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Board Meeting Two Board Agenda item: One
From: Lloyd Silberstein, President, New York Office To: Board Directors
Reducing client churn
The concept of client or customer churn describes the cycle of acquiring new clients and losing others. Churn is traditionally seen to limit long-term customer value due to the cost of acquiring new clients to replace the ones that have been lost. Businesses have focused on 'client retention' as a strategy that drives profitability.
In the advertising and marketing communications industry, the concept of 'business partnerships' i.e. informal relationships developed over a long period which are beneficial to both supplier and client are at the core of profitable growth. These are built on trust, confidence, mutual understanding and mutual success. Client-agency relationships are one of the most complex in the business environment, requiring a substantial level of collaboration to be effective. According to a recent research report by the American Association of Advertising Agencies, in 1984 the average client-agency relationship tenure was 7.2 years. By 1997 that number declined 25% to 5.3 years. If the trend continues, we are soon heading for a situation where clients will search for a new agency every 4 years.
While top agencies in the U.S. admit they are not doing their best work for many of their clients, 'creative genius' is not always the key component of the success or failure of the client-agency relationship.
The WRSX Board asked me to investigate the client churn situation in businesses managed by the New York office which is substantially above those of other offices and to recommend a strategy for turning this around this financial year. We have been working hard on this and I would like to present our new client retention strategy to the Board. We call it 'Strengthening Client Relationships.' I would like to present this at our next Board Meeting if there is room on the agenda.
Research Findings
Clients continue to cite the same reasons for terminating their relationship with the New York agency. What is sad is that most of the time, these issues might have been resolved if they were acknowledged and addressed earlier.
Turnover – New marketing director Lack of interest/understanding of client's business Strategy and creative linkage unhinged 'Outgrown' the agency Understaffing and inexperienced personnel Changes at the top Research scores consistently below norms Creative intransigence and arrogance Mandated consolidation Loose attention to budgets
Strengthening Client Relationships
In response to the issues raised by our research the Strengthening Client Relationships (SCR) programme will be introduced into all New York managed businesses. This programme will focus initially on the Top 10 (T10) clients in each operating unit. Generally these will be clients generating income of £10m per year. A key part of this process is the T10 meeting, involving firm-wide representation, in order to challenge current thinking and further develop the client relationship. Each meeting will focus on only one client business. The meeting's objectives will be:
Strengthening relationships Increasing client knowledge and understanding Identifying opportunities (and resolving issues) Improving communications internally and externally
The appointment of a Client Relationship Manager (CRM) for each business is key to the success of this programme. The CRM will organise research with all Top 10 clients in advance of any meeting in order to ascertain the client's current view of the service provided by WRSX. The CRM will then facilitate the T10 meeting which will bring together everyone who has a significant role in providing service to that individual client business. Time involved will be four hours per year for each Top 10 client.
The CRM will be responsible for facilitating the T10 meeting:
To raise awareness of the importance of delivering excellent client service To provide strategic input and advice to drive the growth of the operating unit's key accounts To support in identifying ideas and opportunities, drawing on best practice solutions from other accounts To provide constructive challenge To encourage effective team communication and sharing of knowledge across a multi-disciplinary team To link with other Client Relationship Managers in cross fertilising best practices and ideas across the firm
The outcome from each meeting will be a Client Relationship Plan that will:
re-affirm client expectations and agreed deliverables include key actions for this individual client business include Client Service Standards be communicated to client within 2 months be reviewed annually, identifying successes and areas for further development
This is a 'first' for the WRSX Group and I feel that the New York office is leading the way in terms of improving client retention and as such I commend the Strengthening Client Relationships programme to the Board. The cost of this programme for the first three years for all New York managed businesses is £3.6m.
