Strategic Management: HBO Case - Essay Example

? Strategic Management Table of contents Executive Summary 3 2.Introduction 3 3.Analysis of Business Environment, Survival and Success 4 3 Macro Environment - Pestle Analysis 4 3.2 Industry Life Cycle 5 3.3 Industry Structure - Porter’s Six Forces 6 3.4 HBO Survival and Success in the Industry 8 4. Analysis of HBO Strategy 8 4.1 Value Chain/ Scale & Scope of HBO 8 4.2 Competitive Stance of HBO 9 5.Critical Appraisal Strategy 10 6.Conclusion 10 7.References 1.Executive Summary The most common criterion for the evaluation of organizational performance is the ability of a firm to keep its competitiveness towards its rivals, especially during periods of financial crises. On the other hand, there are industries that are likely to present a stable growth as their activities are highly related to daily consumer needs. The television industry is an indicative example. For decades, the specific industry has kept a dominant position in the global market. The performance of HBO, a major competitor in the global television industry is reviewed in this paper. The challenges of the firm in the international market are many. The analysis of the organization’s environment leads to the assumption that the firm has many prospects for further growth, especially since HBO is part of Time Warner Inc., one of the most powerful firms in the global entertainment industry. 2.Introduction In order to estimate the perspectives of a particular industry it is necessary to refer to the challenges that the particular industry has to face, both internationally and locally. When referring to the performance of a specific firm, then it is necessary to examine, primary, its industry’s characteristics; then, the strategies of the firm can be evaluated taking into consideration the responses of consumers but also the firm’s profits, either in the short or the long term. In 2010, HBO achieved a profit of about $4bn (Economist, August 2011), which is quite important having in mind the level of the global competition but also the instability in markets worldwide. The firm provides cable television services; customers need to subscribe and pay a monthly fee in order to have access to cable services of high quality. HBO is considered as the premium cable network in USA. Its success has been partially related to the fact that the firm is part of Time Warner Inc., one of the most powerful competitors in the television industry. The analysis of the industry’s environment and of the firm’s strategic choices proves that the organization has many prospects to achieve a stable growth, even if pressures in the global market become stronger. 3.Analysis of Business Environment, Survival and Success 3.1 Macro Environment - Pestle Analysis Television industry is quite powerful. The industry has managed to keep its position in the global market, even if in the long term its power to influence the view of the public on critical issue could be decreased. The rate of the industry’s development can be made clear by referring to the economic and technological environment in which the industry’s firms operate. Currently, the global economy is characterized by strong turbulences. Despite the fact that the effects of the 2008 crisis have been controlled, still strong pressures are observed in markets internationally in regard to the limitation of debts, both regarding the states and individuals. This problem is reflected in the continuous changes on exchange prices but also in the failure of Stock markets internationally to stabilize their performance. Thus, in terms of the economic environment, the efforts of HBO to increase its power in the global market are expected to face delays. However, there would be another factor that could possibly favour HBO, when trying to establish its position internationally: technology. Technology is among the key criteria for the success of modern organizations. In the television industry also, technology has a key role for business success. The development of devices of advanced technology, such as the i-phones, has raised the standards in regard to the quality of technology used in media and communications. Furthermore, the demands of consumers have been increased and alternated leading to the radical increase of competition. In order for the firm to keep its competitiveness it is necessary to align the quality and the range of its services with the market trends, a target that has been achieved, at least at a significant percentage, as proved through the issues discussed in section four of this study. 