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Strategy in Action- HMV 368SAM

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Table of Contents Introduction................................................................................................................................2 Background of the Organisation................................................................................................2 HMV and the Strategic Management Process Framework........................................................3 External Environmental Analysis (PESTLE).........................................................................3 Porter’s Five Forces Analysis.................................................................................................4 SWOT Analysis......................................................................................................................6 Recommendations and Conclusion............................................................................................7 References:.................................................................................................................................9

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Introduction Digital revolution has been a key factor in the transformation of several industries. The advent of internet has changed the landscape of how music and video content is distributed to the public. This disruption in the manner of how the content is being distributed has made the established players in the music and video industry to notice its potential and publish their content digitally (Moreau 2013). This process of constantly staying vigilant to opportunities and threats and adapting in response to the current trends helps an organisation in maintaining or solidifying its competitive advantage. In other words, the dynamic environment calls for the organisations to engage in the strategic analysis of the external as well as the internal environment, plan and formulate strategies and ascertain the impact of several forces on the business (Hitt, Ireland & Hoskisson 2012). Thus, by following the strategic management process, organisations can act as a useful tool for the managers as well as help them in reducing the uncertainty and complexity. Thus, this essay aims to identify to what extent this strategic management process propounded by Johnson, Scholes and Whittington (2014) eases the burden on managers forming strategies. This will be accomplished by selecting HMV as the company of focus and the process will be applied.

Background of the Organisation According to HMV (2018), HMV was established in London in the year 1921 as an entertainment retailing company which currently deals in retailing of books, CDs, video games, DVDs containing music and video content and merchandises from several popular television series and movies. Over the last 90 years the company has face unprecedented success in the UK market as well as internationally with over 128 stores worldwide (Brooks 2013). However, one of the major missteps which the company took was to overlook the change which the digital revolution has brought in the music industry and its disruptive effects on the records and labels. Furthermore, the company was embroiled in redundancy in 2013 which led to the takeover of organisation by Hilco UK which was accompanied by a relaunch of its online store to join the digital distribution platform and give competition to other digital distributors. A lack of strategic coherency in HMV led to the in overall sales of the company. Therefore, the strategic management process given by Johnson, Scholes and

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Whittington (2014) will be applied in the case of HMV in order to recommend a future course of strategic action for the company.

HMV and the Strategic Management Process Framework External Environmental Analysis (PESTLE) External environment analysis as a strategic management framework is used by the managers in order to monitor and analyse the macro environmental forces which affect the business. This framework helps the managers in identifying the opportunities and threats which these environmental forces present and formulate strategies according to them (Ho 2014). This further reduces the complexity which is involved in the decision making process as the strategy are formulated and decision are taken by incorporating the knowledge gained from this analysis. There are majorly six forces which the external environmental analysis namely political, economic, social, technological, environmental and legal forces (Hill, Jones & Schilling 2014). In the context of HMV, this framework is applied as follows (Schlengelmilch 2016). The political forces have been quite favourable towards HMV over the last few years since the government in the UK has been taking strict steps to curb down unauthorized access to content such as music, video as well as video games. This has been due to the effect which piracy has had on the record sales leading to lesser revenue. Thus, in order to curb piracy, the political forces in the country has been taking steps against it. The economic forces has been particularly challenging for HMV in the recent years. This has been due to the fact that the entire industry has been disrupted by the availability of music online at relatively cheaper or no cost at all. The brick and mortar stores such as HMV have been experiencing a sharp decline in sales due to this and presence of substitute products such as iTunes and Spotify have added to the worries. This has created a huge economic burden on the firm. On the social front, the society has been adapting to a change in the consumption behavior which is quite worrisome for HMV. This change in consumption behavior is largely led by millennials and younger generation with access to internet and the means to download music from the internet cheaper and unethically. Thus, this change in societal consumption habit which negatively hurts the revenue of physical stores such as HMV. 3|Page

