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Hotel Continental

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MGT 201 CASE ANALYSIS
A New Blockbuster Image

POINT OF VIEW
The group will take the point of view of the Chairman of Blockbuster, H. Wayne Huizenga. As Chairman, he is director, decision maker, leader, manager and executor of the company and thus, in the position to solve and decide upon the dilemmas faced by Blockbuster regarding the issues on the diversification of the company.

MAJOR PROBLEM
From 1985 to 1992, Blockbuster has managed to become a video-rental giant. But by 1993, Blockbuster through its Chairman, H. Wayne Huizenga was seeking a new image, that of a multimedia company. Steps were taken towards this goal including sponsorships of concert tours, music retailing, television and film production and operating indoor children’s play centers. These diversification strategies, however, did not escape from several criticisms and by the fall of 1993, Chairman Huizenga had enough reasons to rethink of what he wanted for the company.

The myriad of difficult decisions concerning Blockbuster’s future can be traced to the dramatic changes in the company’s strategic context. This and Huizenga’s hurried and scattered approach to diversification had put the company into danger.

How should Chairman Huizenga address the criticisms that arise from his abrupt and scattered decisions on the diversification of Blockbuster?

CASE FACTS
Three factors that make up strategic context which could have helped Huizenga understand the opportunities and constraints set before the company are: (1) history of Blockbuster, (2) the environment in which Blockbuster operates, and (3) the resources available to Blockbuster. Once the strategic context is understood, deliberate choices can be made, critical tasks defined and alignment checked between those critical tasks and the company’s interests.

History
The first Blockbuster store was opened in October 1985 in Dallas, Texas by its founder, David Cook. His experience with managing huge databases helped him in creating a new model for managing a video-rental store. This model brought about superior inventory management techniques (i.e. magnetic data strips on movie boxes, sensors at the door to discourage theft, membership cards) and a dramatically increased movie selection. In September 1986, Blockbuster set out to raise money with a public offering. Before this was completed, a news article revealed Cook's background in the oil industry (providing tools and computer software to the Texas oil and gas industry) and questions about his ability to run a video chain emerged which caused the offering to be cancelled and Blockbuster quickly running out of cash. To relieve the company from financial distress, Blockbuster became involved in what was, at the time, considered another seedy industry: garbage collection. In February 1987, Waste Management founder Wayne Huizenga and a group of other investors stepped in, purchasing one-third of the company. Within a few months, Cook had surrendered complete control of the company to Huizenga.

Customers
Blockbuster strived to project its image as “America’s Family Video Store”. Representing itself as a family-friendly chain, Blockbuster never rented nor sold pornographic titles in the (US) market. The company’s success lies in its principles: fast service, convenient locations, family orientation and kid appeal. Its good customer relations and attractive pricing are also key reasons for the company’s success at that time. However, at the advent of interactive technologies and the thought of being stuck in a market promising little or no growth at all, Huizenga took the initiative to convert the company into one that is multimedia.

Competitions
While Blockbuster’s founder, David Cook had envisioned steady growth through franchising, Huizenga planned to do what he does best: gobble up competitors. At the helm, Huizenga spent the late 1980s acquiring several of Blockbuster's key rivals—most notably Major Video. He also bought back a chunk of franchised stores and opened new locations at a break-neck pace of one per day. In 1990 Blockbuster bought mid-Atlantic rival Erol's which had more than 250 stores. In 1992, Blockbuster acquired the Sound Warehouse and Music Plus music retail chains and created Blockbuster Music. The company became a multi-billion dollar company and in 1993 proposed a merger with Viacom.

Market Position
As of October 1993, Blockbuster has more than 3,200 stores in 10 countries around the world. During the first half of 1993, revenues in existing Blockbuster locations climbed 6.1%, and analysts expect 1993 revenues to soar 75%. It is good to note however that the US had experienced recession in 1990-1991 and continued high unemployment rates over the two years after the recession.

SWOT MATRIX

| | | |
| |OPPORTUNITIES |THREATS |
| |thriving video-rental business |introduction of interactive technologies (i.e. |
|EXTERNAL |66% of US households owns at least one VCR |500 channel TV and video-on-demand calls) |
| |growth through joint ventures and acquisitions |continued high unemployment rates after the |
|ENVIRONMENT |of assets in other industries (i.e. franchises,|1990-91 recession |
| |shares of other companies) | |
| | | |
|INTERNAL | | |
|ENVIRONMENT | | |
| | | |
|STRENGTH |S-O STRATEGIES |S-T STRATEGIES |
|superior inventory management techniques |Continue to expand business internationally. |Create ways to bring the business close to the |
|outstanding movie selection |Conduct intensive study on how to make newly |customers for convenience (i.e. home delivery).|
|practice of McMarketing principles |acquired businesses (music, television, film |Invest in technology to lower cost of service. |
|attractive pricing |and gaming) cohesive with the existing |Aside from forecasting future business |
|global network of stores (3,200 stores in 10 countries) |video-rental business. |achievements, management should also have a |
|brand familiarity | |good insight into future business pitfalls. |
|powerful forecasting capability and insight into the future | | |
|that can be helpful in business continuity | | |
| | | |
|WEAKNESSES |W-O STRATEGIES: |W-T STRATEGIES |
|leaders have some questionable background in video rental |Prioritize growth of video-rental business over|Leaders should acquire knowledge in technology |
|business |diversification. |trends pertaining to video rental, gaming and |
|history of venturing to other businesses when faced with |Slow down diversification and conduct proper |music. |
|difficulty rather than overcoming challenges |evaluation in each line of business before |Employees that cannot cope with the rapid |
|hurried and scattered diversification strategy, which may |jumping to another. |change may choose to leave the company and be a|
|lead to internal struggle of employees trying to cope with |Conduct proper training and evaluation of |part of another company where they can best |
|the changes |employees if they are competent enough to |perform their core competencies. |
| |handle new tasks required for new businesses. | |

