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Strategic Management

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Executive summary

This paper focused on the strategic management of the Warner Bros Company to identify the company’s strengths and faults before providing recommendations. To achieve this, a better understanding of the company’s strategy statements comprising of corporate objectives, competitive advantage and the scope of the company’s activities was established. The paper reveals that the primary objective of Warner Bros is to maintain company’s lead in theatrical business and broadcasting by matching the increasing demand while adopting latest technology and advanced business model. The scope of the activities of the company is determined by its key divisions such as consumer products and games, motion pictures, television and theatrical releases.

To understand the aspects of macroeconomic that affect decision-making process at Warner Bros, the paper utilized both PESTEL analysis and Porters’ Five Forces analysis. For instance, the five forces analyzes reveal that Warner Bros captures only 9.8% of the industry market share. The analysis of internal strategic capabilities reveals that huge financial base is the basic resource to the company while the existence of successful subsidiaries provides the company with unique resources.

The conclusion drawn in this paper shows that Warner Bros is utilizing its strength to overcomes threats posed especially by the external environment. However, to ensure that the company remains relevant in the industry, this paper comes up with three recommendations. These are increased use of diversification, forming the strategic partnership to increase both market penetration and creation of new markets and increased production of films that appeal to all groups like it was observed in Harry Potter.

Strategic management

Introduction

In the business field, one of the most challenging tasks of the management is to establish and maintain a sustainable competitive advantage for the company (Dransfield, 2013, p. 157). The competitive advantage is what determines the life of any firm in a given industry. To achieve a competitive edge, the management has to remain conscious of the current situation in the company, the future target position and the mechanisms that will enable the company to achieve its key targets (Tassiopoulos, 2008, p. 174). Such awareness is what forms the backbone of strategic management. In simple terms, strategic management refers to a detailed collection of overall activities and processes that a particular firm utilizes to align and coordinate actions and resources with the formulated mission, vision, and goals to realize a competitive edge.

In this regards, the management is able to translate the attained competitive edge into a superior performance that enables the company to grow in all scopes (Kesho, 2015, p. 265). A rule of thumb is to have a plan that acts as a tool for change rather than a mere shelf document. In this context, strategic management must be an ongoing process in an organization (Selvanayagam & Ragel, 2015, p. 21). This paper focuses on Warner Bros to understand its strategic management path before providing recommendations.

Corporate objectives

A well-drafted strategy statement enables the employees and senior management to remain focused on what the organization seeks to achieve (Edwards, 2006, p. 23). The statements ensure that company’s strategy is well communicated to all stakeholders. For the corporate strategy statements to be effective, they must focus on three major components. These are objectives, competitive advantage and the scope of organization’s activities (Sickels, 2008, p. 39). Since Warner Bros operates in the film industry which is highly volatile and competitive, the company’s executive has remained keen on ensuring that a clear strategy is put in place to steer organizations’ growth. In this regard, the primary objective of Warner bros corporate governance has been to maintain company’s lead in theatrical business and broadcasting by matching the increasing demand while adopting latest technology and advanced business model (http://www.warnerbros.com, 2016).

 In terms of the scope of Warner Bros activities, the company’s operations are classified in terms of consumer products and games, motion pictures, television, theatrical releases among other home entertainment. Television products generate about 9 percent of the company’s revenue (Boone & Kurtz, 2012, p. 499). In this category, the revenues are generated via premium pay services, television networks and licensing of the programs. Examples of returning networking programs that hit in 2015-2016 included Arrow, Gotham, Major crimes, Shameless among others. In terms of competitive advantage, the company relies on the available factors of production to control it rather than adopting a comparative approach. For a company to secure a competitive advantage, the entity must be able to take charge to create industry effectiveness (Lamb, et al., 2008, p. 45). The company’s wide range of divisions ensures that varying tastes of the customers in the vast film industry are taken care of. However, it is important to notes that Warner Bros serve the broad needs of the customers without taking too many risks (Čirjevskis, et al., 2010, p. 169).  As a result, the company capitalizes on the product and services that already exists while adopting new technologies to advance them.