Agenda Item Decision Options:
Action Option A: The Board believes that the SCR programme has real merit and focusing on the Top 10 clients for each business is a clever strategy as they are the big spenders who it would be most damaging to lose. The Board should sanction the new Client Relationship Managers posts for each New York business and approve the full budget for the SCR programme for the next three years i.e. £600,000 per half year for three years.
Action Option B: The Board believes that the SCR programme has real merit but that focusing on the Top 10 clients for each business is not correct as many of these clients are long-standing business partners of WRSX and the degree of collaboration is such that these clients are unlikely to move. Better to ask each Account Management team to suggest clients that they think are 'at risk' and to focus the SCR programme on these clients only, whether they be large clients or small. The Board should sanction the new Client Relationship Managers posts for each New York business and and approve the full budget for the SCR programme for the next three years i.e. £600,000 per half year for three years.
Action Option C: The Board believes that the SCR programme but that it is too costly and it should not sanction the new Client Relationship Managers posts for each New York business but ask the Account Management team for each business to nominate someone from their existing team to take on this extra responsibility. The full CSR programme should be implemented but no CRM posts created. This would reduce the budget for the SCR programme for the next three years to £200,000 per half year for three years.
Action Option D: The Board believe that this programme is costly and does not put the responsibility for Client Management where it belongs i.e. with the Account Management Team. The Board refuses to sanction the budget for this programme at all and Lou should be sent back to New York to come up with an alternative proposal for decreasing client churn.
Board Meeting Two Board Agenda item: Two
From: Sandrine Mauret, Non-Executive Director To: Board Directors
Potential acquisition of UK agency competitor
I have been approached by contacts in the venture capital market to see if WRSX would be interested in acquiring a competitor in the UK. Three years ago venture capitalists Indigo VC took a majority stake in Rutland, Masterton and Jakes (RMJ) an advertising agency set up in 1984, which as we know is a competitor of WRSX in the UK.
RMJ is a business that took a hit on some unwise investments in subsidiaries which had to be written down. They also lost a large advertiser UniBrands as a global client four years ago and three years ago had to seek investors in order to sustain its business. Indigo Venture Capital took a 51% stake in the business and with their management input, RMJ performance has stabilised and returned to profit.
Indigo VC is now seeking a buyer for RMJ. A portfolio and proposal is available for the Board's consideration. As you know, one of my briefs is to look for potential acquisitions and in my view there are options that are worth considering which could result in WRSX increasing its UK market share and profitability.
Potential acquisition of UK competitor
I have prepared the following information for the Board some of which has been provided by Indigo VC and the balance from our Market Research and Insight department. The key questions as I see them are:
Is there a fit between RMJ resources and characteristics – which would make it a valuable business unit within WRSX? Do we incorporate RMJ entirely within WRSX – or do we leave it to continue to operate under its own name? How will WRSX add value to existing RMJ business performance?
I believe that WRSX can add value in three areas:
Strengthen their advertising effectiveness – our Research & Insight unit has one of the best reputations in the industry. During Indigo VC’s restructuring of RMJ their own R&I department was disbanded and they out-sourced the service. We can strengthen their client relationships by providing an R&I service from our unit More effective use of client media budgets – We already provide a competitive media buying service. With RMJ’s client budgets being managed by WRSX we will have both economies of scale and pricing efficiencies Increased profitability - we can bring improved financial management to the table
The following Memorandum has been provided by Indigo VC.
Information Memorandum
Rutland, Masterton and Jakes (RMJ) (Information supplied by Indigo Venture Capital)
RMJ is a London based agency with offices in Rome and New York. The original founders of the business met while working in the largest advertising agency in the world in the 1980's. Rutland, Masterton and Jakes were some of the brightest stars of that agency and when they left to set up their own business they took some key clients with them. Some of the most memorable adverts of the period were created by this team. None of the founding partners currently work in the business having cashed in their shares in the mid-nineties.
Turnover & Principal Activities The RMJ group of companies turned over £26.4m in the past financial year.
