Strategic Management

The Challenge of Creating Value

Peter FitzRoy, James M. Hulbert, Timothy O'Shannassy

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317534990
• Edition: 3
• Topic: Business
• Subtopic: Management
• Index: Business

Strategy is often the capstone class in a business education - dealing with the big questions of what companies decide to do - innovate, diversify, acquire or even to employ a range of these strategies.

Benefitting from an international author team, the latest edition of this textbook stands out in its global perspective. With an emphasis on value creation, integration of financial considerations alongside coverage of areas that are often missed in competitor texts, such as financial implications for strategy, corporate governance and business ethics. The book also integrates a wide range of in-depth case studies, including Siemens AG, Intel, the Volkswagen Group, PerkinElmer and the Tata Group.

Supplemented by a wide range of cutting edge online case studies and other internet resources, this text will provide students and their instructors with everything they need to succeed in this tough environment.

Section 1
Strategic Management Concepts

Chapter 1
Managing Strategically

Learning Objectives

Upon completing this chapter you should be able to:

• 1 Articulate the importance of strategic management to firm growth, innovation and performance.
• 2 Distinguish between strategic decisions, strategy and strategic management.
• 3 Contrast the major theories which endeavour to explain firm success.
• 4 Recognize why firms exist as economic entities and be able to describe alternate forms of economic exchanges.
• 5 Argue the need for continual innovation and change: nothing is fixed; all attributes of the firm are variable.
• 6 Apply the model of strategic management and be aware of the major changes driving the practice of strategic management.

Strategic Management in Practice

News Corporation

To illustrate many of the principles of strategic management which will be covered in the text, we briefly review the history of News Corporation, a global news and entertainment firm. In the 1950s, Rupert Murdoch inherited a regional newspaper in Adelaide, a small state capital in Australia. By 2015, this had become two major global firms, News Corporation, a publishing group, and 21st Century Fox, a film and entertainment group.

News Corporation started its growth in the 1950s through acquiring several small unprofitable newspapers in other geographic areas of Australia, including Sydney, Australia’s largest city. Recognizing the opportunity presented by television, the company acquired a majority interest in an Adelaide TV station, demonstrating the ability to manage a technology completely new to the firm. These actions were followed by more aggressive growth during the 1960s, when News Corporation expanded internationally. The initial expansion was to New Zealand, a culturally similar country. This was soon followed by the acquisition of a magazine company in Hong Kong, characterized by both a new culture and a new industry. At the same time, News Corporation launched Australia’s first national newspaper, which has become the leading quality newspaper in Australia. International expansion was further enhanced by the acquisition of The Sun and The News of the World in London – both of which were unprofitable at the time.

During the 1970s, the global expansion continued, with the purchase of newspapers in San Antonio and New York, again buying unprofitable papers. The UK presence was enhanced during the 1980s with the purchase of The Times and The Sunday Times, as well as other papers in Hong Kong, Chicago and Boston. In the UK, News Corporation was responsible for a massive restructuring of the newspaper industry when production was moved from Fleet Street to a technologically advanced plant, which resulted in major industrial action.

The level and nature of diversification increased during this period, with the launch of Fox, as the fourth TV network in the US, and the acquisition of 20th Century Fox, a major movie production company. European activities continued to expand in the 1990s. News Corporation’s TV interests were merged with a competitor to form BSkyB in the UK, a venture which suffered substantial losses for several years causing some commentators to question the wisdom of the decision.

In the 2000s, News Corporation divested several US TV stations and the TV Guide magazine. It also acquired Dow Jones at a cost of US $5.7 billion, representing a further diversification into information services. During this period, the firm also moved its place of incorporation from Australia to the US to better reflect its geographic mix of businesses and to be closer to major financial institutions, customers and competitors.

News International, the British part of News Corporation, had been accused of phone hacking as long ago as 2005, and one of their reporters was jailed for four months in 2007. Allegations of further phone hackings took on a different dimension in 2011 when journalists from The News of the World, which was owned by News Corporation, were accused of hacking and accessing personal data of politicians, and others, often with the acquiescence of the police. This crisis had a significant impact on the strategy of News Corporation. In a decision which surprised many, the firm announced the closure of The News of the World, its largest and most profitable newspaper. At the same time, News Corp announced that it was withdrawing its £8 billion bid for the remaining 61 per cent of BSkyB that it did not own (Parkinson, 2014). Eventually, in 2014, several senior News Corp executives were cleared on all charges and the court found no evidence of wrongdoing by either Rupert or James Murdoch. However, the court case was costly, with News Corp spending an estimated £270 million on legal fees since 2011(Mance, 2014).

