The organization being studied is IMAX (Image MAXimum) Corporation, a Canadian company that specializes in motion picture technologies. Its activities include design, maintenance and operation of IMAX film systems as well as the distribution to IMAX theatres located worldwide. The fundamental aim of this report is to discuss the business and economic environment of IMAX as well as its business strategies. The report is divided into three parts. The first part provides an analysis of the impact of the external business environment on the performance of IMAX. The second part focuses on the review of IMAX’s current business strategy and suggestions on how to improve this strategy. The third part is a reflection on the tools that were used in the discussion of parts one and two. This involves reflecting on the experience in carrying out the tasks and stating the challenges involved in using the analytical tools and techniques.
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TASK 1 – POLITICAL, ECONOMIC SOCIAL AND TECHNICAL (PEST) ANALYSIS AND STRUCTURE CONDUCT PERFORMANCE (SCP) MODEL
In analysing the external business and economic environment of an organization, the factors impacting on the organisation needs to be identified. The use of PEST analysis is a way of carrying out the analysis of business environments. The influencing factors of PEST are categorized into political, economic, social and technological forces. PEST analysis examines how these factors inter-relate and directly or indirectly impact upon businesses and organizations. Cooper (2000) state that the use of PEST analysis is strategic as it helps a business to identify its business position and market growth. PEST also ensures that the performance of the company aligns with the forces of change which affects the business environment (Porter, 1986).
Some of the PEST factors affecting IMAX are its number of theatre locations, customers, suppliers, cost of film tickets, competitors, culture of the environment in which the films are released, technological advancement of home theatre systems, new entrants into the market, use of large-screen technology, patented digital re-mastering technology and unauthorised copying or piracy of movies.
The advancement of technology is identified as a major threat to IMAX. There are present and potential IMAX viewers who have found alternative and cheaper means of watching films, even if the quality does not match that of IMAX. Some of these alternative sources are the internet, pay per view TV and cable. The development of large screen home theatre systems is another form of technology that poses a form of threat to IMAX. A 2005 study showed that about 85% of film revenue came from viewers who watched from the comfort of their homes (Danaher et al, 2009). This advancement in technology has also resulted in an increase of internet sites that show unauthorized movies and the production of pirated CDs and DVDs which has resulted in massive losses for the film industry.
Customers are also a major factor affecting IMAX because human preferences are bound to change over time. IMAX creates more of educational movies but there has been an increase in the demand for comedies as people are becoming more interested in movies that lighten up their moods. “While comedy’s primary goal is to make people laugh, humour can also be a window into understanding different societies” (Snyder, 2010). IMAX diversifying to this area would meet the demands of customer. The time of the year would also have an impact on attendance at cinemas. The use of e-commerce in marketing activities i.e. the ability of customers to purchase tickets online has positively impacted on ticket sales as customers are aware of the options they have before leaving their homes and can adjust their schedules rather than going to the cinema with uncertainty of what movies are showing.
Although IMAX has tried to differentiate itself in the film market, there are several competitors like Regal Entertainment Group (RGC) and AMC Entertainment who produce regular films and operate multi screen theatres. These other theatres produce their films at much cheaper prices and also produce different genres of films unlike IMAX. These broader choices make customers more inclined to patronise these other competitors. IMAX also produces mostly documentary films and should make it imperative that the films produced in a particular area match the culture of the people in that area as inappropriate consideration of the needs of a specific environment would affect IMAX’s operations. Furthermore, as most films can only be shown in about 24 locations at a time, the refusal of some locations to show a given film would significantly reduce profits.
In addition, although IMAX obtains some of the equipments needed from suppliers, most of the assembling of the theatre equipment is done in-house. IMAX has skilled staffs that possess the capability and experience to put together the components. Digital re-mastering technology is a technology developed by IMAX Corporation which has been used in the conversion of films such as Harry Porter and Spiderman into the giant screen format. This brings a new viewing experience into the cinemas. Some other selected films have been enlarged and also converted to 3D taking the re-mastering process to another level.
The application of the structure-conduct-performance (SCP) is an approach in analysing the performance and industry structure of organisations based on the structure of the industry, firm conduct and market performance. The Structure, Conduct Performance theory states that “the structure of an industry (of the degree of concentration) determines conduct (collusion and monopolistic pricing) which determines performance (abnormal profitability or the rate of return)” (Theron, 2001).