RMJ's activities are:
Advertising (profit-making) – accounts for 52% of group turnover PR (profit-making) Media services (profit-making) Direct Marketing (profit-making) Digital creative unit (Loss-making)
Considerations:
Strength of Management & Creative Team
The business is currently run by Alex Masterton, son of the original founding partner, Bob Masterton. Alex joined the business from a leading management consultancy firm after he helped negotiate the Indigo Venture Capital deal three years ago. Alex is a trained accountant and his focus is very much on bottom-line profitability. In recent months a programme of streamlining the business has been put in place by Alex with cost-cutting and efficiency savings as a key strategic objective. The result has been that RMJ has turned around its financial performance and
will deliver returns that are more in line with industry norms within the next 18 months.
A bright and innovative new team of creative talent has been recruited in the last year to replace many of those who have left the business either through retirement or to move in new directions. This new team, many of them freshly out of art schools or having just finished marketing degrees has been carefully selected to relate to the younger generation – a key market focus for many of RMJ's FMCG clients.
Client Portfolio
RMJ has recently secured a major contract to provide advertising and PR for one of the UK's leading soft drinks companies. As we know, client companies do not like their advertising agencies to take on new clients in the same industry and market sector – this is known as 'taking on conflicting business'. However, there are very few clients / market sectors in the RMJ client list that conflict with the WRSX client list. The RMJ clients are in the following market sectors:
Beverages & Soft drinks Frozen Foods & Spreads Detergents & Household Cleaners Financial Services
Financials Balance Sheet:
Current Year Previous Year
£000 £000
FIXED ASSETS
Tangible Assets 2,502 2,257
CURRENT ASSETS
Stocks 521 653
Cash 2,541 1,324
Debtors 7,261 9,825
10,323 11,802
CREDITORS 8,294 10,042
NET CURRENT ASSETS/LIABILITIES
2,029 1,760
TOTAL ASSETS LESS CURRENT LIABILITIES
4,531 4,017
CREDITORS - 1YR + 243 462
NET ASSETS 4,288 3,555
CAPITAL AND RESERVES
Share Capital - -
Share Premium Account 4 4
Capital Redemption Reserve 275 275
Profit and Loss Account 4,009 3,276
Equity Shareholders Funds 4,288 3,555
Profit and Loss Account:
Current Year Previous Year
£000 £000
Turnover 26,456 27,304
Cost of Sales (18,371) (18,818)
Gross Profit 8,085 8,486
Administrative Expenses (6,968) (7,216)
Operating Profit 1,117 1,270
Gain on Disposal of Tangible Fixed Assets
22 14
1,139 1,284
Interest Receivable 39 14
Interest payable (35) (97)
4 (83)
Profit on Ordinary Activities before tax
1,143 1,201
Tax on Profit on Ordinary Activities (410) (383)
Retained Profit for the year 733 818
Agenda Item Options:
Action Option A: Purchase RMJ at a cost of £22m. Continue to manage them as a separate business within WRSX using the RMJ brand at least in the medium term, i.e. 2 - 3 years, and then integrate into the WRSX brand so the RMJ brand disappears.
Action Option B: Purchase RMJ at a cost of £22m. Integrate the entire RMJ operation into WRSX immediately and cease using the RMJ brand name. Cost- savings are likely to be minimal but the Board believe that integration into WRSX will increase agency turnover and market share. This will increase the Group’s buying power as well as opening up new market sectors to WRSX. It is also possible that Alex Masterton will strengthen the financial focus of the London team.
Action Option C: As a lower risk option which locks in key managers, purchase RMJ at an increased cost of £25m, which is a higher price because of 'golden handcuffs' contracts binding in the key players and performance based earn-outs, which the Board believe will be beneficial to keeping the top talent within WRSX. You believe this will increase turnover, profitability and market share. Retain the RMJ brand as there are benefits to this in terms of reassuring clients and employees that little has changed at RMJ despite the change of ownership.
