The News Corporation - Case Study Example

Case study, ‘The News Corporation’ (TNC) Table of contents Introduction 3 Question Identify one of TNC’s businesses and describe and discuss the bases of their competitive strategy (generic strategy that it pursues in order to achieve and sustain competitive advantage) offering plenty of examples to support the argument. 3 Question 2 a) Evaluate the rationale and motivation behind TNC’s diversification strategy. Pay particular attention to their decision to diversify into TV and Satellite broadcasting. 6 b) Demonstrate/discuss how does the NewsCorp’s corporate centre seek to add value. 8 References 9 Appendix 10 Introduction NewsCorp can be characterized as a dynamic multinational organization, having been expanded rapidly in countries worldwide; the current performance of the firm is significant – see graph 1 (Appendix). In 2010, the firm continued its growth by developing a series of critical agreements, such as the increase of its ownership in Sky Deutschland to 45%, the development of a joint venture with CME Group inc. and so on (Annual Report, p.17). In 2010, the profits of the firm were estimated to 32,778 millions, increased by 8% compared to 2009 (Annual Report, p.18). Apart from its geographic expansion, the firm’s major characteristic has its ability to enter new industrial sectors. However, it would be stated that its growth has been mostly based on its profits from newspapers. The above view is based on the following fact: in accordance with the case study, the profits from the Australian newspaper, The News – established by the father of Murdoch in 1923 – allowed the expansion of NewsCorp in the global market (p.713 case study); In the above context, the level at which the involvement of NewsCorp in the newspapers sector has offered the firm a competitive advantage in the global market has to be further examined. The diversification strategies of the firm would be also explored aiming to explain the methods through which the firm managed to become among the most important rivals in the press and media industry worldwide. Question 1 Identify one of TNC’s businesses and describe and discuss the bases of their competitive strategy (generic strategy that it pursues in order to achieve and sustain competitive advantage) offering plenty of examples to support the argument. In the context of the Five Forces model of industry competition (Figure 1, Appendix) a firm that aims to compete its rivals is likely to face five different forces, including: the threat of similar (substitute) products/ services, the threat of new firms entering the particular industry, the power of customers to ask for lower prices, the power of suppliers to ask for higher payment of the material/ services provided and the competition from existing rivals (Porter 1998). In the case under examination, the increase of TNC’s competitiveness towards its rivals and the further growth of the firm in the global market were achieved, mostly, through the following strategies: the expansion of the firm in the areas of national and local newspapers – in this way the competition within each market was minimized; for instance, in Australia, the firm established the country’s ‘first national newspaper, the Australian, along with 20 provincial newspapers’ (p.713 case study), a fact that offered to the firm the hegemony in the Australian market; in this way also, the firm achieved to secure an important source of funds for supporting its expansion in the international market; another, important, competitive strategy of the firm has been the acquisition of key competitors in the international market; an indicative example of this type is the acquisition of the News of the World – a British publishing company which was already well developed in the local market. The competitive strategy of NewsCorp should be criticized using the Five Forces model of Porter – to see how the strategic initiatives of Murdoch have been, actually, aligned with the existing academic theories on competitiveness in the context of the global market. The competitive strategy of NewsCorp will be analysed referring to each element of the Five Forces model – as presented above: the potential threat of similar/ substitute products has been effectively controlled by the firm through the following method: the continuous expansion of the firm’s customer base – mostly by acquiring other firms in the same industry (Afuah 2009); for instance, the acquisition of News of the World (UK), in 1968 and the acquisition of Times Newspapers in 1981; also, the quality of the firm’s product, in terms of the information provided to the public, made the existence of substitute products quite difficult; as for the new firms that would possibly enter the industry, these would not be a threat for NewsCorp, since the firm’s establishment in a foreign market was developed quite rapidly, for