STRATEGIC INTELLIGENCE REVIEW
Title:
SIR of WRSX Group
Release:
Issue 1
Date:
Feb 2017
Author:
D. Sigz
Owner:
Inquizit
Client:
WBSX Group
Document Ref:
INQ/WRSX/02-17
2
CONTENTS
Purpose and Scope 3
1. Introduction 4
2. Strategic Analysis 4
2.1 Strategic Position 4
2.1.1 External Strategy Issues 4
2.1.2 Macro-environment Issues 5
2.1.3 International Issues 8
2.1.4 Competitive Forces 9
2.1.5 Internal Strategy Issues 12
2.2 Strategic Options 15
2.2.1 Corporate level options 15
2.2.2 Business level options 16
2.2.3 Operational level options 16
2.3 Strategy Implementation Plan 17
2.3.1 Managing Change from board meeting 1 17
2.3.2 Managing Change from board meeting 2 17
2.3.3 Managing Change from board meeting 2 17
2.3.4 Managing Change from board meeting 2 17
2.3.5 Three-Year Business Plan 17
3. Summary 17
4. Reference Material 18
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PURPOSE & SCOPE
This SIR analyses the primary strategic issues that confront the management of
WRSX Group. The analysis reviews the strategic environment over the current
period. The analysis also considers the core competences, cultural and competitive
forces at work and suggests the strategic options that appear open to the company.
4
1. INTRODUCTION
WRXS is a global advertising agency based on the merger of three companies
WaldronRousSilbersteinXoa which merged 15 years ago. WRSX has headquarters
in Paris, New York and London. According to the company Chair, J. Waldron, ‘we
are a mid-sized advertising agency with a good creative reputation offering a range
of advertising and marketing communications services’. The overarching goal of this
strategy is to increase our market share and share price whilst bring costs under
control to increase returns for our shareholders.
2. STRATEGIC ANALYSIS
2.1 Strategic Position
The strategic position has three main objectives as detailed below:
1. Analyse the business environment.
2. Determine the purpose of the business and identify the major stakeholders
and the expectations.
3. Evaluate the strategic options open to the WRSX Group.
2.1.1 Business Environment
The Advertising and Marketing Communications Industry Overview states ‘the
business objective of the agencies is to target a specific audience on behalf of its
clients with a message which encourages them to try a new product or service or
see it in a different way and ultimately purchase it’. The evidence suggests the
current business environment is very competitive with a number of technology
advances offering new means of communicating the client’s message to the end
consumers.
2.1.2 Macro-Environment Issues
The available documentation identified the principal risks and uncertainties
associated with the external environment. These and other factors are subjected to a
PESTEL analysis with respect to the issues that have confronted the management of
the WRSX Group. The PESTEL factors are discussed in table 1-6.
5
Political Factors
1. Government campaigns on health issues need advertising. These schemes will provide
business opportunities for WRSX.
2. Globalisation schemes and incentives for off shoring such as tax cuts. Globalisation provides
more opportunities for WRSX to invest in business ventures overseas and in different
markets.
3. Government regulation of the advertising industry. The Advertising Standards Authority.
4. Poor employment practices overseas can damage brands and reputations. WRSX needs to
pay attention to the ethical practices when conducting business in other countries.
Table 1. Political Issues affecting WRSX Group
Economical Factors
1. Governments have large marketing and communication budgets. WRSX can take advantage
of the business opportunities which the governments budgets offer.
2. Spending on advertising is £300bn worldwide. Predicted to reach £340bn in 3 years. There
are a wealth of business opportunities for WRSX to expand to take advantage of the growing
advertising industry.
3. Emerging markets in developing economies/ countries. WRSX can diverse into new emerging
markets in developing countries.
4. High staff costs in West Europe. The high staff costs in West Europe may suggest it be
economical to base the business overseas in countries with lower staff costs.
5. Interest rates low in Euro zone and US. The low interest rates suggest it be economical to
finance the business out of these geographic areas.