In the early 2010s, News Corporation was a major global company with two major areas of activity: publishing and entertainment. As a firm, it faced several challenges: what was the synergy between publishing and entertainment? There were also challenges from electronic platforms across its activities and governance issues since the Chairman, Rupert Murdoch, was in his 80s. In a major structural and strategic move, the firm decided to split into two entities, which gained shareholder approval on 29 June 2013.

The two firms were an entertainment group, named 21st Century Fox, which retained the bulk of the original News Corp broadcasting assets and is comprised of cable, film entertainment and TV activities. Its businesses include 20th Century Fox, Fox Broadcasting and National Geographic Channels, with equity interests in BSkyB in the UK, STAR in Asia and two satellite TV channels in Europe, Sky Italia and Deutschland.

A publishing group, named News Corp, which is made up of news and information services, sports programming, digital real estate services, book publishing and digital education. Its newspapers include The Times of London, The Wall Street Journal, The New York Post and The Australian. Its publishing activities include HarperCollins. To offset the drop in advertising revenue, News Corp has expanded into Internet media with digital real estate services, educational services and charging for online access of newspaper content. At the time of the demerger, News Corp had zero debt and $2.6 billion in cash.

Changes were also announced regarding senior executive roles. Rupert Murdoch retained his position as Executive Chairman of News Corporation and his elder son, Lachlan, was named co-chairman. Rupert Murdoch also retained his position as Chairman and CEO of 21st Century Fox while his second son, James, was appointed co-chief operating officer (Thompson, 2014). The two new firms also introduced ‘stockholder rights agreements’ designed to make it more difficult for new investors to accumulate more than 15 per cent of the shares. This was achieved by permitting existing shareholders to buy additional stock at a discounted price.

Both of these new entities have been active strategically since the de-merger.

In August 2014, News Corp completed the acquisition of Harlequin Enterprises, a Canadian publishing firm whose main products were the Mills and Boon books with a cash offer of C$455 million (£246 million) (Fildes and Samuel, 2014). In October 2014, the firm agreed to acquire an 80 per cent interest in Move, an American online real estate business in property sales and rentals for $950 million, with a cash offer of $21 per share, a 37 per cent premium. The Australian-headquartered real estate business, REA, itself is a global operator with growing operations in Europe and Asia. News Corp also announced the sale of a group of local US newspapers, as well as the acquisition of Storyful, a social media news agency providing news content to journalists (Freen, 2014), and Amplify, an online system for teaching and learning. In addition, News Corp was one of the first newspaper groups to introduce a subscription service offering readers the opportunity to read newspapers online. Whether or not this will be sufficient to counter the threat from other online news remains an open question.

21st Century Fox has also been active. In January 2014, 21st Century Fox announced that it would sell its 47 per cent stake in Star China TV to allow them to ‘streamline their affiliate ownership structure’. Following this, the firm announced that it had reached agreement with Apollo Global Management to enter into a joint venture to create a large TV production company (Mance et al., 2014).

In July 2014, it sold its European TV businesses, Sky Deutschland in Germany and Sky Italia in Italy, to BSkyB for £5.4 billion although some Sky shareholders considered that the offer was too low (Spence, 2014). In August 2014, 21st Century Fox announced that it had withdrawn an offer to acquire Time Warner, after its bid of $86 per share was rejected by the Time Warner board. Following this, the 21st Century Fox board agreed to a $6 billion share buyback.

Rupert Murdoch has been CEO and Chairman of the original News Corp, and the two new entities, 21st Century Fox and News Corp, since their inception, and the Murdoch family maintains a significant shareholding in the firms. Indicative of their success is that, as of March 2015, News Corp had a market capitalization of $3.2 billion while 21st Century Fox had a market capitalization of $72.5 billion.

The history of News Corporation and 21st Century Fox illustrates a continual process of renewal, of developing new capabilities, of risk-taking, of being able to handle crises and constancy of vision. As we will emphasize, strategic managers operate in a turbulent, unpredictable and inter-connected environment and creating value over long periods requires innovation, commitment and leadership, all of which have been demonstrated by the firm.

Learning Objective 1

Articulate the importance of str...

Table of contents

• Cover
• Title
• Copyright
• CONTENTS
• List of figures and tables
• About this book
• How to use the online resources
• About the authors
• Acknowledgements
• Section 1 STRATEGIC MANAGEMENT CONCEPTS
• Section 2 STRATEGIC ANALYSIS
• Section 3 STRATEGY DEVELOPMENT
• Section 4 STRATEGY IMPLEMENTATION
• Section 5 ASSESSING STRATEGIC PERFORMANCE
• Glossary
• Author index
• Company index
• Subject index