0.1 24.8 39.2

France 20.2 2.0 0.2 37.7 60.2

Japan 40.9 1.6 0.1 48.8 91.4

Rest of the

World

145.1 5.9 0.1 155.5 306.6

Total 406.3 23.0 4.5 790.6 1,224.4

Source: Voronis Suhler Stevenson/ZenithOptimedia/ESO/MAR/WPP estimates


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29

Exhibit 13: Landscape of marketing services providers27

27 Case writers analysis

ProductPlacement &Sponsorship

Communications Planning& Buying

Public Relations

Sales Promotion

Digital/Interactive

RelationshipMarketing

Traditional PaidMedia

Creative & TechnicalServices

Creative ExecutionBrand StrategyInformation &Insight

Traditional ad agencies e.g. O&M,BBDO, DDB

Direct mail agencies e.g.Wunderman, OglivyOne

Sales promotion

companies e.g. Proximity

Public relations adviserse.g. Hill & Knowlton

Public relations adviserse.g. Hill & Knowlton

Media groups e.g.Mindshare, Starcom

Webhosting,CRM etc.

Digital agencies e.g. Agency.com, Glue, Wheel

Marketresearch&datavendors

e.g.Niels

en

Brandstrategyconsultantse.g.

Prophet,Interbra

nd

C

ommercialproduction

companies,print

s

tudios,photographers

etc.

Information to execution

Traditionaltonew

media


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Saatchi & Saa

Exhibit 14: Total shareholder returns28 for the worlds principal advertising groups, plus M&C Saatchi

Source: DataStream

28 All dividends reinvested. Base date 24/7/01

0

20

40

60

80

100

120

140

160

Ju

l-01

Aug-

01

Sep-

01

Oc

t-01

Nov-

01

Dec-

01

Jan-

02

Fe

b-

02

Mar-

02

Apr-

02

May-

02

Jun-

02

Ju

l-02

Aug-

02

Sep-

02

Oc

t-02

Nov-

02

Dec-

02

Jan-

03

Fe

b-

03

Mar-

03

Apr-

03

May-

03

Jun-

03

Ju

l-03

Aug-

03

Sep-

03

Oc

t-03

Nov-

03

Dec-

03

Jan-

04

Fe

b-

04

Mar-

04

Apr-

04

May-

04

Jun-

04

Ju

l-04

Aug-

04

Sep-

04

Oc

t-04

Nov-

04

Dec-

04

Jan-

05

Fe

b-

05

Mar-

05

Apr-

05

May-

05

Jun-

05

Ju

l-05

Aug-

05

Sep-

05

Oc

t-05

Nov-

05

Dec-

05

Jan-

06

Fe

b-

06

Mar-

06

Apr-

06

May-

06

Jun-

06

Ju

l-06

Retu

rni

ndex

Interpublic

Omnicom

Publicis

M&C Saatchi 1

WPP

Tota


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31

Exhibit 15: Hotshops

Mother

Mother Advertising was started in late 1996 by four founding partners from larger established

agencies. The founders vision was to produce great work but in a simpler and more direct waythan the traditional larger agencies. From the start, Mother had pursued flexible working methods

based on an absence of hierarchy and an open-plan hot desk office arrangement: one week

youll be sat next to someone from accounts, the following week youll be sat next to a junior

creative team according to one employee29. Critically, the agency abolished the account handling

function (the suits in agency jargon) in favour of letting creative people and strategists deal with

the client. As one of Mothers founders observed: When you get strategy producers who think in

conjunction with creative people and the client, the roles cross-pollinate and you get magic30.

Mother immediately won the launch brief for Channel 5, the UKs fifth broadcast TV channel and

quickly established a leading-edge reputation for creative work based on quirky, witty and truth-

rooted campaigns. The agency then started to win business from major national and multi-

national companies including Coca-Cola, Unilever, Diageo, Virgin and the UK Government. Butdespite rapid growth, Mother continued to emphasise that better is better than bigger and

declined work with new clients when it was unclear that there was scope for great advertising.

Mother eschewed the charms of Londons traditional Soho ad land and in 2005 moved to a former

fire station in newly trendy Shoreditch.

Despite its overt focus on quality of work, Mother was also highly profitable, posting an

operating margin on gross income of close to 20% in 2003 significantly above industry norms.

