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
Governance
Business Environment & Ethics
PEST 5 Forces
S W FUTURE
Business Strategy
NOW Mission &
O T Generic strategies Objectives
Internal Ansoff’s matrix
analysis Method of growth
Stakeholder
Product analysis Mapping
-Product life cycle
-BCG matrix
Strategic analysis – the rational model

Governance
& Ethics
The first stage of analysis
is to ensure we fully FUTURE
understand where the
Mission &
organisation is heading,
along with its approach Objectives
to meeting stakeholder
needs.
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 Deliver profits to shareholders

Strategy High quality TV programme production
Values Visionary, Artistic, Customer focus
Behaviour standards 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

• 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!
Ethics and CSR

• 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…..”
Stakeholder mapping

• 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)
 Stakeholder Analysis
Mendelow’s Matrix

Low Interest High Interest

Minimal effort Keep informed

•Viewers •Most staff
Low
•Small outsourcers
Power

Uncertain
Bank
Keep satisfied Key Players (Involve)
•Studio owners •Essential outsourcers
•Government •Major TV broadcasters
High
Power •2 founders (want freedom)
(Directors + Shareholders)
•Programme directors
•Major TV personalities
 Strategic analysis – the rational model

Business Environment Next we need to analyse the current

PEST 5 Forces position of the business
S W
NOW This helps us ensure the strategies we
O T decide upon are appropriate to the
business’ current position and
Internal issues they face in the industry and
analysis more broadly

Product analysis This position is summed up in a SWOT

-Product life cycle analysis
-BCG matrix
SWOT

• 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.
 SWOT

Strengths Weaknesses
1) Experienced directors and staff with good team 1) Just 4 key customers with significant power – caused
spirit and good incentives falling profit margins
2) Skilled in most CSF areas – innovative, quality, 2) Margins lower on re-commissioned works
people 3) Artistic staff are not cost conscious – some producers
3) Good reputation in industry, and meeting are poor at forecasting – some cost overruns +
customer needs - Large growth in revenues frustration about cost cuts
4) Flexible cost base 4) Little equity finance available + few assets to secure
5) Some elements of good cost control – budgets, debt finance
finance team at meetings, strong FD 5) Some falling margins – documentaries +scripted
6) Good cashflow and low debt comedies + low on drama

Opportunities Threats
1) Increase overseas sales 1) Downward pressure on revenues from customers due
2) Further cost reduction – use supplier power, to economic pressures
finance training for directors, control 2) Continued recession in UK and overseas
3) Off peak programming 3) Not using latest technology – expensive to update e.g.
4) More in-house operations to gain control and HD/3D TV
reduce costs 4) Web TV/You tube
5) Use Activity Based Costing to improve product 5) Offensive programming
profitability analysis
PEST analysis

• 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.
 PEST analysis

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

Difficult economic circumstances may make it hard to raise finance (although they do have a high
interest cover)
Economic 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

Website broadcasts/you tube channels – both an opportunity and possible threat

Graphics – key development – Must retain lead in this area
Technolo
New technologies e.g 3D TV could be costly to adopt
gical
 5 Forces Analysis

• 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.
 Opportunities and Threats
5 forces analysis

Factors increasing Force Factors lowering force

Large powerful customers – V &Y have only 4
Buyer
BBC, ITV, Ch4, Ch5
Power Willing to pay 10% above costs
High Customer able to reduce fees paid
Powerful staff – programme directors – well Small companies who work exclusively for VYP
Supplier paid – Famous actors/personalities have low power
Power Experienced programme makers - outsourced Not overreliant on any one outsourcer
Medium Able to exert pressure to reduce fees of
suppliers
Lots of competition – many small + some more Growing market – 2007 to 2008
Competi-
powerful ‘super-indies’.
tors Reducing revenues – cost more of a focus to
Medium win work

New Renting facilities, and availability of Already lots of competition in a market where
outsourcers enable start up at relatively low revenues are under pressure
Entrants cost and limited expertise
Medium
In-house production – Close substitute Customers want original, innovative
Substitu-
Acquired programmes - Close substitute programming – so always likely to be a market
tes if produced for fair price
Other forms of entertainment – internet, sport –
Medium more distant substitute
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 FUTURE
Business Strategy
NOW Mission &
O T Generic strategies Objectives
Ansoff’s matrix
Method of growth

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 Generic Strategies

Most programmes in maturity phase Not their focus, although costs are
– but constant innovation needed to increasingly important
BCG/ keep up with trends
Cost
Product Life
leadership
Cycle

Peak hour programming Quality a key to success –

Range of programme types reduces innovation, skilled staff – they are
risk exposure to any one doing this well
Strengths Differentiate

Margins on drama weak (but new) They have a broad focus across a
range of different types of
Hard to maintain margins on re- programme
Weaknesses commissioned works Focus
Ansoff’s Matrix

• 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 New Market

• Focus on high margin areas e.g. Entertainment, • New overseas countries - resales – high
– opportunity to expand this area margins

•Should be able to lower costs of drama in future • Sony marketplace/itunes/downloads

Existing to increase margins
Product • Commission programmes for new customers
•Could move to a more ‘in-house’ model (studios, e.g. Sky, Non-UK based organisations e.g. US,
staff) – may save costs, but much less flexible India ……..

•Continued expansion
• “Off-peak” – This morning, chat shows, cookery • Commission programmes for
businesses/individuals – training video,
• Game shows, Talent shows promotional video, wedding videos, advertising
• Hire out individuals to rivals
New • Children’s programmes • Straight to internet
Product •Feature films
• Educational programming •Broadcast company

• Sport
 Methods of Growth

Employing staff, buying studios

New programme formats e.g. childrens’ TV

Internal Development

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

Overseas – to get cultural expertise

Feature films (due to expense)
Internet company
Joint Venture Ad agency

Seems unlikely

Divest
Defining a business strategy

• 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.
Nick’s Strategy

• 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 nickbest@live.co.uk.