External analysis

Warner Bros PESTLE analysis

PESTLE analysis is an important tool that is used to conduct a macroeconomic analysis of firms in the business arena. As a framework, PESTEL analysis determines the impacts of individual elements of the external environment (political, economic, social, technological, environmental and legal) on the decisions made by the senior management (Kortler, et al., 2010, p. 85). From a political aspect, one of the influencing factors is the role of lobbying groups in the film industry and entertainment industry. For instance, the regulations and policies of FCC highly impact the operations and decisions made in the company. The censorship of films products both in the U.S and around the globe is another political factor.

Economically, Warner Bros operates in an industry that involves a higher cost of production. Costs such as advertising fees and other costs arising from changes in the U.S taxation systems not only make the activities in the film industry expensive but also very risky (Stringham, 2012, p. 125). Other macroeconomic factors such as unemployment and inflation rates also affect the consumption of film products and services both in the U.S and globally. The issues regarding the U.S foreign trade deficits also determine how company’s products enter international markets (Clement, et al., 2014, p. 119).

In the social context, contested issues such as legalization of same-sex marriages both in the U.S and globally has a great influence in Warner Bros business operations. Contents touching on gay marriages may be viewed differently by different groups in the market. The influence of internet usage that has shown an increasing trend also has an impact on customer’s social life. The company must use the positive aspect of internet usage in the society to enhance its competitive edge.

 In the technological front, the company has to remain conscious with the advanced technologies in the film industry in order to remain relevant. Adopting new technologies related to online streaming, 3D televisions, HD formats among others remain extremely paramount to the company (Finsterwalder, et al., 2012, p. 591). The company also has to enhance its capacity to integrate IT in various stages of film and television production.

 In legal perspectives, regulations and policies by the watchdogs in the film industry such as MPAA, FCC highly influence the company’s operations (Helfat, et al., 2009, p. 109). Issues related to intellectual property rights in the U.S also remains of great concern to the company. The company is also faced with the legal barriers to gain entrance in the emerging markets.

 In the environmental aspects, the company is affected by issues to do with the global warming. Companies in the film and entertainment industries are faced with pressures from environmental groups to go green (Henry, 2008, p. 55). A notable factor in this area is the importance of corporate social responsibility, a role which Warner Bros has remained active in the past fifteen years.

Competitive analysis: Porter’s competitive forces analysis for Warner Bros Studio

Porter’s competitive forces analysis analyzes an organization in the light of five key factors to assess its competitiveness in the industry (Porter, 2008, p. 82). Competitive rivalry in the industry is one of the strongest forces in the Warner Bros competitive analysis (Kachru, 2009, p. 54). In the U.S film ad entertainment industry, Time Warner Inc which is the parent company of Warner Bros captures only 9.8% market share. The rest (81.2%) is occupied by the other competitors such as Walt Disney studios, Universal, NBC among others. in the perspectives of the threat to new entrants; the traditional barrier to entry in the industry has been declining in the recent past. Increased innovation in the industry and rapid growth of the internet has diluted the higher cost of production which was seen as the main barrier to entry (Van Deusen, et al., 2007, p. 13). As a result, companies such as Netflix and Amazon are slowly gaining roots in the industry intensifying the already existing competition.

 In terms of bargaining power of the buyers, the Warner Bros customers are not facing switching costs. The customers bargaining power in the industry is moderate as there is a wide range of products to choose from. Customers bargaining power is also enhanced by the efforts by the companies to produce high-quality products to match volatile buyers’ tastes and preference (Robinson, 2009, p. 25). In terms of bargaining power of the suppliers, it is higher in this industry compared to other industries in the U.S.  For instance, famous film celebrities may be classified as both suppliers and human resources at the same time (Grundy, 2006, p. 218). In this context, successful franchises of Warner Bros studio such Harry Potter, Batman among others have only been successful due to the company’s capacity to attract prominent celebrities who have a higher bargaining power (Jie & Lakhimi, 2012, p. 226). Finally, the threat to substitute remains significant to Warner Bros products. For instance, the theater which is one of the key substitutes for Warner Bros products has been advancing in the recent post posing a threat to companies in this industry.

