Potential Threats and Opportunities of the Company
Table No. 2
Management
Strengths
The current state of management also has its positive sides.
- The costs are relatively low as Darren does everything by himself so he does not pay much in salaries.
- The other advantage for current management is the flexibility of the organization. As Darren is the only manager and owner, he does not have to negotiate with other members of the team and he is flexible to respond to different needs of organization, and market fluctuations.
Weaknesses
At the moment management is the weakest link of the company. Darren has many managerial issues.
- The company does not have a strategy, there is just a vision, and it is not supported by objectives of how to achieve the vission.
- CCM does not have a clear organizational structure. The owner, Darren, makes all the main decisions regarding the control and growth issues of the studio as he is the top manager of the company. He is also one of the CCM musicians so he performs in the concerts, issues CD, and makes future plans regarding his career as musician. There is a conflict of roles for Darren.
- The problem that CCM faces is insufficient management since Darren is not able to complete his duties due to the lack of time.
- The company also lacks proffesional workers, as Andy, another musician, is doing the administrative work. Jennifer is booking places for Darren to play at but she is not a proffesional musician manager.
- There is also a need for special strategy and knowledge in managing marketing, operations and financing.
Operation analysis
One of the major problems of operations in CCM is that most of the operations are done by Darren himself. It can be clearly seen by looking at his current goals. Most of them include things like reading books on different subjects like accounting, marketing, and management and so on. In other words Darren wants to take over of all operations and be the master of all of them. The outcome of Darren’s ambitions is to rule over all company’s operations which causes him to work too much, and thus hurt himself as an artist, and put the company in disadvantageous position.
Marketing
Strengths:
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Music. Music is a fashionable business, which would always have its audience. CCM handles a portfolio of artists, each with a distinctive light acoustic style.
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Target market. The company has its loyal customers (fans). They are generally white, middle-class adults, mostly women in the mid-40s to 60 age range, whose children have grown up. Keeping personal touch with people, like sending regular e-mails to the fans creates a positive image of the artists and the company itself.
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Pricing structure. The company used the pricing structure that would encourage people to purchase more than one CD. A person would spend $17.00 for one CD, while 7 CDs are sold for $68.00. The offered discount used to encourage people to buy more CDs, which, as a result, had a positive effect on the sales growth. However, this strategy was eliminated based on the assumption that selling five CDs at a great discounted price would stimulate a strong but very short term demand. At some point of time CCM would not have anything new to offer for its loyal customers.
The company does not offer a discount on mail orders, which increases earnings of the CCM.
Weaknesses:
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Owner/Manager. According to the number of artists (fewer than 10), CCM is under the microlabels category. The owner/manager of these labels usually is the lead artists, which may weaken the company, as the lead artist may not always be the best person/professional knowing what the company needs in order to grow. The same difficulty is seen in CCM’s case. Darren is a professional artist. He graduated Moorhead State University with BA in music in 1989. However, as the music took over, Darren ended up without enough business courses to fulfill the minor. He had no experience in business as well. Thus Darren does not know how to manage the company and make it grow.
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Distribution. In addition, being a micro label prevents a company from using the major distributors of the country. “It was very difficult for small record labels to use a major distributor because of the large order requirements and risky payment policies that had become standard for the industry.” In order to cooperate with the major distributors, CCM should attract more artists so it would be able to increase its sales.
According to the recording industry distribution chain, microlabels sell directly to customers or they traditionally reach the customers through selling the records to one-stop distributors, which follow by independent record stores. This chain prevents company from selling more volumes, and, as a result, from increasing its share in the market.
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Branding. CCM was using a promotional catalog; however, Darren felt that it was not portraying a high-quality image. The promotional catalog was handed out to people who approached the sales at art festivals and shopping malls; however, it is not enough to create the company’s image on enclosing the catalog with every sale or offering it for free on CCM’s website. In addition, not many people would pay attention to a catalog handed out to them in shopping malls.