3.2 Industry Life Cycle The phases of development of the television industry show trends for standardization, meaning that the particular industry is expected to keep its position in the global market, at least in the near future. In accordance with a report published a few days ago (in the 17th of November) in the Economist, television is expected to remain the most competitive form of media for the next decade. Reference can be made to the fact that, currently, television absorbs the 41% over the total advertising spending (The Economist, November 2011). The industry life cycle, i.e. the expected performance of the industry under the influence of the global market conditions can be characterized as encouraging taking into consideration the figures included in Graph 1, below; the difference in advertising spending between the television and the other media is significant. Graph 1 – Advertising spending across media, as expected, for 2012 (Source: The Economist, November 2011) 3.3 Industry Structure - Porter’s Six Forces The traditional five forces model of Porter has been expanded in order to offer a more effective strategic analysis of a firm’s position within its industry but also to show the level at which the particular industry could attract new investors. In the context of the Six Forces model, the television industry could be analysed as follows: a. Competition Competition in the television industry is significant. However, HBO is among the industry’s key competitors. Also, the industry’s power is continuously increased, especially for the organizations operating globally (Deloitte 2011). This means that the firm can be expected to achieve a further growth especially with the support of Time Warner Inc. b. Buyers The potentials of the cable television to benefit the customers have been explored by Crawford and Cullen (2007). The above researchers came to the assumption that, at a first level, the ‘a la Carte’ services provided by cable television providers can benefit the consumers. However, it would be necessary for customer satisfaction to be periodically checked in order to ensure that economic benefits could be also combined with quality of services, a factor that it can strongly affect the decision of consumers to subscribe. The level of satisfaction of consumers by the services of the specific industry can be estimated by referring to relevant reports; indeed, in accordance with the case study, in 2010 the firm achieved a profit of $4bn, which indicates its success in the particular industry. c. Suppliers The power of suppliers in the television industry can be characterized as limited. Various firms globally could support the firms operating in this industry, especially since the level of the industry’s technology (meaning the suppliers) has been significantly increased. d. New entrants Media industry is a highly competitive industry. However, because of the high costs related to these firms’ operations, there are not many chances for new firms to enter the industry. As Nolan (1997) notes, the specific industry shows significant downturns, which reflect the industry’s sensitivity towards the global financial turbulences. e. Substitute products The development of substitute products in the television industry, and in the media industry in general, is quite difficult since the technological advances in the particular area are significant. Indeed, technology in the media industry is continuously improved (The Economist July 7, 2011) so that it would be extremely difficult for a firm to develop substitute products for the particular industry, since there would be no chance for profit. Moreover, the cost of the firm’s cable services can be characterized as rather low, so there would be no threat for the organization from the potential entrance of the market of substitute products. f. Complimentary products The chances for the development of complimentary products in the television industry are significant, taking into consideration the fact that such products may be already available through the Internet. However, these products could not become a significant threat of the organization since, in terms of quality, the organization’s services are superior, not being in risk from the potential availability of complimentary products. 3.4 HBO Survival and Success in the Industry HBO is part of the Time Warner Inc, a global competitor in the global entertainment industry. This means that the firm is able to face the challenges of the international market, having the power to cover potential losses, in case that such problem appears. Moreover, HBO operates in an industry that has been proved to have many perspectives, as explained above. Under these terms, the survival of the firm and its further expansion, if possible, would be depended on the following two factors: the power of Time Warner Inc. within the global entertainment industry and the performance of the television industry in countries worldwide. These two issues are further analysed below, where HBO’s strategic choices and its market power are analytically explained. 4. Analysis of HBO Strategy 4.1 Value Chain/ Scale & Scope of HBO HBO emphasizes on innovation. The efforts of the firm to introduce a style of storytelling have been proved quite effective, in terms of the firm’s performance. In 2000s, the firm’s performance has been stabilized, but with no signs for growth. Gradually, the incorporation of successful series increased the firm’s popularity, as reflected in the following fact: in 2011 the firm had 104 nominations for Emmys (The Economist August 2011). This fact makes the firm a key competitor in the global television industry. 