Analysis of internal strategic capabilities

Components of Warner Bros strategic capabilities

Resources (both basic and unique) have been identified as one of the most significant source of competitive advantage for any company in the business field (Verbeke, 2013, p. 17). In terms of firm resources, Warner Bros possesses large capital funds which not only enables the company to produce high-quality products but also to market them without requiring strategic partnership with other players in the industry. This can be classified as one of the company’s basic resources. In terms of unique resources, Warner Bros owns most successful subsidiaries in the industry such as Warner Bros pictures, interactive entertainment, home video, DC entertainment among others. Its vast experience in the industry that exceeds 90 years, reputation and huge capital base enables the company to attract both prominent film celebrities and competent human resource (Mohr, et al., 2009, p. 137). As a result, the company is able to produce high-quality products that generate huge revenues from both domestic and international sales.

Analysis of Warner Bros business functions

Business functions refer to operations that are performed on a routine basis as part of the organizations’ missions (Karl, 2013, p. 96). Such processes translate the reason why a certain business exists (Kawashima, 2011, p. 479). The business functions at Warner Bros can be effectively analyzed based on major divisions in the company. The major divisions in the company are motion pictures, DC entertainment, consumer products and games, Television groups, home entertainment, theatrical releases and studio facilities. The television division which accounts for almost half of the overall company’s revenue is the key pillar of the Warner Bros success (Fitzgerald, 2012, p. 212). This division oversees the entire investment of the company’s television business that includes production, distribution, and broadcasting. The home entertainment division in the company is obliged to bring together the home video entertainment, technical operations, interactive entertainment, and digital distributions thus maximizing both current and future distribution. While each division has its distinct function, the HR department ensures that job in each group is done effectively.

Basis of Warner Bros competitive strategy

Key market segments

The term market segment refers to a group of individuals or individuals that portray characteristics that are related. In this context, the individuals in the same segment have products needs that are relatively similar. In the case of Warner Bros, the company target market segmentation is based on age, lifestyle and income (Capasso, et al., 2005, p. 67).  For instance, the company caters to the needs of kids and teens in the market by producing high-quality animation movies and clips. In this regard, the company owns Warner Bros animation subsidiary which uses modern technology to meet the needs of young viewers (Parekh, 2010, p. 62).  In terms of lifestyle, Warner Bros management understands that a big portion of American viewers prefers watching movies in theaters rather in their homes. As a result, the company remains active in theatrical releases that are available in prominent theaters such as IMAX (Steven, 2014, p. 166). Finally, the company also targets higher income earners who can manage to subscribe to various programs offered by Warner Bros.

Analysis of Warner Bros business strategy

In the business field, competitive advantage is achieved through three generic strategies: differentiation, cost leadership or focus. Film and entertainment industry require the players to adhere to creativity in order to remain relevant in the long run (Kincaid, 2003, p. 187). In this regard, Warner Bros has put more emphasis on differentiation as a growth strategy compared to other generic strategies.  The company achieves differentiation by meeting the actual needs of each of its market segments target. Moreover, Warner Bros always strive to make its operations unique compared t those of its key competitors. For instance, Warner Bros TV series and motion pictures are grimmer compared to Disney Studios’ TV series that appears to be more family friendly (Christensen, 2006, p. 27). In terms of focus, Warner Bros relies on its subsidiaries to target and serves the needs of different buyers groups in the market. For instance, Warner Bros animation targets kids and teens in the market.

