Strategy Process. The internal and external business environment of News Corporation

Table of Contents

Abstract

1.0 Introduction

2.0 Environment and Strategic Position
2.1 The PEST method
2.1.1 Influence of Macroenvironment on the Microenvironment
2.2 Porter’s five forces model
2.3 Value chain model

3.0 Company Selected

4.0 Current Strategic Position of News Corporation
Table 1 PEST analysis
Figure 3
Porter’s Five Forces analysis of global media industry
4.1 Porter’s five forces analysis
Table 2
Value Chain
Figure 4 SWOT analysis

5.0 Changing Business Environment
Table 3 Change in the Business Environment and its Effect on News 13 Corporation

6.0 Conclusion

References

Appendix 1 - Academic Journal Chosen

ABSTRACT

News Corporation is one the largest media company’s of the world. In this paper, the current strategic position, of this company is analysed, and the influences of the changes in the business environment, on this company, have been determined. The analysis of the internal and external business environment of the global media industry has been done. The analysis has revealed that the key strategic aspects facing this company are the change in the attitudes of the consumers with regards to the increase in their awareness towards socially responsible business activities, shift in popularity from the traditional media channels of newspapers, magazines and television to the internet, the entry of traditional non media companies into the industry, and change in the conventional ways of doing business. News Corporation needs to amend its strategy towards incorporating these changes.

1.0 INTRODUCTION

his paper critically evaluates the will be done. Then the current strategic position of the company chosen will be determined, after which the next section throws light on the key changes in the business environment that influence the company’s strategic position. Lastly in the conclusion section, recommendations will be given.

2.0 ENVIRONMENT AND STRATEGIC POSITION

What is strategy? Why is it, that business enterprises should have strategies? According to Abraham Lincoln, “If we know where we are and something about how we got there, we might see where we are trending - and if the outcomes which lie naturally in our course are unacceptable, to make timely change.” It has been said that, “Without a strategy, an organisation is like a ship without a rudder, going around in circles. It is like a tramp; it has no place to go - Joel Ross and Michael Kami” (David, 2005, pg. 3). Strategy is an intentional plan and/or procedures that are established in order to handle a situation. Strategy has also been said as being, a plan, a ploy, a pattern, a position, and a perspective (Mintzberg et. al, 2003). Thus the understanding of the environment in which a company operates is of immense importance. Here the environment does not mean the natural ecosystem which relates to flora and fauna, but the various situations, which a company has to deal with. The situations can be outside the industry in which a company is doing business and also within the industry. The business environment strategies of a company, where it stands outside the industry can be termed as the in the present what it should to do in the future. Use of methods such the technique of analysing the Political factors, Economic factors, Social factors, Legislative factors (PEST), Porter’s five forces, and value chain analysis, in order to analyse the business environment, both external and internal to the industry in which the chosen company is operating, macroenvironment and that of inside an industry as the microenvironment (Campbell et. al, 2011).

2.1 The PEST method

There is a tool that can be used to analyse the environment outside an industry, or the Page 3 of 17 Strategy Process (August 2011) macroenvironment. It is called as the PEST which is an acronym for Political aspects, Economic aspects, Social aspects, and Technological aspects. This tool is also called as the PESTEL. The extra E and L refer to Environmental aspects and Legislative aspects respectively. The legislative aspects can be included in the political part of this tool and the environmental aspects in the social part (Campbell et. al, 2011). The PESTEL is simply an extension of the PEST framework. The Political aspects include matters such as government policies and regulations, the political stability in the country or countries in which a company is operating, and the restrictions to doing business. Economic aspects include issues like the economic growth or decline in an economy, inflation, and the costs of production. Social aspects include factors like values and beliefs of the society and the consumers, attitude towards green issues like global warming and corporate social responsibility. Technological aspects include the state of technology in use and emergence of technological innovations like the internet (Campbell et. al, 2011; Johnson et. al, 2008).

