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Assignment Cover Sheet
STUDENT NAME:
Peng YangSTUDENT NUMBER
188500POSTAL ADDRESS
NO.40 Britomart GNDS, AlawaPOSTCODE
0810PHONE
0424383054EMAIL
[email protected] NAME
ORGANISATIONAL STRATEGY AND LEADERSHIPUNIT CODE
PRBM030Semester ___2___
Year ____2011____
LECTURER NAME
Dr. Rajeev SharmaASSESSMENT TITLE
INDUSTRY AND EXTERNAL ENVIRONMENT ANALYSIS
DUE DATE
26/08/2011DATE OF SUBMISSION
26/08/2011 APPLIED FOR EXTENSION? YES NO N/A
KEEP A COPYIf you have submitted assessment work electronically please make sure you have a backup copy.
PLAGIARISMPlagiarism is the presentation of the work of another without acknowledgement. Students may use a limited amount of information and ideas expressed by others but this use must be identified by appropriate referencing.
CONSEQUENCES OF PLAGIARISMPlagiarism is misconduct as defined under the Student Conduct By-Laws. The penalties associated with plagiarism are designed to impose sanctions on offenders that reflect the seriousness of the University’s commitment to academic integrity.
I declare that all material in this assessment is my own work except where there is a clear acknowledgement and reference to the work of others. I have read the University’s Academic and Scientific Misconduct Policy and understand its implications.*http://www.cdu.edu.au/governance/documents/3.3academicandscientificmisconduct.doc
Signed: ____________ Peng Yang ____________________ Date: ______26/08/2011__________
*By submitting this assignment and cover sheet electronically, in whatever form you are deemed to have made the declaration set out above.
Office use only Assessor use only
DATE RECEIVEDPLEASE PLACE GRADE HERE
DATE SENT TO LECTURER
PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
ContentsIntroduction...........................................................................................................................................2
Background information........................................................................................................................3
Subscription television in Australia....................................................................................................3
Company Profile................................................................................................................................3
PEST Analysis.........................................................................................................................................4
Political and legal environment.........................................................................................................4
Economic environment......................................................................................................................4
Society environment..........................................................................................................................5
Technological environment...............................................................................................................5
Five Forces Model..................................................................................................................................6
Rivalry................................................................................................................................................6
Supplier Bargaining Power.................................................................................................................7
Buyer Bargaining Power....................................................................................................................8
Potential Entry...................................................................................................................................8
Substitute Products...........................................................................................................................9
Conclusions............................................................................................................................................9
Reference:...........................................................................................................................................11
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Introduction
Companies always operate in a certain environment; the formulation and
implementation of business strategy are also restricted by the particular environmental
factors. (Osborn & Hunt 1974) In other words, environment decides the enterprises’ strategy,
decisions making, organizational structure and management styles. The environmental
awareness has become the starting point of the environment analysis. (Sethi 1979) In general,
the corporate strategy has two environment factors to consider, internal and external
environments. Furthermore, because the influence degrees are different, the outside
environments divide into the macro environment and industry environment. The productivity
and operation of modern enterprises have been increasing impact from the external
environment. (Osborn & Hunt 1974)
The strategic management for the organization need has an overall and objectives
analysis about the change of the external environment, based the research result to set up the
organizational goals and strategy plans. The enterprise and its external operation conditions
are in an interaction and interrelated relationship.(Osborn & Hunt 1974) The purpose of study
on the peripheral environment is supporting a chance to the organizations to finger out the
possible developing opportunity and potential threat, use them to be the conditions and
limitations to develop the business strategy. (Sethi 1979)
There have a close contact between business and environment. On the one hand, the
environment is the basis for enterprise survival, the elements the business needs all obtained
from the external environments, such as human resource, materials, energy, capital,
technology, information, etc. Meanwhile, the company's products must be marketed through
the external market. On the other hand, the company is a kind of dynamic social organization,
it is not only been dictated by the environment, but also be adapted to the environment and
impact on it, promoting social progress and economic prosperity. (Sethi 1979) So, the
companies must analysis the environment and adapt to being survive and development.
Generally, corporations divide their macro environment into four main pieces to
analysis; they are Politics, Economics, Social and Technology. It called PEST analysis, firms
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
through indentifies the change of PEST factors to effect on their organizational strategic
managements.
Michael Porter’s Five Forces Model provides a healthy and time-tested framework for
analysing the industry environments, reflected in the strength of the five forces. (Porter 1980)
This framework provides a basis for firms to recognize the opportunities and threats. To
analysis these five forces determines the ultimate profit potential in an industry, where profit
is measured in terms of long term returns on capital invested (Porter 1980).