ALTERNATIVES

|Alternatives |Pros |Cons |
| | | |
|Stop impending plans of diversification and focus |Focusing on current business ventures may allow |Slowing down of diversification may result to opportunity|
|on existing business ventures, giving highest |time to re-evaluate the diversification strategy of|loss. |
|priority to video-rental. |the company. What Blockbuster needs is to align its|Local and foreign companies may emerge with similar |
| |strategic plans with the company’s main mission and|business undertakings. |
| |slowly move towards becoming a multimedia company. | |
| |It will be good for the company if it has one | |
| |stand-out service that will carry its name. | |
| |The extra time can be used to focus on learning the| |
| |means of running the new businesses acquired and at| |
| |the same time practice their existing strategies to| |
| |gain profit. | |
| |It may give opportunities to maximize existing | |
| |markets. | |
| |Slowing down the diversification may help cut | |
| |possible losses in case the diversification | |
| |strategy used fails. | |
| | | |
|Continue plans of diversification (i.e. indoor |It may bring opportunities to gain more profits |People may find it too risky to invest in the company |
|neighbourhood entertainment centers, game zones). |from the different business brought by the |since its offers are too diverse and may not have focus. |
| |diversification of the company. |Lack of focus on specific services may be a letdown to |
| |It may broaden the company’s clientele base. |customers when not done right. |
| | | |
|Completely abandon the company’s diversification |Abandoning plans of diversification will bring the |The company may be stuck in a market with little or no |
|plans by selling assets unrelated to video-rental.|company into its original perspective – something |growth in the future. |
| |that is less risky. |Selling back the assets (unrelated to video-rental) will |
| |Money from selling assets may be used to invest in |incur major losses. |
| |technology to improve distribution networks, etc. |This alternative may have the highest chance of |
| | |bankruptcy. |

DECISION

Based on the analysis above, the best course of action is to “Stop impending plans of diversification and focus on existing business ventures, giving highest priority to video-rental.” (Alternative 1). This corrective measure will slow down the diversification of the company and will help bring back the company to its focus in response to the scattered manner for which the diversification was started. It may help cut possible losses in case the diversification strategy used fails. Blockbuster needs to align its strategic plans with the company’s main mission and slowly move towards becoming a multimedia company.

Implementation Plan
|1985 |1988 |nov 1992 |dec 1992 |
| | | | |
|Analyze and evaluate business results for the |Up to 1 year |Board of Directors (BOD) |Prepare budgets and financial statements per |
|diversification steps undertaken from November 1992| | |department. |
|to September 1993. | | | |
|ACTIVITY |DURATION |PERSON-IN-CHARGE |STEPS |
| | | | |
|Evaluate employee training and performance per |Up to 1 week |HR Department, BOD |Review employee training history. |
|department. | | |Evaluate if certain employees are fit to be |
| | | |assigned to new tasks in new companies within the|
| | | |diversified company. |
| | | |If employees are not yet equipped, design |
| | | |training and development courses for them to be |
| | | |competitive. |
| | | |Assign employees to respective positions. |
| | | |Back to step 1 |
| | | | |
|Evaluate performance of each department. |Up to 1 week |Department heads, BOD |Review departmental goals. |
| | | |Assess if goals have been met, or if there were |
| | | |over or underperformances. |
| | | |Determine which employees per department showed |
| | | |the highest influence on overall departmental |
| | | |performance. |
| | | |Design recognition systems for outstanding |
| | | |employees and departments. |
| | | |Back to step 1. |
| | | | |
| | | | |
|ACTIVITY |DURATION |PERSON-IN-CHARGE |STEPS |
| | | | |
|Once all aspects of the company have been |Regularly |CEO, BOD |List down all company strengths and opportunities|
|thoroughly evaluated, the CEO may determine the | | |for improvement |
|company’s weaknesses. A CAPA can be formulated from| | |Set a system to recognize strengths and improve |
|these for the company’s continuous improvement | | |weaknesses. |

Contingency Plan

In case the proposed plan fails, Chairman H. Wayne Huizenga can opt for the second alternative which is “Continue plans of diversification (i.e. indoor neighbourhood entertainment centers, game zones” since it will broaden the company’s clientele base and may bring more profits from new businesses acquired.

REFERENCES: 1. History of Blockbuster 2. McMarketing Principle

Poggi, Jeanine. 2010. Blockbuster's Rise and Fall: The Long, Rewinding Road. Retrieved on http://www.thestreet.com/story/10867574/1/the-rise-and-fall-of-blockbuster-the-long-rewinding-road.html…...

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