O’Reilley Associates
Case Overview
In 1990 Oreilley Assosiates Assosiates was one of the largest advertising in the US. The 20 largest firms accounted for nearly 35% of worldwide billings in 1990. fourteen of these were independence agency agen cy networks and six were advertising groups (firms with more than agency network). The proliferation of extensive advertising group grew out of demand for service around the world as clients entered global markets. Companies of all size retained advertising agencies to create and execute marketing plans, advertising strategies, and campaigns. To best serve clients, an agency had to be extremely knowledgeable about its clients’ products and strategies. Advertising Advertising agency were compensated by b y their clients in one of two ways. Traditionally, Traditionally, an ad adency aden cy received a 15% commission on advertising adv ertising placed in TV, TV, radio, or print. p rint. And nontraditional services, clients were charged billable hours plus expenditures. O’Reilley Associates Associates was organized into six divisions, as indicated below: •
Account management
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Creative management
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Information management
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Media management
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Administrative management
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Production management
The account executive ultimately was responsible for managing the clients account, including coordinating the creative, marketing and media strategies within the agency.
New Client Decisions
O’Reilley Associates Associates considered any new client that : •
Had a solid business reputation
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Was In a good standing in the community
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Whose product met a consumer need
New Product Introduction
O’Reilley Associates maintained a research panel of several thousand consumers around the country to conduct test marketing. Once a consumer need was identified, a creative strategy, strategy, based primarily on the consumer benefit, was developed. Test marketing continue to determine the effectiveness of executing this strategy. strategy. When the agency finished test marketing, it gave recommendations to the client about the probable outcome of a full-scale product launch.
Existing Product Support
Advertising strategy for existing products was quite different from that new products. Existing products needed advertising adve rtising to maintain consumer awareness of their attributes. The clients marketing group worked closely with the agenc y to develop new plans to increase these products market share. A new campaign for an existing product began when the previous campaign’s run period ended. Account executives managed new campaigns within the agency. First, thecreative department develop a strategy. strategy. If the parties would agree on an advertising and strategy, strategy, and the necessary nec essary advertisement were prepared. Then the media department arranged to execute the plan through various media.
Account Profitability
Another critical responsibility of the agency’ agen cy’ss top management manage ment was to assess the profitability of various accounts. The most profitable accounts where those that advertised frequently with the same copy. A client who required a constant stream of new copy was far less profitable than one who used the same copy cop y repeatedly. repeatedly. In large clients organizations, the advertising plan had to be cleared at numerous levels, which involved a great deal of time and effort of the agency’ agenc y’ss part. There were more compelling reasons than profitability to keep a client account. An unprofitable product account might be retained if the agency held account for a clients other products. That were profitable.
Personnel Cost •
Personnel constituted much of the cost associated with servicing an account
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All employees except administrative staff filed time sheets that recorded the number of hours they worked, broken down by client account.
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Approximately 20%(4 to 5 revenues) of the nonpayroll expenses could be allocated to a client.
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O’Reilley Associates Associates was extremely secretive about abo ut the profitability of its accounts. Only three people knew its account profitability: the company’s company’s chairman, president and treasurer.
T&D Corporation Account
T&D corporation was a large manufacturer manufacturer of tools and dies that that were sold to industrial customers. The corporation’ c orporation’ss divisions used O’Reilley Associates Associates as well we ll as other advertising agencies. Until a recent review, each of the T&D divisions that used O’Reilley Associates Associates was thought to be profitable to the agency. agency. However, a recent review of T&D’s International Division account raised questions about its profitability. profitability. The international division did not advertise in the mass media. The O’Reilley Associates account executive on T&D international had spent considerable time and energy learning the clients business and understanding T&D corporations objective. The account executives also spent considerable time familiarizing copywriters with the company compan y to ensure that the copy was in line T&D’s T&D’s corporate policies. Atnil Chikara, was told to prepare a report for the agency’s top management review of the T&D international account.
Questions #1 What management control system would you recommend for O’Reilley Associates ?
O’Reilley Associates Associates is a Professional Service Organization. Because they had a special characteristics, like:
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Goals. A professional organization has relatively few tangible assets; its principal asset is the skill of its professional staff, which doesn’t appear to each balance sheet.
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Professionals. Professional organizations are labor intensive, and the labor is of a special type. Many professionals prefer to work independently, rather than as part of team.
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Output and input measurement. Revenue earned is one measure of output in some professional organizations, but these monetary amounts, at most, relate to the quantity of service rendered, not to their quality (although poor quality is reflected in reduced revenues in the long run).
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Small size. Professional organizations are relatively small and operate at a single location.
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Marketing. Marketing is an essential activity in almost all organizations.
Management Control system that our group recommend for Reilley Associates Associates are Strategic Planning and Budgeting. In a professional organization, the principal assets are people. We We can see on the case that O’Reilley was organized into six divisions, which each division were working together to reach the goals and meet the client needs. Budget are an important tool for effective short-term planning and control of organization: •
A budget estimate the profit potential of the business unit
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It is stated in monetary terms, although the monetary amounts may be backed-up by nonmonetary amounts
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Its generally covers a period of a year
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It is a management commitment
Question #2 What would you include in Anil Chitkara’s report described at the end of the case? •
Profitability estimate
O’Reilley have to estimate the client’s client’s profit for knowing profitability of using advertising agency. agency. •
Performance evaluation O’Reilley have to evaluate every performance they gaine d. This is for satisfy their clients
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The result of test marketing
Recommendation •
Professional service organization like O’Reilley must have a dominant goal to earn a satisfactory profit.
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O’Reilley have to estimate their client’s client’s profitability
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There must be a division to control the operation of O’ Reilley