Action Option D: Do not purchase RMJ as the Board believe that this should not be part of the WRSX growth strategy. RMJ’s strengths are in different customer segments to WRSX, which makes it a poor fit in your view. You cannot see how WRSX can add value to this business.
Board Meeting Two Board Agenda item: Three
From: Rosie Burton-Taylor, Managing Director, BTP / WRSX, London To: Board Directors
Sponsorship opportunity
We have been approached by the manager of an up-and-coming young US female tennis player who has won both the junior US title and Wimbledon in the past year – and I would like to recommend to the Board that they consider sponsoring her – as this would offer a real WRSX branding opportunity – depending on the extent of her progress – potentially to millions of TV viewers.
As there is not yet a PR subsidiary in the US, I have picked this up to bring to the Board's attention.
We have not been involved in sports sponsorship to promote our brand name up to this point, but I believe that it is time to do so. Other opportunities might also present themselves – like up-and-coming golf players – or even Formula One.
WRSX brand name exposure in sporting events
The star in question is Liberty 'Libby' Bonelli, whose father, Gustavo Bonelli is the well-known tennis coach, who emigrated to the US from Switzerland over 40 years ago and set up a tennis camp in Nevada. The rest – as you all probably know from tennis TV coverage – is history.
The fact that his daughter is a rising star has been front page news for the past year and this is our opportunity to get in on the ground floor with this rising star.
The agent has put forward a comprehensive proposal including PR and entertainment based over three years at a cost per year of £300,000 (£150,000 per half year). So the largest amount we are in for is £150,000 p.a. and the least is £50,000 p.a. (in the event of injury to Libby, which would prevent her from appearing at all).
Our rights include:
1. WRSX logos on her clothing sleeves (her major sponsor will have the clothing brand rights) 2. Photographs of her in our magazine advertising 3. One personal appearance at a WRSX hosted event in New York per annum
I think that this is a good deal and her manager is one of the most experienced in the business. I am sure that our corporate legal counsel will want to look over the fine print of the contract, but from the PR perspective, I believe that this could be the start of an effective strategy of using sporting events to promote the WRSX brand name among our client and potential client target market.
While there is currently no PR office in New York, we have the media contacts to leverage this sponsorship on an international basis as the tennis tour progresses throughout the year.
I encourage the Board to view this proposal favourably!
Agenda Item Decision Options:
The Board has four Action Options:
Option A: You reject sporting events as a medium for WRSX brand exposure – as you believe that paid-for advertising in media such as business magazines – is more appropriate for promoting WRSX and you communicate with Rosie Burton-Taylor stating that this is the Board's position.
Option B: You believe that while this proposal may have merit, but that it is a local New York office decision. You communicate with Rosie Burton-Taylor saying that she should refer the matter back to the New York office.
Option C: You believe that sporting events are an effective way of promoting the WRSX brand and that the personal sponsorship of a tennis player could become the first part of an overall strategy. You therefore agree to the £300,000 p.a. sponsorship package. Furthermore, the Board believes that other sports such as Formula 1 are an effective way of promoting WRSX and there is the opportunity to become a leading sponsor at an annual cost of £2m (£1m per half year) over three years.The Board approves the sponsorship packages.
Option D: You believe that this is not a main Board level decision and do nothing
Board Meeting Two Board Agenda item: Four
From: Brad Cunningham, New Business Director, (supported by Steve Packham, Information Systems Manager), WRSX London To: Board Directors
Knowledge sharing & communication coordination
Qorvic, one of the world's largest drinks companies, has invited WRSX and four other advertising agencies to pitch for a substantial portfolio of their leading brands in Western and Eastern Europe.
This potential new client has let it be known that it is looking for an advertising partner for a portfolio of leading brands in its consumer range, to work with them to develop these brands in selected markets in Europe. The total marketing Qorvic budget in this market is £200m of which this portfolio of brands accounts for approximately 15% of the total budget.