4.2 Competitive Stance of HBO HBO is an important competitor in the global television industry. The competitiveness of the organization is highly based on the range and the quality of its services. The fact that the cost of its services is rather low also favours the organization’s profitability. The ability of the firm to keep its competitiveness in the future is depended on the following facts: the performance of the global economy, the quality of the firm’s services and the global market trends in regard to the specific industry, as these trends are highly influenced by the development of technology (Crawford 2008). In accordance with Chipty (2001) the performance of firms in the cable television industry is highly depended on the consumer welfare, a fact that needs to be taken into consideration by the firm’s managers. The power of the organization towards its rivals is also related to the range of its services, which constitute the firm’s key competitive advantage (Jaramillo 2002). 5.Critical Appraisal Strategy In accordance with the issues discussed above, the scope and the strategies of HBO are aligned with the global trends in regard to the television industry. It is also made clear that the firm is able to face the challenges related to the global market. However, the periodical downturns in the company performance reveal the firm’s weakness to develop a strategy that can offer a stable growth. The limitation of the power of competitors, as for instance in the case of Murdoch (The Economist July 21, 2011) has favoured the increase of the firm’s performance. The incorporation of successful TV series has been a key factor for the improvement of the firm’s position towards its rivals. As in terms of substitute products, no particular risk has been proved to exist for the organization, since it is already well positioned in the global market, as revealed by the fact that 30% of its profits are achieved through the firm’s sales outside USA. Therefore, it seems that the firm’s priority should be the stabilization of its performance in the long term. Then, new strategies could be developed for ensuring the firm’s growth, under the terms that the conditions in the global market allow such initiatives. 6.Conclusion Achieving a stable growth can be often quite difficult for firms operating in the modern market. However, firms operating in industries that are well positioning in the global market, such as the television industry, have more chances to survive even under severe market pressures (Negrine et al. 1991). HBO has been a firm based highly on innovation and quality. The support provided by Time Warner Inc has been important for HBO; however, in the long term, the survival of the firm in the global market would be strongly depended on its ability to keep the quality of its services enforcing on innovation and customer support. 7.References Chipty, T. 2001. Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry, The American Economic Review, Vol. 91, No. 3, pp. 428-453 Crawford, G. 2008. The discriminatory incentives to bundle in the cable television industry, Quantitative Marketing and Economics, Volume 6, Number 1, pp. 41-78 Crawford, G., Cullen, J. 2007. Bundling, product choice, and efficiency: Should cable television networks be offered a la carte? Information Economics and Policy, Volume 19, Issues 3-4, pp. 379-404 Deloitte, 2011. Television’s “super media” status strengthens. Available at http://www.deloitte.com/view/en_GX/global/industries/technology-media-telecommunications/tmt-predictions-2011/media-2011/b6ea8f036907d210VgnVCM2000001b56f00aRCRD.htm [Accessed 26 November 2011] HBO, 2011. Corporate Website. Available at http://www.hbo.com/#/about/index.html [Accessed 26 November 2011] International Television Expert Group, 2011. Market data. Available at http://www.international-television.org/market-data.html [Accessed 26 November 2011] Jaramillo, D. 2002. The Family Racket: AOL Time Warner, HBO, The Sopranos, and the Construction of a Quality Brand, Journal of Communication Inquiry, Vol. 26 No. 1, pp. 59-75 Negrine, R., Papathanassopoulos. 1991. The Internationalization of Television, European Journal of Communication, Vol. 6, No. 1, pp. 9-32 Nolan, D. (1997) Bottlenecks in pay television. Impact on market development in Europe, Telecommunications Policy, Volume 21, Issue 7, pp. 597-610 Time Warner Inc., 2011. It’s HBO. Available at http://www.timewarner.com/our-content/home-box-office/ [Accessed 26 November 2011] Time Warner Inc., 2011. Investor Relations. Available at http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-IRHome [Accessed 26 November 2011] Time Warner Inc., 2011. About us. Available at http://www.timewarner.com/our-company/about-us/ [Accessed 26 November 2011] The Economist, 2011. Media. November 17, 2011. Available at http://www.economist.com/node/21537948 [Accessed 26 November 2011] The Economist, 2011. HBO and the future of pay-TV. The winning streak. August 20, 2011. Available at http://www.economist.com/node/21526314 [Accessed 26 November 2011] [Case study] The Economist, 2011. Rupert Murdoch and News Corporation - Last of the moguls. July 21, 2011. Available at http://www.economist.com/node/18988526 [Accessed 26 November 2011] The Economist, 2011. Bulletins from the future. July 7, 2011. Available at http://www.economist.com/node/18904136 [Accessed 26 November 2011] TV International, 2011. Analysis for the global television content and delivery industry. February 7, 2011. Available at http://www.informatandm.com/wp-content/uploads/2011/05/TVinternational-Sample.pdf [Accessed 26 November 2011] Read More