The application of the SCP model assists in the determination of competition within the market. The structure of the market could be a degree of consumer awareness about the products offered by the organisation as well as the level of competition. Some of the factors impacting upon IMAX are research and development, advertising and product differentiation.
Initially, IMAX was focused on producing and distributing large format films that were educational, yet entertaining and most of its theatres were located in aquariums, institutions, national parks and museums. Currently, IMAX has embarked on an expansion strategy by building cinemas in multiplexes and converting selected Hollywood films into IMAX format. In comparison to its competitors in the large film format industry, IMAX is the only company that converts commercial films into large format, making IMAX a monopolist in that aspect. This allows IMAX to regulate the market for large format commercial films which is constantly on the increase. IMAX also distributes its films to be shown in other theatres to help promote the films. IMAX’s differentiation has led to its massive growth in the film industry in terms of its revenue.
IMAX’s competitors in the large format film industry also pose as threat as customers going for substitutes is on the increase because there are many substitutes available and customers can easily find competitors offering similar products to IMAX at cheaper prices. This major distinguishing factor is that IMAX films are more highly priced though the product differentiation strategy of IMAX still allows customers to purchase the tickets and watch the films irrespective of the high cost. IMAX’s major source of revenue is from long-term theatre system lease and maintenance agreements, production and distribution of films as well as the operation of theatres. The in-house assembling of technology used to project movies on giant screens by IMAX also helps to save costs although most of the major costs are general theatre operations, costs of theatre operations, production of films and royalties.
As IMAX’s major market is the educational and entertainment market, school students account for about 20% of the population that visit the theatres and majority of the visits are for excursion purposes (GPCET, 2010). This occurs mostly because a wide range of films are suited to school curriculums and teacher resources and the educational market is a significant source of revenue during the week and school time.
TASK 2 – ANALYSIS OF THE BUSINESS STRATEGY
The constant advancements in Information Technology and changing consumer wants have led organisations to go global by a worldwide integration of their business activities. Efficiently circulating their activities globally provides the advantage of standardisation of consumers wants. Globalisation has been classified as “worldwide scope, worldwide similarity and worldwide integration” (De Wit and Meyer, 2004).
The strategy of a company is concerned primarily with aligning its operational and development activities with business needs and with seeking strategic advantage for future competitiveness. IMAX operates multinationally with a global business strategy. A firm is said to be global if its headquarters is in one country and its operational activities are carried out in one or several other countries. In IMAX’s case, its headquarters is in Canada and has over 470 cinema locations operating in about 45 countries in the world. Porter (1986:13) also defines a global firm as “one in which a firm’s competitive position in one country is significantly influenced by its position in other countries”.
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Having a central headquarters location allows resources like knowledge to be shared globally. It also allows global coordination of core operations and centralised planning. This in turn empowers the organisation to efficiently support its different functions. This is of great advantage to IMAX as a localised strategy would need to be adapted to a range of political, economic, social, cultural and technological forces.
The centralisation of IMAX’s activities requires that strategies are integrated worldwide for competitive advantage and meeting its goal of delivering the world’s most immersive movie experience. This implies that the level of risk is increased as a result of the integration of activities. Some of the challenges they face include religious and cultural barriers. Bartlett and Ghoshal (1998) suggest that global firms need to have both a multi-domestic strategy and a global strategy to help reduce these challenges and merge global coordination with local responsiveness. Some of the changes that could be made are structuring the business to fit the needs of specific environments as one product may not satisfy the needs of all its customers.
IMAX films are unique in the sense that it features large format films which differentiates it from other film producers. This format is particularly of interest to viewers who like to watch movies on big screens as the movies are produce in 3D images. IMAX tries to create its niche by making a difference in the quality of the films it produces and locating its theatres in prestigious locations. According to Galliers and Leidner (2003), vertical integration is when an organisation controls the production and distribution of its product and services so as to boost that organisations market control. The integration strategy that has been adopted by IMAX is that of vertical integration and this is evidenced by the fact that it is into distribution, processing and exhibition of its own films. Although IMAX is smaller than some of its competitors, it also distributes the films it produces. IMAX has gained ownership of several companies that supply the cameras, projectors, audio development and screens and also has several subsidiary companies that work on post production of films. This strategy helps IMAX to increase control over its suppliers and to reduce the fluctuation of the prices of equipment it requires for its operations.