Background information
Subscription television in Australia
In the last two decades, subscription television has played an increasingly important
part in the broadcasting industry. And recent advances in digital technology will speed up this
process. The consumers will have more than hundreds channels for choice to watching as
well as participating in various interactive services in a while. (The Gale Group 2011) Since
1995, subscription television opened at the Australia. There are more than 100 English-
language television services or channels currently available to Australians. Those contents
offered by the three major local subscription television groups with a selection of time-
shifting, HD and digital channels available. (Seven Network Limited 2004) They are Foxtel,
Optus TV and AUSTAR. Foxtel and Optus TV operate in the metropolitan markets, and
AUSTAR in the regional markets. (The Gale Group 2011) The significant difference between
Pay TV and other broadcasts is there has a direct contract relationship within the customers
and operators. In earlier 2011, Australia has more than two million household subscribers to
pay TV broadcasting services. (Austar United 2008)
Company Profile
AUSTAR's television subscriber was founded in 1995; it is the largest subscription
television operator in regional and rural Australia. Its main business activity is Subscription
Television but it is also involved with internet access and mobile phones. AUSTAR Service
includes over 180 premier channels, 13 HD Channels, a near video-on-demand service, and
increased levels of interactivity. (Austar United 2008) It is the largest subscription television
operator in regional and rural Australia. AUSTAR provides subscription television services
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
one-third of Australia's total homes, approximately 2.4 millions homes and over 760,000
Australians. (Austar United 2008)
PEST Analysis
Political and legal environment
The political and legal environments are those political factors and legal systems,
which are constrained and influenced on the organizations.(Lumpkin & Dess 2001) The
stable of those factors are the basic conditions of the business’ productivities and other
activities.
Australia has the most wide-ranging sports anti-siphoning legislation in the world. It
gives limited access to sport events. Most of the subscribers are willing to watch living sports
on their Pay-TV. (Carter 2006) However anti-siphoning rules covering 40 events, 85% are
never broadcast live by open broadcasters, and 75% are not open broadcast at all. (Williams
2002) Furthermore, Australian Government policy encouraged cable duplication. They
overbuild more than 80% cables compare with US overbuild around 1%. (Williams 2002)
Government want to differentiate, providers sought exclusive content. However, it causes
Australia pay highest movie costs among the world.
These political and legal facts have general negative impact on subscription television
industry development. Those rules blow consumer enthusiasms and increase operates costs
directly. As well as the repeal of prohibition on multi channelling in 1998, it makes this
industry lost the protection by the political. It is no longer a monopoly and beneficial
industry. (Seven Network Limited 2004) The companies have to keep attention on the
changes of political and legal environments, forecast the threat, and make sure the
corporation running in a long-standing environment.
Economic environment
The economic environment is the socio-economic status and the country's economic
policies, including socio-economic structure, economic system, development,
macroeconomic policies and others.(Lumpkin & Dess 2001) All these factors have more
direct and specific impression to the enterprise production and management, especially the
international economic environment.
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Australia is the one of the biggest country in the world. However, they only have 20
millions populations. As record, Australia had 7 millions television householders, and there
are 2.8 millions household got cable passed and 1.5 millions using subscription television.
(Williams 2002) Meanwhile, over 80% cables are overbuilding, it is impossible to achieve
economies of scale. It means this industry is hard to provide enough cash flow for companies
purchasing equipment, satellite time, and programming.
Despite weak economic conditions that had a negative impact on network television
and radio broadcasting companies, Satellite prices are generally lower. In Pay-TV industry
satellite subscriptions offer more channels, which is part of the attraction for consumers. (The
Gale Group 2011) Around 2000s, satellite television services made their presence felt in the
pay television industry by providing an alternative to increasingly expensive cable service,
which was increasing in price faster than the rate of inflation. (The Gale Group 2011)
Nowadays, internet plays a significant role as satellite before to shock the subscription
television industry.
Society environment
The society environment is the place firms operate in, which including the social
structure, customs and habits, beliefs and values, behaviour and lifestyle, cultural traditions
and all that culture elements.(Lumpkin & Dess 2001) These factors determine the direction of
investment related, product improvement and innovation and other major business decision-
making to the company.
