Case 1: Stick to the Core or Go for More

George Caldwell and Ian Rafferty worked at a giant multinational advertising agency for ten years. After leaving their jobs, they have partnered, found and run Advaark, also an advertising agency, together for seven years. Several high-profile clients that they gained from their own reputation in advertising industry gave them a good start. Over time, they build trust and long-term relationship with their clients thanks to their core competency, the production of unforgettable ads. It is clear that Advaark gains its sustainable competitive advantage thanks to its experienced owners. It would be really risky if the company expands its business to strategy consulting field which neither of its owners has much experienced. However, such initiatives could bring more revenues to the firm and further grow Advaark development if successful.

In this partnership, Caldwell takes care of operational activities with his sharp taste of making advertising and his know-how. Meanwhile, Rafferty is the visionary and eager to strive for more. Conservative as Caldwell is, he is reasonable when worrying the currentemployees and current clientsof Advaark. If he agrees to let Rafferty takes the new lead to strategy management, the current employees might find it hard to adapt to a new cultural environment which involves not only advertisement creative skills but strategic management skills. This organizational culture change could deeply hamper Advaark’s labor force. Besides, Advaark could easily mess up with the current clients when it comes up with some projects that do not fit their overall strategies. To some small to mid-sized clients, that might not be a big issue because they do not have a clearly recognized identity. To high-profile clients such as those Advaark is dealing with, it might cause big troubles since Advaark does not have insight personnel in strategic management field.

Rafferty also makes his case pointing out the annual growth rate of marketing strategy services in the U.S. is at least 16% in the next five years. If Advaark enters this segment at this time, it will acquire its competitiveness to be the several firsts in the new market. Since Advaark develops its new services, the company will save lots of cost as compared to the cost it might incur when Advaark wants to penetrate the market later on. The energy drink project is Rafferty first hit. The proposal to develop new toothpaste products by Advaark’s ex-client is very promising and suggestive. However, there is less evident how Advaark could differentiate itself from other competitors in strategy consulting field. GlobalBev was successful because this company already had its own manufacturing capabilities. Its distribution channels are in place. It takes three years for GlobalBev to be profitable with the new energy drinks. To other clients, Advaark has no clue.

The key element of this successful partnership depends upon its owners’ expertise about creating advertisings. At some point, when Advaark knows so well about its clients and their products, it can come up with some great ideas as to which directions its clients should go or what new products they should develop. However, the function of advertising and management is different. In this case, advertising is more about creativeness, how to attract the current market segment and gain market share. Strategic management is more about what new products should be marketed and how to make those products to be profitable overall. Advaark might need to have more successful projects other than GlobalBev before it could divert its business away from creating ads. To a mid-sized partnership firm like Advaark, the owners should be very careful when considering such new initiatives because it could very well consume all the companies’ current human resources and current capital sources.

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