I need to explain that this is a competitive pitch and we are up against four of our competitors so there is no guarantee that we will win the business. However, the WRSX new business team has worked on developing the relationship with their senior marketing team and their brief is that they are looking not only looking for an agency to offer a total package of services including: consumer advertising and media buying, public relations, digital media, branding / corporate identity and consumer research / insight – which the WRSX group can – but they are also looking for evidence that we can coordinate this information between our companies and offices.
We are therefore proposing that the board considers our proposal to invest in new information technology to improve the quality of management information and coordination of communication.
Knowledge Sharing & Communication Coordination
Qorvic has previously used agencies that have created iconic adverts that have won many industry awards but the Marketing Director has become concerned that these have not translated into increased drinks sales. They also believe that they to date have not made the most of the synergies between the different services as outlined above and that their budget is not being used effectively. They are therefore looking to appoint an agency that can:
Provide all these services in an integrated way Demonstrate how communication and knowledge can be transferred between the WRSX service companies and the client through an IT system, thereby getting more for their budget.
While Qorvic has its international head office in London, the European drinks market is becoming increasingly important to them with the growth in branded white spirits consumption in Eastern European countries. Also, with Qorvic having acquired a company in France, this country is becoming increasingly important.
In the view of the WRSX new business team, this potential new business account will not be won by outstanding creative work alone – although it will of course be a great help. In order to differentiate ourselves and make a credible pitch for this business we will need to:
provide outstanding, well-researched creative that is coordinated across all WRSX services invest in a new knowledge-sharing and information coordinating IT system across WRSX companies – which can be accessed as on- line portal by our clients.
On the first point, the managing directors and creative directors of both the Paris and London offices have teams working on the Qorvic presentations. However, I must draw the Boards attention to the fact that some concern has been expressed that our creative teams are very stretched at present and that some of our other clients' work is suffering and that we are at risk of losing business. However, this is a huge opportunity which I need to put before the Board for consideration.
On the second point, Steve Packham, our IT Manager, has prepared a fully-costed proposal with alternative courses of action.
We have also provided options on the way in which we can implement this IT system. We fully realise that there may be questions whether WRSX:
should pitch for this business whether this fits with our growth strategy has the capabilities and resources required to manage the business if the pitch is successful? And whether we would be putting other business at risk
Agenda Item Decision Options:
The Board has four Action Options:
Option A:
WRSX should make a creative presentation only – and not invest in a new IT knowledge sharing and communication coordination system. The company should take a calculated risk that Qorvic will be impressed by an excellent creative campaign by itself. As a consequence, both the Paris and London offices should come up with creative campaigns for their respective markets – and senior management should decide on the best campaigns from each country to present to the Qorvic marketing team. The cost of preparing this presentation is £250,000.
Option B: This is a major opportunity for WRSX and only the best will do in terms of the people who should be involved in the advertising presentation. A single coordinating management and creative team should be put together from both the Paris and London offices, carefully selected for experience and past success in securing Consumer Advertising business. The team should be based in London, where Qorvic has its H.Q. The estimated cost of implementing this is £400,000 per half year.
WRSX should also proceed with developing the new IT scheme using its own in-house team of programmers, as the Board believes that a customised off-the-shelf IT knowledge management system will not meet WRSX's specific needs. This is a less expensive option and may take more time to get up and running, but WRSX will be able to show Qorvic evidence that they are making attempts to meet their needs. The in-house team does not have a good reputation for delivering on time and on-budget.
Option C: The advertising presentation approach is as per Option B, but with respect to the IT system, the Board believes that an out-sourced supplier – working with the in-house IT team – can customise an existing off-the-shelf system and demo this in time for the presentation to Qorvic. The out-source supplier has a good reputation for delivering on time and on budget and has quoted a guaranted fixed price of £2m.