Strong competition exists in the newspaper, radio and television industries as well as
in online news media in Australia. People who living in cities, they can enjoy a wide choice
of newspapers, magazines, and radio and television services. However, people living in
remote areas have less choice of news and entertainment sources. Under the banner of free
view, the free-to-air television operators have delivered new digital channels in 2010/11 in
both SD and HD. (Deans 2011) Viewer numbers are increasing and will continue to increase.
Digital transmission launched in Australia since 2001, after ten years operations;
analogue transmission is switched off across whole state. During these periods, more and
more Australians are now enjoying the extra features and channels that are available for free.
These society environments changes have putting pressure on the pay TV industry. (Deans
2011)
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Technological environment
The technical environment is the collection of various social phenomena such as the
national science and technology system, technology policy, technological level and
technological development trends.(Lumpkin & Dess 2001) Technology is the field, where the
business wars fight. It is the place the firms obtain the competitive advantage.
With the development of advance technology, the traditional television industry no
longer fit the customer entertainment requires. (Seven Network Limited 2004) Especially in
subscription television industry, all companies have to enhance their products and services by
the advance technology, to keep survive in market and reduce the completive pressure from
free TVs. However, Pay-TV firms quickly adopt new technology into their services. As
Foxtel's chief executive, Kim Williams, said:
"Foxtel is about delivering compelling video entertainment through any digital
medium, including cable, satellite, broadband and mobile networks. Telstra's Next G network
is an exciting extension for Foxtel, and we intend to grow the offering substantially with the
addition of more channels and on-demand service……You’ll be able to use your mobile
phone to send a message to record something on your iQ." (Carter 2006)
These technical environment factors have very positive outcome to this industry
members to achieve their business goals. Apply new technology on develop and extension
industry’s products diversity, to satisfy the customer’s increasing demanded on
entertainments. It is the weapons to defend the industry from another.
Five Forces Model
Rivalry
The rivalry is the competition among existing firms. The different industries have
various intensity of competition.(Porter 2008) If the major competitors within the industry are
basically equal, no matter how much the number of enterprises within the industry,
competition within the industry will inevitably intense. However, when the industry only has
a few large competitors becoming semi-monopoly, which make the competitive rivalry
weaken, and the corporate profitability will increase.
Subscription television is one of the most regulated start-up businesses in Australia.
(Williams 2002) There are three dominant provider of subscription television consists in
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Australia. They are Foxtel, Optus TV and AUSTAR. Foxtel offering their Pay-TV service
almost covered all Australia capital cities via cable and satellite television. And mostly the
same channels offered by AUSTAR through satellite TV in regional areas only, but they have
cable supply in Darwin.(Austar United 2008) The other operator is Optus, they are the one
has least customer group in these three biggest organization. However, Optus selling their
subscription television bind with their internet connect and local telephone service, which are
the main services of them.
The power of rivalry is medium. Because there are only three main firms in the
industry, though they are all focus in different areas and relatively complemented each other
on geographical. (Williams 2002) Moreover, Australia is the biggest content import country
in the world. Those three firms spend huge capital on contents purchase, it takes more than
65% revenue of Foxtel and AUSTAR and Optus spend all their subscription television
incomes. (Datamonitor 2010) High content costs resulted from fierce start-up competition to
secure and create premium content. (Williams 2002)
Supplier Bargaining Power
The supplier refers to the enterprises that supply resources, material and other fitting
parts to another for their productions. The bargaining powers of suppliers are the ability to
rise up the price or reduce the quality and services, to pressure on the purchaser and
maximum their profits.(Porter 2008) There are many factors impression on the supplier
bargaining power, such as volume size, information mastery, and product differentiation and
so on.
The other different between subscription television and free television is the contents
quantity and quality. The customers paid for the programs their want to watch but free TV
not offered or have many limitations. So, offer special and attractive programs are essentially
to subscription television industry. US are the major global content supplier and Australia is
the biggest importer of them. (Williams 2002) The most important is Australia is a net
importer of content; content is not owned but licensed. This means, all parties are free to bid
for content licences on contract renewal. In addition to, channel suppliers wanted to share
channel start-up risks, they often requiring subscription platforms to take equity positions in
the channels. (The Gale Group 2011)
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
The bargaining powers of suppliers are high in this industry. All these conditions
make members in Pay-TV industry got a disadvantage position when they negotiation with
the content suppliers. And then online TV offers a new choice of partners, handing content
owners greater power over the way people access their shows. (Deans 2011) As well as free
broadcaster often insist that content suppliers commit to 'holdback' periods, that are the
periods of exclusivity ranging from 3 months to 5 years, which deny subscription television
providers access to that programming.(Williams 2002) The only thing to change this situation
is create channels of their own and make them locally relevant.