2.1.1Influence of Macroenvironment on the Microenvironment

Here it becomes essential to explain the influence which the macroenvironment or the Political aspects, Economic aspects, Social aspects, and Technological aspects, or the PEST factors in acronym form, as explained in the previous subsection, have on the microenvironment of an industry. Changes in the macroenvironment have a profound impact on the microenvironment (Johnson et. al, 2008). An example is that in China there is strict control over the culture of the country, by the governing socialist party. In order to achieve control over the nation, there are strict legal restrictions which restrict and even ban foreign media companies from offering television channels as well as newspapers,

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magazines and books, for sale in the country. The impact of this political restriction on the Chinese media industry, on the microenvironment level, is that foreign media companies have to establish joint ventures with existing Chinese media companies in order to tap the market. This shows that due to the macroenvironment factor of stern political control and a socialist regime in China, in its media industry, the practise of joint ventures is highly prevalent (Johnson, 2005).

2.2 Porter’s five forces model

To analyse the environment within an industry, or the microenvironment, in which a company is operating, there is a framework called the Porter’s five forces model which was promulgated by Michael E. Porter (Campbell et. al, 2011; Johnson et. al, 2008).

Figure 1: Porter’s Five Forces model

This model, as illustrated in figure 1, analyses five factors and determines the potential profitability of an industry (Johnson et. al, 2008). The first of five factors is the threat of new entrants in the industry meaning how difficult or easy it is for new companies to enter an industry. This depends on the barriers to entry which a new company has to overcome in order to enter an industry and conduct business. Barriers to entry can be like the amount of investment needed to set up business operations which at times can be Page 4 of 17 Strategy Process (August 2011) very high and can thus deter new companies from entering an industry. The accessibility to raw materials and the sale and distribution networks is also a barrier to entry. Already established companies in an industry also can be a deterring force as they have extensive business knowledge, long experience and can be operating at economies of scale, and can conduct price wars and marketing campaigns and can thus make it difficult for a newcomer to become established in an industry. The legal regulations are also another barrier to entry. There can be legal restrictions to entering certain businesses which prohibit companies from entering an industry (Campbell et. al, 2011; Johnson et. al, 2008). The second force, as illustrated in figure 1, is the threat of substitute products. Substitute products are those which fulfil the same needs as the original product. For instance, in the media industry, consumers can access news through internet websites and need not rely on newspapers. The threat of a substitute product depends mainly on the benefits the consumers get from using the substitute product and the cost which they have to bear for it in comparison to the original product (Campbell et. al, 2011; Johnson et. al, 2008).

The third force is the bargaining power of buyers. Here the term buyer does not necessarily mean the end consumer of a product/service, buyers can also be the individual constituents of the supply chain which can be purchasing raw materials from one company and then supplying it to another one for further refinements and finishing. For instance, reams of paper are bought by a media company in order to print newspapers and then sell them to the public at large. This force is dependent on, firstly the number of buyers and the amount they spend on purchasing the products/services. If there are large number of buyers and they do not spend significant amounts of money on the purchases, then their power is weak, but if there are small number of buyers and their spending is high, then they are in strong position to bargain from the company or companies in an industry and make them bow down to their terms (Campbell et. al, 2011). The second factor is the costs which have to borne by the buyer when changing over from one supplier to another. If the costs are low, then buyers can easily obtain the products/services from another supplier and it becomes difficult for the suppliers to charge a higher price and thus earn a higher profit (Johnson et. al, 2008). The third factor under the force of the bargaining power of the buyers is the existence of many or few suppliers and their size. If there are many suppliers available to the buyers, then many alternative sources are available to the buyers. Also, if the size of the suppliers is small, then they are weak and the buyers are in a strong position and can dictate their terms (Campbell et. al, 2011).

The fourth force is the bargaining power of the suppliers. The term suppliers here denotes those companies, which supply the raw materials and/or services which are needed by the companies in an industry in order to manufacture products/services. For instance, a media company producing television shows requires production facilities such as production studio, technical staff such as editors, cameramen. Here the production studio is a supplier and the media company is the buyer, even though it is not the end consumer. This force depends on, firstly the number of suppliers. If there are few suppliers in an industry, then they are in a strong position and buyers are weak. Secondly, if the cost which will have to be borne by a buyer for changing the supplier is significant, then the suppliers are in a strong position (Johnson et. al, 2008). Thirdly, if the availability of raw material being procured is limited, then also the suppliers get an upper hand (Campbell et. al, 2011).

