STRATEGY DYNAMICS

By: Harsh Muchhal Student number: M00325254 Module: MBA 4641 (Strategy Dynamics) Word Count : 1626
By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 1 Page

TABLE OF CONTENTS:
1. OBJECTIVES 2. MODELS USED a. The five force model b. PESTEL analysis c. SWOT analysis 3. INTRODUCTION 4. INDUSTRY HISTORY 5. STRATEGIC ANALYSIS OF THE INDUSTRY a. The five force analysis b. Trend analysis c. Threats and Opportunities 6. CONCLUSION 7. REFERENCES 3 3-4 3 4 4 5 5 6-8 6 7 7-8 8 9

By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 2 Page

OBJECTIVE: To access the external environment for the newspaper industry and evaluate the industry prospects for the future. MODELS USED: 1. Porters five forces model: Michael Porter in 1979 proposed five forces model to determine the factors that influence the attractiveness of an industry. An attractive industry is that in which the five forces acts together to increase the profitability of the industry and vice versa. The diagrammatic representation of his model is as in Fig.1 and Fig 2.

Figure: 1

By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 3 Page

Figure: 2 2. PESTEL Analysis (Trend analysis): Pestel stands for Political, Economic, Social, Technological, Environmental and Legal factors that affect an industry. It is a strategic model that is often used to evaluate and understand the growth or decline of a business. It evaluates all the factors that may affect the industry. It is summarised as in Fig 3.

Figure: 3

3. SWOT Analysis: It is a tool to determine Strengths, Weaknesses, Opportunities and Threats to an industry. It is used to understand both Internal and External environment of an industry. Fig 4 shows its value in situation analysis.

By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 4 Page

Figure: 4

INTRODUCTION: Tossed by a gale is the story of the current situation about the news industry. The newspaper industry is going through the dreadful financial trouble. The newspaper is now sometimes seen as endangered species. The employment in the industry has fallen by 15% in last two years. A number of British local newspapers have shut in last three years. French newspapers have survived due to high government subsidies. This situation is not only restricted to the newspaper industry, but to the news industry as a whole. The television news channels are struggling because the audience has divided. The number of people listening to radio news has also decreased. According to survey, the percentage of people reading newspaper has decreased by more than 24%. Also number of people who prefer to get their news from internet has increased surprisingly in last five years. Although only a fewer number of this gets news only from internet however others prefer to read newspapers too. The internet has given the readers an advantage of searching for only the required news. For example, someone who is interested in business need not look through sports, local or weather news (The Economist, 2009). INDUSTRY HISTORY: The newspaper industry has seen ups and downs in history. The first time industry had for face a downfall was when radio was invented. And second when television was invented. Hundreds of newspapers came to an end and many journalists and editors lost their jobs. In fact Radio was the first segment of media to understand the profits through advertising. With the market of television the newspaper industry faced another downfall as news through television became more dominating. The revenues through newspaper adverts again diminished significantly when TV adverts became more dominating and nationalised (The Economist, 2009). HOW DOES THE NEWSPAPER INDUSTRY LOOK LIKE:

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Figure 5 The above drawn is the external environment for newspaper industry. The main suppliers of the content are Journalists, adverts, photographers, speakers etc. All the people are the target customers. Its competition lies in the options from the same strategic groups, substitutes and those that complement eg Newspapers, journals, magazines, mobile phones, television, radio, aggregators. STRETAGIC ANALYSIS OF THE INDUSTRY: The most common axiom since early times in business is Winning in todays marketplace (Fahey et al, 2010). Although the external environment is not in control of an industry but an analytical approach towards gives a better understanding of the market. The five force analysis: According to PORTER, there are 5 forces that govern the success of an industry. Following is the 5 force analysis of the newspaper industry. 1. Industrial rivalry: The more concentrated the industry is the more is the rivalry. The competition to survival in this industry is between local newspapers, national newspapers and magazines like The week, Time, Readers Digest etc.(Isaacson, 2009) Even though the products like local newspaper covers a small market or geographical area, summing them up would bring in the actual figures. This sector has diverse competitors. There are many newspapers wanting to capture the same market which has increased sensitivity in the market. Lowering the prices resulted in decreased profit for the industry. 2. Substitute: A number of substitutes are now available in the market. The growing technology has taken place of newspapers. The young generation is apt to use the new technology. In history, radio and television had brought downfall to the newspaper market. By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 6 Page

