The Financial Perspective, Capstone Project Example

Introduction

Saatchi & Saatchi Worldwide started as small agency in UK in 1970. It was founded by two brothers, Charles and Maurice Saatchi. In the ensuing two decades the organization grew phenomenally, until 1995. The economic recession witnessed globally in early 1990’s, adversely affected the performance of this company, among others. The company found itself in a financial mess that was so huge that Saatchi & Saatchi was on the verge of closing its doors: it was on the brink of bankruptcy. The affairs of the company were so bad that the two brothers left it. The organization had to re-invent itself if it was to continue. New policies had to be formulated as well as new structures. To begin with, the top management structure had to change which saw the entry of a new chairman and a chief executive office in 1997. The two had been top managers in separate companies (Greenhalgh, C. 2004).

The company also endeavored to formulate new policies to address the company’s financial perspective as well as the customer perspective. The management implemented financial perspective that had the goals of giving the company the image the investors would want to see, generating financial messages they would want to hear goal and achieving a financial performance the investor would yearn to be part of. The management undertook measures which ensured that the company’s financial strategy, implementation, and execution contributed to cashflow, sales growth market share as well as Return on Expenditure. The company’s goals included having a revenue base whose growth was better than the market, Converting 30 percent of that incremental revenue to operating profit as well as doubling the company’s earnings per share (Robin, ND).

Analysis

The management of Saatchi & Saatchi undertook internal structural changes which created business units, called Agencies, within the company. This enabled the management to analyze the agencies in financial terms such that they were categorized as: money making agencies, agencies potentially capable of generating money and non-money making agencies. The company classified these categories into ‘Lead, Drive and Prosper’ which in turn followed different strategies. For instance, the ‘prosper’ agency has limited potential for growth and expansion, and has less than 50 employees. Thus units in this category were not expected to grow dramatically but must achieve high margins. On the other hand, the ‘drive’ agency which would typically have 50-150 employees was charged with the goal of not only maintaining its revenue base and growing slightly but also a slight growth in margins was expected (Greenhalgh, C. 2004). Agencies with the lead status were expected to achieve rapid growth which in turn meant a larger allocation of investment. It is worth noting that, the management had also implemented strategies focused on customer perspective; that is measuring the business performance in targeted segments in relation to customer concerns. These strategies were:-

• Time measurement i.e. time required for company to meet customers’ needs
• Quality measurement i.e. level of defects as goods are sent to customers.
• Performance measurement i.e. how company’s products/services are contribute towards creating value for its customers.
• Cost measurement i.e. the company focuses not just on the price of goods/services, but also on what it “cost” the customer when he finally uses it (MyStrategicPlan N.D.).

Conclusion

The strategies based on balanced scorecard led to the achievement of the set in June 2000, beating the deadline by a whole six months. The financial and the customer perspectives were applied according to category status strategy so that each unit had its contribution in results announced in June 2000. The ‘lead’ status category business unit grew dramatically followed by the ‘drive’ status category, the ‘prosper’ status category trailing as expected. The increase in the company value was also evidenced in September 2000 when the company was purchase at a value about five times higher than its market value (Greenhalgh, C. 2004). However, much time had to be put on to the balanced scorecard requirement to make it work. For instance, the senior management had absolute commitment of the freeing up of resources to make the scorecard work.

The financial perspective worked in harmony with customer perspective approach in that the financial director switched day jobs to overseeing the implantation of the scorecard. The balanced scorecard is the means by which the company has translated strategy into action through the creation of strategy maps and CompaSS scorecards.

Evaluation

On the outset it should be understood that balanced scorecard interrelates all sections and the subsections of the organization and thus links together its four perspectives. This means that the perspectives reinforce each other. For instance the financial perspective was reinforcing the customer perspective, and the vice versa within the company (Kaplan and Norton, 1993). Also given the practical nature of the balanced scorecard methodologies the implementation was well implemented since it enables the organizations to clarify their vision and strategy and translate them into action. Saatchi & Saatchi performed exceptionally well when it adopted the balanced scorecard approach. It transformed the company from a near bankruptcy situation to a well-performing organization in less than three years (Robin, ND). However top-level managers, departmental heads and all managers must be keen on following of the implementation if the balanced scorecard approach is to have any effect.

References

Greenhalgh, C. (2004) Building a Strategic Balanced Scorecard: Saatchi & Saatchi Complementary Case Study. Business Intelligence Company. Retrieved July 20, 2010, from  http://www.business-intelligence.co.uk/PDFdownloads/strat_bsc/Saatchisr.pdf

Niven, P. (N.D.) Financial perspective.  EPM Review.  Retrieved July 20, 2010, from  http://www.epmreview.com/Resources/Articles/Delivering-shareholder-value-growing-revenue-and-enhancing-productivity.html

Robin, D. (ND) Vision, Mission and Values: Management Tools for Building a Better Workplace. Daniel Robin &  Associates. Retrieved July 20, 2010, from http://www.abetterworkplace.com/027.html