Strategic Management: Barclays Premier League and Manchester United - Essay Example

Strategic Management Assessment: Barclays Premier League & Manchester United Introduction The last decade has seen has radical transformation of the UK football industry, with economic indicators pointing to football has a viable business model (Johnson et al, 2008, p.20). A prime example of this is the Barclays sponsorship of the Premier League, who has recently announced a three extension of the global title sponsorship of the league running from 2010/11 through to the 2012 season. President of Barclays PLC commented that “Football is the world’s favourite sport bringing pleasure to hundreds of millions of people across the globe, and out sponsorship of the world’s most popular league creates a positive emotional link between our brand and football fans everywhere” (www.premierleague.com accessed December 2009). Moreover, Barclays’ sponsorship of the Premier League has enabled Barclays to capitalise on the branding strategy and business growth of clubs within the Premier league such as Manchester United, whose ability to transcend from football into mainstream culture as a testament to its branding strategy success (Johnson et al, 2008). As such, Barclays PLC president Robert E. Diamond Junior asserts that Barclays’ sponsorship of the Premier league provides the perfect strategic fit for the Barclays brand. The focus of this paper is to undertake a strategy management evaluation of the Barclays Premier League with a contextual focus on Manchester United 2. Market Environment Analysis 2.1. The last decade has seen has radical transformation of the UK football industry, with economic indicators pointing to football has a viable business model (Johnson et al, 2008, p.20). It is submitted that a key element of this is effective strategy management, which is imperative to the continued success of the Premier League as the leisure industry continues to grow as an important sector exponentially in the global marketplace (Joyce & Woods, 2001, p.488). This is further supported by the argument of Joyce and Woods that “football is big business and the leisure industry is fast becoming an important sector worldwide” (2001, p.488). Therefore, it is submitted that a market environment analysis of the English Premier League and the multiple income streams created by leading clubs such as Manchester United within the league is imperative to the consideration of Barclays long term growth and development goals going forward. For example, in Exall’s “Who Killed English Football?: An Analysis of the State of English Football” (2007), Exall suggests that the Premier league business model radicalised English football by infusing an American style ownership model (2007, p.95). As such, Exall argues that “a major difference with the Premier League is the financial discipline American owners must apply to their teams and players” (p.95). It is precisely this environment that has fuelled TV deals and sponsorship that has enabled Manchester United to develop into a global brand (Exall, 2007, p.95). Moreover, it is submitted that the concept of organisational change is inherently intertwined with external threats and opportunities, which businesses must adapt to as part of strategic planning to continue long term growth. Senior and Fleming argue that the concept of organisational change has many faces, namely “convergent changes and transformational change that is organisation wide and characterised by radical shifts in strategy, mission values and associated changes of structures and systems” (In Thompson & Martin, 2005, p.41). This further highlights the point that organisational change is shaped by the interrelationship of complex background factors such as market conditions, consumer habits and nature of the industry (Thompson & Martin, 2005, p.41). Moreover, it is submitted that the globalisation phenomenon is a significant factor in shaping an organisation’s approach to change as part of business strategy in the contemporary business environment. If we consider this contextually with regard to the Premier League, Shilbury et al (2009) highlight that from a market environment perspective, the sponsorship program “covers the whole spectrum of the “buyer readiness continuum” a tool that demonstrates the stages through which consumers proceed before undertaking a transaction” (2009, p.268). Additionally, Shilbury et al comment that “sponsoring the league has a distinct advantage over, for example, buying advertising time around football programming. It stands out from the clutter, and the association is with a living and breathing entity” (2009, p.268). As such, the Barclays Premier League enables Barclays to exploit the thriving football market and expand its commercial activities whilst simultaneously increasing its brand awareness. This is further evidenced if we consider the commercial market environment for football. For example, Andrews highlights that leading Premier League club Manchester United has become a “seven day a week, 52 weeks of the year international sporting brand – a money printing machine” (White, 1999:33 in Andrews, 2004, p.58). As