Analysis of Manchester United Business

Report: Manchester United March, 2014

ELORM OBEN-TORKORNOO MSC. INTERNATIONAL MANAGEMENT (STUDENT) UNIVERSITY OF NORTHAMPTON, U.K.

STRM 047: STRATEGIC MANAGEMENT

Contents 1.

INTRODUCTION .............................................................................................................................. 2

2.

ASSESSING UNITED’S CORE COMPETENCIES ................................................................................. 2 2.1. Evaluation using Mckinsey’s 7s ................................................................................................... 2

3.

UNITED’S CORE COMPETENCES ..................................................................................................... 5

4.

ATTRACTIVENESS OF UNITED’S KEY MARKETS.............................................................................. 5

5.

RECOMMENDED STRATEGIES ........................................................................................................ 7

References: ............................................................................................................................................. 9

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1. INTRODUCTION Football has become such a success globally that it is viewed by some as a laboratory for studying success (Szymanski,2014). The global industry for football is estimated to be worth £150billion with the cumulative revenue from the English Premier League being about £1billion (Szymanski, 2014). Leagues and football events such as the English Premier League, Spanish La Liga, Italian Serie A and World Cup have contributed to generating so much growth in the industry, especially over the last three decades. One team that has won the admiration of its peers and generated a lot of fans both in their home country and offshore is Manchester United with an estimated global followership of about 350million fans (Grant, 2012).Its good corporate and football strategy is also a contributing factor. This report will analyse the business performance of the club between the years 1992 – 2012. The author will apply various strategic management models like the Michael Porter’s Value chain and 5 forces together with relevant financial ratios and McKinsey’s 7s model to investigate into the core competences of the organisation and how these contribute to making the club successful. The report will also look into the fan base of the club and the opportunities their markets presents. Finally, this report will go the extra mile to propose two strategies that will most likely keep the club at the top for several years to come.

2. ASSESSING MANCHESTER UNITED’S CORE COMPETENCIES “Core competences” as defined by Prahalad and Hamel are some of the most important sources of uniqueness to an organisation: They are things that the company does very well and that no one else can copy quickly enough to affect competition. They do not diminish as they are used. The two authors enumerated three tests for the core competences of organisation: inimitability, acceptance in other markets, significant contribution to perceived customer value (Economist, 2008) To be able to fully understand what these competences are, the author will use the McKinsey’s 7s model which looks at the company’s structure, systems, business strategy, staff, skill, style and shared values. These shall be evaluated vis-à-vis the company’s financials and major milestones in the period 1990-2012.

2.1. Evaluation using Mckinsey’s 7s 2.1.1. Manchester United (2014) has clearly defined its strategy as follows: 

Expand portfolio of global and regional sponsors: The Company’s move to open an office in Asia and North America in addition to their offices in London and Manchester is intended to position them to secure sponsorships with leading global brands. Manchester United is well aware of its brand equity and is tapping into that to generate a lot of revenue for itself through sponsorship deals. In the 2010-2011 year, the percentage of sponsorship to revenue was the highest (at 31%) among top football teams in Europe. In that year, a 27% increase in commercial revenue was the major contributing factor to the club’s increased revenue from £286.4m in 2009-2010 to £331.4m. A major attraction for the companies was the fan base of the club.

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Further develop their retail, merchandising, apparel & product licensing business: This strategy generally looks at: increasing their product range, increasing locations and expanding their portfolio of product licensees all over the world. This strategy is also very dependent of the fan base of the club. Over half of the fan base of United is in Asia and these fans are loyal to purchasing its merchandise. Increasingly, United’s

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Exploitation of new media & mobile opportunities: Internet on mobile devices and social media has opened new windows of opportunity for multiple growth opportunities and new revenue streams. The company intends to both leverage on third party social media sites and also developing their own digital properties. According to Deloitte (2014), United is among the top 5 football clubs most followed on social networking platform, Twitter. This presents an opportunity for the club to transfer a lot of its followers to twitter and get followers more engaged. Consequently there are monetising opportunities within having strong numbers in social media.

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Enhance the reach and distribution of United’s broadcasting rights: Live sports is of great interest for fans to consume activities in real time. This results in higher audiences and increased interests from television/radio broadcasters and advertisers. Manchester United is well positioned to benefit from the increased value and the growth in distribution associated with the Champions and Premier Leagues and other competitions. In furtherance, the club’s own television imprint, MUTV, which delivers Manchester United programming to 54 countries around the world plans to expand the distribution of MUTV by improving the quality of its content and its production capabilities.

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Diversify revenue and improve margins: Manchester United aims to increase the revenue and operating margins of its business as its further expands into high growth commercial businesses, including sponsorship, retail, merchandising, licensing and new media & mobile. By increasing the emphasis on their commercial businesses, the club will further diversify its revenue leading to the generation of improved profitability.

