Colorado Creative Music Case Study Part 4
Company Situation Analysis Summary and Conclusions
The first element of company situation analysis is overview of strategic performance indicators on a yearly basis, from 1997 to 2000.
[Tabular data omitted]
The table composed on the basis of income statement and presented above shows constant sales growth of the company on a yearly basis, which is good indicator. As for the net profit margin indicating company’s cost control effectiveness, the table shows that the highest margin was attained in 1998 and that it tends to decrease. This informs that the company does not perform very successfully at converting its revenues into profits.
Since Darren Skanson is the only investor in the company so far, the return on equity figures are somewhat relative, showing relation between the net income and Darren’s investment into the company. However, the figures, as those of net profit margin, show the trend towards return on equity decreasing. This indicates growing expenses of the firm with relatively stable income, which along with the sales volume grows, but not in the rate comparable to the expenses. To be attractive for potential investors, the company has to leverage its income and expenses figures.
The next issue to be regarded in company situation analysis is SWOT analysis. SWOT analysis was carried out and presented early in the paper; in this section the most important moments will be emphasized.
Among strengths, the most serious factor is of course low cost of recording affordable due to new digital recording technologies. Not only assembly of studio with all necessary equipment and hardware is cheaper, but duplication of CDs, storage and shipping are less expensive as well. Low cost of production, duplication (duplication of 500 CDs ranges from $1.90 to 3.63, duplication of 2000 CDs costs about one dollar per CD), shipping and storage makes the final product less expensive and more affordable for the customers, thus widening the range and scope of the target market. Second important strength factor is constantly growing customer base and developing customer loyalty within the narrow market segment. Third strength can be regarded at the same time as strength and weakness. This strength is positioning of CCM in a distinctive market niche. For a microlabel company wishing to preserve its positions this is strength, but for company striving to grow into independent label, narrow market focus is weakness hindering to expand the customer base. And the last strength is good customer service of the company.
Among weaknesses, the most important one is absence of reliable and traditional distribution channels, absence of clear strategic vision of the movement direction – either towards developing of recording company or towards promotion of the artists’ music by means of other companies’ capabilities; low level of sales, which is supported by limited customer base (the issue discussed in the strengths section); weak promotion and limited financial resources to pursue new goals and possibilities.
In the music industry environment, the opportunities of CCM lie in acquiring new channels of distribution to reach wider customer base exposure, elaborating active presence stategy in Internet through expanding e-commerce and releasing MP3, gaining additional customer groups by expanding co-operation with other artists and enlarging the Acoustictherapy and other product lines with new marketing strategies, developing new technologies of recording for coping with the rivalry.
Along with the opportunities, music industry environment contains such threats for the company as high number of new entrants and growth of other smaller labels due to the digital revolution, the possibility that major labels or independent labels could decide to enter into CCM’s domestic markets and try to drive the smaller labels out of the market. Another threat is possibility to lose sales to substitute products like mp3s or internet downloads. From these, the most important threat is difficulty to stand the competition of large music recording companies with CCM’s limited resources and narrow target market.
The next section of the Company situation analysis is Competitive strength assessment which compares CCM’s assets such as quality/product performance, reputation/image, manufacturing capability, technological skills, dealer network and distribution, new product innovation, financial resources, relative cost position and customer service capability with the major competitors in the industry. The results of the analysis are presented in the table below:
Competitive Strength Assessment
[Tabular data omitted]
From this analysis it is obvious that competitive strength of CCM compared to major players in music recording industry is not significant, though fairly decent as for the microlabel company. Thus, the company’s strong points are quality and product performance, technological skills, relative cost position (due to the cheapness of production) and customer service capability. Along with that, the weaknesses of company’s performance are obvious, which include manufacturing capability, dealer network and distribution, financial resources and new product innovation.
From the abovementioned it is possible to conclude that the company’s position in the music recording industry is improving, but not in fast and steady manner. The leaps in net profit margin and return on equity indexes show that the company’s development is not consecutive but rather abrupt. Along with that, the trend towards growing is evident, and sales growth and market share serve reliable proof for that.
The company has such competitive advantages as high quality of products and performance, distinct music and performance style, specialized niche on music market, flexibility in the policy and development strategies, application of nontraditional distribution methods such as internet, catalogs, gift stores and others.