such, the cub has exploited the reputation and image over the last few years and therefore it is essentially this element of the brand’s goodwill and intangible assets that has retained customer loyalty and contributed to the brand’s development (Andrews, 2004, p.58). It is submitted that an understanding of the branding is important as a pre-cursor to considering the market environment within which Manchester United operates to fully understand strategic decision making and strategic management going forward (Thompson & Martin, 2005, p.18). For example, Thompson & Martin highlight that Manchester United is “far more than a successful football club. It is a collection of diversified but related activities that can be associated with a distinctive brand” (2005, p.19). In turn, Barclays PLC’s recent renegotiation of its sponsorship agreement of the Premier league highlights the strategic fit in terms of utilising the growth of football club success to derive commercial and brand benefit. Indeed a recent report of the Barclay sponsorship renewal highlights the point that “the Premier League’s strength is that it is an essentially English competition that has gained a huge international following. This clearly resonates with Barclays own business development and aspirations” (www.premierleague.com). It is further submitted that this backdrop correlates to Wheelan & Hunger’s (2008) discussion of the role of the strategic management model versus the strategic decision making process. Essentially the strategic management model focuses on strategic intent and long term goals in contrast to the strategic decision making model, which is rooted in implementation of decisions. These central differences in the two models as extrapolated by Wheelan and Hunger are further supported the commentary of Prahalad and Doz (1987) that “intent is used to describe long term goals and aims, rather than detailed plans” (in Rugman, 2009, p.518). Moreover Lynch (2003) highlights how “the mission of an organisation outlines the broad directions that it should and will follow and briefly summarises the reasoning and values that lie behind it (In Ackerman & Brown, 2005 p.189). Therefore, the strategic management model arguably applies to the commercial objectives of Barclays PLC in exploiting the vast growing market for football worldwide in promoting the Barclays brand. For example, the report of the recent agreement to extend Barclays’ sponsorship of the Premier League highlights that Barclays Premier League is broadcast to 211 territories and to “more than 500 million homes” (www.premierleague.com). This extensive marketplace for football is clearly beneficial for Barclays in terms of the strategy objectives behind sponsorship of the premier league particularly if we compare the 500 million plus marketplace for football compared with the fat that Barclays operates in 50 countries with over 45 million people (www.premierleague.com). 2.2. PEST Analysis Additionally, a key instrument utilised in strategic planning and strategic management is PEST analysis, which is imperative in organisational management to ensure market environment is understood as part of market strategy (Brooks et al, 2004, p.451). The PEST analysis enables organisations to strategically plan and implement problem solving initiatives as part of management strategy. Under the PEST analysis paradigm, the following elements within the marketing environment are important considerations: 1) Internal environment- staff, internal customers, office technology, wages and finance; 2) The micro-environment – external customers, agents and distributors, suppliers, competitors; 3) macro-environment – political, legal, economic forces, social forces and technological forces (Brooks et al, 2004, p.451). The following factors are relevant to the Barclays Premier League under the PEST analysis model: 1) Political Factors Competition Law UK Government Investment in Culture and the Arts Department of Culture, Media, and Sport Targets 2012 Olympic Games Bosman Ruling EU law 2) Economic and Social Factors High disposable income Disposal Income Television and Leisure consumption New Audience – e-commerce online streaming Multimedia and Digital content Sports led programming Sat TV coverage Gross Domestic Product Filmed Entertainment Alliances Brand Distribution channels and alliances with retail stores globally Economic crisis Sponsorship Agreements Television rights contracts Fan base Social networking UK and International TV accreditation Commercial Banking Investment management Financial Services 3) Technological Factors Multi-channel retail format Sports Broadcasting Digital Technology Internet broadcasting Web site Mobile commerce T commerce Set top decoders IPTV World Box Gaming Social networking 2.3. Porter’s Five Forces Analysis In further considering marketing strategy within the competitive environment it is also necessary to apply Porter’s five forces analysis (Hill & Jones, 2007, p.46). If we apply this to Barclays’ position as sponsor of the Premier League, it is submitted that the ultimate benefit derived to Barclays is the awareness of the Barclays brand through the growth of clubs within the