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Real Madrid - The Business

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Autor:  anton  22 December 2010
Tags:  Madrid,  Business
Words: 2853   |   Pages: 12
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Real Madrid - The Business

1. Analyze Real Madrid’s business strategy using the value chain and competitive forces models. Why has the team been so successful?

Value chain analysis: [1]

Primary activities:

Operations - Here we can consider all the activities related with the team, including played games. We can think about a game as a performance, which the team sells among other things. Every time the team enters the pitch, Real Madrid is producing a product that sells.

Marketing and Commercialization - Clearly this is where Real Madrid focuses its activity. We can refer the way the club takes advantage of the player’s image to promote itself and make money. The Real Madrid name is treated as valuable brand such as Coca-Cola for instance. Real Madrid offer’s its products in its own stores and makes it possible to distribute its products over other distribution channels like the web.

Service - In this topic I consider important to refer all the service provided to the members of the club. Being a member has some benefits, like having access to tickets at a low price. The web-site has a section dedicated to the “socios”.

In these primary activities I don’t consider the inbound or outbound logistics, since it seems that it doesn’t apply to this kind of organization.

Support Activities:

Administration and Management – We can point out here the structure of the organization, and the executive staff composed by experienced managers. A good management team is a key element to achieve success. The internal organization reflects the club needs and every team knows exactly what it is expected to do.

Human- Resources – I would refer here the policy of professionalize the management team, but also very important the existence of internal mechanisms that evaluate employee performance making it possible to reward and recognize the good work. This system suffered some changes to be more transparent and fair, so the employee motivation can increase. Motivated employees are a success factor.

Technology – In this topic, we can refer how Real Madrid is using the new technologies to promote its image and brand. I’m speaking about the web-site for

instance. We also can refer how an advanced MIS is supporting the internal activity, by making it possible to integrate all the different systems that are incompatible otherwise.

Procurement – I think we can refer here how Real Madrid buys its main actives: the players. The club bases its decisions in some marketing factors when it comes to superstar signing, and tries to unveil as soon as they can if a young player can one day be part of the main team.

We can also analyze Real Madrid strategy with Porter’s five forces model. [2]

While it is difficult to a club reach the level of Real Madrid, it is not complete impossible. I would refer here a known case study of a new entrant, an English premiere league club: Chelsea FC. Under new management the club has been growing both as a team and a business. Many changes were also implemented including an image revamp, but Chelsea FC success is based in good sport results. Although Chelsea is not a competitor of Real Madrid or Manchester United yet, it is growing and is starting to compete specially with Manchester United that plays in the same league.

Mentioning suppliers, we can think about the power that the producers of sports equipment or travel agencies (to manage regular club flights) have when it comes to bargain a price for the service. I think that this power is not very high, and so this force is not the first menace to the clubs success.

When it comes to customers, if we consider two types of customers such as members and fans and institutional clients such as the sponsors (if we see sponsors has client of the club’s image), this force is one to pay attention for. As a whole fans have great power in the clubs life because they provide the club with resources. Also the sponsors can have a word, when it comes to provide the team with large amounts of sponsorship, compensations can be asked.

When it comes to identify substitute products we must look to the club products as entertainment products, and if we do so the possibilities of substitute products are countless. Just to refer some, we can have music concerts, cinemas, theaters and other types of sports. So this force plays an important rule when it comes to define the club strategy.

The traditional competitors are also an important force to consider. There’s a strong competition among some clubs like Real Madrid and Manchester United for fans. The more fans a club fans have the wealthier it can be. This competition does not stay in the pitch, since games between them are not frequent, but outside the stadium in the market ground, competition is high.

Finally to summarize this answer I would say that the team under a competent management and with motivated employees has been able to keep its clients happy and promote football passion among them avoiding substitute products, making it possible to surpass its direct competitors. That’s the reason why the team has been so successful outside the pitch.

2. Describe the role of management in Real Madrid’s business strategy.

Changes in Real Madrid began exactly within the management team. The

professionalism of the management team was seen as a fundamental strategic issue. It was the president of the club himself, who stated this when describing his approach. This change would lead to better decisions and better management.

The new management took some important actions in different areas in order to cause the growth of the club, not only in the sportive field but also as a business.

One important measure was taken in respect to image rights, both the club and its players. The new system takes advantage of the commercial potential of the Real Madrid brand and its players images giving the club an important source of revenue.