Table 2. Economical Issues affecting WRSX Group
Social Factors
1. Globalisation. Globalisation affects every business by extending the market boundaries of
each industry and the number of stakeholders to manage. It complicates business but
provides more opportunities given the right strategy.
2. Ethical issues. WRSX needs to pay particular attention to ethical behaviour when doing
business with other companies. Whilst practising business ethics, WRSX also needs to
respect and manage the cultural aspects, both internally with its employees and externally
with its customers and suppliers.
3. Government schemes such as drink driving campaigns. Advertising opportunities.
4. Health care and education schemes. Advertising opportunities.
Table 3. Social Issues affecting WRSX Group
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Technology Factors
1. Digital advertising and Interactive agencies. New methods of targeting the end user with the
clients message.
2. Creativity & innovation are key core competences. WRSX need to promote this in its growth
strategy.
3. Set top boxes allow users to skip TV adverts. Need to target consumers in different ways.
Table 4. Technological Issues affecting WRSX Group
Eco-Environment Factors
1. Government environment schemes. In the UK there are new environment schemes such as
the Carbon Reduction Commitment (CRC) programme and the EU Emissions Trading
Scheme (EU-ETS). It is thought these schemes will have an underlying impact on WRSX
Group to position the business geographically.
2. Good for business where clients advertise their businesses as ‘Green’
3. Oil demand/ supply and prices affect all businesses.
Table 5. Environmental Issues affecting WRSX Group
Legal Factors
1. Legislation in advertising.
2. Regulations. The Advertising Standards Authority imposes these such as Regulations of ****
WRSX needs to comply with these to have a licence to operate in the industry.
3. Bribery Act. In 2010, there was a change in law with regards to bribery in business. According
to the Bribery act, it is now an offence to bribe a person or be bribed to promise or give
financial or other advantage. This affects WRSX particularly when operating in international
business when some national cultures have different expectations.
Table 6. Legal Issues affecting WRSX Group
2.1.3 Competitive Forces
According to the overview of the advertising and marketing industry, the completion
is intense five multi-agency conglomerates and the recent ‘emergence of new media
forcing a re-think’. The competitive forces currently affecting WRSX are given below.
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Five Force Analysis
The intense competitive forces within the advertising and marketing industry are
analysed below using the Five Force Framework.
Threat of and barriers to entry Threat of substitutes
Low barriers to entry Google and Microsoft (SEMs & SEOs)
Google bought Double Click Interactive agencies
Microsoft paid £3bn for Aquantive Digital businesses such as Havas
Yahoo bought 80% of Right Click Dealing with specialist agencies rather than one
company to handle everything.
Proliferation in media options Substitution easy.
Government regulation of the advertising industry
Power of buyers Power of suppliers
High power with many competitors No major suppliers only media and hardware and
software
Varies – wide net of suppliers needed to deliver
the best advertising locations and slots
Resistance to large agencies profiting through
subsidiary businesses
For internet side of business, relationship with
Google is key
Switching is easy
Competitive rivalry
Competition in the industry is fierce. There is competition on quality and range of services
(differentiation) and probably low cost strategy. Because of the low barriers to entry any company can
enter the industry and some very big powerful international companies are doing such as Google and
Microsoft. These are major threats to the future of WRSX.
Table 7. Five Forces issues affecting WRSX Group
2.1.4 Internal strategy factors
SWOT Analysis
Below is a SWOT Analysis for the company with a view to identify the strategic
options open to the company.
Strengths Weaknesses
Creative and Innovative Share price underperforming
Customer driven Lack of focus in low-margin subsidiaries
Diverse with international offices Developed mainly through M&A
Highly specialised business units Poor corporate governance
Financial equity Leadership & managing change
Retaining good staff
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Opportunities Threats
Invest in organic growth Strategic drift
Acquire or divest businesses Bribes and corruption- business ethics
Enter new geographic markets Loosing good staff
New product and service development Interactive agencies
Develop partnerships Digital advertising
Invest in reducing carbon footprint Recessions. Economic downturn
Balance commercial considerations with
corporate governance & business ethics
Competition. Omnicom, WPP, Publisis, Havas
Interest rates low in Euro zone and US. China and other BRICS
Adverts on mobile phones are predicted to
double revenues in 4 years.
