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MANGING KNOWHOWits business idea. This has not been fully understood by many City analysts who question OI's long-term growth prospects on the grounds that it is a one-product company which will run into serious problems when the market for MRI scanners starts to decline.
OI's core knowhow is NOT the design and manufacture of MRI magnets but rather the mastery of the product and process technologies associated with high- field magnetism, high-vacuum technology and cryogenics. The main application of this knowhow at present just happens to be MRI magnets. To-morrow it may be synchrotrons or free electron lasers.
LEADERSHIP
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the profession. There were no blue-prints. The Saatchis were boldly going where no agency had gone before. They had to invent group management skills that preserved the internal spirit of creativity on which successful advertising depends and at the same time deliver to their new-found friends in the City the financial results - in terms of growth, profitability, earnings per share and dividends - needed to sustain the share price.
It was a masterly sleight of hand. Insiders continued to see the growing col- lection of agencies as a stimulating family of creative professional teams, while investors were persuaded that here was a dynamic group of companies that could be judged alongside the best manufacturing groups in the land.
So convinced did the City become that in April 1986 it quite happily paid over £400m for a 47% share of the company. A month later most of that money was spent on New York agency Ted Bates Worldwide. The deal followed swiftly on the heels of a three-way American merger of BBDO International, Doyle Dane Bernbach and Needham Harper Worldwide and robbed that grouping of its briefly held title of the world's largest.
The Ted Bates merger has confronted the group's prodigious management knowhow with its stiffest test to date. The jury is still out at the time of writing in summer 1987 on whether it will be up to the job. We have our doubts (see Chapter Fourteen, page 197).
There were bound to be problems. The Saatchis knew Ted Bates was likely to lose the $100m a year Colgate-Palmolive account because Saatchi & Saatchi worked for its main competitor, Procter & Gamble. Colgate-Palmolive pulled out in June 1986. Other account losses in the ensuing months, not all connected with conflicts of interest between Saatchi & Saatchi and Ted Bates but almost all connected with conflicts of interest of some kind, included McDonald's (UK), RJR Nabisco (US), Warner-Lambert (US), United Biscuits (UK), ABC Enter- tainments (US), part of Procter & Gamble (US), Rowntree Mackintosh (UK), Wendy's International (US), part of Procter & Gamble (UK) and The Indepen- dent newspaper (UK).
The group was picking up new business at the same time and by the end of 1986 the net loss was tiny in relation to the enlarged group's total annual billings of $7.5bn. But loss there was. The merger had had a negative effect on growth.
At the same time internal tensions began to become apparent. Even before the Bates merger Saatchi & Saatchi had not been immune from the knowhow leakage endemic in the industry. It had lost Tim Bell, one of the most admired professionals in the business, and finance director Martin Sorrell who had been the chief architect of the group's acquisition programme. Sorrell's new company WPP was later to acquire Saatchi & Saatchi's arch-rival J. Walter Thompson.
Post-Bates the leakage grew worse. In September 1986 Robert Jacoby, chairman and chief executive of Ted Bates and formerly a significant share- holder in the US agency, left after disagreements with his new British masters over senior management appointments.
By October rumours were fife that the Saatchis were planning a major re- structuring of the group that might rob Ted Bates of its identity. The managers
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MANGING KNOWHOWof the Bates operation in Paris produced a press advertisement picturing them- selves as pregnant men (following Saatchi's famous Health Education posters of the 1970s) with a copyline that read: 'Nous sommes baise' -'we've been screwed'.
Chris Woollams, the 36-year-old whizz kid appointed by Jacoby a year earlier to run the Bates operation in London, was equally outspoken. In an interview with Marketing Week he described his role amid all the rumour and speculation as '... management by Sellotape. All I can do is patch things up until I know exactly what is going on'. He said business was suffering as a result of the uncertainty and suggested 'it would have been nice to have been given some guidelines about what to tell clients'.
A fellow director expressed concern in the same article about a spate of resignations: 'Some people are already off and many others are talking about it.
There isn't a lot you can do to convince them to stay when you're as much in the dark as they are.'
In the end Ted Bates was not integrated with the Saatchi & Saatchi master company but Woollams left anyway. He had been besieged by offers from rival agencies and had no need to put up with that kind of 'mushroom management' (keep 'em in the dark and throw dirt over them from time to time).
J. Walter Thompson, still independent at that stage, threw itself gleefully into the fray claiming in newspaper advertisements that it had replaced Saatchi
& Saatchi as the UK's top agency. Saatchi responded in kind, spending £40,000 denying its loss of leadership and likening the JWT attack to 'being savaged by a dead sheep' - a famous barb aimed some years previously at Tory Chancellor Sir Geoffrey Howe by Labour's veteran in-fighter Denis Healey.
But JWT's leader Jeremy Bullmore struck a chord with many professionals when he claimed his agency was 'getting business on merit, not with a cheque- book' and reminded Saatchi & Saatchi that advertising was about 'selling, not buying'.
Signs that the departure of Woollams had failed to resolve the unrest at Ted Bates came in January 1987 with the loss to a rival firm of the assistant chief executive and the departures of the joint creative directors to help set up a new agency.
The following month a Saatchi & Saatchi main board director resigned to join rival agency Abbott Mead Vickers and three directors of the Saatchi subsidiary Sales Promotion Agency left to set up on their own, taking business with them.
It is easy to over-estimate the significance of these spin-outs and defections.
Saatchi & Saatchi is a very large group of agencies and such knowhow leakage is by no means unknown elsewhere in the industry. Saatchi & Saatchi itself was pinching senior figures from other agencies at the same time.
Even so, it is hard to escape the impression that the Ted Bates merger, the 'coup de triomphe' of this extraordinary company's bid for world leadership, has also tested the limits of the acquisition-led development strategy in advertising.
It heralded a time of increasing unrest in the group and approached the point where conflicts of interest were seriously limiting the scope for further organic growth.
THE TEN SUCCESS FACTORS OF KNOWHOW MANAGEMENT
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The business idea of the Saatchi brothers seems to have changed twice since they started out in 1970. They began with the intention of forming a first-rate creative agency, moved on, as their managerial knowhow grew, to the acquisi- tion-led strategy and then, emboldened by their global reach, they widened their functional horizons to embrace the whole gamut of business services, in-eluding management consultancy, marketing and market research as well as advertising.
It is clear that the core knowhow of Saatchi & Saatchi has precious little to do with advertising creativity and almost everything to do with management.
The brothers have become knowhow tycoons. By grafting onto knowhow busi- nesses a style of management that is recognisably 'sound', 'disciplined', 'tight' and otherwise redolent of the traditional virtues they have won the access to capital markets they needed to lever their knowhow.
But a price had to be paid for this industrialisation of the knowhow business of advertising. The all-important culture was diluted by growth and polluted by acquisitions; the managerial problems increased exponentially; the Saatchi brothers themselves became remote, almost legendary figures, seldom seen by the 'shop-floor' professionals. The leadership became alienated from the day-to- day operations.
It remains to be seen whether the knowhow tycoon will survive as an import- ant role model in knowhow areas. If it does the likelihood is that it will be confined to those businesses with a high potential for industrialisation.