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T4 Case study - TOPCIMA Strategic Analysis V&Y Productions Nick Best

Welcome

Welcome to Nick Best's TOPCIMA strategic analysis For those of you who don't know me, I'm one of the TOPCIMA tutors at Reed Business School, and the author of the official CIMA learning system, on which I work together with one of the TOPCIMA examiners. In this presentation you'll find my views on the latest TOPCIMA case study For details of courses at Reed Business School and to learn more about the exam and how to approach it please see www.topcima.biz

V & Y Productions

On the following pages you will find my strategic analysis of V & Y Productions (VYP). Remember that this is my view, not a definitive view of the company. You should review this in the context of your own analysis of the company, and make your own conclusions. If would like to hear more of my views on this and the exam do consider attending one of the courses at Reed Business School, or look out for posts on www.casestudyaide.com.

V Outsourcing Vendor

So, it's the TV Production industry in the UK this time around. Happy days for UK based students who watch a lot of television! Probably not so good if you are from outside the UK and now need to familiarise yourself with the UK TV industry, and our various TV stations, TV programmes and production companies. VYP is a growing and successful independent production company, producing television programmes on behalf of the major UK broadcasters such as the BBC, ITV, Channel 4 and Channel 5.

Strategic analysis ­ the rational model

This analysis uses the rational planning model of strategic analysis, summarised in the following diagram

Business Environment PEST 5 Forces S W NOW O T Internal analysis Business Strategy Generic strategies Ansoff's matrix Method of growth FUTURE Mission & Objectives

Governance & Ethics

Product analysis -Product life cycle -BCG matrix

Stakeholder Mapping

Strategic analysis ­ the rational model

Governance & Ethics

The first stage of analysis is to ensure we fully understand where the organisation is heading, along with its approach to meeting stakeholder needs.

FUTURE Mission & Objectives

Stakeholder Mapping

Mission

The mission statement sets the direction and tone of the organisation, and guides strategic decision making. Unfortunately there is no mission statement given in the pre-seen material. However there are a number of quotes from the pre-seen which sum up its key purpose and principles: ·"To make successful programmes for profit" ·To "Nurture artistic and visionary skills" ·"Innovative programme ideas that will appeal to target audiences" Applying Campbell's 4 elements of mission, we might say: Purpose Strategy Values Behaviour standards Deliver profits to shareholders High quality TV programme production Visionary, Artistic, Customer focus Support charities, no CSR policy

Objectives and critical success factors The objectives provide a focused target to move towards to direct planning, motivate staff and enable accurate performance measurement The case tells us that a KPI in this industry is revenue per hour, but does not state specific targets. Critical success factors are mentioned throughout the case, and these could be used to create a set of further KPI's. Those mentioned include: Good ideas Good production skills Selling programme ideas to TV People Reputation Track record Accurate budgeting Cost control Computer graphics They may well have more specific targets we are not told about, but if not, this is a weakness in the company's planning approach.

Governance

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As a company owned by its directors, Governance is a minor issue compared to listed companies. Firstly VYP do not need to abide by any legislation (e.g. the UK's combined code) and secondly they do not have the `agency problem' which typifies companies with governance issues (i.e.the people running the company are also the people who own it, so their interests are aligned.) While you might normally expect the Non-executive Chairman to be independent (here he is not), it does not really matter in the case. In fact, the fact that there is someone in his position with good experience and knowledge is something to be commended My only concern with VYP is that the two founders own 60% of shares and so minor shareholders have little control if the two founders work together. Of course ­ all this will need to change should VYP list on the stockmarket!

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Ethics and CSR

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VYP act with good corporate social responsibility in two respects: ­ Charitable donations ­ Supporting a programme of education for children There is little evidence of good or bad ethics either way, so I would assume their ethics are good There is certainly a case for a more formal ethical code or formal statement of their views on CSR. ­ A quick tip for you then for the ethics section - on a specific ethical issue (10 marks in the exam) state and explain the issue, make your recommendation to deal with that issue and then add a follow on recommendation "to avoid that similar situations in the future a formal ethical code should be written and communicated to all staff....."