Strategic choice

Based on the analysis conducted in the above sections, it is clear that Warner Bros still requires product market growth strategies that will steer the future of growth of the company. Growth strategies usually provide the direction in which the management has to apply to increase the firm’s profitability (Littleton, 2013, p. 49). In terms of market penetration, it is notable that legal barriers to entering emerging markets remain a barrier in the film industry. Therefore, it is paramount for the company to understand the legal perspectives of the emerging market while designing products that serves such markets (Prasad, 2011, p. 133). It is advisable for Warner Bros to consider forming a strategic partnership with film firms outside the U.S market (Tribbey, 2013, p. 43). Considering the higher risks involved in the film industry, developing new products does not appear to be a viable option to the company. In contrast, the analysis conducted in the previous sections proves that with existing subsidiaries, the company will continue to be profitable as long as it uses modern technologies. 

 Developing new markets is one of the most viable options that will guarantee future success to the Warner Bros. advancement in technology and increased growth in the internet usage have made it possible for new companies to enter the industry. In this regard, Warner Bros needs to expand its presence in the international market. However, due to income disparities in the international market, the company needs to redesigns it’s marketing mix to ensure that the products generated are still in the reach of all customers and are still profitable to the company (Pardo & Sánchez-Tabernero, 2012, p. 58). Diversification in terms of big budget and small budget productions will also highly determines the future growth of the Warner Bros Company. The company needs to focus more on the big budget film as they have proved to be more profitable and attracts prominent celebrities compared to small budget film.

Strategic evaluation

Monitoring is an important part of strategic management where the management assesses the effectiveness of formulated strategies in the light of established measurement guidelines (Mukherjee & Kadiyali, 2011, p. 989). Suitability, acceptability, and feasibility are important facets used in the strategic evaluation. Suitability is concerned in determining whether the strategy fits the organization’s mission statements (Roy & Lahiri, 2004, p. 529). By increasing Warner Bros market penetration and establishing new markets, the company will on the right path to expand TV production beyond broadcast which is part of its mission (http://www.warnerbros.com, 2016). Diversification will ensure that the company is able to serve a wide range of customers. Therefore, the three product market strategies for growth appears suitable to the company.

Feasibility is concerned with the organization’s financial capacity to implement strategies (Sakarya, et al., 2007, p. 208). In this regard, a break-even analysis needs to be conducted to determine whether there are enough inputs to generate outputs for the implementation of the three strategies. However, as the demand in the film industry remains high and Warner Bros has a rich capital base, feasibility of these three strategies remain ideal. Acceptability is usually concerned with the expectations of the stakeholders in a company (Boatwright, et al., 2007, p. 410). A ‘what if’ analysis should be conducted to determine the acceptability of the three strategies identified.

Conclusion

Warner Bros remains one of the most successful companies in the film and entertainment industry as it is portrayed in the above discussion.  The company’s huge capital base enables its management to formulate and implement effective strategies as well as attract prominent film personalities.  However, as it is revealed in both PESTEL and Porters Five Forces analysis conducted earlier, Warner Bros still operates in a high-risk environment. For instance, technological advancement and increased use of the internet have made it possible for new companies such as Netflix and Amazon to join the industry. However, the management at Warner Bros has managed to capitalize on the company strength to overcome threats.  For instance, the company has utilized its owned subsidiaries to pursue both differentiation and focus strategies. To volatility and competitiveness of this industry, the management should focus on enhancing the company’s market penetration, establishing new markets as well diversifying key business operations.

Recommendations

There is a need to rethink the existing strategic plan at Warner Bros Studios to ensure that the company remains relevant in the industry amid of intensifying competition being experienced. As a result, there is a need for the management to consider the following three recommendations:

  1. The management needs to diversify operations in the company regarding the production of films. The company needs to diversify both in the small budget and big budget productions. This will enable the company to dilute risks involved in the industry.
  2. The company also needs to create more new markets for its products. The management has to Increase Company’s market penetration, especially in the emerging markets. Forming strategic partnerships with existing firms will enable Warner bros to overcome legal barriers that are put in place.
  3. Finally, the company need create products that appeal to all groups. While this currently being enhanced by the existence of numerous subsidiaries in the company, there is a need to focus on films that match the tastes of all movie lovers. Films such as Harry potter have managed to capture this aspect.

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