MGT 510 SEU Corporate Strategy and Diversification Essay

Description

Module 11: Critical Thinking

Critical Thinking: Corporate Strategy and Diversification (105 points)

Corporate diversification strategies raise a wide range of strategic management issues. For this week’s critical thinking assignment, read the case study found in your textbook: Case 16: Manchester City: Building a Multinational Soccer Enterprise, p.554 (in the textbook). 

Remember, a case study is a puzzle to be solved, so before reading and answering the specific case and study questions, develop your proposed solution by following these five steps:

Read the case study to identify the key issues and underlying issues. These issues are the principles and concepts of the course module, which apply to the situation described in the case study.

Record the facts from the case study which are relevant to the principles and concepts of the module. The case may have extraneous information not relevant to the current module. Your ability to differentiate between relevant and irrelevant information is an important aspect of case analysis, as it will inform the focus of your answers.

Describe in some detail the actions that would address or correct the situation.

Consider how you would support your solution with examples from experience or current real-life examples or cases from textbooks.

  1. Complete this initial analysis and then read the discussion questions. Typically, you will already have the answers to the questions but with a broader consideration. At this point, you can add the details and/or analytical tools required to solve the case.
  2. Case Study Questions:
  3. Under what circumstances can a company extend its competitive advantage from its home market to an overseas market? Issues concerning the transferability and replicability of the firm’s competitive advantage are critical here.
  4. What are the distinctive features of City Football’s strategy? What mode of foreign market entry should City Football adopt? Why? Again, issues of resources and capabilities and the need for local market knowledge, distribution, and political and business connections become critical here.
  5. What criteria can companies apply in deciding what new diversification to pursue and which should City Football apply in deciding?

What changes in the financial structure, organizational structure and management systems would you recommend?


CONTEMPORARY STRATEGY ANALYSIS
tenth edition
Robert M. Grant
John Wiley & Sons Ltd., 2019
Chapter 12
Diversification
Strategy
1
Diversification Strategy
OUTLINE
• Introduction: The Basic Issues
• Motives for Diversification
• Competitive Advantage from Diversification
• Diversification and Performance
• The Meaning of Relatedness in Diversification
Copyright © 2019 John Wiley & Sons, Inc.
INTRODUCTION: THE BASIC ISSUES
Core Issues in Diversification Decisions
Superior profit derives from two sources:
INDUSTRY
ATTRACTIVENESS
RETURN ON CAPITAL
> COST OF CAPITAL
COMPETITIVE
ADVANTAGE
Diversification decisions involve these same two issues:

How attractive is the industry to be entered?

Can the firm achieve a competitive advantage?
Copyright © 2019 John Wiley & Sons, Inc.
INTRODUCTION: THE BASIC ISSUES
Diversification Strategies of US and UK
Corporations during the 20th Century
%
70
United States
United Kingdom
60
50
Single business
Dominant business
Related business
Unrelated business
40
30
20
10
0
1949
1964
Copyright © 2019 John Wiley & Sons, Inc.
1974
1950
1970
1993
INTRODUCTION: THE BASIC ISSUES
The Evolution of Diversification Strategies, 1960-2018
Making
diversification
profitable
MANAGEMENT
GOALS
Growth
IMPLICATIONS
FOR
DIVERSIFICATION
STRATEGY
•Diversification
by established
firms
• Emergence of
conglomerates
• Boom in M&A
• Financial
analysis
STRATEGY
TOOLS AND
CONCEPTS
• Corporate
planning
Copyright © 2019 John Wiley & Sons, Inc.
• Quest for
synergy
• Economies of
scope
• Portfolio
planning models
• Modern
financial theory
• M-form
structures
1960
• Emphasis on
related
diversification
1970
1980
Creating
shareholder
value
Corporate
advantage
• Core business
focus
• Divestments,
and spin-offs
• Leveraged
buyouts
• Product
bundling and
customer
solutions
• Alliances
• Growth options
•Shareholder
value
•Transaction cost
analysis
•Core competence
•Dominant logic
• Parenting
advantage
• Real options
• Demand-side
economies of
scope
• Tech platforms
1990
2000
2018
MOTIVES FOR DIVERSIFICATION
Motives for Diversification

GROWTH


RISK
SPREADING
VALUE
CREATION
The desire to escape stagnant or declining industries a
powerful motives for diversification (e.g. tobacco, oil,
newspapers).
But, growth in the interests of managers not
shareholders
Growth-seeking diversification (esp. by acquisition)
tends to destroy shareholder value

Diversification reduces the variance of profit flows

But, doesn’t create value for shareholders—they can
hold diversified portfolios of securities. [Capital Asset
Pricing Model shows that diversification only lowers
unsystematic risk not systematic risk]

For diversification to create shareholder value, then
bringing putting different businesses under common
ownership must increase their total profitability
Copyright © 2019 John Wiley & Sons, Inc.
MOTIVES FOR DIVERSIFICATION
Diversification and Shareholder Value:
Porter’s Three Essential Tests
For diversification to create shareholder value, it must meet
three tests:
1. The Attractiveness Test: diversification must be directed
towards attractive industries (or those with e the potential
to become attractive).
2. The Cost of Entry Test : the cost of entry must not
capitalize all future profits.
3. The Better-Off Test: either the new unit must gain
competitive advantage from its link with the company, or
vice-versa. (i.e. some form of “synergy” must be present)
Copyright © 2019 John Wiley & Sons, Inc.
`COMPETITIVE ADVANTAGE FROM DIVERSIFICATION
Sources of Competitive
Advantage from Diversification
• Sharing tangible resources (e.g. research labs,
distribution systems) across multiple businesses
ECONOMIES
OF
SCOPE
• Sharing intangible resources (e.g. brands,
technology) across multiple businesses
• Transferring functional capabilities (e.g. marketing,
product development) across businesses
• Applying common general management capabilities
to different businesses
ECONOMIES
FROM
INTERNALIZING
TRANSACTIONS
• Economies of scope not a sufficient basis for
diversification—must be supported by transaction
costs in markets for resources
• Diversified firm can avoid external transactions by
operating internal capital and labor markets
• Diversified firm has better information on resource
characteristics than external markets
Copyright © 2019 John Wiley & Sons, Inc.
DIVERSIFICATION AND PERFORMANCE
The Findings of Empirical Research

