Strategic Management: EMI - Assignment Example

?Strategic Management: EMI Introduction EMI Group or EMI is the digital music organisation chosen for this research. EMI is a UK based multinational music firm headquartered in London. In case of record labels, EMI is the fourth largest business group in the recording industry and it was one of the ‘big four’ record companies earlier. The EMI Group manages a major publishing firm (EMI Music Publishing) with offices worldwide. In 2011, the Citigroup took over the financially struggling EMI Music and now the EMI is operating as a wholly owned subsidiary of Citigroup. At the time of this takeover, the EMI Music had held over $4 billion in debt. As Atkinson (2011) reports, in November 2011, the Citigroup planned to sell EMI Group’s recorded music sector to Universal Music Group and music publishing division to Sony/ATV consortium. This paper will use a number of strategic management theories including SWOT analysis, PESTLE analysis, Porter’s five forces model, and BCG matrix to assess the level of competitiveness of EMI and identify the need for strategic change in the digital competitive environment of 2012. SWOT Analysis Strengths Strong global presence is one of the major strengths of the EMI group because this factor assists the company to spread its risk elements. In addition, EMI is one of the world’s leading music corporations with 12.6% global market share (Light Speed Research, 2012). The group has a roster of over 1300 artists and many of them are world class artists like David Bowie and Norah Jones. The merger of the Columbia Graphophone Company and the Gramophone Company in 1931 resulted in the formation of EMI Ltd. Weaknesses The EMI Music’s poor performance in the US market, the world’s largest recorded music market, seems to be its most potential weakness. Since EMI is an independent music industry, it has to find its own resources without any assistance from a parent company. Declining global market share is another weakness of the organisation. Financial data indicate that the firm’s global market share dropped from 13.4% in 2002 to 12.6% in 2003 and eventually 9.55% in 2005 (Bridgewell, 2004). Opportunities Joint ventures offer greater expansion opportunities for the company. The company has often enjoyed potential advantages from its joint ventures with other larger multinationals such as Apple and Yahoo. Liberalisation of mergers and acquisitions in the music industry would significantly promote the company’s growth (Department of Business Innovation & Skills, 2010). In addition, the fast development of internet applications also creates a range of potential opportunities for the firm. Threats Declining scope of recorded music is identified to be the biggest threat to the EMI Group. The recent global recession drastically affected the global economy and this condition appears to be an impediment to the growth of the music industry as well. Evidently, music piracy and aggressive market competition also threaten the further development of EMI. PESTLE Analysis Political factors The EMI Group maintains good relations with foreign countries to expand its business territory and thereby improve global market share. The company obtains good support from the political spectrum as it has designed many employee benefit schemes such as flexible working hours, family policies, and other financial incentives. Economic factors The global economic landscape is not much appealing because of the drastic effects of the recent global recession. Many of the EMI’s markets are still under the process of recovery. Hence, the economic factors are not favourable for the organisation. Social factors The EMI website claims, “whatever the culture, whatever the society, wherever there are people, there is music” (EMI, 2012). In addition, EMI gives more focus on specific cultural aspects of each country where the company has a music market. Hence, social factors are less likely to affect the EMI’s business. Technological factors The technology sector has been performing outstandingly over the past few years. Development of internet is considered to be a milestone in the history of music entertainment industry. Therefore, technological factors add to the growth potential of EMI. Legal factors In order to enhance the growth of music entertainment industry; governments worldwide have formulated strict intellectual property laws that would eliminate the issue of music piracy (Panethiere 2005). In addition, there are a few legal restrictions to production and distribution of music products. Environmental factors Since environmental sustainability is greatly emphasised today, EMI needs to allot more funds for promoting environmental safety. Porter’s five forces model Buyer power Comparatively, buyer power is high in the music entertainment industry because there are numerous potential sellers, including physical and online stores (Wallis 2001). Since world’s leading music companies like Sony offers quality products at fairly low costs, customers have increased bargaining power over EMI music products. Supplier power The EMI has extreme bargaining power over its suppliers mainly due to its good brand image. As