Buyer Bargaining Power
As a buyer, they will want the products or services they got are inexpensive but good
condition. Therefore, they always pursue lower price and higher quality, and bargaining with
different firms in same industry, which cause the competition and lower profits.(Porter 2008)
Despite the global economic downturn, the numbers of household broadband
connections have continued to grow robustly. According to industry sources, Australia is
expected to add about 1.7 million household broadband connections between 2008 and 2013,
increasing its penetration rate from about 55% in 2008 to 69% in 2013. (Datamonitor 2010)
In addition to the demand for Pay-TV service in Australia also steady growth. Australian Pay
TV penetration reached over 33% in 2009. (Datamonitor 2010) These low Pay TV
penetration levels in Australia represent a huge untapped market with a huge potential
purchasing power, and indicate a significant opportunity for the growth.
However, the increase of market size led intense competition. Since most content is
still in high degree of homogeneity, the audience's loyalty and switching costs are low, it
means the customer have high bargaining power. On the other hand, the advertisers and their
agents are the customers of subscription also. (The Gale Group 2011) Because Pay-TV
channels could target to specific group of customers, it makes the advertisement have more
force and effective other than played on free broadcasters. The advertisers tend to switch their
investments to subscription television. They have lower bargaining power than the television
audiences.
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Potential Entry
Potential entry means the company more likely to enter the industry and becoming
competitors.(Porter 2008) Because the entry will bring new production capacity and material
resources, and asked for a certain market share, challenge the existing enterprises’ position.
The threat extents depend on the barriers to entry, and the responsiveness of existing
enterprises. A lower entry barrier makes it difficult for the existing producers to remain
profitable for long.
Subscription Television and Radio Association's (ASTRA) executive director, Debra
Richard, points out that pay TV was not allowed advertising for the first five years and so it
has had to play catch-up. (Carter 2006) Generally, companies are competing on a national
basis. It was causing all players particularly new player to access government regulation and
using lack of infrastructure to survive. (The Gale Group 2011) However, subscription
television content could be licensed by any company in industry, which is lower the barrier
for new player to entry the industry.
The threat from new entrant is big. Most of them have some new production capacity
and the valuable, rare and inimitable resources to help them achieve advantage market
position. The emergence of new television, on the one hand they will extend the supply of the
television products that lead to competition cause products price down. (The Gale Group
2011) On the other hand, more players scrabble for limited resources, such as TV play and
event lives, may initiate cost increased. These two factors will lead to lower profitability of
the subscription television industry.
Substitute Products
The substitute products are those products have similar or close functions, consumer
can buy or use them to instead the demand of original one.(Porter 2008) The issues decided
the pressures of alternative products are the profitability, management strategy of production
and buyer switching costs.
The pressures of substitute products for subscription television industry mainly are
from traditional free televisions and rising online video entertainments. Free television in
Australia began experimentally as early as 1929, compare with subscription television started
no more than twenty years. Australians got more acceptations on TV are free. With the
development and popularization of internet, it was utilized widely in people’s daily lives and
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
works. As the research, Australians using internet time longer than they spend on TV at 2007.
People are intensity increasing dependent on the network media and concerns.
Online video, free TV and Pay-TV have high degree of alternative. Online video and
free TV are zero cost for customers that maximum the threats to Pay-TV industry. They are
launched on the market, unless subscription television support superior functions on their
products, otherwise it will limited the Pay-TV price in a low price and profitability level.
Conclusions
According the analysis above, technological environment facts are significant to
subscription television industry. It is the most important driving force of whole industry. It
determined the future development tend of Pay-TV industry and organizations’ developing
direction. Firms need have to evaluate macro environment elements to indentify the
opportunities and threats to their business and whole industry.
The market in which the companies operate is highly competitive. It has been facing
competition from other players and industry providing similar services, complementary
services and substitute services. These competitors may succeed in attracting some of the
industry’s subscribers, which could reduce total market size and have a material adverse
effect on its results of operations. (Datamonitor 2010)
In summary, Australian subscription television is still growing, lacks of scale and is
loss-making. Internet content gives a big challenge to Pay-TV industry. (Pay-TV cannot rest
on its laurels; power is moving toward content owners) People need internet connections to
access this brave new world. However, it still not strong enough to end cable and satellite
television services people. The firms in subscription television industry will basis on macro
and industry environment analysis to hold the emergent opportunities and prepare to defined
the potential possible threats, and beat it back.
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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP
Reference:
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