New technology and Website platforms.
Table 8. SWOT Analysis of WRSX Group
+10/-10
Environmental Changes (opportunities and threats)
New Markets New Products &
Services
Loosing staff Competition New tech & web
platforms
Strengths
Innovative
Customer focus
Locations
Capital
+8
+7
+7
+8
+8
+6
+7
+8
+2
0
+3
0
+5
+5
+5
+3
+6
+4
0
+5
Weaknesses
Poor Share Price
Poor M&As
Poor Managem’t
Bureaucracy
-4
+5
-5
0
-4
+2
-5
-4
0
0
-7
-5
-3
-3
-5
-4
-2
-3
-3
-2
Impact Scores
S
W
+30
-4
+29
-9
+5
-12
+18
-15
+15
-10
The SWOT analysis considers the external environment with the competitive forces,
and internal strategic factors which suggests there are a number of options available
for analysis.
Strategic options open to the company
Invest in organic growth
Invest in Mergers & Acquisition
Enter new geographic markets
Develop partnerships
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Invest in reducing carbon footprint
Balance commercial considerations with corporate governance & business
ethics
Bring costs under control
Tighter corporate governance- cost control (e.g. centralising office central
services including finance and accounting).
Restructure organisation
Integration
Business Purpose and key Stakeholders
According to J. Waldron, Executive Chair, WRSX Group, the purpose of WRSX is ‘to
help our clients establish their brands through the range of services - sell more of
their products or services to consumers or business customers- where required on a
global basis’. The purpose of the WRSX business can be further described through
its mission statement which is provided in the company report & profile. The key
stakeholders are also provided from the company report & profile.
Mission Statement
We exist to make our clients successful through differentiating and strengthening
their brands by creating advertising and using a range of marketing related activities.
Key Stakeholders (Source: Company report & profile)
Clients, suppliers, employees, the financial community, shareholders, relevant
government and quasi-government departments, activist groups, competitors and
trade associations.
Stakeholder expectations
The WRSX Group Executive Chair, J. Waldron states ‘the expectations are based
around two vital imperatives- 1, to support our clients and stake out our position as
the industry’s most client focused group, 2, to deliver against our operating plans- to
create shareholder value’.
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Risks and Threats (Source: WRSX Environment Report)
Loosing existing clients
Fails to attract new clients
Fluctuations in economic growth rates, interest rates and currency exchange
rates
Rising oil price
Balancing Risks and Opportunities
The threats and risks to WRSX are mitigated in table 9 by identifying the
opportunities available with respect to the strengths of WRSX
Risks Opportunities
BRICS – La Phare recently pulled out of
Russia.
There will be language barriers in the BRICS
with local businesses already operating such
as China Mobile.
Unique opportunity to gain a strong foothold in
major developing markets.
Opportunity to gain new, growing clients in
BRICS territories based on WRSX’s
established track record and extend services
provided to its current client base to the BRICS
nations.
WRSX seen as ‘not in tune with global
ambitions’ and ‘failing to deliver creative
propositions’
Opportunity to modernise based on customer
demands.
Low and dropping share price makes WRSX
vulnerable to hostile takeovers.
WRSX not a low cost Marketing agency,
other agencies offer cheaper alternatives.
Opportunity to make the most of cheaper costs
in developing economies. Can this be
combined with expansion? Web Design?
Recent controversies have tarnished the
image of the WRSX.
Provides an opportunity to make needed
changes whilst also looking like an
organisation prepared to address its issues.
This should re-assure customers and
shareholders.
Good staff are leaving the company. New staff can be recruited who best fit the
future direction of the company. May make it
easier to recruit staff in alternative locations.
Changing social trends – use of the internet
for social, information and shopping -
Develop new competencies in internet
marketing, develop relationships with key
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globally companies such as Google. Potential to
partner this with traditional
marketing/advertising skills and knowledge to
provide total service to global customers.