Products like iPhone, blackberry, and iPad are the recent ones. Why should one look at every news if he can search the specific one over the net? Internet is one of the major sources where youth wanders for news. A lot of newspapers have started publishing their work online which is mostly available to the readers for free. However a few of them charge for the news. Also the available substitutes are multitasking and hence have made its market. 3. Buyers power: Buyers play an important role in deciding the success of newspaper industry. They have a choice of wide variety of newspapers, magazines and other substitutes like TV news, radio news, internet and also aggregators. A few of them are available for free. Availability of choices resulted in lowering of product prices and so the profit. There are minimal switching costs resulting in division of audiences. 4. Threats of new entrants: The threats of new entrants are very low as the fixed costs are high. Low profit margins often repel the investors. The legal system of a nation is usually a barrier for such sectors. Also factors like per unit cost and cost when printed in large numbers do not appeal to investors. Also, it will not be easy for a new entrant to access the distribution in accordance to printing costs. 5. Supplier power: In this industry, suppliers of news are not very much in power. A few companies hire only few journalists for the task and some encourage coverage by general public. Aggregators in this case seldom hire a journalist and still offer the most interesting news to its readers. Also a number of suppliers have lost their jobs during the downfall (The Economist, 2009). With the ever changing era of technology, there has been a shift in the type of customers to the industry. Mostly youth is not interested in any king of news except what is called red hot topics. And the elderly age group is interested in politics or sports leaving working people who is more interested in financial situation of a company, country or world as a whole. How attractive is the industry? Trend analysis. One of the major tools helping us analyze macro-environment is Political, Economic, Social, Technological, Legal, Environmental analysis. It helps us understand market growth/downfall, potential and position. The roles played by above situations in newspaper industry are as discussed. 1. Political Situation: The tax policies, labour law, trade restrictions etc have intervened into this industry making it complex. Tax benefits that news industry is getting make it an interesting one however the restriction on active geographical areas restricts the opportunities in the industry. For example the French newspaper industry is alive on increase in their government subsidies (The Economist, 2009). 2. Economic Situation: However the bane of the industry and ebbing in revenues through adverts cannot be entirely blamed onto the recession, however, its effect on the industry can be directly seen. 3. Social Situation: Although the population has increased significantly in last years, part of it reading newspaper has significantly decreased (Isaacson, 2009). The majority of the youth is

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either not interested in news or has another way to look for it. 4. Technological Factors: The elevation in technology has provided options for the customers to buy an iphone or a TV and make things simpler. They can look for specific news on the internet and save time as well as penny. Internet provides with diverse and international news. Aggregators like Google and yahoo collects the best news from the word and makes it available online. There are often the parasites to the industry but the quality of the news is reliable (The Economist, 2009). 5. Legal Factors: The fact that aggregators use others works attempts to say that it is not illegal. Such factors play an important role in determining its prospects. Also employment law etc have had an impact on its stability. 6. Environmental Factors: By rule, newspapers are supposed to be printed only on recycled paper in order to forfend global warming. This impacts to the quality of the paper. The only option remaining is improving the quality of journalism and fruitful editing. Threats and opportunities for the industry: Threats to the industry: The trend analysis (PESTEL Model) shows that ever increasing technology is one of the biggest threats to the industry. The splitting of customers has resulted in fewer customers. Substitutes in the market like iPhone, Blackberry, Samsung Galaxy etc attracts its users as they can seek for the specific kind of news in less time and also it is cheaper than newspaper. Poor quality of journalism in newspapers and Issues of global warming repels its users. It has fixed costs and low profit margin. Aggregators of news like Google and Yahoo are parasites to the industry. Decrease in revenue generated through advertisements is one of the major threats to the industry. Opportunities for the industry lie in implementation of micropayment systems so that the news is available online and still the revenue is collected. Targeting the youth would result in increase in sales. Current issues and strong journalism specific to a target group of people should increase the opportunities. Skill usage of editors plays a major role in the decision making of its customers. CONCLUSION: The application of, Porters model, PESTEL analysis and SWOT analysis, it is clear that the industry has a very little hope to survive. The collaboration of newspaper with technology would help the industry to survive. It should not completely rely on advertisements as a source of revenue but also should start charging its customers as The Guardian already does for its exclusive articles (Isaacson, 2009). The quality of journalism should have a direct impact on its sales. Reaching door to door would increase the sales. Experts providing their view on current happenings would interest people. Different people look for different type of news, so differentiation of customers can give a better understanding. The youth is mostly interested in sports and glamour. A unique blend of these targeting specific age/work groups would increase sales. The newspaper should be at times socially responsible as it plays a vital role in building a society. Social issues etc as a supplement to the newspaper could attract especially women and youth. Although the newspaper industry would decline but not the news industry.

By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 8 Page

REFERENCES: 1. Liam Fahay and Robert M. Randall, 2010, The portable MBA in Strategy, 2nd edition, John Wiley & Sons Inc, New York. 2. The Economist, 2009, Tossed by a gale, 16th May, pg 81-83. 3. Isaacson, 2009, How to save your newspaper, TIME, 2nd March, pg 27-29.

By: Harsh Muchhal, MBA 4641-Strategy Dynamics. 9 Page