Also, since most of the films are targeted towards children and younger people, IMAX needs to be aware of the difference in the age and educational level of its customers as this can have an influence on the demand for its products. As such, its products need to be varied to meet the specific needs of its various customers around the world. Films should be produced for adults as this would broaden the market. Another modification that can be made is in the use of its technology which is the main source of competitive advantage. Advancements in technology could render existing technology redundant and this would require capital to make modifications to equipment in use. IMAX can also vary its business. Advertising should also be increased as most customers are unaware of the difference between an IMAX film and a regular film. These advertisements would inform potential customers of the benefits of the IMAX experience as well as the differentiating factors from other cinemas. Advertising would create awareness among customers and increase the demand for IMAX films. Furthermore, IMAX film tickets cost discourages customers and prevents them from visiting the theatres. It is recommended that the pricing of tickets be reduced to encourage new customers to patronize and for present customers to continue using IMAX services customers. This would lead to an increase in the demand for IMAX films as more people would be able to easily afford the cost.
One of the challenges faced by global firms is that they try to simultaneously serve both local and international markets, thus creating a standardised product for all markets. The movies created by IMAX are not adapted to the needs of some of its customers in other countries. As such, there are films which do not completely meet the requirements of most of its customers. In addition, variances exist in the cultural beliefs of different markets. Schoenberger (1997:116) suggested that “corporate culture is generally viewed as a set of social conventions embracing behavioural norms, standards, customers, and the rules of the game underlying social interactions within the firm”. IMAX needs to allow each location to make strategic decisions that will meet the socio-cultural needs of the consumers in that specific region. In order to achieve this, some of the decision-making processes need to be de-centralised.
IMAX’s success cannot be solely attributed to the use of technology. Its competitive strategy is not just in the use of the technology but in the focus of its capabilities on its differentiation of producing films solely in large screen format. The use of this technology is combined with its business innovation and the ability to implement effective business strategy to achieve its vision. Making several changes to IMAX’s strategy might pose a difficulty because it might destroy the organisation’s source of differentiation that has been uniquely identified to IMAX.
TASK 3 – REFELCTION
This section discusses a reflective view of the experience while applying the PEST analysis and SCP model in the analysis of IMAX’s environment as well as a reflection on the analysis of IMAX’s strategy. This section seeks to identify the challenges faced during the coursework as well as alternative techniques that could be applied in future analysis.
In using the PEST analysis, all the factors had to be categorised as political, social, economic or technological. The use of this method sometimes is not exhaustive as there are some other factors that occur beyond this scope and a suggestion is to make use of PESTEL which further incorporates economic, ecological and legal factors. This would enable more factors which affect the external and internal environment of the organisation to be identified and responded to. Furthermore, the simultaneous use of Porter’s five forces would have helped identify major influencing factors which could easily be overlooked. Porter’s five forces also combine the industry analysis with business strategy development for a more comprehensive overview of an organisation.
Furthermore, it is not enough to identify all the influencing factors but to also identify the factors which are most likely to change and the impact these factors will have on IMAX. As such, each of these factors could be ranked with the highest ranked being the factors which are most critical to the business. A further analysis will then be to assess the impact of changes of these various factors on the business. This would be used in planning and also to enable modifications to be made to the existing strategy. As these factors would affect various levels of IMAX as it is a global organisation, it would also be useful to assess which level the factors impact on i.e. locally, nationally or globally. Using the PEST analysis and SCP model simultaneously assists in business and strategic planning and product development. Hence the result of both analysis performed can be fed into the strategy of the business to identify areas for growth and aligning those to existing strategy would help maintain competitive advantage.
Reflecting on this coursework has made evident how the analysis of the factors influencing an organisation could help with understanding the market structure as well as plans for expansion into new markets. This analysis helps bring better control over the decision making process in organisations. Although the analysis does not provide clear-cut guidelines to success, it provides a clear plan which can be adapted wholly or partially for a positive outcome, while highlighting the areas that can be improved upon or done differently in future analysis and design of IMAX Corporation.
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