Table 9. Balancing Risks and Opportunities
Core Competences
Core competences are those competences which critically underpin the
organisation’s competitive advantage, Johnson, (2009). WRSX can use its strengths
identified in the SWOT analysis to maximise the benefits of the opportunities by
expanding sales, acquiring resources and minimising risks to provide competitive
advantage.
Financial
WRSX Group is currently in a weak financial. WRSX uses a range of financial and
non-financial indicators to monitor performance in line with the strategy which are all
underperforming.
Business level issues
WRSX Group is currently experiencing a downturn in fortunes in a changing industry
and global marketing place.
WRSX is a diverse marketing and advertising business with a wide range of
competences across the sector; it also has competencies in areas not traditionally
associated with this sector eg Film Production.
The company lacks a shared direction and although having attempted to have
developed a shared strategy and vision over the last 15 years, the company has not
developed an organisation structure which supports this vision. Although the
company is profitable, it is performing below industry average in most of the key
industry metrics. Furthermore, its strategy, competencies and structure have not
adjusted to accommodate or take advantage of the major changes taking place both
within the marketing and advertising sector and the global economy.
The company is struggling to compete on the basis of cost, creativity or breadth of
service provided. Its areas of expertise appear to be lost and are at best less well
defined than those of its competitors. WRSX is currently losing significant existing
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customers whilst failing to attract new customers. Despite the having strong
foundations WRSX is a company that needs to find a focus and defining qualities if a
stable and prosperous future is to be secured.
2.2 STRATEGIC OPTIONS
The analysis of the strategic position showed there a number of strategic options
open to the company.
Expansion by organic growth
Geography:
Preference is to expand into:
- South America, especially Brazil due to success of other similar companies &
due to booming economy
- China
However, we need to bear in mind the method by which we enter these markets –
though partnerships/acquisitions in order to reduce the risk. (Hong Kong was
discussed as an option).
We discussed Russia but are not keen due to other people have failed.
India – We are concerned that we may not be able to make money there, but one to
watch due.
Speed of expansion – we think we can only viably expand into one location during
this period. It is anticipated that there will be language barriers to contend with if
WRSX expand into the BRICS and there will also be a local presence already such
as China Mobile already providing an advertising service within China. It is thought
that Chinese consumers will prefer a national provider over a foreign company such
as WRSX. China is keen on neon light advertising.
Strategic decision: Should we reduce current territories?
No, we decided we should keep a presence in these territories but we should look at
restructuring to become more efficient.
Products/Division:
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We want to invest in new media and digital, we may be able to find more efficient
ways of doing this, maybe by outsourcing to emerging economies. (Need to get
some sort of new media in to New York & Paris).
Parts of the business we want to divest:
- Film Production (Paris) (It doesn’t not fit with rest of the portfolio & could buy
this in)
- Sports Promotions
- Consolidate office central services into one
Organisation structure:
Currently a divisional structure is in place. Suggest moving to a matrix structure.
New York Office:
Key to the future of the business, but weak in innovation and creativity, not a high
priority to take radical action. The issues around staff turnover need to be
addressed.
Growth by mergers and/or acquisitions:
The advertising company Havas is of strategic value to WRSX. It is already
operating in by Latin America and Asia-Pacific and has according to the Industry
overview, ‘decided to put digital at the core of all its businesses. WRSX should
consider either partnering with Havas or acquiring it.
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Evaluate the options
Rank the non-financial performance indicators against each of the possible strategic
options:
Non Financial Evaluation
Option Management of growth
Management of risk
Leadership capability
Corporate social responsibility
Client attraction & retention
Procurement & supplier management
Do nothing Potential
WRSX rating
Positive Negative Negative Neutral neutral
Focus on core business
Potential
WRSX rating
Positive Positive Positive Neutral Neutral /positive
Positive
Expand overseas
Potential
WRSX rating
Positive ? Neutral Neutral Positive neutral
Diversify Potential
WRSX rating
? Negative Negative Neutral Positive negative
Invest in organic growth
Potential
WRSX rating
Positive Neutral Neutral Neutral Neutral Neutral
Invest in mergers & acquisitions
Potential
WRSX rating
Neutral ? Neutral Neutral Positive Neutral/Neg
Restructure organisation
Potential
WRSX rating
Positive Positive Positive Positive Neutral Postive
Note: WRSX rating means – our assessment taking account of WRSX’s track record
and existing competencies.