Option D: WRSX resources are already stretched and there is nothing to indicate that it stands a good chance of getting this business. The drinks market is quite specialised. WRSX should not pitch for this business, i.e. you do nothing. Plus you do not want to invest in the IT system at this time.
Board Meeting Two Board Agenda item: Five
From: Juliette Waldron, Executive Chairman, WRSX Group To: Board Directors
Corporate governance issue
Our company has an excellent world-wide reputation for providing PR services to leading international sports clubs, sports personalities and associations. Within Europe, the London office represents some of the best-known sporting personalities in football, rugby and golf. These personalities are mega-stars – even brands – especially the footballers who earn millions, live lavish lifestyles and are constantly in the media. The London agency also represents a consortium of the top 15 football clubs in Europe, a very prestigious and lucrative account.
Most recently the New York office has set up a joint venture with a local company in Buenos Aires for the purpose of creating a specialist PR agency for footballers and football clubs in Latin America. The following article was published in the BA Noticias last week and syndicated around the world:
Personal Gain is the Game in Argentina – Corruption Scandal Damages Nation's Football Reputation.
Government probes have uncovered corruption within the country's professional football league and its legendary national team, including millions of dollars in embezzled funds stashed in overseas tax havens. In addition, sports agents and PR companies allegedly paid kickbacks to coaches and other football officials to put run-of-the-mill players on the national team during World Cup qualifying matches, artificially inflating their value for later trades to professional clubs in South America and Europe.
The alleged corruption has resulted in loss of support from disgusted fans and sponsors. This is a tragic time for Argentina and it will take a huge national effort to restore football's honour and prestige here. One of Argentina's top football legends, said in an interview 'Football in Argentina has become blinded by money and greed.' At the centre of this scandal is the PR company Soccer Focus South America, which is jointly owned with the global advertising and marketing communications company WRSX Group. Two of the directors of Soccer Focus have been interviewed by police as well as FIFA officials.
The highly valuable contract for the European clubs association – currently held by WRSX – is up for renewal in the next 12 months to say nothing of some of the largest contracts with individual personalities. WRSX London is naturally concerned to avoid being tarnished by the scandal in South America.
The chief executive of Soccer Focus South America has interviewed two local directors implicated in the scandal and issued a written final warning to each of them but not dismissed them.
A question of corporate governance and accountability
I am concerned with the structures and systems of control – or lack of them – by which our managers are held accountable for their own behaviour and that of their managers and whether the Board should review policy and intervene.
We are a growing business – and with acquisitions and joint ventures – the governance chain is becoming more complex. As a start, I am proposing that we implement and publish the following 10-point Code of Business Conduct. However we need to take short-term decisions about the specific situation in South America and longer-term initiatives about our shareholder model of governance:
WRSX 10 Point Code of Business Conduct
1. The WRSX Group operates in many different countries and markets throughout the In all instances, we respect national laws and industry codes of conduct.
2. We recognise our obligations to all who have a stake in our success including shareholders, clients, staff, suppliers and the local communities in which we operate.
3. We will treat all information relating to the Group's business, or to its clients, as confidential. In particular, 'insider trading' is expressly prohibited and confidential information must not be used for personal gain.
4. We will not for personal or family gain directly or indirectly engage in any activity which competes with businesses within the Group.
5. We will not offer any items of personal inducement to secure business. This is not intended to prohibit appropriate entertainment or the making of occasional gifts of minor value unless the client has a policy which restricts this. Equally, we will not accept for our personal benefit goods or services of more than nominal value from suppliers, potential suppliers or other third parties.
6. No corporate contributions of any kind, including the provision of services or materials for less than the market value, may be made to politicians or political parties or political/quasi-political committees, without the prior written approval of the Board.
7. We will not knowingly create work which contains statements, suggestions or images offensive to general public decency and will give appropriate consideration to the impact of our work on minority segments of the population, whether that minority be by race, religion, national origin, colour, sex, sexual orientation, gender identity or expression, age or disability.
