E-Sonic Executive Summary and Strategic Analysis

E-Sonic Executive Summary

The proceeding evaluation provides a strategic analysis of Sonic Records compensation system and their newly established subsidiary and online music store E-Sonic. The development of a strategic analysis guides all decisions made regarding compensation systems. This strategic analysis reveals firm-specific challenges, objectives, and initiatives that allow E-Sonic to align the goals of a compensation system effectively with those of the company’s strategy, challenges, and objectives. The strategic analysis allows a better understanding of the business environment and the external market challenges E-Sonic may face in addition to its internal capabilities as they aim for better alignment of a competitive system design.

Through the examination of external market challenges such as industry profiles, competition, foreign demand, long-term industry prospects, and labor market assessments as well internal functions and Human Resource capabilities, e-sonic is poised to become a leader in the online music industry. The study determines their influence over the distribution of music online as E-Sonic embarks into an industry that is ever-evolving with revolutionary software and marketing tactics. In an effort to corner the market it is imperative to offer consumers an innovative product through outstanding customer service and ease of use. Nevertheless, market research regarding the needs and wants of knowledgeable consumers will also play a key role. Despite competition, room remains for not only online music distribution, but for added products within the entertainment industry such as e-books and on demand movie streaming.

The declining demand for music CD’s has opened the door for the new business model of an online music store. While offering innovative online products would be valuable in this technological era, it is likewise important and would benefit E-Sonic to understand and meet the needs of foreign demand. Globally, digital sales make up more than half of the music revenue.

Management has no experience in software development and online marketing. Taking advantage of offerings through exceptional service that extends beyond the domestic market would offer a larger customer base. Besides skilled Market Researchers and Developers, highly knowledgeable and qualified, friendly talent is key to the success of E-Sonic; therefore, it is equally important to offer competitive incentives for recruitment and retention purposes. With a positive and encouraging outlook for E-Sonic, the compensation consulting team suggests a market competitive compensation system that recognizes the achievements of the individual contributors.

Strategic Analysis

As a subsidiary of Sonic Records, E-Sonics provides an online service of downloadable music. The identification of E-Sonic’s industry based on the North American Industry Classification System (NAICS) falls into two different codes: 334614 and 512220. According to the United States Census Bureau, 334614 falls under the category of “Software and other Prerecorded Compact Disc, Tape, and Record Reproducing” and is comprised of

establishments primarily engaged in mass reproducing computer software or other prerecorded audio and video material on magnetic or optical media, such as CD-ROMs, DVDs, tapes, or cartridges. These establishments do not generally develop any software or produce any audio or video content. This industry includes establishments that mass reproduce game cartridges. (www.census.gov)

The second code, 512220, applies to “Integrated Record Production/Distribution”.

This industry comprises establishments primarily engaged in releasing, promoting, and distributing sound recordings. These establishments manufacture or arrange for the manufacture of recordings, such as audio tapes/cassettes and compact discs, and promote

and distribute these products to wholesalers, retailers, or directly to the public. Establishments in this industry produce master recordings themselves, or obtain reproduction and distribution rights to master recordings produced by record production companies or other integrated record companies. (www.census.gov)

External Market Environment

Examining the five elements of the external environment, the strategic analysis will investigate industry profile, competition, foreign demand, industry long prospects and the labor market that comprise the business of E-Sonic. E-Sonic’s external market environment has been faced with a declining demand for music CD’s; therefore, it is in the company’s best interest to shift their focus and evolve their business model. Internally, management has no experience in software development or online management. Recruiting talent in this realm would aid in catapulting the company to the next level. Needless to say, establishing a competitive and inviting compensation structure would attract and retain the proper talent.

Industry Profile

Having been a leader in the production and recording studio industry boasting in excess of $15 billion in revenues, Sonic Records has experienced a decline in the demand for music CD’s within the last five years. With the evolution of technology and advances in media access, alternatives to CD’s have challenged the industry. Despite government regulations attempting to control music pirating, CD burning and general consumer preferences, Sonic Records has been challenged to the point that declining sales have exceeded 30 percent. Incessant regulation enforcement by the Recording Industry Accusation of America coupled with fear of litigation on behalf of culprits has deterred illegal activity. Additionally, the rise of numerous on line music stores are evidence of high consumer demand. In this regard, Sonic Records is inspired to adapt to the new revolutionary music delivery method, adjust rapidly and in response to the market shift decide to form a subsidiary company named E-Sonic.

