Critical Success Factors CSF for the movie (film) industry in Hollywood
Critical success factors refer business aspects that an enterprise take into consideration in a bid to achieve predetermined mission and goals; some examples of CSFs include professionalism, integrity, creativity, teamwork, and customer focus among others. Generally, play an important role in identifying areas where a business should concentrate its efforts in order to ensure it achieves its mission and objectives. When these critical success factors are put in practice, they help an organization to attain a competitive edge as well as enhance overall performance. Importantly, the link between mission and goals on one hand and CSFs on the other hand is that, while both tend to focus on achievements in a business, CSFs provide the means through which success is to be enhanced.
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CSFs, they must be considered and specified in all areas of business in order to enhance success. A checklist by Rockhart CSF types makes sure managers include all areas when formulating CSFs. Industry factors include the specific characteristics in the industry that give a company or industry a competitive advantage (Indiana University, 2004). CSFs can be affected by internal forces; thus, it is important to address factors such as organizational internal forces, barriers and challenges (Hennig-Thurau, Walsh, & Wruck, 2001). This paper will discuss importance and application of critical success factors in business based on movie (film) industry in Hollywood, which is a home of some of the largest film producers in the world.
Critical Success Factors
The film (movie) industry has been in existence since the 20th century and during this time, the changes in technology advancements have critically influenced its growth. Consequently, the changing characteristic of audience has greatly influenced the script writers to develop more catchy scripts that would be ideal to attain a competitive advantage in one of the most competitive industries in contemporary society.
Adopting new technologies has become paramount for all film studios to produce movies with the best screen advantage. Producers have been put in the limelight in focus on the movies they produce. This has greatly affected new directors whose movies tend to be a total loss or do not resonate on the specific target audience (Orcullo, 2008). One of the critical success factors in Hollywood movie industry is its ability to predict potential viability or revenue streams of a movie before it is eventually released; this is done through information fusion (Dursun & Ramesh, 2010).
Competitive strategy and industry position is critical to the success of film industry. Having a competitive strategy will ensure that market position of a film company remains secure. Many of the film companies have been in existence since the early 1900s, producing numerous films that have been successful over the years. Having a competent market position means that the company understands and has a well segmented market. In the film industry, customer satisfaction is important to ensure the success of movies once released in theatres (Hoyle, 2007).
Environmental factors such as demographics, economic and governmental legislative policies play a significant role in influencing the success or failure of a business (Wyatt, 2010). Generally, film companies need to understand the demographic of its target audience in order to segment the market for better productions. Recently, people are more attracted to action movies with 3D touch, which is expensive.
Evaluating such factors will be crucial in ensuring success for the industry (Howell, 2009). Economic climate is another factor that has correspondently affected the film industry; the economic crisis witnessed in recent years has reduced the number of investors franchising in the film industry. As opposed to past films, current productions that use conventional means of business are not as profitable as they were several years ago.
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Most people are now looking for cheaper ways to watch movies other than attending movie theatres; for instance, technology has ensured most movies are posted in the internet through programs like YouTube, while pirating has gone a notch higher to provide cheap copies of movies , thus denying the main producers and actors their deserved share of income. Government legislative policies provide a law that protects penetration of new markets in many developing countries.
For example, China only allows 34 international films in a year and when it comes to profits, producers get only quarter unlike in America where film produces get half of the profits (Griffin, 2011). This makes it critical for film producers to apply sound business strategies that would enhance maximum returns in this lucrative film industry.
Temporal factors in business refer to factors causing a time limited distress to implementation of strategy. The film industry is made of different departments including production, creativity department, and video and audio editing among many others. In the midst of all these, good managerial practices must be addressed to ensure good communication. Lack of managerial skills when dealing with these different departments may cause inconsistency and conflict among employees.
Successful industries require a well-organized management system dealing with all aspects of the business. In the film industry, the number of employees is very high. For example, Warner Bros has a total of 10,000 employees, a number that hinder communication while Lions Gate has only 550 employees, thus enhancing convenience in communication and decision making (Harrison, 2013).
Professionalism is key in ensuring that service delivery is maintained at all times. In production of films, producers must ensure they abide to the highest degree professionalism, which also calls for compliance to professional code of conduct to ensure that the quality of films produced meet legal and ethical requirements. This practice has been the key to success of film industry in Hollywood, where large studios such as Lionsgate have been thriving and receiving global recognition due to their professionally produced movies. Moreover, integrity and creativity must be enhanced to ensure success in film industry. Hollywood producers have been creative in the way they match content and video in their films, thus ensuring that the target audience receives a product that matches his/her preferences.
Critical success factors are usually critical in success of any business or organization offering services or products. However, film industry competitors and partners must understand that it is essential to understand and provide films that attract consumers. In order to be successful organizations, need to understand the different aspects that lead to success. Embracing these factors and ensuring that the environment is suitable is essential to success. Finally, the competitive environment experienced by film producers has pushed many film companies to go bankrupt either due to poor reception in the market for poor quality or over-budgeted works that make incur higher production costs than realized revenues.
