Case Study – Company Analysis
Case Study – Company Analysis
This report will present a comprehensive analysis of the strategic position of Silverstar Holdings. The current and past financial position will be analyzed and an interpretation will be given. Portfolio Analysis Tools like the BCG Matrix, the SPACE Matrix, and the Grand Strategy Matrix will be used to study the firm’s current strategies in place, and include suggestions for future strategic changes with help of the SWOT Matrix. Porter’s Five Forces Model will be used to evaluate the current scenario and make projections.
Past and Present Strategies
Organizations utilize scarce resources to take advantage of a limited number of relevant opportunities. Strategic Planning is all about defining and redefining hypotheses based on new acquired information, research and experience (Richard, 1999).
It is often perceived to be very risky when a firm pursues multiple strategies, but organizations like Silverstar with entirely different Strategic Business Units, often find it feasible to implement a combo of three or even more. Since its incorporation, Silverstar has pursued a combination of Related Diversification, divestiture, product development, forward integration, market development, and retrenchment. The plethora of strategies that have been used thus far may appear confusing and negating each other, but when put in perspective, each has been implemented with a clear end result in mind.
Currently, Silverstar Holdings has three subsidiaries: Strategy First, a global developer and publisher of entertainment software for computers, Fantasy Sports, subscription based fantasy game provider, and Magnolia Broadband, a startup focusing on wireless broadband innovation for cell phones. Since its inception, the company has focused on acquisitions. The current focus is on game related media and online marketing organizations, and sensing greater opportunities in North America, the company pursued a market development strategy by shifting operations to North America and leasing offices for all its subsidiaries.
In a cost cutting effort, the company divested its holdings in Student Sports, in which it had been incurring repeated losses. In the entertainment software industry the competition is intense, and the presence of more resourceful competitors has forced Silverstar to focus on forward integration with software retailers and wholesalers, to minimize the added costs of retail shelf space competition for Strategy First’s products.
This part of the analysis focuses on how effectively the company is implementing its current strategies, and what, if any strategic changes need to be made.
BCG Matrix is used to represent the SBUs of a firm with their relative position along the market share situation, and the industry’s growth rate in which they operate. As stated previously, the company has 3 operating subsidiaries, each of which has its unique position in the BCG Matrix (Cook, 1998).
Strategy First has been placed in the third quadrant and is hence classified as a Cash Cow. The SBU has had increasing revenues from 2003 till 2005, and increasing operating profit. The scope for further growth of the industry is limited in the region it currently operates in. The SBU should be managed in a way that it continues to generate excess cash through cost cutting in payroll and administrative expenses. Fantasy Sports is the organization’s best long run opportunity for growth and profitability. It is the market leader at present in the Fantasy Sports industry and has recorded increased sales and revenues for 2005 and hence has been classified as a Star in the matrix. More investment should be made so the division can recognize its true potential.
Due to recurring losses and non substantial revenues, the division of Student Sports was sold off to minimize losses. Till it was in operation, the division was characterized by a low market share of the marketing services provided to high school athletic market, that was not growing rapidly and hence the placement as a dog, i.e. a division with no returns and a constant drain on the resources.
Since Magnolia Broadband is still in its developmental stages, and the future of the division in terms of long run profitability and sustainability is uncertain, the division has been classified as a Question Mark. The high potential for increased market growth in the industry might be utilized to achieve long term revenues and profits.
Relative Market Share Position
High Medium Low
Grand Strategy Matrix
Grand Strategy Matrix provides an overall perspective on the performance, both current and future of the organization’s divisions, evaluated along two dimensions (Anderson, 1995). According to the quadrant placement of the division, the future strategies can also be worked upon and devised.
Rapid Market Growth
Strong Competitive Position
Weak Competitive Position
Slow Market growth
As per the quadrant placement, the following are the recommended strategies for each division:
Fantasy Sports: Should pursue Market Penetration, Market and product development and all forms of Integration strategies to further improve its excellent strategic position.
Magnolia Broadband: Market and Product Development, and market penetration are the ideal strategies, but if the situation becomes too dire in terms of financial loss, then liquidation and divestiture may be considered (Anderson, 1995).
Strategy First: Should pursue related and unrelated diversification and joint ventures to continue to operate profitably in its market characterized by strong competitive situation yet a relatively slow market growth.