league. Therefore, the public perception of Barclays is inherently dependent on the public perception of branding of clubs within the league (Hoye, 2006, p.58). It is further submitted that this relationship is inherently dependent on the exploitation of secondary or associate sponsorship deals within the Premier League (Hoye, 2006, p.58). For example, if we consider clubs within the league such as Manchester United, Thompson and Martin suggest that the success of the brand correlates to the public perception of Manchester United as a success (2005, p.18). In return, this intertwines with public perception of quality and as such, Thompson and Martin suggest that: “The core market might be the 60,000 plus fans that turn up at Old Trafford for Premier League matches, but there are many more people all around the world who are interested in having some part of this success story. In Porter terminology, Manchester United is very clearly differentiated – and very profitable”(2005 p.19). Accordingly, it is precisely the profit differentiating factors of the clubs within the league that Barclays is able to capitalise upon in terms of Barclays PLC objectives. For example, Stokes and Lomax highlight how “organisations use their sponsorship of events to create corporate hospitality opportunities. Barclays’ sponsorship of the Premier League for example, allows them to take major corporate clients to football matches. This in turn can increase business sales”(2007, p352). Moreover, the Porter’s five forces’ model requires a consideration of the club’s activities as a strategic business unit, which in turn requires an evaluation of the following factors: 1) Threat of Entry; 2) Power of Buyers; 3) Power of Suppliers; 4) Threat of Substitutes; and 5) Competitive rivalry (Hill & Jones, 2007 p.46) It is submitted that the applying Porters’ five forces model to the Barclays Premier League necessarily requires a contextual consideration of the clubs operating in the league and therefore references will be made to Manchester United where relevant. The following factors are relevant to Barclays within the Porter’s Five Forces’ paradigm: 1) Threat of Entry The main threat to the Premier League currently is the current global financial crisis and FIFA president Sepp Blatter indicated at an address earlier this year that the “financial crisis will catch up with football when the second wave hits” (at www.footballer.net.au accessed November 2009. Indeed, Blatter posits that the situation post 2010 remains precarious as football currently has an estimated turnover of $300 billion underwritten by sponsorship and television contracts and that is the main reason for currently weathering the storm (www.footballer.net.au accessed November 2009). However, an analysis of Blatter’s concerns highlights how post 2010 “he is not so sure of the situation after 2010 however as corporations are forced to review their levels of sport sponsorship with the recent experiences of Formula One” (at www.footballer.net.au accessed November 2009). On other hand, Blatter’s addressed referred to the argument that the Premier League is currently recession proof on grounds of the English Premier League being the most commercialised and watched football league in the world (Boyle & Haines, 2004, p.88). For example, the current television rights agreement is currently worth in excess of $3 billion for the live British rights alone between 2010 and 2013, which suggests that notwithstanding the crisis, the English Premier League will weather the storm (at www.footballer.net.au accessed November 2009). Nevertheless, some of the clubs are currently in debt with clubs such as Manchester United losing some of the secondary sponsorship and associated agreements, which clearly poses a threat. 2) Power of Buyers Alternatively, whilst the economic problems and loss of sponsorship is undoubtedly a threat, it is evident from the recent extension of the Barclays sponsorship deal that the fan base and global popularity of the English Premier League clearly places Barclays PLC in a strong position. For example, as highlighted above the Premier League currently reaches over 211 territories, which continues to expand to a market size currently placed at 500 million homes. Additionally, the current deal includes Barclays brand being promoted in “the biennial pre-season tournament, the Barclays Asia Trophy, which most recently took place in Beijing in the summer of 2009” (www.premierleague.com accessed December 2009) Additionally, if we contextually consider some of the leading clubs within the Premier League, the fan base continues to grow and there is a waiting list for tickets to games, which will contribute to continued income growth of the clubs and in return commercial opportunities for Barclays as sponsor of the league (Shilbury et al, 2009, p.380). To this end, it is the following are central factors with regard to the relationship between buyer power and the Barclays Premier League: - Bargaining leverage is balanced; - The consistent success maintains buyer volume; - The brand identity, merchandising and goodwill in clubs such as Manchester United trading identity remain key to customer loyalty; and - low price sensitivity (Fisk, 2008, p.201). 