Financial discipline was other important philosophy introduced by the new president. Developing a culture that avoids unnecessary expenses helps the club maximize its profits.

The salary policy, in respect to employee compensation, as well as the performance-measurement mechanisms was revised, not only to improve equity within the organization but also to rationalize expenses with employee remuneration.

Finally the new management recognized the importance and potential of international markets, so high importance was given to internationalization and actions were made towards that objective. The goal is to explore these new markets, including for example ASIA, with an assured high profit.

3. Describe the role of organization in Real Madrid’s business strategy.

In this chapter we can see the above mentioned professionalism of the management team also as an important organizational factor. The new team is better prepared and organized to collaborate towards the same objective.

Florentino Pйrez and his management undertook a restructure of the organization into four main units, the presidency unit, responsible for the management of facilities, membership and external relations; the marketing unit responsible for the commercialization of merchandise and licenses; the corporate area responsible for planning and control, legal affairs as well as finance, administration, technology and systems and finally the sport area responsible for all the sport related activities of the club. These four units had clearly defined objectives, which helped to improve their performance and collaboration.

Middle managers saw their responsibilities adjusted in order to support this new organization.

I think that it is important to refer the new code of conduct for club behaviour approved by the new team which promotes common values, such as honesty, transparency and concurrence, which in turn promotes healthy work relations and the increase of employee satisfaction and motivation.

4. Describe the role of technology in Real Madrid’s business strategy.

In order to support all these changes a new MIS (management information system) was implemented to facilitate the monitoring and measurement of the entire process.

An intranet business portal was built [3] based on established Microsoft technology and it provides content and service sharing, within the organization, being available to all of the club employees. This system was implemented to address the collaboration problems that employees sometimes faced and to solve the problem of the information being kept in many different isolated systems.

Technology is also being used to commercialize content of many different characteristics. The website was developed to support an institutional image, but also to offer some services and goods. Tickets can be bought from there, as well as other merchandise. Interesting are the chosen languages of the site, Spanish (obviously), English (understandable), and Japanese which shows the internationalization effort and the focus being put in the Asia market. Real Madrid has a TVChannel, with club related content. Even the new market of mobile content wasn’t forgotten, with SMS services available for subscription.

5. How well did Real Madrid’s information systems support its business? How these information systems have been helping Real Madrid achieve a competitive advantage?

Although we do not know many details about what type of systems are being used to support Real Madrid’s business, I think that they deliver an important technology frame, which supports crucial activities. We see how different systems work together to deliver services and content over many different channels and platforms. No modern communication channel was forgotten: the web, telephones, television and mobile phones are all supported by some part of this system. Speaking from within the organization, it seems that the advanced MIS system is being used to support internal activity by integrating every different system eliminating bottlenecks in the information flow within the organization.

The MIS system provides the organization and its managers with accurate real time information and in-depth data analysis, enabling a better decision and performance evaluation. This improved ability can be seen as a competitive advantage. The web-site, for example, is used to widen the club image, values and message throughout the world. This contributes to the increase of the fan base providing the club competitive advantage over its competitors when it comes to sell merchandise. This competitive advantage which leads to higher merchandise revenues enables the club to invest more money in its teams. This investment also provides competitive advantage increasing the chances of getting better sport results, which in last analysis would lead to the increase of the supporter’s base and we enter a cycle.

6. Evaluate the risks of the Real Madrid’s modernization effort.

The base over which a club is built is made by two main things, its supporter’s passion and the team’s results, and these two factors influence one another. No matter how wealthy a club is, without these two factors it will not succeed.

In the modernization effort the risk that Real Madrid faces is that the team won’t be able to fulfill all the expectations in sport results. More and more emphasis is being put on the commercial side, and some decisions related with the sport unit are being influenced by commercial options. [4] Decisions about player signing are conditioned

to other factors than sport related ones. For instance the need to sign “superstars”, to support all the marketing strategy prevents proper team planning. If a superstar is signed, sometimes the team will not benefit from that because it just doesn’t need another player for that position. An example of this is how hard it is too put Figo, Zidane, Ronaldo and Beckham playing together at the same time, without making some adjustments in the natural position of these players.