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Promotion. The company does not have a strong promotion and publicity campaigns. Being a micro label prevents a company from making a strong promotion on the radio stations, which is of a special importance, as for music to be a fashionable business it needs to be heard. “The radio station’s primary relationship was with major labels, so independents, microlabels, and vanity labels had to rely on other means of getting their music heard.” CCM does promote the music during the art festivals, which is good in reaching the customers face-to-face. Personal selling is a good way to run business, as people like attention, and such personal touch would attract people much more than TV commercial; however, it is not enough for a company to increase its sales. For instance, CCM could participate in different charity festivals to make people hear its music, or the company should consider a possibility to cooperate with different companies, which would help it financially.
Competitive Position
Since music is a fashion sensitive business, the competitive position of the CCM is fluctuating as fashions change. CCM competitive position depends on the popularity of the musicians it has under the contract. The competitiveness in the music market depends on the success of the CDs issued. The popular and well-sold CDs recorded by the CCM bring the company success. CCM had a competitive advantage when it issued Andy’s CD which was a great success. However, CDs are popular only for a limited period of time, thus after some time the studio loses it competitive advantage as people get bored of the same songs and stop buying CDs. In order to get the competitive advantage back, CCM needs to issue another CD, which would be loved by many people.
The same for both versions
CCM has some direct competitors among micro label companies, independent labels, and vanity labels. Major labels should be mentioned as well, as they are in the same market.
Because of widely diverse consumer tastes, the pressures to globalise music industry are weak. Therefore by focusing on its market-niche, on its target market’s needs, CCM is able to succeed in his market niche.
Finances
Strengths:
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Efficiency in producing the music CD’s is improving which signifies the growing gross profit margin.
The cost of goods sold is going down (fell down by 5% in year the 2000) meanwhile the overall CD sales are going up (went up by almost 23% in the year 2000).
Graph No. 1
- Strong growth in net sales. In the year 2000 sales increased by 23%. Growth was sustained by sales during the concerts, sales via mail and phone orders, and via internet (through website).
Weaknesses:
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High operating and administrative costs. The gross profit margin was 91% in the year 2000 whereas the net profit margin was only 2% which was 0.5% less than in the previous year:
Postage and delivery costs went up by 177% because the mailing system used by CCM was inefficient. As mail order demand is growing (grew up by 290% in year 2000), CCM must acquire an automated postage system and in such a way make sales by mail more efficient.
High professional fees (payments for backup musicians at live performances and an independent music consultant) – 15% of all operation and administrative expenses.
15% of all operation and administrative expenses were spent on professional fees (payments to backup musicians at live performances and an independent music consultant).
Decreasing wholesale must be solved as CCM needs to increase the volume of the CD’s sold. It could hire a person who would specialize in selling CD’s in relatively large quantities.
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Insufficient advertising budget.
Even though the advertising budget is increasing each year, there is still enough of space for further growth. In the year 2000, the advertising budget was less than 5% of the sales. This number should be increased at least twice during the coming year.
The net profit for the year 2000 was $4,292.00. Even if the whole sum was reinvested into the company, it would still be a too little amount to sustain strong growth and development. Financing from outside the company is required.
Alternative Solutions
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ISSUE: Solving the conflict among Darren’s personal and company’s interests:
ALTERNATIVE SOLUTIONS:
- Darren may decide to be a musician only. He could sell CCM to some other agency and use the money he would receive to record a new CD in some bigger recording studio, which could be one of the independent studios. Being a part of a bigger recording studio would give Darren more potential to improve his career as of a singer.
Pros:
- Darren could concentrate on his career as a musician since he would not have any problems related to the management of his own record studio.
- Darren would get some money to issue a new CD in one of the bigger recording studios. Signing a contract with a bigger agency would open him some new places to perform, which would expose him to the new audiences. The result would be increasing sales.
Cons:
- Darren would lose his recording agency and the profits it used to bring.
- Darren would need to sign a contract with some recording studio if he wanted to issue a CD. This would limit his ability to make all the decisions regarding his career as a musician independently since he would need to comply with the conditions mentioned in the contract.
Darren matches both musician’s career and manager’s of the studio responsibilities.
Pros:
- Darren would keep control over both his career as a musician and management of the studio.