2.1.2. The structure of the organisation is clearly defined and separated into ‘management on the pitch’ and ‘management off the pitch’. This clear distinction of “who runs what in what aspect?” has been a contributing factor to the success of the club. The club is owned by the Glazer family who are seated on the Board and interfere very little with the activities of the club and they allowed David Gill and the Alex Ferguson the leeway to operate up until their decision to retire in May 2013. In contrast, rival teams like Chelsea and Liverpool’s managers have had to deal with weak corporate governance structures thus, Jose Mourinho left Chelsea when Roman Abramovitch kept interfering with team strategies and player acquisitions.

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A strong corporate governance structure within Manchester United is cited within its organisational structure. The owners, The Glazer family, only operates at the Board level and leaves the day-to-day running of the team to chairman Ed Woodward and coach David Moyes. This, seemingly, hands-off management style of the owners allows the 350million fans of the club to continue to feel like ‘owners’ of the club, thus helping build a stronger brand equity for the company. 2.1.3.

Former manager Sir Alex Ferguson developed an entire system of scouting, training, team discipline, tactics, and strategy which has contributed to the success of the team over the last 26 years. The new Ferguson training regime paid meticulous attention to attendance, punctuality and effort (Grant, 2009). During these training sessions, he was able to refine technique to the point where difficult skills became a matter of habit. He achieved this by making the players repeat skills several times (Grant, 2009).

2.1.4.The leadership style of Sir Alex Ferguson on and off the pitch is one that has contributed to the success of the company. His intentions and vision for the club were of a long term nature. On taking up leadership of the team, he expanded the scouting in order to widen the quest to sign talented young players. The team he selected, which included Ryan Giggs, David Beckham, Nicky Butt, Gary and Phil Neville, and Paul Scholes won the English League youth championship in 1990 (Grant, 2009). This same cohort of players went on to become the core of the team between 1994 – 2003, and consequently dominated English football. Elberse (2013) describes Ferguson as far more than a coach. He played a central role in the United organization, managing not just the first team but the entire club. According to the club’s former executive, David Gill, “Steve Jobs was Apple; Sir Alex Ferguson is Manchester United” (Elberse, 2013). This showed the extent to which the manager led the club efficiently. The leadership of the owners of the club also needs to be recognised as visionary. They have concerned themselves with the goal of looking into the corporate strategy of developing the club as a brand and not just a football club, as described by David Gill (Grant, 2010). He developed a good balance of motivating and criticizing his players, and this made him able to bring out the best in his players. Central to his leadership style was ensuring that no player so himself to be more superior to other players. He was focused on building character of the players (Grant, 2010) 2.1.5. Manchester United’s staff includes both off-pitch and on-pitch personnel. The team’s on-pitch staff (i.e. players) are the ones the company spends a great percentage of its revenue on. Wages as a percentage of operating revenues was 46% compared with the top six average of 69.3%. This means that the company is managing its resources more efficiently. It also buttresses the strategy of the company which focused more on building the brand. The company could be seen to be employing a cost-cutting strategy approach where staff are concerned. This is partly due to the high debt hanging on the balance sheet of the club.

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Over a 9-year period (i.e. between 2003 – 2012), United spent £77million on net transfer fee compared with the European industry average of £341million. The highest spender on transfer fees within the same period was Real Madrid, spending about £714million. 2.1.6. Skill in football has to do with a player’s ability to score goals while leveraging on the talent of other team mates. This is what Ferguson tried to develop within United. His focus was on building team skills more than individual skill (Grant, 2012).As a result, out of the top 50 performing footballer (as of April 2012), on 2; W. Rooney and D. Welbeck, played for Manchester United (Grant, 2012). This is probably one area that the company should strongly look at. For the team to continue making higher revenues, it will need to build a strong team made up some of the best players in the world. United may have to go on a buying spree to top talent, but this requires funding. However, one important thing worth noting is the ability of Management of the club, which led by David Gill until May 2013, to convert its strong followership into revenue for the club. This skill goes further contribute to the positive net profits of the club. In the year 20102011, the company had the highest club value of £1.62billion even though it was the third highest revenue earner. 2.1.7. Manchester United’s shared values are clear within and without the organisation. David Gill was explicit on this when he said the Manchester United is a brand and not just a football team (Grant, 2010). This is one aspect of the framework the company has been able to build on to its advantage very well.

3. MANCHESTER UNITED’S CORE COMPETENCES From the analysis above, it is evident from qualitative and quantitative data that the first core competence of the company is its brand. This brand is evident in its loyal fan base of about 350million people (Grant, 2012), more than 50% of which are based in Asian emerging market (a strong target for major multinationals seeking to expand). United’s brand cannot be copied unless franchised to someone else. The brand is very much valued by customers which explains why companies will spend millions sponsoring the team; because of perceived brand equity. In 2010/2011, the club saw an increase of 27% in its commercial revenues. This was mainly due to the 4-year deal with British risk management and insurance company, AON, which began in 2010. It was also the result of a contractual increase in the club’s alliance with Nike and new commercial partnerships with Telecom Malaysia and Turkish Airlines (Deloitte, 2012). Also in 2012/2013, the club signed a record-breaking sponsorship with General Motors (Chevrolet) of about £357million (Deloitte, 2014). These attractions are as a result of the brand which makes a significant contribution to the perceived customer benefits. The brand has given the club access to new markets in Asia, where more than 50% of its 350million fans are, and Africa. These numbers cannot be easily imitated by rivals. 4. ATTRACTIVENESS OF UNITED’S KEY MARKETS Football is by far the most globalised sports in the world, and since its introduction into Asia about half a century ago, football has been undergoing different and complex implications in relation to Asian societies (Cho, 2014). Manchester United boasts of having more than half of its fans based in 5