3) Power of Suppliers Whilst income ticket sales are likely to remain consistent, within the Premier league, it is evident that many of the leading premier league clubs such as Manchester United has also established multiple income streams with distribution channels, which again continues to promote the Barclays brand simultaneously as sponsor (Hoye, 2006, p.229). As such, it is submitted that the continued proliferation of digital channels must be accommodated to keep building income channels (Fisk, 2008, p.201). Additionally, the following are central factors with regard to the relationship between supplier power and the Barclays Premier League: - Large volume and diversity of suppliers; - Volume of return is paramount to suppliers; - Manchester United differentiates between inputs; - Inputs have an impact on costs and differentiation; and - Low costs (Fisk, 2008, p.201; Shilbury et al, 2009, p.300) 4) Threat of Substitutes Ultimately, the threat of substitutes and influence of competitors is intrinsically dependent on customer power (Fisk, 2008, p201). For example, Fisk posits that the football business has been revolutionised and that: “Whilst the loyalty of fans can be leveraged through branded merchandise and licensing deals – everything from the sale of club strips, to hospitality facilities, international tours and mobile phones – the cost of competing has grown astronomically as players’ feeds and wages have rocketed” (Fisk, 2008, p.201). Therefore, football clubs clearly need to maintain money, retain members and prevent substitutability within the Barclays Premier League. Accordingly, it is submitted that the crux of the threat of substitute factor is the success of clubs within the league. As such, it is submitted that following are central factors with regard to the relationship between clubs and the threat of substitutes: - Low costs of switching; - The fan base and waiting list means that there is very low risk of buyer substitution; and - Price and performance of team can have an influence (Fisk, 2008, p.201). 5) Competitive Rivalry The following are central factors with regard to the relationship between competitive rivalry and the club in the market environment: The exit barriers are high; High brand identity; Large diversity of rivals; and Club buying power and economy (Beech & Chadwick, 2007, p.449). Accordingly, as extrapolated by Beech and Chadwick as a niche market place, “the success of Manchester United in “international competition involves investment in quality international players….. Funding the ambition of clubs and fans, therefore is often only possible if a club can find a benefactor or tap into revenue from groups of supporters in other countries” (Beech & Chadwick, 2007, p449). This observation highlights the interrelationship between the external environment within which clubs operate and become successful as being fundamental to the commercial objectives of Barclays PLC in sponsoring the premier league. 2.4. Boston Consulting Group Matrix In considering the competitive positioning of the Barclays Premier League it is reiterated that the competitive positioning is intrinsically dependent on the successful strategy management of the clubs within the league. This in turn is the critical success factor in maintaining the optimum strategic fit that Barclays PLC president argues is the key factor in extended the sponsorship deal of the premier league (www.premierleague.com accessed December 2009). The Boston Consulting Group Matrix (BCG matrix) is rooted in the product life cycle theory that is utilised as a tool to aid strategy in terms of what should be a business priority in terms of strategy development for long term goals (Hooley et al, 2004, p.64). This is appropriate as an application to the Barclays Premier League as through the exploitation of the clubs within the league Barclays Premier League has multiple income streams ranging from merchandising, television rights to print media, ticket sales and increased sales of investment and financial services through corporate hospitality (Hoye 2006, p.34). Additionally, the reports of the recent sponsorship extension agreement support this proposition as the report highlights that the deal is for: “the global title sponsorship of the Premier League and includes exclusive world wide marketing rights, UK and international TV programme accreditation, extensive advertising packages, match day tickets and hospitality” (www.premierleague.com accessed December 2009). Accordingly, the central utility of using the BCG matrix is to contextually consider the Barclays Premier League’s product portfolio according to the following categorisation: 1) High growth products requiring cash inputs; and 2) Low growth products generating cash (Smith, 2003, p.163). Moreover, the BCG matrix comprises two facets, namely market share and market growth and the central premise is that the larger the market share a particular product has, the better it is as a critical success factor in long term growth (Hooley et al, 2004). Additionally, the BCG matrix culminates in 4 categories for a company; namely: 1) Stars (high growth and high market share); 2) Cash Cows (low growth and high market share); 3) Dogs (low growth and low market share); and 4) Question Marks (high growth and low market share) (Hooley et al, 2004). An example of the BCG matrix for is evidenced in Figure 1 below: Figure 1: Source: www.krikor.info (accessed November 2009). 