instance in UK, the firm’s profits in 1980s – when the firm’s efforts to conquer the local newspaper market reached their top point – were a significant help for the firm’s expansion worldwide. On the other hand, the power of customers to ask for lower prices, was also controlled by the firm through the following strategy: by acquiring competitors and getting the control of the market the firm was able to keep prices at a particular level;– see the case of the Australian market and the British market described above. At the next level, the firm has been also able to control the potential power of its suppliers to ask for increase of their compensation; this target was achieved through the following way: the firm managed to establish its presence in markets worldwide; in this way, the firm would be able to replace its suppliers, especially since the materials required for its products (newspapers) can be easily found in the market. Regarding the competition with existing rivals, this was controlled by the firm with the following strategies: the acquisition of the rivals (as explained above) and the use of political connections of Murdoch, as for instance the support provided by the newspapers of Murdoch to Margaret Thatcher in 1979 (p.713 of case study). The competitive advantage acquired by the firm through the above strategies would be sustained through the following practices: a series of price based strategies that would make the firm’s products more attractive to customers, i.e. strategic repositioning, as this strategy is described in the study of Johnson et al (2008, p.38) and the lock-in-market dominance (Spulber, 2007) – reference is made particularly to the markets where the firm’s presence is well established, for instance, the Australian and the British market. Apart from the firm’s competitiveness, emphasis has been also given on its diversification aiming to further secure the position of the firm in the global market. Question 2 a) Evaluate the rationale and motivation behind TNC’s diversification strategy. Pay particular attention to their decision to diversify into TV and Satellite broadcasting. The stabilization of the position of the TNC in the global market has been achieved through the establishment of the firm in the Australian and the British market – in the context described above. However, in the long term the position of the firm towards its rivals would be deteriorated – having in mind the pressures of the financial turbulences in the global market but also the changes in the regulatory and economic framework of the national markets. The above target would be achieved by the development of an appropriately customized diversification strategy. In accordance with Ireland et al. (2007) diversification is used in modern firms for the achievement of one of the following targets: ‘to increase a firm’s value or to gain market power relative to competitors’ (Ireland et al. 2007, p.215). The increase of corporate value through diversification is also highlighted in the study of Hitt et al. (2009) and that of Furrer (2010) where reference is made to the external - antitrust regulations and tax laws’ (Furrer 2010, p.14) – and the internal – ‘poor performance, pursuit of synergy and reduced risk’ (Furrer 2010, p.14) – incentives for diversification as a key strategy in modern organizations. In the case under examination, the diversification of NewsCorp has resulted to a series of important benefits but also of challenges for the specific firm – reference is made to the entrance of the firm in the broadcasting industry as a key diversification strategy for supporting the firm’s further expansion in the global market. Through the examination of the case study but also of the material related to the firm’s current performance – financial results and news of the industry – it is made clear that the diversification offered to NewsCorp the following advantages: increase of the firm’s efficiency gains (p.713 case study) – at least compared to the profits achieved by the firm through its activities in the newspaper industry, increase of market power (the firm managed to become a major competitor in the USA broadcasting industry, p.713 case study), meeting the expectations of the firm’s stakeholders (p.713 of the case study) – even if through diversification the opposite result could occur, i.e. it would be possible that the trust of shareholders on the organization to be reduced – in the context of the view of Hill et al. (2008) that ‘often investors see highly diversified companies as less attractive investments than more focused enterprises’ (Hill et al. 2008, p.181). Moreover, through the diversification in broadcasting industry, the stretching of parenting capabilities was achieved – meaning the increase of the power of the control of the parent company (Hitt et al. 2009). From another point of view, diversification in