Asia. United’s fan base is estimated by Grant (2012) at 350million and Manchester United (2014) at 659million. For the purpose of the analysis, we shall stick to the former since our scope for this paper is the case by Grant (2012). United’s key markets in Asia include: China, Indonesia, India, Japan and Korea. To assess the attractiveness of United’s key market, the author employs Michael Porter’s 5 forces and takes a shareholder view of the analysis.

Having used the Porter’s 5 forces to analyse the attractiveness of the Asian market the following conclusion is reached:

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Based on the analysis above and results obtained by way of level of influence of various forces, it can be concluded that the market in Asia is very attractive for Manchester United to boost its revenues. Opportunities exist for active participation of the region’s local football leagues.

5. RECOMMENDED STRATEGIES Having done an assessment of United’s internal strengths/core competences and attractiveness of its key markets, the author would like to propose two strategies that will leverage on the core competences of the company while taking advantage of its largest markets. The strategies are: a. Franchising the club to Asia to participate in some of Asia’s top leagues b. Clearing the Balance sheet through private placement (to Asian investors) FRANCHISING UNITED So far, even without active participation in Asia, the club has been able to win the hearts of more than half of its 350million fans in Asia. The football style, leadership of Ferguson, the numerous trophies won are all contributing factors to this large followership in Asia despite passive participation. Franchising the club to Asian investors will be a leap unprecedented yet largely spoken of. Regarding revenue, franchising will create a new income stream for the club. The club could charge a minimum of 3-5% of its market value as franchise fee and this could keep the club at the top of the table for top income earners in Europe for football. They royalties that will come into the business every year will also represent another income stream. This new path to global reach and increased revenue to also be expanded to markets not yet looked into, like the African market. The weight of franchise fee paid by the investor who takes the African franchise may be lower than that of Asia, but it future royalties from the franchise could greatly increase. African players have been influential in European soccer and thus pull a large followership on the continent. Franchising will also create the opportunity for easier scouting of players in the long and very long term thus maintaining the growth of the club. In terms of cost, the club is most likely to spend less in the future on transfer fees and player acquisitions as the franchises will be able to trade players with the parent company.

CLEARING THE UNBALANCED SHEET Manchester United’s high debt of about £650million and annual interests of about £60million are the major reasons for the clubs inability to purchase some of the world’s best players, which is having a negative effect on its performance on the pitch in recent times. In comparison, cross-town

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rivals, Manchester City, are able to spend millions in player acquisitions and this has resulted in better performances on the pitch. With the strong brand it currently has and the well-structured organisation which is an admiration to many, the company can boldly offer some percentage of its ownership to like-minded Asian businessman with a passion to see sports grow all over the world. While good returns on investment a key criteria, and which United can offer, the investor should be willing to sit back like the Glazers have done all this while. Some level of debt is good for business growth because it makes people run affairs more efficiently. For this reason, the club may want to maintain some level of debt, about one-fifth of its current debt as a check on the company. Having a low debt-to-equity ratio is a good sign of good management. Manchester United has the potential to become the most respected global sports team in the world. The stage is set for this to be a reality if management will consider and act swiftly on these recommendations.

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References: Deloitte (2012) Football Money League. DELOITTE http://www.deloitte.co.uk [Accessed 20th March 2014]

[online].

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Deloitte (2014) Football Money League. DELOITTE http://www.deloitte.co.uk [Accessed 20th March 2014]

[online].

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from:

Available

from:

Economist (2008) Core Competencies. Economist [online]. http://www.economist.com/node/12231124 [Accessed 26th March 2014)

Elberse A. (2013) Ferguson’s Formula. HBR [online]. Available from: http://www.hbr.org [Accessed 26th March 2014] Grant, M.R. (2009) Contemporary Strategy Analysis. 7th Edition. West Sussex: John Wiley and Sons Ltd.Pp. 84 – 102. Grant, M.R. (2012) Contemporary Strategy Analysis: Texts and cased. 8th Edition. Chichester, Hoboken, N.J.: John Wiley and Sons Ltd.pp. 84 – 102 Manchester United (2014) Investor Relations. Manchester United [Online]. Available from: http://www.manutd.com [Accessed 20th March 2014] McGowan T. (2012) Chinese Soccer: Vanity Project or Emerging Super-power. CNN [online]. Available from: http://www.cnn.com [Accessed 26th March 2014] Szymanski, S. (2014) Why is Manchester United so Successful? LBS-BSR [online]. Available from: http://bsr.london.edu/lbs-article/644/index.html [Accessed 20th March 2014]

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