- Darren would keep all the profits for himself as he would be the only owner and the top manager.
Cons:
- Darren would not have enough of time to supervise the studio properly, thus it would not work to its full capacity. There would be areas which would work inefficiently.
- Darren would need to do a lot of outsourcing as he would not be able to make all by himself. People from outside may not be able to make the best solutions for the agency as they may not understand the vision and mission statement of the studio properly.
- Darren hires a professional manager for the CCM. Darren gives the control over the agency to that person staying only as an owner of the studio. Darren concentrates on writing new songs and promoting himself as a musician.
Pros:
- A new person who has education and experience in managing businesses would bring positive changes to the company. This person would be able to identify the problems of the studio and take appropriate actions to solve them.
- Darren would keep the ownership and control over his recording studio. He would also have the right to the profits of CCM.
- Darren would have enough of time to focus on his musician’s career. He could concentrate on writing new songs, issuing new CD, having more concerts, and spending more time with his fans.
Cons:
- Darren would not be a manager of the agency so he would not be the only one to make the decisions regarding the rule of the company. There could be disagreements between the manager and Darren regarding what is useful for CCM. That would take more time to make decisions.
- Merge with another recording studio which would be in the same niche market and would be about the same size.
Pros:
- A more powerful recording studio with more sufficient working capital, more performers, wider distribution channel, and more place to perform for the musicians. It would raise the studio’s competitiveness.
- Darren would have more time for making musician’s career and still would have a partial control over the recording studio.
Cons:
- Darren would not be the only owner of the studio, which means he would have to share the profits.
- The vision that CCM had would have to be modified to reflect the ideals of both merged studios. Darren might lose his motivation to reach for his dreams.
- Darren’s career as a musician would depend not only on him but also on other owners of the studio who at some point of time may decide that it was time for Darren to leave the stage even though Darren was not of the same opinion. In such a case, there would be a strong conflict between the shareholders of the studio which could affect the operations of the studio in a negative manner.
- Decision making would become more lengthy and complicated process as there would be to parties to agree on different issues.
- ISSUE: Creating a mission statement and clear objectives followed by an exact action plan.
ALTERNATIVE SOLUTIONS:
- Set a mission statement only.
Pros:
- Darren would know what he is doing and why he is doing what he is doing.
Cons:
- Darren would know what he is doing and what he wants his studio to be in the future, but he would not know what to do to achieve his major goal. He would not be able to lead his team the way taking to the success. His employees would not know what they are supposed to do.
- Set a mission statement and objectives followed by an exact action plan.
Pros:
- Darren would know what he is doing at the present time, he would know what he wants to achieve, and by having clear objectives and exact action plan he would be able to lead his team to the implementation of the vision.
- SMART goals which would be a part of the action plan would motivate the employees to perform better as they would exactly know what is expected from them and what they are supposed to achieve. Implementing the plan according to the set requirements would bring a sense of satisfaction which might be a great motivational tool for the whole organization.
- Having a mission statement, objectives, and an action plan would bring some order to the organization of the studio as employees would need to share the workload, so each would have to figure out their responsibilities.
Cons:
- There are no negative aspects of having a mission statement, objectives, and action plan based on SMART goals. Having a clear vision, mission, objectives, and an action plan can be harmful and demotivating only when they are unrealistic and impossible to achieve. This is what Darren or any other manager of CCM should avoid.
Recommendations
Darren is at the point when he needs to make an important decision. He has a clear vision for the CCM and a vision for himself as a musician. He wants to make both visions reality but at the same time understands that he is not capable to do it working the same way as he did up to this day.
The main obstacle to implement the vision for the CCM is low sales volume. Undefined strategic management, non-existence of mission statement and objectives based on SMART goals, causes this problem.
- First of all, Darren should shape a mission statement, which would reflect the goals of the CCM and the needs of musicians working with CCM as well as the needs of customers buying the records made by CCM.
Afterwards we would suggest implementing the following steps:
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Hire a professional manager who would take all the control over the CCM. Darren would be the owner of CCM who would have the right to participate in strategic planning process. Darren would be released from implementation of objectives and day-to-day operations management.