Naked

Naked was founded in 2000 by three founding partners, all of whom had previously worked for

large media-buying agencies. Naked prided itself on being hard to categorise, but its core activitywas best described as communications planning devising strategies to find new and more

effective ways to reach consumers through communications, based on innovation, strategy and

insight. Naked represented a further unbundling of the agency value chain in the sense that it was

trying to carve a niche in communications strategy that sat in between the creative ideas of the

traditional advertising agencies and the media planning and buying performed by the large media

agencies. Despite its background in media buying, Naked chose not to deliver this function for

clients, instead working off a fee-based consulting model.

Naked grew rapidly from its inception and picked up clients including Sony, Reebok and the UK

Government. As the business grew, it experimented with new, targeted offerings in brand strategy

(Naked Flame), activation marketing (Lunch Communications) and a joint venture with UK

creative agency Clemmow Hornby Inge (Naked Inside.) By 2006 it was building an internationalnetwork of offices in London, New York, Paris, Amsterdam, Oslo, Sydney and Melbourne31.

29 Creative Review Peer Poll 2004 1/10/04

30 Creative Review; op cit

31 Source: Naked Corporate website


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32

Digital agencies

With the advent of Web 2.0 and the rapid growth of internet advertising, a new breed of digital

or interactive media agencies started to develop. The distinctive challenges posed by the digital

medium and its audience meant that the digital sector developed differently from mainstream

media advertising, with a partial re-invention of the old full service, integrated concept, re-

tooled and re-defined for the new world. Nascent players in the digital space were starting to

define full service either in the traditional way, as a combination of digital advertising creation

and media planning or, given the nature of the new medium, as a combination of online

communications and website build. The digital sector was moreover developing talent that defied

traditional creative or execution categories. Ideas and execution had to be seamless. Success in

the digital space also meant becoming more consumer-centric: identifying how to reach a

teenager, for instance, throughout the day across a range of different media touch points.

By 2006, an exotic sub-culture of digital agencies was beginning to prosper, including companies

such as Glue, Wheel and Farfar. Bigger agencies and media buyers were also looking to play.

Many were re-investing in the dot com subsidiaries they had wound down in 20012, as seen in

the acquisition of Glue by Aegis and Oyster by Framfab

32

.

32 Source: New Media Age: Full Service vs. Specialist: The Best Tools for the Job 19/1/06


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33

Exhibit 16: Revenues per employee and cost: revenue ratio for leading global marketing

services groups and relevant benchmarks; 2004-2005

Revenues

($000) per

employee33

Employment

costs: revenue

Omnicom 89 70%

WPP 74 58%

Publicis 72 57%

Havas 68 56%

Accenture 69 n/a

Strategy consulting firms

e.g. McKinsey180 - 250 35-40%34

Sources: Willott Kingston Smith; Company reports & accounts; Casewriters estimates

33Local currencies translated at the following rates: $1.83 = 1, 1.47 = 1. Figures for agency groups are for latest

financial year end as at 10/05

34Before Partner bonuses


34/34


Exhibit 17: Saatchi & Saatchi and Groupe Publicis organisation charts

Mary Baglivo, WW M arketing Director & CEO NYSimone Bartley, CEO Australia

Patrick Brett, CEO South East Asia

Bill Cochrane, WW Chief Financial OfficerPully Chau, CEO China, GZ & SHLee Daley, Chairman & CEO UK

Vaughan Emsley, GM P&G Publicis GroupeRichard Hytner, WW Deputy ChairmanBob Isherwood, WW Creative Director

Philippe Lentschener, Vice Chairman EuropeDavid Murphy, President Los Angeles

Andy Murray, CEO Saatchi & Saatchi XJim OMahony, CEO EMEA, Asia, Australasia & Latin America

Milano Reyna, WW HI DirectorKurt Ritter, CEO Los AngelesBob Seelert, WW Chairman

Brian Sheehan, CEO Team OnePedro Simko, CEO Switzerland

Andrew Stone, CEO New ZealandGeoff Vuleta, CEO Fahrenheit 212

WW Strategy &Innovation Board

Ch: R Hytner

Kevin RobertsWW CEO

WW HI CommitteeCh. J OMahony

P& G

WorldwideCouncil

WW Creative BoardCh: B Isherwood

Toyota

WorldwideExecutive Board

PR/Corporate CRM/Direct/ Events Design/ Brand

SAATCHI & SAATCHI WORLDWIDE EXECUTIVE BOARD

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