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

3

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

6

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.

7

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

8

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

9

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’.

10

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

11

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

12

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:

13

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.

14

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

15

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:

16

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.

17

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

23