A professional manager would have a deeper knowledge how to lead a business and make it successful. He/she would be able to identify the major problems and solve them in an appropriate manner. He should be the person able to see the big picture of the company’s, present situation, make final decisions, and lead to the future envisioned.
Darren would have more time to focus on music. He could write new songs, perform in more different venues and in such a way find more new fans. More performances would serve as a good promotional tool as more audience would get acquainted with Darren and his music. As Darren would recruit more fans, the demand for his CDs would go up which would mean increasing sales. Increasing sales would set the way for the further development of the CCM.
Darren as a musician who visits a number of different venues would also be able to look for new talents who could be offered to work with CCM. Darren would be much more useful in this area because he would have enough of knowledge to do his tasks right.
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Another area for improvement is organizational structure. The first thing the manager of CCM should do is to reorganize the recording studio since now it has no clear structure. There should be new professional employees hired who would be assigned specific tasks to do. They should be assigned SMART goals so that it would be clear what they are responsible for.
The new company’s organization would be as it is illustrated in the following graph.
Chart No.1
The top manager should hire a person responsible for production area. He could hire a producer responsible for CD recording in the studio and efficient operations management as well as hunting for new talents/artists.
The two year long goal for this person would be to find, get under the contract, and record the music of eight new performers. CCM needs more musicians in order to expand the sales volume. More artists would mean having more CDs to sell during performances. Having more venues to perform, the musicians could reach a bigger number of different people who are the potential buyers of the CDs. A wider variety of offered production, would benefit the sales growth positively.
This production manager’s salary would be fixed.
Jenny, a current CCM employee would be, an artists’ manager, who would responsible for the new artists and book new places for them to perform. Her salary would be fixed as well as she should receive commissions for each new venue found for musicians to perform. This would create her an incentive to expand the circle of the current performance venues, which would lead to increased sales since musicians would have a chance to access a broader audience and sell their CDs.
To fix the flaws of the marketing area, such as week promotion, narrow distribution channel, a marketing manager is needed for the company. This person would be responsible for building a well-known brand name, looking for effective promotional campaigns, and creating effective distribution networks. Marketing manager would maintain relationships with the current distributors as well as look for the new ones. This is necessary for the organization, which wants to increase its sales.
Salesperson would be responsible for making sales. He/she would be a part time employee whose salary would be based on the commissions of the sold number of CDs. The main duty of this person would be to sell CDs and sell as much as he/she can. Also, monitoring and improving online sales strategy. Sales person would be working very closely with the marketing manager.
The accounting and design services should be outsourced as the CCM budget cannot sustain permanent accountant and designer.
Changing organization’s structure is feasible in financial respect. The current CCM employees should be replaced with more skilled ones. In such a case, CCM would have two additional employees and one of them would receive commisions based on the sales volume.
In the year 2000, fifteen and a half thousand of dollars were paid as salaries to employees of CCM. The payroll budget should be increased by 35% to maintain the employees in the company.
In order to have growing payroll budget, other expenses have to be cut, i.e. postage and delivery expenses.
With the implemented restructuring, recruitment of new musicians, we assume that sales should go up by 40% during the next year. In average, the current CCM musicians can sustain the annual 20% sales growth. With the restructuring of the studio, finding more venues to perform, expanding the distribution network, the same performers should be able to increase sales by 30% a year. The new CCM performers would increase the annual sales growth by 10%. In total, the sales growth for the coming year should go up by 40%.
The net income growth is not expected to be high as restructuring involves additional costs.
We would try to implement this strategy because it would help Darren to fulfil his double vision. First of all, he could grow as a musician and artist. Secondly, his recording studio would also go towards the implementation of his vision. Darren would be able to get popular as a musician and in such a way benefit his company.
Becoming a little bit more aggressive and dynamic would help CCM to increase its sales. By following the market trends and adjusting its objectives accordingly, by having a clear action plan and competent employees, it would be possible to make the vision reality in long term. We think that it is possible and we would be willing to implement the strategy we offer. We think it might be successful even though we would need to make adjustments along the way.