8. We believe that a workplace should be safe and civilised; we will not tolerate sexual harassment, discrimination or offensive behaviour
of any kind, which includes the persistent demeaning of individuals through words or actions, the display or distribution of offensive material, or the use or possession of weapons on WRSX or client premises.
9. We select and promote our people on the basis of their qualifications and merit, without discrimination or concern for race, religion, national origin, colour, sex, sexual orientation, gender identity or expression, age or disability.
10. We will not tolerate the use, possession or distribution of illegal drugs, or our people reporting for work under the influence of drugs or alcohol.
Agenda Item Decision Options:
The Board has four Action Options:
Option A: You decide to implement the 10 Point Code of Conduct, recall the local chief executive to London for a press conference, where the steps taken by WRSX will be highlighted. You think that this will be sufficient under the circumstances.
Option B: You decide to pull out of the Soccer Focus South America joint venture. There is a contract in place and breaking this contract will be expensive but you decide that this is worthwhile under the circumstances and will be key to renewing the European clubs association contract for WRSX London. The cost of breaking the contract will be £250,000 in the next 6 months.
Option C: You decide to (1) implement the 10 Point Code of Business Conduct, (2) sack the two local directors implicated in the scandal, (3) put a PR campaign into immediate effect publicising these decisions and (4) convene an executive sub-committee of the non-executive directors and WRSX legal counsel to conduct a thorough review of the WRSX corporate governance model. The cost of implementing this programme will be a one-off immediate cost of £750,000, but you believe that there is potential in the South American joint venture and this action will be sufficient to ensure that the European clubs association contract will be renewed.
Option D: You decide to leave the situation as it is and you are satisfied with the actions of the chief executive of Soccer Focus South America in that he has interviewed both local directors and issued a written final warning to each of them but not dismissed them.
Board Meeting Two Board Agenda item: Six
From: Mervyn Hill-Lewis, Non-Executive Director, WRSX Group To: Board Directors
Does the parent company add value?
The WRSX strategy is to add value to our clients' businesses through advertising and the other services we provide to them. We have expanded the business through a combination of opening offices in the WRSX name, acquiring competitor businesses or businesses that increase our range of services and also through joint ventures. Most of this expansion has been driven by our clients expanding their own geographic footprint.
As a Non-Executive Director of WRSX Group, I think that it is timely to consider the role of the WRSX parent company in our group strategy. The big question is how the parent company adds value to our subsidiary companies? Or whether it does indeed add value?
The key issue for me is:
How does the group function add value at a reasonable cost and without adding layers of bureaucracy that prevent the businesses responding quickly to opportunities and threats? When I talk about “value,” what I mean is: how does being part of this group enhance each business unit’s competitive advantage by delivering something that our clients value?
I strongly urge the Board to take time to consider this important issue.
So what is the parent company role in WRSX?
The first question we need to address is how we see the group function/parenting role in the WRSX Group.
I believe that the role of the WRSX parent company should be to complement the activities of our subsidiary business units – through initiatives and programmes that:
1. Provide greater value to their clients 2. Guide strategic direction thereby offering competitive advantage to our companies 3. Accelerate group development in identified service sector growth areas 4. Create opportunities and rewards for our people
I don’t think that anyone would disagree with any of this, but where we do have differing views is on the nature of the parenting role that the WRSX Group takes in relation to its subsidiary business units.
What, if any, competitive advantage is there to us being an integrated, cohesive group? Our current group function within WRSX is relatively large. In theory it should deliver an increased level of consistency in policy and processes and help individual businesses to compete more effectively. In addition, there should be shared knowledge and learning between subsidiaries, shared resources and the ability for the WRSX Board to coach and guide the individual CEO’s and directors of the business units as they set their individual strategies and plan how to achieve high levels of performance. The group also provides resources to all of the businesses including Group IT, Group Finance - including the financing of major investments and the production of Group accounts, Group HR - which deals with the appointment of CEO’s and their top teams, etc. While the group function is large and costly the question is, whether this is justified by the value it currently adds to the individual businesses?