3. Football Club Analysis: Manchester United As highlighted in the previous section, the commercialisation of English Premier League has made it the richest football league in the world, which has enabled the Premier league to withstand the pressures of the global economic crisis. Within this market environment, the business strategy of Manchester United has catalysed the club’s growth as a global brand, leading to the creation of numerous income streams (Andrews, 2004). There are three central revenue sources, namely Matchday revenues, media revenues and commercial revenues (Andrews, 2004). Moreover, the value chain of these multiple income streams to the club is as follows: 1) Media (including Television deals - 44%); 2) Matchdays – (29%); 3) Commercial (merchandising, sponsorship, tours, branded products, betting – 27%). (Crozier et al, 2004 at www.busmgt.ulst.ac.uk accessed November 2009). In terms of the competitive analysis and critical success factors, Berman et al (2002) suggest that a significant performance indicator in the Club’s success is the fact that the Value factor (V) comprises (Q, M, F, M), which is: Q= playing resource; M = coaching resource; F = allegiance resources; M = management resources (In Crozier et al, 2004 at www.busmgt.ulst.ac.uk accessed November 2009). Moreover, Crozier et al posit that this in turn correlates to the efficient market hypothesis, whereby “Cost =Quality” (Crozier et al, 2004 at www.busmgt.ulst.ac.uk accessed November 2009). This in turn relates to Manchester United’s effective use of international and home grown players to drive team performance for continued and consistent on pitch success, which is instrumental to the substitutability and brand loyalty factor under Porter’s five forces model (Crozier et al, 2004 at www.busmgt.ulst.ac.uk accessed November 2009). As such, the interrelationship between brand strategy and market environment continues to build momentum with the growing fanbase for the club; which is a key factor to the club’s commercial success (Smith & Milligan, 2002, p.124). Indeed, the interrelationship between critical success factors and key performance indicators are important in measuring the revenues of Manchester United as part of strategy development for long term growth (Andrews, 2004). Moreover, it is submitted that the critical success factor is instrumental in measuring and identifying the factors that are required for driving company growth (Andrews 2004). Additionally, if we consider other marketing models, the Ansoff Matrix is a marketing tool helping businesses to determine where and when to sell products and posits that business growth is reliant on the nature of the market (Cheverton, 2004, p.142). An example of the Ansoff Matrix is below in Figure 2. Figure 2: Ansoff Matrix, Source: www.strategyiseverywhere.files.com accessed December 2009. As the Barclays Sponsorship of the Premier League covers such a wide marketplace, consideration should be given continued diversification and expansion of the Premier league into new territories through the global television rights package. In summary, the commercialisation of the English Premier League through the sponsorship agreement and the proliferation of the digital business model have provided the perfect market conditions for business diversification and expansion of both the clubs within the premier league and the Barclays brand. Moreover, the commercial opportunities through the league are further heightened if we consider the ability to exploit of the premier league clubs to establish multiple digital distributional channels through effective customer relationship strategy (CRM), which has been a critical success factor in building multiple income streams. Moreover, the reciprocity of advantage to both Barclays PLC as sponsor and the premier league clubs has been an instrumental critical success factor providing the strategic fit for Barclays PLC in sponsoring the league. This is highlighted by the success of Manchester United as the club has not only managed to retain its fanbase, the globalisation of the brand has enabled the club to expand the fan base, which in turn has been critical to securing sponsorship and TV deals. Additionally, Barclays PLC president highlights that the success of the clubs within the group is the critical to the success of the premier league and as part of Barclays’ strategic fit: “Barclays Premier League sponsorship has been very successful for Barclays and the strategic fit is stronger than ever. The sponsorship is a very important part of our marketing mix and provides a cost effective method to market our organisation, helping us in our ambition to be one of a handful of banks leading the global financial services industry” (www.premierleague.com accessed December 2009). 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