Real Madrid faces the risk of failing to achieve the objectives, caused by a deficient team planning, As I stated above, if the team fails to fulfill the supporters expectations, they will eventually withdraw their support, and many revenues will fall while expenses will not, causing the club to collapse.

7. What are the ethical, social, and political issues of Real Madrid using information systems to make money from their own “socios” while being a nonprofit organization?

The main ethical issue raised by this question is as follows: Is it correct, to sacrifice “socios”, stadium seats in favor of more VIP boxes? Is it correct that the club chooses to sell 30% of the seats to supporters [5] other than members just to sell tickets for a higher price, even if it would have the stadium full with members in every game otherwise? It is ethical to spend the members money to pay millionaire salaries to some players that are not fully committed in pursuing the club objectives and don’t work too hard for the sake of team, instead of being only interested in having high salaries?

The main social issues can be stated has the influence that poor team results (due to miss team management, and too much emphasis on how to make more money), can have in the members and fans. We can even think about some issues that the fail of one of the biggest Spanish clubs can have in the sports community (Spanish and international).

Political speaking we can refer the type of organization Real Madrid is. By its statutes Real Madrid is a non-profit organization, but everyone knows that this is not the complete truth. Even if the club presents its accounts accordingly, to the spanish finance administration that does not necessarily means that it behaves like a non-profit organization. Questions may be raised about this privileged statute. Is Real Madrid in its essence a non-profit organization?

8. Do you think Real Madrid’s can continue growing at its current rate? Explain your answer.

Well that question will depend in the team ability to fulfill the fans expectations. Solid and regular team results are necessary to keep selling “jerseys”. Real Madrid is facing a sport results crisis. Many ask how it is possible a team with so many stars be eliminated from important competitions by smaller teams. Many, point out that the problem is exactly that, too many stars that don’t fit in the same constellation. So unless a better team planning is made and the control over players is put back on team coach, Real Madrid will face problems.

In my own opinion, and as a football fan, I think that this growing rate will not last forever. I can’t foresee when it will stop, but then it is not a question of if will happen,

it’s a question of when will happen. Too much emphasis on business can transform clubs into companies of image rights and licensing management rather than a sport club.

So to summarize this answer, I think that Real Madrid must reevaluate its strategy to take into account team results; otherwise the club will face problems with a team that is not a football team but a model team.

9. Compare Real Madrid to one of the main Portuguese clubs in terms of business strategy, current success, and future success.

As a natural born, Sport Lisboa e Benfica fan (not a member), I’ll try to point out my view of its strategy, current success and future success how it is framed by the national reality and how it can be compared to Real Madrid’s reality.

When it comes to business strategy we must say that some differences exist in the type of organizations that Benfica and Real are. Real Madrid is a (questionable) non-profit organization while Benfica is what it is referred by “SAD”, which stands for a sports society from which we can buy stock shares. Benfica national market is smaller but we can refer the Benfica stores as well as the new member card, promoted by a big marketing campaign, which gives members some benefits within the club and outside the club with protocols being signed with external organizations. So as well as Real Madrid, Benfica is trying to sell other products and services than jerseys and football games.

When evaluating the current success, I think that things must be seen in a relative way. Real Madrid is currently a very successful business with some team problems. Benfica, under the new management was able to recover from a hard financial situation caused by previous administration, however work it’s not yet finished. In respect to the team, Benfica faced a serious result crisis when it remained without winning the national league for more that ten years. Finally last season fans celebrated the so expected title. Recent results as the one against Manchester United, shows that the club is recovering its international prestige.

In the future I think that the differences between the two teams will remain. Real Madrid must solve its problems with the team, but once solved Real can keep winning titles. Real Madrid will remain as one of the great world clubs of football ever, and its legacy will surpass other teams. Benfica is a team that is recovering from a decade of deep crisis, and it is learning how to succeed in this changed reality of football. I think that when Benfica have its financial problems completely solved it can build a great team that will bring to the club the lost glory of the 60’s when the club won the two Europe cup of champions. At least, as an unconditional Sport Lisboa e Benfica fan I expect so.

References

[1] Laudon, Pбg. 92

[2] Laudon, Pбg, 99

[3] www.microsoft.com

[4] Keystone, business and finance magazine, Fall 2004, Pбg. 6

[5] Hala Madrid: Managing Real Madrid Club de FÑŠtbol, the Team of the Century, Harvard Business School case study



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