the EMI brand is well recognised in the market, suppliers would not refuse the company’s reasonable demands. In addition, supplier switching cost is very low in the recorded music industry. Threat of new entrants New entrants raise numerous potential challenges to the EMI Group. Industry analysts opine that emergence of free online file sharing communities like 4shared.com assists people to get free access to a diverse collection of song and video files. Entry cost is very low for such online file providers and this situation is a great challenge to EMI’s business sustainability. Threat of substitutes An effective alternative to music has not been discovered yet and therefore threat of substitutes is relatively low in the digital music environment (Camera, Inc 1950, p.58). Science has proved that music has a healing power and there is a health profession emerging in the name of ‘music therapy’. Degree of rivalry The degree of market rivalry is high in the industry because international music giants like Universal Music Group and Sony have a strong presence worldwide (IFPI, 2012). Nowadays, regionally centred music firms raise many challenges to EMI because those firms are more conversant with specific music preferences in local areas. BCG matrix A BCG matrix analysis of the EMI indicates that the organisation is currently a cash cow. It is obvious that the firm is operating under a slow growing industry and has relatively a high market share. Like a typical cash cow, the organisation generates excess amount of money than what is needed to retain the business. It is advisable for the company not to introduce huge investments as the firm operates under a slow growing music industry. Significance of a strategic change in the music industry The theories discussed above clearly indicate that the current business environment in the music industry would not contribute much to EMI’s further market expansion. Evidently, the EMI Group is losing its business to other market giants like Universal Music Group mainly due to severe market competition and lack of technological innovations. For instance, EMI’s market share dropped by nearly 7% and the company experienced a huge loss of ?260 million during the 2006-07 periods (BBC News, 2008). From the Porter’s five forces analysis, it is clear that growth of free online file sharing communities significantly affect the EMI’s business sustainability because people would not be ready to pay money for music and other related products when those items are available at absolutely no cost. Although copyright laws prevent unauthorised publishing and broadcasting of music through online media, this is regulation is not practical always as many websites allow people to upload music and video files without any restriction. Similarly, music piracy is becoming a threat to music companies including EMI. To illustrate, LimeWire has recently agreed to pay a huge compensation of ?65 million to a group of record companies so as to settle a music piracy case (Metro, 2011). Although music piracy laws are very strict today, it is very difficult to identify and prove a music piracy since thousands of music compositions are released every day. In short, the digital music environment has undergone tremendous changes over the last decade. Hence, a strategic change is vital for the company to redesign its competition tactics and thereby survive the current economic downturn. Corporate strategy and long term planning process Corporate strategy is defined as “the pattern of major objectives, purposes, or goals and essential policies and plans for achieving those goals, stated in such a way as to define what business the company is in or is to be in and the kind of company it is or is to be” (Sutton, 1980, p.2). Currently, EMI’s corporate strategy pays specific attention to restructuring and reshaping the firm’s internal operations in order to play effectively in the digital music industry. Since the ultimate aim of a corporate strategy is to maximise shareholders’ wealth, it greatly relates to the long term planning process. To meet shareholder interests, the company has to thoughtfully deal with long term decisions such as product development, business integration, growth strategies, and research and development practices. Evidently, a company’s corporate strategy plays a crucial role in structuring the way the company would operate in the industry in future. EMI’s current corporate strategy would greatly influence the firm’s long term planning decisions such as disinvestments and diversification, which are most likely to affect the firm’s long term business sustainability (Deal Book, 2010). In short, EMI’s corporate strategy particularly focuses on the improvement of market competitiveness. Need for corporate strategy modification As discussed earlier, corporate strategy plays an inevitable role in shaping a business’ future. As Oliva and Suarez (2007) opine, changes in the corporate environment can noticeably affect a firm’s competitiveness and thereby long term sustainability. In other words, a company will certainly lose its market share to its competitors unless it is able to adapt to recent trends and changes in the corporate