Option PBIT Margin Staff Costs ROCE Gearing Ratio
Organic growth
Mergers and acquisitions
Corporate governance & cost control
Geographical Analysis
Option North America
Western Europe
Central & Eastern Europe
Asia Pacific Brazil China
Expand
Contract
Stay same
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2.2.1 Corporate level options
Organic Growth
Acquisitions
Mergers & Partnerships
2.2.2 Business level options
Restructuring
It is recommended WRSX restructures to a function/geographical matrix type
structure whilst centralising Office Services to London to improve the control of
finances and costs. The technology and internet based businesses are high in
complexity, uncertainty, and dynamics and the structure of such businesses (the
degree of decentralisation, responsibility delegated to managers) render complexity
more manageable. This is true for WRSX due to a number of head quarters and
functions. Appendix A shows the new proposed organisation structure.
Company Culture, Business Ethics & CSR
2.2.3 Operational level options
Creativity and Innovation (inc. R&D)
Control of Costs
3 STRATEGY IMPLEMENTATION
Board Meeting 1.
Agenda Priorities:
Justification:
Board Meeting 2.
Agenda Priorities:
Justification:
Board Meeting 3.
Agenda Priorities:
Justification:
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3.2 WRSX 3-YEAR PLAN
4 SUMMARY
WRSX Group has established a strategic position in the markets mainly organically
but also through partnerships and acquisitions. Analysis of the strategic position
identified macro-environment issues affecting the WRSX Group for the period. These
factors are suggesting a number of opportunities exist which the company is
currently not pursuing. These include operating in new markets which new types of
digital based communication channels. It is also apparent that WRSX also has
internal strategy issues which require special attention.
The Five force analysis illustrated the evidence which suggests the current business
environment is very competitive with a number of technology advances in the means
of communicating the client’s message to the end consumers. The Five Force
Analysis suggests the threats are high due to the low barriers to entry. Moreover, the
buyer powers are quite high exasperating the high competition between the market
parties. The market is highly competitive. Traditional marketing agencies are seeing
increased competition from new companies entering the market, companies based in
lower cost parts of the world and from new marketing mediums.
Technology & social changes have changed the market place significantly. The
increasing use of the internet for information, social interaction and shopping has
shifted the business model of the traditional marketing agency. Different
competencies need to be developed (web marketing, search engine optimisation
(SEO etc), new supplier relationships need to be formed and managed (eg Google).
These changes have opened up the marketing to new, specialist, fast moving
competition.
The SWOT analysis highlighted some internal strategic issues requiring attention.
The creativity and international head quarter locations are strengths to utilise. The
weaknesses are internal with poor financial performance indicators and poor
corporate governance. The SWOT analysis also highlighted a number of threats to
WRSX. The economic situation has hit customers hard and the motor industry which
is one of the largest in terms of marketing expenditure is amongst the hardest hit.
Despite this there is a number of developing markets (both geographically and
technologically) which offer the opportunity to fill the financial void left by shrinking
existing markets.
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As WRSX is a global company, economic shifts in the global market place are
significant. The emerging power of the so called BRICS nations (Brazil, Russia,
India, China & South Africa) offers a two way opportunity to WRSX - to gain new,
growing clients in these territories based on WRSX’s established track record and
extend services provided to its current client base to the BRICS nations whilst
mitigating the macro-economic threats.
18
Appendix 1
Current State
Future State 1 – Centralised ‘Office Central Services’
19
Future State 2 – With new Location Office
20
21
Future State 3 – With strategicly uncomplementary services removed and desired services
incorporated.
22
Future State 5 - Organisation with all changed incorporated
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