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Stakeholder mapping

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Doing a stakeholder map as an appendix in the exam is almost always something which is useful to do. An appendix and done well will usually gain 2 marks ­ possibly more. You must update the map for changes in the unseen, and add all new stakeholders which are in your top 4 issues Refer to your map in the main body of your text, adding a comment to say what the position of that stakeholder on the map means in relation to this specific issue (e.g. a key player should be involved fully through regular meetings, and incorporating their views into the final decision)

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Stakeholder Analysis Mendelow's Matrix

Low Interest Minimal effort ·Viewers

Low Power

High Interest Keep informed ·Most staff ·Small outsourcers

Uncertain Bank Keep satisfied ·Studio owners ·Government Key Players (Involve) ·Essential outsourcers ·Major TV broadcasters ·2 founders (want freedom) (Directors + Shareholders) ·Programme directors ·Major TV personalities

High Power

Strategic analysis ­ the rational model

Business Environment PEST 5 Forces S W NOW O T Internal analysis Product analysis -Product life cycle -BCG matrix

Next we need to analyse the current position of the business This helps us ensure the strategies we decide upon are appropriate to the business' current position and issues they face in the industry and more broadly This position is summed up in a SWOT analysis

SWOT

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On the following page you'll find my SWOT analysis. Remember that you MUST do a SWOT analysis as Appendix 1 in your answer. You will score 1 mark in the technical section for this, and up to 3 further marks in the application section - if done well. You must update this SWOT for unseen issues (underline or bold these in your exam script), and should aim to include ALL your top 5 issues in your SWOT. A recent CIMA student script review I read, also made it clear that 2-3 word points in the SWOT are NOT sufficient. Aim to write at least 7-8 words for each point in your SWOT AND roughly 5 points per heading. I've shown my points in priority order as I see it. You don't need to do this in the exam, but it can help at this stage as you can replace the less important points with those from the unseen.

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SWOT

Strengths

1) Experienced directors and staff with good team 2) 3) 4) 5) 6)

spirit and good incentives Skilled in most CSF areas ­ innovative, quality, people Good reputation in industry, and meeting customer needs - Large growth in revenues Flexible cost base Some elements of good cost control ­ budgets, finance team at meetings, strong FD Good cashflow and low debt

Weaknesses

1) Just 4 key customers with significant power ­ caused 2) 3) 4) 5)

falling profit margins Margins lower on re-commissioned works Artistic staff are not cost conscious ­ some producers are poor at forecasting ­ some cost overruns + frustration about cost cuts Little equity finance available + few assets to secure debt finance Some falling margins ­ documentaries +scripted comedies + low on drama

Opportunities

1) Increase overseas sales 2) Further cost reduction ­ use supplier power, 3) 4) 5)

finance training for directors, control Off peak programming More in-house operations to gain control and reduce costs Use Activity Based Costing to improve product profitability analysis

Threats

1) Downward pressure on revenues from customers due 2) 3) 4) 5)

to economic pressures Continued recession in UK and overseas Not using latest technology ­ expensive to update e.g. HD/3D TV Web TV/You tube Offensive programming

PEST analysis

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On the following page you'll find my PEST analysis. The PEST analysis is always an optional appendix in this exam. Do aim to add one or two additional issues from the unseen into your PEST if you do one in the exam You MUST cross reference your PEST in your script however, and many students do not do this well. Aim for 2-3 cross references There are lots of PEST issues in this pre-seen but they are very broad and general, so look for more specific ones in the unseen to improve this one.

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PEST analysis

Political

Threat of cuts to BBC license fees ­ which could impact available funds

Economic

Difficult economic circumstances may make it hard to raise finance (although they do have a high interest cover) The industry has Increasingly delayed payments which could affect cashflow in future Falling ad revenues and funds for customers putting pressure on fees ­ average revenue per hour has dropped Rise in popularity of documentaries Offensive programming could affect reputation ­ quality control is critical

Social

Technolo gical

Website broadcasts/you tube channels ­ both an opportunity and possible threat Graphics ­ key development ­ Must retain lead in this area New technologies e.g 3D TV could be costly to adopt

5 Forces Analysis

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The 5 forces analysis enables the analysis of the industry according to a range of key factors affecting that industry Each force can be given a strength (e.g. High, Medium, Low). Where all the forces are high, the profitability of the industry is low, and divestment may be a good strategy. The lower the forces the more attractive the industry is. Companies may look at the areas where forces are high and develop strategies which may lower these. The 5 forces analysis for the TV production industry is on the next page ­ In this case the average of the forces is medium so the industry would be deemed averagely profitable, although VYP are doing well.