The fifth and final force, as illustrated in figure 1, is the degree of competition in an industry. This force is influenced the previously discussed four forces. If the Page 5 of 17 Strategy Process (August 2011) barriers of entry are high and threat of entry is low, then there will be lesser amount of companies in an industry and also their size can be very large. If there are many substitute products available to the buyers, then the buyers are in a strong position, and it can lead to extreme rivalry in an industry (Campbell et. al, 2011).

2.3Value Chain model

Every company, through its actions delivers some product/service to its customers. There is a technique thorough which it is possible to analyse the activities which are contributing towards the production of the goods or/and services which a company offers for sale. This technique is called the value chain analysis. Through the application of this model, it can be ascertained what all activities are adding value to the product/service being produced and what all activities are more important than others (Campbell et. al, 2011). This model is illustrated in figure 2.

The next section presents the description of the company which will be analysed.

3.0 COMPANY SELECTED

News Corporation is amongst the largest media company’s of the world. As of 31st March 2011, its total assets were approximately $60 billion or £37 billion and its annual revenue was $33 billion or £20billion. Satellite television, cable network programming, newspaper and book publishing, and movies are the broad categories in which this company does business. This company has operations in all continents of the globe except for Africa (News Corporation, 2011). This company was established by Rupert Murdoch, an Australian. He inherited part of the company, News Limited, which had been established by his father, Keith Murdoch, in Adelaide, Australia, in 1923 (Johnson et. al., 2008; Media, 2009).

In 2005 the social networking website, ‘myspace.com’, was also acquired by this company, and thus it also entered into the field of, business through the internet Primary Inbound Receipt and storage of (Kirkland, 2007; MySpace, 2011).

Activities Logistics materials (inputs) Some of Rupert Murdoch’s children, Operations Transformation of namely his son James Murdoch, daughter inputs into final product Elisabeth Murdoch and another son Outbound Storage and distribution Lachlan Murdoch have all been in top Logistics of finished goods

Sales and Making the product Marketing available and persuading people to buy Service Installation and after sales support

Support Procurement Purchasing of resources ActivitiesTechnology Product, process and Development resource development Infrastructure Planning, finance, management Human Recruitment, selection, Resource training, reward and Management motivation Figure 2: Value Chain Analysis management positions in the company (Kirkland, 2007).

James Murdoch is currently the only child of Rupert Murdoch who is actively involved in News Corporation’s running and holds an executive position in the company’s top management. Both Lachlan Murdoch and Elisabeth Murdoch have left the company (The Economist, 2005; Kirkland, 2007). Rupert Murdoch is now 80 years old (Knight, 2011) and still holds the post of the, ‘Chairman and Chief Executive Officer’ of the company (News Corporation, 2011).

Recently, this company and its well- known founder have met with a series of setbacks, such as the failed attempt to

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acquire the satellite broadcasting company, British Sky Broadcasting in the United Kingdom (UK) (Knight, 2011). Further, both father and son, Rupert and James Murdoch were given summons to appear before a parliamentary investigation committee in the UK, in July 2011, regarding the illegal & scandalous phone hacking incident, (Gosden, 2011; Willis, 2011) and, a popular UK newspaper called, ‘News of the World’, owned by the News Corporation has recently been shut down (Knight, 2011).

Further, on 15th July 2011, Rupert Murdoch and James Murdoch publicly apologized for the unethical and indecent actions done by the employees of their now shut down the newspaper, ‘News of the World’, and also had apology letters printed in the numerous newspapers owned by News Corporation (News Corporation, 2011; Gosden, 2011).

The next section talks about the current strategic position of News Corporation.

4.0 CURRENT STRATEGIC POSITION OF NEWS CORPORATION

News Corporation is an established and renowned media company on a global level. It is present and does business in all types of media, namely print publishing (newspapers, magazines and books), television and film production, television broadcasting including both satellite and cable television, and websites on the internet. Table 1 & 2 (PEST analysis & value chain analysis) and figure 3 & 4 (porter’s five forces & SWOT analysis) below, analyse the current strategic position of News Corporation.

Table 1: Political Economic Social Technological (PEST) analysis

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