Macro environmental analysis (PESTLE) of film industry (based on the case study)
PESTLE is an analysis of macro environment whose changes affect the whole economy and not just specific markets. These include political, economic, social, technological and legal factors, all of which influence the way business is conducted. These factors in the external environment have a significant influence in the success or failure of a business enterprise.
Political environment is very influential in conduct of business; for instance, government actions can foster industry creation and economic development (Dransfield, 2007). Other factors to be considered in the political factors include political system and political parties’ stability, which has a direct contribution to economic stability. The film industry is governed by the FCC and MPAA who act as watchdogs to ensure regulations in regards to transmitting certain channels is adhered to. These rules in turn help the film industry to increase returns through cable subscriptions (Cunningham & Harney, 2012).
Economic factors refer economic climate in a country including issues such as exchange rate, business cycles and economic growth. It also involves monetary and fiscal policies initiated by government to regulate business and investment activities in a country. High interest rates may deter investors in the film industry, as they may find it less viable to invest in a place where cost of capital is high. Additionally, inflation may provoke demand for wages by employees in order to cater for high cost of living (Henry, 2011).
A stable economy makes good investment both locally and globally. In terms of the film industry, a well-balanced economy will in turn provide a better outlook of the economy, thus more investors would be willing to risk their investment with the anticipation of potential opportunity for growth. The film industry depends on the economic power of its citizens; thus, many film industries are now targeting the middle class audience to increase purchase and profitability (Hill & Jones, 2012).
Social influences incorporate the changing culture and demographics such as ageing population or urbanization. Such changes can highly impact purchase of a company’s products. The film industry depends on its audience for the success of its movies; however, with growing social media, critics with bad reviews may render the film unsuccessful. Keeping in touch with the demographic patterns is important in the film industry; this fact has seen more producers moving to TV to produce sequels to the larger demographic audience (Allen, 2012).
Film industry owners have seen the need to conform to the ways of the targeted demographics to ensure success in the release of movies. It is important to segment the audience based on their age-group, geographic location, and religious/cultural affiliation in order to ensure the produced film serves the interest of every audience to maximum satisfaction. For instance, the aged may not be interested in movies that are very explicit in terms of violence or sex and so is the case for young children.
Technological factors refer to change in technology such as innovations on internet and newer devices used by individuals to watch films (Teague, 2012). Technological advancements in the film industry have evolved from analogue to digital. It was expected by many film directors that cost of technology would become cheaper, but through their experience it has become more expensive. Film makers use 3D technology to produce their movies in order to attract a larger public audience in contemporary world that is technology savvy.
The number of people owning internet connected device in America is expected to continue rising in the near future in American and other countries. This estimation has motivated the big studios to come together for an initiative ‘ultra violet’, which allows people to store the rights to watch movies they buy in the cloud system. However, although cloud technology is the talk of the day for almost everyone in modern business environment, this is not guaranteed to ensure success as consumer behavior continues to change (Grodac & Silver, 2012).
Legal influences include legislative constraints or changes such as health and safety legislation, equal opportunity directives, or restrictions on company mergers and acquisitions. In the film industry, players must be responsible for what they produce.
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Though they have the freedom to produce anything, the laws still apply; the government has to censor content that does not comply with legal requirements or is viewed to affect the society negatively. It is important for film producers to follow guidelines of regulators such as FCC and organizations such as MPAA who act watchdogs. The film industry is responsible for the safety of its employees as they work within their companies (Carroll & Buchholtz, 2014).
Environmental influences play a small role in the film industry (Stationery Office & Murray-Webster, 2010). The only way the environment can be a factor is during production; for instance, location and climate may raise or lower the costs of production.
Link between CSF and Pestle
Critical success factors correspond to pestle when it comes to analyzing the market requirements of the industry. It is clear from this analysis that, to be successful and profitable in the industry, a company needs to adjust to the changing macro-environment. Good product development is another factor from the analysis that ensures the target market is well represented while producing movies or films. Combining these two analyses will promote film industry in the sense that firms would identify challenges in the external environment and then apply its CSFs to address such challenges.
The PESTLE analysis helps to understand different aspects of the macro environment and their effect on film industry. It is important to know these factors as they play a direct role in the success of film makers in the industry. Understanding political, economic, social, technological, environmental and legal factors is important for implementation of strategies that would enhance sustainability of profits in the film industry. Nevertheless, understanding these factors would ensure a company competes effectively in the market by producing products that meet the requirements of all stakeholders in the film industry.
Evaluation of Lionsgate and Business Level Strategies
Lionsgate is a young film studio founded in 1997, which is well known for its Twilight series and the most recent Hunger games. Lionsgate has been involved in production of various TV programs, including mad men series based on an advertising firm in the 1960s. It has ducked or refused to be bought out of the market by bigger players including MGM who offered acquire it recently. The recent success of Lionsgate is accrued to the Hunger games sequel, which has been a hit globally. Indeed, it is the only studio to have grossed more than 1 billion dollars. Lionsgate has previously been known for “featuring cheap but profitable horror and comedy movies featuring actor Tyler Perry” (Barnes, 2011).