Competitive disadvantages of CCM include little resources in possession, narrow customer base, presence in only one market segment, comparatively low quality of record (digital technology if worse that records of analogue equipment), low popularity of musicians, weak advertisement and promotion, low sales levels.
Therefore, in the first place, the company should address such strategic issues as creating a profitable music recording label with expanded range of artists and performers; positioning Darren Curtis Skanson label to compete with major artists with contracts to Sony Classical. For this, acquiring traditional distribution methods is necessary. The next issue is creating new product line similar to Acoustictherpay which would be saleable and provide funds for the previous two goals. First of all, the company should decide on the major strategy of further development: enhancing the recording studio or promoting the music by selling CCM’s product lines to recording studio larger then CCM, independent of major labels with access to traditional outlets.
Conclusions and Recommendations
The current work contains the discussion and analysis of CCM’s performance and competitive situation in music recording market. From all the information presented above, following conclusions and recommendations can be made.
The first recommendation concerns the need for creating corporate culture within the organization. Corporate culture acts as a tool for achieving organizational goals and helping CCM adapt to challenging external forces. CCM needs to engage HR and create a separate group to focus on corporate culture and inform the employees of the benefits of the changes. Corporate culture and instilling vision in employees is no easy task, small steps will be necessary. First, CCM should begin by creating cross-functional work teams and offer incentives based on company-wide performance versus individual performance. Cross-functional work teams will also help to eradicate some of the silo product teams. CCM should also implement a program that rewards managers and employee alike for what they produce rather than for seniority or specialized knowledge. These will kick-start the move to align CCM along business unit versus product lines. CCM also needs to make an effort to share information and support inadvertent changes in the culture. Additional training will help managers and employees fit into the changing culture and support the organizational vision. CCM needs to make the corporate change successful but also needs to recognize that all employees need to be involved in the change process.
Second, CCM needs to embrace genetic diversity and in response, its organizational culture must be sensitive and make provisions to manage it. If CCM continues to promote from within on an ongoing basis, they will have little, if any, genetic variety in upper management. All of the managers will have the same or similar traits and possibly the same or similar backgrounds, education, management practices, leadership, and many other similar management practices. Although this may be a competitive advantage in some circumstances, it is actually quite the opposite. CCM is under pressure to increase productivity and overall growth. It is this pressure and the ever-changing competitive environment that should force CCM to throw aside their standard management practices and increase the genetic variety of the management ranks. New managerial beliefs and practices will become a breeding ground for long-term success.
Direct sales method in art festivals would be profitable for CCM as it promotes good cash flows. But on the other hand the small business should strive for instantaneous distribution and effort in its served market delays allows the competitors to retaliate, especially big ones, and it drained resources, especially limited capital.
CCM recognized that global competition was increasing and that in order for it to maintain its role as the industry leader; it must diversify and expand its product line and services into other areas without straying from its core competencies. CCM’s manufacturing facilities are models of efficiency, leaner organizational structures, more efficient factories, and a much-improved management of supply and distribution, but its product lines are too dependent on the industry behavior. CCM needs to concentrate on diversifying and growing the company by focusing on the most attractive opportunities that make use of the company’s key strengths.
Therefore, in short-term perspective, the main recommendations on the company’s policy include opening new promotion and advertisement channels for the artists of Colorado Music Creative, finding new distribution channels for the products of the studio. This may be made by signing contracts with major labels for distribution of the music of CCM’s performers. But in long-term perspective such strategy would prove detrimental for the development of the company since signing the contract with other recording company would promote the products but won’t contribute to the development of the studio itself.
That is why, in long-term perspective, the company should aim at enhancement due to financial resources derived either from sales volume increase or from investment into the company’s funds. On this basis, the company has to expand its repertoire, hire new artists and conduct efficient promotion campaign so that the artists become known to the wide public. Also, CCM needs to expand its array of music styles. Now, the leading and only style of music recorded is classical and traditional acoustic. To become independent label, the company should comprise at least three or four music styles, thus acquiring new segments of music market. One more thing to be done for development of the company in the long-term perspective is upgrade of hardware and music recording technologies from the cheapest to more quality equipment, which might include tape recording and other means or genuinely quality analogue sound production.
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