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Opportunities and Threats 5 forces analysis

Factors increasing Force

Buyer Power High Supplier Power Medium Competitors Medium New Entrants Medium Substitutes Medium

Large powerful customers ­ V &Y have only 4 BBC, ITV, Ch4, Ch5 Willing to pay 10% above costs Customer able to reduce fees paid Powerful staff ­ programme directors ­ well paid ­ Famous actors/personalities Experienced programme makers - outsourced

Factors lowering force

Small companies who work exclusively for VYP have low power Not overreliant on any one outsourcer Able to exert pressure to reduce fees of suppliers Growing market ­ 2007 to 2008

Lots of competition ­ many small + some more powerful `super-indies'. Reducing revenues ­ cost more of a focus to win work Renting facilities, and availability of outsourcers enable start up at relatively low cost and limited expertise In-house production ­ Close substitute Acquired programmes - Close substitute Other forms of entertainment ­ internet, sport ­ more distant substitute

Already lots of competition in a market where revenues are under pressure

Customers want original, innovative programming ­ so always likely to be a market if produced for fair price

Strategic analysis ­ the rational model

Next we need to analyse the strategic options, and make a conclusion on the way forward for the business

S W NOW O T

Business Strategy Generic strategies Ansoff's matrix Method of growth

FUTURE Mission & Objectives

The usual approach to defining a business strategy is to begin with a definition of the generic strategies, followed by analysing options in Ansoff's matrix, looking at how these might be implemented with the `Methods of Growth' and then deciding upon a final strategy

Opportunities and Threats Products/Generic Strategy

Products

Most programmes in maturity phase ­ but constant innovation needed to keep up with trends

Generic Strategies

Not their focus, although costs are increasingly important

BCG/ Product Life Cycle

Cost leadership

Peak hour programming Range of programme types reduces risk exposure to any one

Quality a key to success ­ innovation, skilled staff ­ they are doing this well

Strengths

Differentiate

Margins on drama weak (but new) Hard to maintain margins on recommissioned works

They have a broad focus across a range of different types of programme

Weaknesses

Focus

Ansoff's Matrix

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Ansoff's matrix enables the generation of strategic options. Those you'll find in my analysis over the page are just that `options' not my recommendations. You might like to add your own options (1) Based on your own ideas to take the business forward (2) Based on those in practise exams you undertake

Ansoff's Matrix

Existing Market

­ opportunity to expand this area margins

New Market

· Focus on high margin areas e.g. Entertainment, · New overseas countries - resales ­ high ·Should be able to lower costs of drama in future Existing Product

to increase margins

· Sony marketplace/itunes/downloads · Commission programmes for new customers

e.g. Sky, Non-UK based organisations e.g. US, India ........

·Could move to a more `in-house' model (studios,

staff) ­ may save costs, but much less flexible

·Continued expansion · "Off-peak" ­ This morning, chat shows, cookery · Game shows, Talent shows · Children's programmes New Product · Educational programming · Sport · Commission programmes for

businesses/individuals ­ training video, promotional video, wedding videos, advertising · Hire out individuals to rivals · Straight to internet ·Feature films ·Broadcast company

Methods of Growth

Employing staff, buying studios

Internal Development

New programme formats e.g. childrens' TV

Acquisition

Buy studio New genre with expertise Overseas production company Another production company to expand

Joint Venture

Overseas ­ to get cultural expertise Feature films (due to expense) Internet company Ad agency

Seems unlikely

Divest

Defining a business strategy

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On the following page you will find my recommended strategy for taking VYP forward. Remember that this is my view and is not a definitive answer Also remember that in the exam, you are NOT expected to define a way forward like this ­ you MUST deal with the unseen issues and only those issues However, dealing with those issues in light of a strong logical approach to how the business should be taken forward can help you make a strong argument in your recommendations.

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Nick's Strategy

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Continued growth in revenues in current markets ­ Maintain skills, innovation, reputation ­ Continue to sell to current customers ­ New areas Build on success in drama, keeping costs lower in future In long term move into other areas ­ e.g. children's TV, Off-peak Grow new markets ­ Increasing resales overseas ­ More overseas sales staff ­ Start building relationships with overseas TV companies to directly commission work for them Good cost control ­ Strict cost control on programming ­ budgeting, forecasting ­ training for programme directors, continued attendance of finance staff at meetings, with power to act to keep costs down if going out of control ­ Introduce Activity Based Costing to more accurately show product costs Continue to keep up with new technology changes required by major customers ­ Invest in HD/3D TV technology ­ Investigate market for TV on demand/internet TV ­ mostly resales Improve margins on recommissioned works through better negotiating due to increased power available on successful programmes

Reed Business School

So that's what I would do. I'm sure you'll have your own views. Just remember not to hold onto these too tightly in the exam ­ you must primarily deal with the unseen issues! Remember to use www.topcima.biz for more specific guidance towards the exam, and if you don't pass this time, perhaps consider attending one of the Reed Business School courses for the next sitting. I also work with individual's one-to-one, usually where people have failed in the past and need more personal guidance to help them get through. Although I'm now fully booked for this year, should you not be successful this time and feel this would be useful for the next sitting, please do get in touch at [email protected]

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