Lionsgate is now expanding its market to TV sequels, which provide a lucrative income throughout the year (Schuker, 2008). Even though production of one series is expensive, the returns are always profitable. With more online streaming companies looking for content copyrights, it will be essential for Lionsgate to invest and enter the market to increase profitability. The company’s main objective is to have a bigger share of the TV sequels, which will increase its presence in the market. Unlike other big productions, Lionsgate uses its resources to provide its target market with attractive programs for more viewership.
Lionsgate’s Business level strategy
Business level strategy is an action plan developed by a firm to describe how it will compete in a chosen industry on a day-to-day basis. In the case of Lionsgate Film Production Company, its primary strategy has been cost leadership. The main aim of a business level strategy is to consistently provide goods or services to customers that are of better quality than those offered by competitors (Ireland, Hoskisson, & Hitt, 2008).
A business level strategy has clear statement of value to be created for customers; this is done by putting focus and efforts to satisfy the target audience. There are five types of business level strategies that managers can choose from including cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation (Stonehouse & Houston, 2013).
When using the cost leadership or differentiation strategies firms seek to gain competitive advantage in consumer segments. When using either focused cost leadership, a firm uses its cost advantage in narrower market segments. Focus strategies enable firms to select segments or groups in the industry tailored to serve them and not others. A firm’s decision on competitive scope is influenced by opportunities and threats in its external environment. Lionsgate’s primary business level strategy is cost leadership strategy (Cunningham & Harney, 2012).
Cost leadership strategy is an action plan a firm develops to produce goods at the lowest cost and offering it at the lowest price possible such that competitors find it impossible to imitate. Producing at a low cost enables firms to price their product lower that competitors can and therefore gain a larger share of the market. Firms implementing the cost leadership strategy have strong process engineering skills; emphasize manufacturing processes that permit efficient production of products and services, and take advantage with performance evaluation systems that reward employees. Effective use of the cost leadership strategy tends to position the firm in the market place in a way that enables it to create value (Harrison, 2013).
Lionsgate Film Production Company uses the cost leadership business level strategy as a way of ensuring competitive advantage of in film industry. The case study about Lionsgate puts in focus the extensive use of the cost leadership strategy that has put it in the forefront of its competitors. Certain factors under the cost leadership strategy ensure that a firm is successful in its venture. The company’s internal strengths and capabilities make it to operate efficiently and effectively, thus distributing its films at competitive prices that enhance sales volume and profitability (Kew & Stredwick, 2009).
Generally, the success of business in film industry would be determined by the return on assets. Lionsgate’s market share in terms of asset turnover in the production of movies has become very crucial in the movie market. In order to achieve this, Lionsgate has reduced its budgets by ensuring economies of scale in terms of equipment and payment of actors is enough to sustain its development. Recently, movie makers are using new directors to cut costs in the production of films. Creating a barrier to potential competitors in the film industry is not as easy, and as result, Lionsgate is now expanding to sequels for TV in order to diversify its risks (Kornberger, 2011).
Bargaining power of customers is important to film producers; this is mainly because many customers look for cheaper products that provide them with satisfaction they desire. Film producers must be able to attract consumers by creating productions that attract a certain market segment. Film marketers will therefore require a well-established strategy to market products both locally and globally (Gilligan & Wilson, 2012)).
Lionsgate has been releasing movies online before releasing them in theatres to get a feel of what people think of them. Customer reviews are essential to achieve this profitability in the film industry, as a movie with bad customer reviews is would perform poorly in the market (Cunningham & Harney, 2012). Such reviews help Lionsgate to make changes or adjustments in order to enhance perfection when the movie hits the screen in Hollywood theatres.
Bargaining power of suppliers is also an important aspect to consider when setting up business level strategies simply because it can have a significant influence on cost of production. A supplier can exercise power over the cost leader, as he provides a significant amount of key inputs at a cost that goes directly to influence the cost of production. A successfully positioned cost leaders tries to develop long term contracts with a number of suppliers at favorable rates to reduce potential risks of input shortage or random cost adjustments.
Having well written contracts helps companies to budget for the upcoming movies and to fully fund for the projects. In the growing economy, inflation has affected price of commodities; however, good supply contracts with suppliers reduce time used to negotiate new contracts. In doing so, Lionsgate has been able to maintain good relations with suppliers, thus improving quality and cost of its products (Stonehouse & Houston, 2013).
A well-established business strategy is important in ensuring that a company gains leadership in its industry. Lionsgate has been a leader in the big five studios due to its huge turnover in the past one year. Although the movie industry has been crippled by different challenges, film companies need to come up with strategies that are well beyond the expectation of target market. This involves using global marketing strategies to increase and attract consumers for their products while fully utilizing opportunities in their environment.
Lionsgate is a free bird in terms of investors of franchise that limit their decision making. It has been able to explore its options and deliver products that have been successful in the market. Twilight sequel was one of the movies that have truly helped to increase earnings of Lionsgate. Hunger games gained popularity worldwide as they mesmerize the world with different aspects of entertainment. Nevertheless, Lionsgate success has been due to existing framework that has helped it to manage and ensure cash used brings back profits.
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