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O’Reilley Associates

Case Overview
In 1990 Oreilley 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 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
agency were compensated by their clients in one of two ways. Traditionally, an ad adency
received a 15% commission on advertising placed in TV, radio, or print. And
nontraditional services, clients were charged billable hours plus expenditures.
O’Reilley Associates was organized into six divisions, as indicated below:
• Account management
• Creative management
• Information management
• Media management
• Administrative management
• 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 considered any new client that :
• Had a solid business reputation
• Was In a good standing in the community
• 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, based primarily on the consumer benefit, was developed. Test marketing
continue to determine the effectiveness of executing this 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 to maintain consumer awareness of their
attributes. The clients marketing group worked closely with the agency 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. If the parties would agree on an advertising
and strategy, and the necessary advertisement were prepared. Then the media department
arranged to execute the plan through various media.

Account Profitability
Another critical responsibility of the agency’s top management 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 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’s 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
• All employees except administrative staff filed time sheets that recorded the
number of hours they worked, broken down by client account.
• Approximately 20%(4 to 5 revenues) of the nonpayroll expenses could be
allocated to a client.
• O’Reilley Associates was extremely secretive about the profitability of its
accounts. Only three people knew its account profitability: the company’s
chairman, president and treasurer.

T&D Corporation Account


T&D corporation was a large manufacturer of tools and dies that were sold to
industrial customers. The corporation’s divisions used O’Reilley Associates as well as
other advertising agencies.
Until a recent review, each of the T&D divisions that used O’Reilley Associates
was thought to be profitable to the agency. However, a recent review of T&D’s
International Division account raised questions about its 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 to ensure that the copy was in line 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 is a Professional Service Organization. Because they had a special
characteristics, like:
• 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.
• 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.
• 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).
• Small size. Professional organizations are relatively small and operate at a single
location.
• Marketing. Marketing is an essential activity in almost all organizations.

Management Control system that our group recommend for Reilley Associates are
Strategic Planning and Budgeting. In a professional organization, the principal assets are
people. 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
• It is stated in monetary terms, although the monetary amounts may be backed-up
by nonmonetary amounts
• Its generally covers a period of a year
• 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 profit for knowing profitability of using
advertising agency.
• Performance evaluation
O’Reilley have to evaluate every performance they gained. This is for satisfy their
clients
• The result of test marketing

Recommendation
• Professional service organization like O’Reilley must have a dominant goal to
earn a satisfactory profit.
• O’Reilley have to estimate their client’s profitability
• There must be a division to control the operation of O’ Reilley