the broadcasting industry would help Murdoch to achieve his ambitions – referring to the further expansion of the power of Murdoch to influence the political, social and economic framework of countries worldwide; as noted in the case study, in 1996 Ted Turner – the most important competitor of Murdoch – noted that while his priority was ‘to make money’ (p. 713 case study), Murdoch tried to ‘rule the world’ (p.713 case study). On the other hand, diversification in the broadcasting industry, had certain disadvantages for the organization, including: a) the spread of risk across the organization – as made clear through the increase of firm’s debts (p.713 case study), b) the increase of organizational needs in terms of monitoring and control of daily operations (Hill et al. 2008). b) Demonstrate/discuss how does the NewsCorp’s corporate centre seek to add value. In order to identify the initiatives of NewsCorp’s corporate centre in order to add value, it would be necessary to refer primarily to the corporate parenting practices used by the above department – describing also the effects of these practices on the value of the organization. Murdoch, as the key person in the NewsCorp’s corporate centre, has tried to add value through the following practices: by adding personal capabilities for increasing the firm’s values (in the context of the Parental Developer role); it seems that this target has been achieved – as made quite clear to the support provided to Murdoch by important political leaders, such as Margaret Thatcher, even by the political authorities in Asia, especially China (p.716, case study); also, Murdoch has emphasized on the importance of expanding the firm’s activities, in order to increase its profitability (Portfolio manager), for instance the acquisition of rivals or the entrance in new (risky) markets, such as the Asian market where the portfolio management practices where proved quite successful – referring to the development of the satellite television – STAR. At this point, it would be argued that the activities of Murdoch – as leader – in the context of parenting developed role and portfolio manager role have been quite successful and have added value to the organization – a practice which is continued by his successor, his son James (p.717 case study, acquisition of 18% of ITV). The only sector where the parenting role of the firm’s corporate centre – through Murdoch - has rather failed is synergy; by developing the acquisitions of other firms and by ignoring – often – the view of shareholders, Murdoch has failed to keep integration and coordination across the organization; rather, a view that he tries to keep the firm under the control of his family has been given to shareholders (p.717 case study). At this point, the value of the firm would be significantly reduced but such result would require the appearance of conflicts across the organization, a phenomenon that has not appeared – at least, not yet. References/ Bibliography Afuah, A. 2009. Strategic innovation: new game strategies for competitive advantage. Taylor & Francis Furrer, O. 2010. Corporate Level Strategy: Theory and Applications. Taylor & Francis Hill, C., Jones, G. 2008. Essentials of Strategic Management. Cengage Learning, 2008 Hitt, M., Ireland, D., Hoskisson, R. 2009. Strategic management: competitiveness and globalization : concepts & cases. Cengage Learning Ireland, D. Hoskisson, R.,Hitt, M. 2007. Competing for advantage. Cengage Learning Johnson, G., Scholes, K., Whittington, R. 2008. Exploring corporate strategy: text & cases. Pearson Education Kaufman, R. 2003. Strategic planning for success: aligning people, performance, and payoffs. John Wiley and Sons Montgomery, C., Porter, M. 1991. Strategy: seeking and securing competitive advantage. Harvard Business Press Persico, J., Morris, P. 1997. The new business values for success in the twenty-first century: improvement, innovation, inclusion, incentives, information. Routledge Pfeffer, J. 1996.Competitive advantage through people: unleashing the power of the work force. Harvard Business Press Porter, M. 2008. On competition. Harvard Business Press Porter, M. 1998. Competitive advantage: creating and sustaining superior performance : with a new introduction. Simon and Schuster Spulber, D. 2007. Global competitive strategy. Cambridge University Press Online sources NewsCorp, corporate website, 2011. Annual report [online]. Available from [Last accessed at 27/2] Appendix Figure 1 – Porter’s Five Forces model (source: http://hbr.org/hb/article_assets/hbr/0801/R0801E_A.gif) Graph 1- 10-years performance of the firm’s shares (source: http://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=7&SecurityToken=0P00000654]3]0]E0WWE$$ALL&Id=0P00000654&LanguageId=en-GB&CurrencyId=GBP&ClientFund=0&lastPageURL=&IndexOverrideId=&IndexOverrideInvestmentType=&IndexOverrideLocalCategoryBaseCurrency=) Read More