The technological advances over the years have given rise to the e-commerce giants such as Amazon, iTunes and Spotify which has affected the revenue of HMV. However, on the other side, internet offers a great deal of promotional potential to the organisations which can help them gain competitive advantage. In terms of the legal forces, the law against the illegally selling of music and other content has been gaining traction off late. New laws are being framed in order to curb the cybercrimes being committed and the number of websites selling illegal music has been coming down. Thus, it presents opportunity for HMV. Lastly, the environmental forces calls for environmentally responsible actions taken by the organisations. This presents an opportunity for HMV to go digital and move away from production of CDs and DVDs manufactured using plastic which is difficult to dispose. Therefore, upon conducting the external analysis it can be said that the external forces such as economic, technological, social forces as well as the environmental forces are not particularly favourable for the firm since it highlights the major issue of the digital revolution and its overall effect in determining the performance of HMV. The performance of the company amidst pressures from low cost online music providers as well as illegal website has taken a hit in the last few years and will further decline in terms of sales if HMV does not adopt a digital model. The political and legal forces also lend their support to HMV adopting a digital strategy due to their support to curb piracy and illegal music access.

Porter’s Five Forces Analysis The five forces analysis is used by managers in an organisation in order to ascertain the attractiveness of an industry. The attractiveness of an industry is based on several competitive forces which can either lead to positive as well as negative effects on the earning potential of an organisation (Porter 2008). Identifying the favourable as well as unfavourable forces helps the organisation in identifying the industry structure and competitive level which reduces the complexity in decision making and strategy formulation (Porter 2008). These five forces being competitive rivalry, threat of new entry, threat of substitutes, bargaining power of buyers and suppliers. This framework has been applied in the context of HMV in Table 1 below.

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Table 1: HMV Five Forces Analysis (Parry, Bustinza & Vendrell-Herrero 2012)

Force

Threat Level

Explanation

Competition Level

High

Threat of New Entrants

Low

Bargaining Powers of Suppliers

Low

Bargaining Powers of Buyers

High

Threat of Substitutes

High

The industry in which HMV operates in is characterised by low level of sales due to aggressive pricing strategies adopted by competitors. Major players such as Amazon, iTunes and Play.com have posed threat for HMV due to their superior digital format. The presence of high number of legal music download and listening portals have made the profit levels in the music retailing industry quite saturated. Furthermore, brand names such as iTunes and Amazon have been able to establish themselves in the industry in a complete manner. Thus, a new entrant has to incur huge capital expenditure and wait for the industry to eventually become profitable in the long term. The number of suppliers or artists creating music has been growing exponentially over the last decade. However, there are only a handful of the companies or record retailers who distribute the music to the public. Hence, the threat of this force is quite low. Due to the availability of music illegally or even at comparatively cheaper rates online than in retail, the bargaining power of buyers is quite high in the case of HMV. One of the major reasons which have contributed to the decline in sales of physical music CDs and DVDs is the rise of digital media and subscription based services. These services act as a substitute to buying music which are cheaper and easily accessible. Thus, the threat to HMV due to this is quite high.

Upon analysing the five forces concerning HMV, it can be concluded that HMV operates in a highly competitive industry which is characterised by the presence of established technology giants as its major competitors which are quite established in the market already. Furthermore, CDs and DVDs being a thing of past has also presented a high threat of substitutes to HMV since the customers have majorly moved on to adopt the digital medium 6|Page

which is far more convenient than purchasing music from a retail store since it can be accessed anytime and anywhere from any of their devices. Furthermore, the cost-effective subscriptions offered by the substituted services has made it quite hard for HMV to operate in such an industry. Lastly, another major threat which makes this industry quite competitive to operate in is the bargaining power of the buyers since due to the presence of large and established players as well as illegal music it has become really hard for HMV to exert any control over the buyers who have quite a lot of influence on the sales of the company.

SWOT Analysis Organisations utilise the SWOT framework in order to analyse its competitive position through identifying its strengths, weaknesses, opportunities and threats. The strengths and weaknesses arise out the internal capabilities of the firm whereas the opportunities and threats arise due to the external forces and their effects on an organisation. This analysis helps the firm in identifying areas of improvement as well as the threats which it may face due to the environmental forces and further aids them in developing strategies in order to lessen the impact of the threats and maximizing the opportunities (Helms & Nixon 2010). This also ends up making the work of the manager less complex due to the availability of data using which the actions can be taken. A SWOT analysis for HMV is presented in the Table 2 below.