SWOT Matrix is used as a matching tool whereby managers can leverage on a company’s existing strengths and reduce the impact of its weaknesses. Similarly, the opportunities can be utilized by minimizing the impact potential of threats (Amara, 2003).
Strength Opportunities Strategy
Alliances with larger distributors of products
Fantasy Sports is the market leader in its industry
Increasing revenues, decreased administrative and payroll costs
Reduced distribution costs through the launch of an online initiative by Strategy First
No work stoppages due to labor union issues
All SBUs except the sold off Student Sports operating in high consumer demand industries with potential for growth
Weaknesses Threats Strategies
Constant cost of leased office buildings for all subsidiaries
Diluted ownership of 3% in Magnolia Broadband due to repeated stock offerings
Repeated mergers and acquisitions have negatively affected the organization’s bottom line and cash flow position
Reduced subscribers for Fantasy Sports
No dividend payments on common stock so far
Increased consumer demand
Expansion beyond North America into Europe and Asia
Increased product diversification and consolidation trend in the market.
Further expansion without incurring more debt or diluting holdings by using working capital and retained earnings
Strengths Threats Strategy
Increased dependence on subscriptions for revenues
Increased government regulation of industry
Uncertain fund repatriation
Foreign currency fluctuations
Interest rate risk affecting Interest Income and expense
Increased competition for retail shelf space among distributors
Porter’s Five Forces Model
Porter’s Five Forces Model is often used in strategy formulation by analyzing the competitive situation in the market/industry. Of the five forces, the most important is rivalry among competing firms (Amara), 2003.
Strategy First operates in the highly competitive consumer software market that is rapidly changing. Since the competitors are becoming more resourceful, mergers and acquisition to achieve consolidation in the market are high, and aware consumers have the option to choose from a multitude of software brands available, the market for the SBU is characterized by high rivalry among competing firms.
Fantasy Sport also operates in a market that has intense competition among other sports games providers and also from large and small media groups who have entered the market. For Magnolia Broadband in which Silverstar has diluted holdings of only 3%, the rivalry among competing firms is on the lower side. The SBU is at a developmental stage with increase in sales and growth and increased consumer demand in the mobile telecom market.
Potential Entry of new competitors in the market is very easy for both Fantasy Sports and Strategy First. There are no governmental regulations preventing new companies to enter both these markets, and the increased trend of acquisitions for consolidation purposes means that new operators can enter the market. The initial cost of entry is also low, and online sales for both also make it feasible for new entrants.
The potential for the development of substitute products is high for Magnolia Broadband and Strategy First. A number of mobile operators in the North American region have started providing products and services that use Wireless Broadband service. Consumer Entertainment software has evolved so that innumerable varieties and substitutes are being provided and demanded by the customers.
The bargaining power of suppliers has an effect on the competition strength in the industry. Since the competition for retail shelf space for consumer software products has increased exponentially, Strategy First has adopted the strategy of backward integration by forming alliances with large distributors of their products achieving important cost savings for both.
The bargaining power of consumers is high for Fantasy Sports and Strategy First simply because the switching costs are very low and the consumers are extremely well aware of the product features, its substitutes available and the costs (Anderson, 1995). Also, since the products of both these SBUs are available online, the consumers also have increased discretion in selecting the source from which they make the purchase, and when they do it.
Since its incorporation in South Africa with a focus on mergers and acquisitions in the sports related fields to the current operations in the North American region with focus on Internet related sports and media, the company has implemented dynamic and in some cases drastic policies in line with its latest mission statement.
However, as shown by the detailed portfolio analysis and SWOT Matrix construction, the repeated strategic policy decisions have led to a weakened financial position of the company where operations had to be discontinued of Student Sports, only a few years after its acquisition.
Despite this fact, two of the firm’s subsidiaries are doing well: Strategy First and Fantasy Sports. However, it is important that new markets are explored and new investment made in the launching of new products to continue to ensure good performance for these divisions. Silverstar Holdings is on the right track with forward integration in the form of major alliances with large distributors of Strategy First’s products.
New products launched in new markets, with some cost cutting will ensure that no additional debt/equity is required for further financing plans. The two risks, interest rate and foreign currency are more or less beyond the company’s control and would be the same for all competitors also. A policy change of using US dollars instead of the South African Rand could be considered for future use, like the option of purchasing instead of leasing office buildings for its divivions.
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