Competition

Although E-Sonic’s competition may be fierce, they are determined not to be left behind by creating an online music store that will compete with already established players in the industry. With competitors such as ITunes, Rhapsody and Amazon, along with free Online and Customizable Radio Stations such as Pandora and IHeart, they must be careful to establish a competitive strategy and a digital business model to compete with the lure of online piracy. They need to be distinguished from the competition through not only branding but a user-friendly software platform. Their mission is to “create the world’s leading online music store; ensuring Sonic Records’ prominence in the record industry’s future.” (Martocchio, 2015)

Foreign Demand

According to a 2013 NY Times article, foreign demand figures reported by the International Federation of the Phonographic Industry provided significant encouragement. Nonetheless, although the music industry’s decline in general appeared dismal, digital sales and other new sources of revenue grew significantly enough to offset the continuing decline in CD sales. Although once believed that the so-called digital revolution was killing music in fact it is believed that today it is indeed saving music according to Edgar Berger, chief executive of the international arm of Sony Music Entertainment. Digital delivery of music has lowered the record companies’ overhead; therefore, jumping on the band wagon, E-Sonic can take advantage of the demand and experience robust profitability in the coming years.

In the United States as well countries such as India, Norway and Sweden, digital sales already make up more than half of the music revenue while executives’ skills and knowledge are

back in demand. For example, “book publishers in London and New York…have been hiring digital experts away from record companies, analysts say, as they seek to build up their e-book businesses.” (Pfanner, 2013) Just one more competitive edge that E-Sonic will have to overcome. Additionally, it has been reported that in countries like Russia and China, where the industry is still emerging, piracy remains prevalent and legitimate digital services are struggling.

Industry Long-Term Prospects

The long-term industry outlook for E-Sonic is not only positive but encouraging. According to PwC (PriceWaterhouseCoopers), two-thirds of revenue growth from consumers and advertising will be digital. Additionally they suspect that

of the US$241bn growth in total entertainment and media consumer and advertising revenue from 2013 to 2018, US$157bn will come from digital sources. So 65% of global entertainment and media growth – almost two in every three extra dollars – will be from digital.(www.pwc.com)

Through the expansion of new markets and creation of new models, the music industry continues to evolve and grow. This evolution has amassed users and expanded the global audience for artists. Digital downloads remain a key revenue stream; nevertheless, downloads account for two-thirds of digital revenues serving to drive digital growth in developing markets such as South Africa, Hong Kong, Philippines and Slovakia. According to a report publicized by the International Federation of the Phonographic Industry (IFPI), revenues for the digital industry grew 4.3% in 2013 for a total of $5.9 billion. (Figure 1) Streaming and subscription revenues rose by more than 50% over the past year to reach $1.1 billion, helping overall sales of recorded music in Europe grow for the first time in 12 years. Globally, digital formats today account for 39% of the global revenues with the majority of the revenues coming from three out of the ten top markets. Generally, revenues from recorded music grew in Europe and Latin America, stablized with a growth of .08% in the United States and dropped 16.7% in Japan- the world’s largest market. In Sweden, France and Italy streaming is already more popular than downloading. Music subscription services have surpassed $1 billion in sales worldwide while consumers increasingly opt to pay for online music. In a three-year period the number of paying subscribers rose from 8 million to 28 million.

Labor Market Assessment

A labor-market assessment is necessary to describe key market characteristics, the current labor supply and future trends influencing the availability of qualified employees for E-Sonic. Besides some of the typical occupations, the most important positions at E-Sonic are comprised of Customer Service Representatives, Software Engineers/Developers and Market Research Analysts. Customer Service Representatives’ handle customer complaints, process orders, and provide information about an organization’s products and services. The median hourly wage was $14.70 in May 2012 with a projected growth of 13 percent from 2012 to 2022, about as fast as the average for all occupations. Overall job opportunities are good and possessing computer skills should offer the best job prospects.