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Table 2: HMV SWOT Analysis (Abraham 2013) Weaknesses

Strengths 1. UK’s largest retailer of music and records. 2. High brand recognition and recall value. 3. Portfolio is diverse since it deals

1. Reliance on the sales from physical retail stores. 2. Sales decline due to change in audience preferences in terms of entertainment sources.

in books, video games, merchandise etc. 4. Venture in several geographical locations. Opportunities 1. Opportunity to improve their

Threats 1. One of the biggest threat is the

customer relationship

threat of piracy of music and

management through the use of

other content sold by HMV.

technological software and internet. 2. Opportunity arising from the entry in the cinema industry for HMV. 3. Lastly, the launch of a dedicated

2. The threat of large established technology companies such as Apple and Amazon affect the sales negatively. 3. Change in consumption behaviour as the customers do not

digital delivery website opens up

feel the need to pay a huge

profit making potential for the

amount to purchase a record since

firm.

they can get it for seemingly free online.

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From the SWOT analysis, it has become clear that the HMV faces a huge threat from the digital music retailers which offer music as a subscription based service to the customers. Furthermore, the customers are also adopting the subscription based model over purchasing the physical CDs and DVDs from the retail stores which involves a lot of hassle. Thus, it can be said that the physical retail model for selling music has run its course in the current digital era. Thus, HMV should be aiming to capture the opportunity offered by digital distribution of music to the customers which it can accomplish through the use of its resources in order to compete with other digital giants.

Recommendations and Conclusion The analysis conducted above on the basis of the strategic management frameworks several recommendations can be made to HMV. Firstly, the company should make changes in its strategy of being a primarily physical retail outlet to an online and innovative organisation. This can be done by moving the sales of physical CDs and DVDs to their online store as well as launching its own music streaming platforms for the modern customers which primarily purchase music through the digital delivery mechanism. Furthermore, the company should adopt a phase out or retrenchment of the product categories which do not have a foreseeable future such as CDs and DVDs and the online store can be integrated with the music platform down the line. In conclusion it can be said that through the use of the strategic management process given by Johnson et al (2014), the complexity and the difficulties faced by managers while making strategies can be eliminated. This was evident in the case of HMV as this process was utilised and on the basis of the analysis solution and strategic direction was recommended to HMV which can significantly ease the burden of the managers and decrease complexity.

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References: Abraham, S. (2013) Will business model innovation replace strategic analysis?. Strategy & Leadership 41(2), 31-38. Brooks, D. (2013) HMV timeline: Charting the company’s history [online] available from < https://www.retail-week.com/hmv-timeline-charting-the-companyshistory/5044865.article> [13 November 2018]. Helms, M. M., & Nixon, J. (2010) ‘Exploring SWOT analysis–where are we now? A review of academic research from the last decade’. Journal of strategy and management 3 (3), 215-251. Hill, C. W., Jones, G. R., & Schilling, M. A. (2014) Strategic management: theory: an integrated approach. New York: Cengage Learning. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012) Strategic management cases: competitiveness and globalization. London: Cengage Learning. HMV (2018) About HMV [online] available from < https://www.hmv.com/about-hmv> [13 November 2018]. Ho, J. K. K. (2014) ‘Formulation of a systemic PEST analysis for strategic analysis’. European academic research 2(5), 6478-6492. Johnson, G., Scholes, K., & Whittington, R. (2014) Exploring corporate strategy: Text and cases. Moreau, F. (2013) ‘The Disruptive Nature of Digitization: The Case of the Recorded Music Industry’. International Journal of Arts Management 15(2), 13-35. Parry, G., Bustinza, O. F., & Vendrell-Herrero, F. (2012) ‘Servitisation and value coproduction in the UK music industry: an empirical study of consumer attitudes’. International Journal of Production Economics 135(1), 320-332.

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Porter, M. E. (2008) ‘The five competitive forces that shape strategy’. Harvard business review 86 (1), 78-93. Schlegelmilch, B. B. (2016) Global Marketing Strategy. Switzerland: Springer.

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