environment. Relative to the last few decades, the music industry has undergone significant changes, from music composition to distribution mechanisms. Development of online music stores markedly reduced market entry costs and this situation augmented the intensity of market competition (Exceptional Customer Experience, 2010). In addition, the practice of business expansion through joint ventures, mergers, and acquisitions in music industry notably increased over the last few years, especially after the recent global recession. In this situation, EMI cannot promote its business growth using its conventional corporate strategy. Hence, transformation of the corporate environment creates the necessity of corporate strategy modification. Referring to Porter and Kramer (2002), an effective corporate strategy addresses rivalry or competition issues; therefore a corporate strategy modification would assist EMI to vie with its major competitors like UMG and Sony and other regional competitors. In addition, the modification may be helpful to address the firm’s market share declines. Influence of corporate strategy on management decisions “Corporate strategy provides direction and guides resource allocations for the organisation as a whole” (Schermerhorn, 2009, p.138). Hence, a corporate strategy is specifically framed with intent to meet long term goals and objectives of an enterprise. As Blocher et al (2006, pp. 335-337) point out, a business enterprise’s long term objectives can be greatly influenced by top management decisions relating to resource acquisition, market selection, size and structure. In case of EMI Group, the company has recently modified its corporate strategy so as to give more emphasis to firm’s market competitiveness. As the EMI’s corporate strategy specifically tries to stop losing its market share to competitors and thereby improve the firm’s global market position, the management may focus more on resource allocation practices. By pooling abundant resources, the enterprise can spread its business to uncovered markets around the globe. Since the US is the world’s largest recorded music market, the EMI management would take extensive initiatives to improve the firm’s sales in US. In order to support the corporate strategy, the management may frame comprehensive business development plans for emerging markets like India. In addition, the EMI Group may give specific focus to expansion strategies like M&A and joint ventures because those strategies would be assist the organisation to reduce cost of production, to spread risk elements, to defend regional and international competitors, and to dominate the digital music market. Importance of time horizons The process of strategy planning encompasses elements of forecasting and uncertainty. It is obvious that success of a new strategy depends upon future market conditions and government regulations to a large extent. Hence, policymakers are required to forecast many future business situations and bear the risk of future uncertainty. In addition, it is necessary to organise the strategy planning process within a specific timeframe because time variations can have a great influence on the overall performance of a strategy. Hence, completion of strategic planning within the stipulated time frame is essential for EMI to get the expected competency. Since the management plans a strategy by forecasting market conditions at a future point of time where the strategy is planned to implement, late completion or execution may not bring desired outcomes. Conclusion Different theoretical models and analytical frameworks suggest that an overall strategic change is the only potential solution for EMI to address the current market issues. The music industry’s competitive environment has noticeably changed over the last decades. Online music stores and increased prevalence of music piracy raise potential challenges to the competitiveness of EMI Group. In this situation, a corporate strategy modification would greatly assist the firm to par with the changed corporate environment. The corporate strategy influences the organisation’s management decisions such as resource acquisition, size and structure, and market selection. As the firm’s new corporate strategy specifically focuses on competitiveness of improvement, EMI is likely to promote joint ventures or M&A. On time strategic planning is necessary to achieve the expected goals and competency. References Atkinson, C., 2011. Citi to sell EMI for $4.1B to universal, Sony, New York Post, [Online] Available at: [Accessed 22 August 2012]. Bridgewell., 2004. Let’s face the music and dance, UK Company Research, pp. 1-83, [Online] Available at: [Accessed 22 August 2012]. Blocher, Chen, Cokins and Lin., 2006. Cost Management: A Strategic Emphasis. New Delhi: Tata McGraw-Hill Education. BBC News., 15 January 2008. Profile: British music giant EMI, [Online] Available at: [Accessed 22 August 2012]. Camera, Inc., 1950. Camera Magazine. Camera, Inc. Deal Book., 2010. EMI shifts management in new strategy, [Online] Available at: [Accessed 22 August 2012]. Department of Business Innovation & Skills., 2010. 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