ENT Entertainments

CASE HISTORY:
ENT Entertainment Co (ENT) is a large, diversified entertainment business based in Teeland. The
company's objective is the maximisation of shareholder wealth for its family owners. It has four
divisions:
(1) Restaurants

(2) Cafes

(3) Bars

(4) Dance clubs Recently,

ENT's board have identified that there are problems in managing such a diversified company. They have
employed consultants who have recommended that they should perform a Boston Consulting Group
(BCG) analysis to understand whether they have the right mix of businesses.

In Teeland, the economy is generally growing at about 2% per annum. The restaurant, cafe and bar
sectors are all highly fragmented with many small operators. Consequently, a market share of more than
3·0% is considered large as that is comparable to the share of the largest operators in each sector. There
are fewer small late night dance club operators and the market leader currently holds a 15·0% market
share.

ISSUES AT HAND:
Division of Restaurants
The division has a small market share in a low-growth business area, rendering it a BCG pig.
Therefore, the restaurant segment seems like a possible divestment nominee, unless it has
relations with some of ENT's other divisions.
Division of Cafes
The cafés division has also a relatively low market share but operates in a high-growth market
sector. Then the query mark will be marked. There is still strong development in the retail
sector, but it still remains quite fractured. This could be necessary for ENT to expand by
purchasing competing businesses. Alternatively, ENT might propose selling its caffee division to
another organization who wants to expand the sector if they did not want to invest in this
direction.
Division of Bars
In a market with small, negative performance, the bar division is the market leader (high
market share). This is a cash cow to be classified. Bars is the main segment of ENT at the
moment and in 20X0 produced about 55% of its overall sales. Consequently , given the Bars
division 's role as a cash cow in the group, the current decline in the bar market should be a
concern for ENT. ENT will continue to use the Bars segment for producing cash for certain firms
in its business, but the capacity of the Bars sector to raise cash for the remainder of the
company will be limited by the reduction in time.
Importance of Quality Management
It also highlights the significance of reducing prices, as the bar industry appears to be at the
advanced stage of its life cycle. The degree to which ENT will grow profitably appears restricted
by increasing revenue, so that cost reduction can be viewed as the way to increase profitability
instead.
Clubs of Dance
In a sector with relatively fast development the division dance clubs has a comparatively strong
market share (although it is still less than 1). This is currently classified as a mark because ENT is
still not the market leader in the industry, but it can become a star when it is able to gain
leadership in the market.
Its market share is already relatively close to the share of the market leader and could therefore
become the leader with continued investment. This segment is likely to play a key role in
ensuring ENT's long-term success, especially if some more mature companies continue to
decrease their performance.
FACTS:

Division Market growth (%)

Average of annual growth rates
20X1 20X2 20X3 (20X0-X3)
Resturants 1.0 1.0 - 0.67
Cafes 9.0 11.0 9.0 9.66
Bars (2.00) (3.00) (3.00) (2.67)
Dance Clubs 6.0 5.9 9.0 7.01

Market share (%)

ENT Relative
market Market market
share leader share
Resturants 0.5 3.0 0.17
Cafes 1.01 3.0 0.34
Bars 3.50 3.0 1.17
Dance ciubs 10.99 15.0 0.73
Quality Meaning
The BCG offers a valuable mechanism to assess the success of the different divisions. It
illustrates to management , for instance, that owing to the inherent disparities in the
development levels of the two markets, the bar segment does not rise at the same amount as
the club section.
Approach to Management
In addition, the identification of differences in the growth potential of the various divisions
shows that different management styles are appropriate for each division. In the club section,
for instance, capital investment may be required to sustain its growth rate, but cost control
should be a priority in the club division (in a more mature business sector).
Help to Create Measures of Results
Thus, managers should adapt their performance improvement programs and indicators to
match the various circumstances of each organization by helping to define standards and
strategies. For these reasons, metrics should be based on profit or return on investment in
high-growth divisions (cafes and clubs), while those in low-growth divisions (bars and
restaurants) should be concentrated in maintaining margins, cash control and cash production.
ALTERNATIVES:
Although the BCG matrix may be useful for offering a framework to control output, its utility is
constrained by its simplicity. For example, only when its relatively market share is greater than
one is the company unit considered to have high market share. But, by practice, that implies
that even the market leader has a large market share, and only one star or cash cow will remain
in-sector.
Forecast Future Synergies
Another concern arising from the nature of the model is that it isolates business entities, and
therefore overlooks possible synergies between them. Several bars and restaurants at ENT can,
for example, provide access to their clubs so that visitors may have a cocktail or have dinner
and then move into the party. In the event, however, that the link is between the business units
if restaurants and later some bars are diverted.
Business Sector Concept
The description of the business segments themselves is another possible issue by utilizing the
BCG matrix. For starters, the bar division has implemented a modern, seemingly popular style
of wine bars. This suggests it grew even though there were actually negative growth in the rest
of the bar division. This poses, though, the question of whether the wine bar model should be
regarded as a different sub-section (and a problem child requiring help and expenditure
required to grow) or if the cost management should be implemented as the rest of the bar
division would be.
Quality Monitoring not Portfolio Research
It should also be recalled that the BCG matrix is not intended as a Performance Management
System but as a product portfolio analysis. Thus, it is not a performance management system
itself, even if it can assist in determining the appropriate performance management approach
to a company.
RECOMMENDATIONS:
i. Concentrate on Operating Risks
The 50% incentive item of the pay plan is split into the expense budget. Divisional managers are
therefore likely to concentrate on cost control. Within the bars and restaurant divisions such an
strategy may be acceptable, but would possibly not be ideal for fast-growing cafes and clubs.
ENT will try to stimulate development in cafes and bars, but that is impossible to happen with
the existing remuneration plan. As a result, the congruence between the divisional managers
and the ENT overall is likely to be lacking.
Short term Success
Likewise, the focus on expense management can often contribute to short-term success
evaluations by Divisional Managers. Again, some divisions might actually be more helpful to
spend now (e.g. on marketing) to raise income and profit in the future.
Specifically, EVA identifies certain costs that should actually be considered as investment in the
future as expenditure in the financial statements (for example , advertising costs). Instead of
basing the managers' incentive package on expense estimates, ENT may therefore be best
advised to focus the incentive factor on achieving EVA objectives. This represents the
overarching purpose of the organization in the divisional incentive scheme.
ii. Context
It is evident from the fact that some of ENT 's divisions will concentrate on development (coffee
shopping and bars), whilst others (bars and restaurants) will concentrate on limits on prices.
Style Restricted in Budget
Within a budgetary model, the success of a manager is primarily judged by his willingness to
reach the target short-term, especially with a view to ensuring that real expenses are not
greater than the expense of budgets. 50% of the ENT incentive elements are focused on the
Board 's cost budget numbers which indicate that ENT can employ a budget-controlled design.
In a sector where it is necessary to hold expenses in control, a budget-constrained design might
be suitable that indicates it might be acceptable to use this design in bars or restaurant areas.
However, the cafés or parties are less likely to be appropriate.
Moreover, budget-constrained approach also contributes to weak relations between
management and employees, which allows details to be distorted which mis-reported.
In a competitive way a management's success is evalued rather than short-term results and
cost reduction in terms of long-term success and the potential to drive future growth.