Customer service is important to E-Sonic for many reasons. First of all, customers are vital to an organization; therefore, it would be challenging for E-Sonic to be successful without customer service. Customer service is often the only contact the consumer has with an organization. If customers expend a lot of money per year with a company they expect a company's customer service department to resolve their issues. Customer Service is also important to E-Sonic because it can help distinguish the company from its competitors. A company who offers excellent customer service is more likely to get repeat business consequently benefiting with greater sales and profits. When a consumer has a positive experience with a company's customer service department there are more likely to share their experience boosting sales. On the other hand, bad Customer Service can often tarnish a company’s reputation potentially resulting in loss revenue.

According to the Bureau of Labor Statistics (BLS), in 2012 an Engineer or Developer in this industry earned an average of $99, 000 per year. With an expected job outlook of 22% expected growth from 2012 to 2022, this highly skilled and accomplished profession will experience greater growth than the average of all occupations. The main reason for the rapid growth, according to BLS, is a large increase in the demand for computer software.

Software Developers are described as “the creative minds behind computer programs. Some develop the applications that allow people to do specific tasks on a computer or other device. Others develop the underlying systems that run the devices or control networks.” (www.bls.gov) They must possess qualities that enable them to solve challenging problems, be able to quickly acquire knowledge as the field constantly evolves, have a business oriented approach to software development and be team oriented.

Lastly, Market Research Analysts “study market conditions to examine potential sales of a product or service. They help companies understand what products people want, who will buy them, and at what price.” (www.bls.gov) The median annual wage for market research analysts in 2012 was $60,300. Market Research Analysts jobs are projected to grow 32% from 2012 to 2022, much faster than the average for all occupations. Employment growth will be driven by an increased use of data and market research across all industries as the needs of consumers evolve and the company aims to quantify their marketing results with the organizational strategy.

Functional Capabilities

Considering the functional capabilities will prove crucial to E-Sonic’s success. Through the assessment of such operations as engineering, research and development, management information systems, human resources and marketing a comprehensive compensation strategy can be develop that operates in line with the organization’s business objective. Competition among online music stores makes it necessary for E-Sonic to maintain functional capabilities specifically in marketing and operations to spread the word of competitive offerings. Nonetheless, talent acquisition and retention should successfully align with the company’s compensation strategy.

Human Resources Capabilities

Human Resource capabilities are assessed through the analysis of the strengths and weaknesses of E-Sonic’s labor force in an effort to design a compensation approach consistent with talent procurement and retention initiatives. The knowledge of the workers along with enhanced productivity drives the core of their competiveness within the industry. Instituting merit programs can enhance the customer service experience by rewarding employees with predetermined performance incentives. Likewise, pay-for-knowledge programs would reward Software Engineers and Developers, as technology evolves and they aim to maintain ahead of the competition.

References

Garside, J. (2014, March 18). Music streaming breaks through $1bn sales barrier. Retrieved from http://www.theguardian.com

Global data insights. (n.d.). title of article? Retrieved from http://www.pwc.com/gx/en/global-entertainment-media-outlook/data-insights.jhtml

Martocchio, J. J. (2015). Strategic compensation: A human resource management approach (8th ed.). Retrieved from https://view.ebookplus.pearsoncmg.com

Moore, F., & Domingo, P. (2014). IFPI Digital Music Report 2014. Retrieved from http://www.ifpi.org/

Pfanner, E. (2013, February 26). Music Industry Sales Rise, and Digital Revenue Gets the Credit. Retrieved from http://www.nytimes.com/2013/02/27/technology/music-industry-records-first-revenue-increase-since-1999.html

Shuttle, R. (n.d.). Why Is Customer Service Important to an Organization? Retrieved from http://smallbusiness.chron.com/customer-service-important-organization-2050.html

"U.S. Bureau of Labor Statistics." www.bls.gov. U.S. Bureau of Labor Statistics, n.d. Web.