In contrast to this, WRSX could operate, and some would say actually does operate, as a loosely connected group of locally-run businesses in different sectors of the marketing communications industry. This gives independence and is less bureaucratic. Such a group can operate with a relatively small central group function with lower costs, more ability to react quickly to competitor activity and less day-to-day control from the centre, i.e. more like a holding company. The downside of this can be lack of consistency, lack of shared learning and expertise and maybe lack of funding for major projects.
So, to summarise, we need to think about how the group functions add value because costs are high and the businesses, and our shareholders, may not recognise that this delivers value for them.
Agenda Item Decision Options:
The Board has four Action Options:
Option A: You are clear that the way forward for WRSX is for a reduced group function with WRSX effectively becoming a holding company for its businesses. Each of our businesses should retain its own management processes and controls. Give the power to the local CEOs and their management teams to make decisions on a day-to-day basis. The WRSX Board’s role in the future should be restricted to building relationships with principal shareholders, managing capital, media relations, acquisitions/divestments and a light-handed approach to giving
strategic advice and consultation when requested by the businesses. The main role of the WRSX Board should be to manage the portfolio of companies that form the WRSX Group and to allocate resources to those businesses, acquire new businesses and divest under-performing businesses and businesses that are high-performers but where the Group cannot add any value to the subsidiary business. Reducing the group function will save the business £1m year-on-year after initial restructuring costs of £0.5m.
Option B: The role of the group function needs to be strengthened and not reduced in order to deliver competitive advantage. A strategy of delivering consistency across the WRSX Group means a higher level of Group control and increasing the level of spend on Group Central Functions. The Board also needs to strengthen its position vis-à-vis its influence on the subsidiary businesses. The Board should be the ultimate driver of business performance with CEOs of the different businesses being answerable to the Board for their business performance. While local managers might be responsible for operational decisions, all major investments and decisions that impact on long-term market positioning must ultimately be sanctioned by the Board. There could be huge advantages to improvements in knowledge sharing, managing a global talent pool and global market reach for attracting high-spending clients. The function of Group Procurement should be specifically grown to deliver improved terms with suppliers across the whole WRSX Group. Early estimates indicate that reinforcing the parenting role would cost in the region of £1m as an one-off immediate cost, but the Board believes that the long-term advantages are worthwhile in terms of WRSX Group’s ability to compete as a global player within its chosen sectors.
Option C: Surely the main role of the parent company is to drive business performance. While to date there has been a great deal of autonomy in the way the business is managed by the WRSX Group, there is a danger that this has masked levels of underperformance that impact on the ability of the group to deliver shareholder value. The question is not just “Does this business deliver profits?” but “Could this business be delivering larger profits?” The Board should set up a task force of highly competent managers to review each of the business units in terms of financial performance, contribution to clients’ perceptions of value-added and use of group resources. Each review should conclude with recommendations to improve performance and a recommendation as to whether the business should be invested in, not invested in (but should continue to form part of the WRSX Group) or divested. The cost of setting up this review process will be £0.3m but there could be substantial benefits in the longer-term from tackling underperformance in the Group. In addition, there will be cost savings of £0.6m per year if the Board also decides to reduce the level of investment in group functions, with the exception of Group Procurement. This will be enlarged in order to deliver group-wide savings through its ability to negotiate better terms with WRSX suppliers.
Option D: Companies spend far too much time restructuring and redesigning their business processes. A large group function one year, a small one the next and then back to a large function only a few years later. Each time a new consultancy firm is employed to look at the business they want to bring about change and there is little evidence of this improving the performance of the business in the longer-term in your view. Leave things as they are, is the best advice you can give the Board and that is your decision.