No consistent relationship

Evidence of a ∩-shaped relationship: dn. first
increases profitability, then further dn.
reduces profitability (increased complexity?)
Do diversified
firms outperform
specialized firms? • McKinsey & Co. identify benefits from
moderate dn.—especially for firms that have
run out of growth opportunities

Question of direction of causation: does dn.
drive profitability, or vice-versa?

Most studies show related dn. outperforms
unrelated dn.
What type of
diversification is • Related dn. offers greater synergies—but
most profitable? also imposes higher management costs
–Related dn. vs. • But what is “related dn.”? Businesses can
unrelated dn.
be related in many different ways (e.g.
LMVH, GE, Virgin group)
Copyright © 2019 John Wiley & Sons, Inc.
RELATEDNESS IN DIVERSIFICATION
Types of Relatedness between Businesses
Economies of scope in diversification derive from two types of
relatedness:
• Operational Relatedness—synergies from sharing resources across
businesses (common distribution facilities, brands, joint R&D)
• Strategic Relatedness—synergies at the corporate level deriving
from the ability to apply common management capabilities to different
businesses.
Problem of operational relatedness:
The benefits from economies of scope may be dwarfed by the
administrative costs involved in their exploitation.
Copyright © 2019 John Wiley & Sons, Inc.
RELATEDNESS IN DIVERSIFICATION
The Sources of Strategic Relatedness
Between Businesses
Corporate Management Tasks
Determinants of Strategic Similarity

Similar sizes of capital investment projects

Similar time spans of investment projects
Resource allocation •
Strategy
formulation
Performance
management and
control
Copyright © 2019 John Wiley & Sons, Inc.
Similar sources of risk

Similar general management skills required
for business unit managers

Similar key success factors

Similar stages of the industry life cycle

Similar competitive positions occupied by
each business within its industry

Targets defined in terms of similar
performance variables
Similar time horizons for performance targets

Case 16
Manchester City:
Building a
Multinational
Soccer Enterprise
In August 2008, Manchester City Football Club (MCFC) was acquired for £210 million
(€262m) by Sheikh Mansour bin Zayed Al Nahyan, a businessman and member of
Abu Dhabi’s ruling family. The change in ownership marked the beginning of a new
era for Manchester City and its long-suffering fans. Between August 2008 and January
2018, Manchester City spent £1,350 million on acquiring new players and £250 million
on new facilities—a level of investment unmatched by any other European club. In
2012, MCFC was crowned champion of the English Premier League—the first time in
44 years—and from 2012 to 2018, it was the most successful club in British soccer.
However, the rise of Manchester City has not simply a story of a super-star team built
on Middle Eastern wealth. Between 2008 and 2018, Manchester City’s owners created
an organizational structure and management system that was unlike that of any other
soccer club. City Football Group Ltd. (CFG) was formed in May 2013, initially to take
ownership of MCFC, but also to act as a holding company for a global portfolio of
football investments. By 2018, CFG had equity stakes in six football clubs on five continents, alliances with seven other football clubs, and a management system for leveraging these relationships. The key question, both for CFG and for those football clubs
that lacked such scope, was: could such a global portfolio, backed by an international
management system, really enhance the competitiveness of the individual soccer clubs?
Manchester City Football Club
MCFC was founded in 1894, but for most of its history lived in the shadow of its neighbors, Manchester United. In 2007, former prime minister of Thailand, Thaksin Shinawatra, purchased the club but, amidst intensifying legal difficulties, he sold the club to
Sheikh Mansour in 2008.
Mansour, who had been considering the purchase of an English Premier League
club for several years, was attracted to Manchester City because of its location, its history, its new stadium (built with government finance to host the Commonwealth Games
in 2004), and the real estate potential of the derelict land surrounding the stadium.
In addition, Abu Dhabi’s national airline, Etihad, had started flying to Manchester in
2006 and was considering expanding its presence there.
From the outset, it was clear that Mansour was a hard-headed investor rather than
an indulgent football enthusiast. At the same time, Mansour’s vision for MCFC was
not limited to financial return—he was inspired by FC Barcelona whose emphasis on
This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.
CASE 16
MANCHESTER CITY: BUILDING A MULTINATIONAL SOCCER ENTERPRISE
values, youth development, and community involvement, as well as its artistic, attacking football, had conferred upon it a unique status as a club.
With Mansour’s business partner, Haldon Al Mubarak, installed as chairman of
MCFC, the initial stages of a turnaround program were implemented:
New players. Beginning with the purchase of Robinho for £32.5 million, MCFC
invested £188 million in players and other assets during the first year under the
new ownership. By the end of the 2011–12 season, £452 million ($695 million)
had been spent on acquiring 22 new players (at an average price of £22 million).
● New coaches. In seeking a coaching staff capable of integrating MCFC’s
star-studded squad into one of Europe’s most successful teams, Mansour and Al
Mubarak employed a succession of internationally experienced coaches with
successful track records: Mark Hughes ( June 2008–December 2009), Roberto
Mancini (December 2009–May 2013), Manuel Pellegrini ( June 2013–June 2016),
and Pep Guardiola (from July 2016).
● Facilities. Soon after buying MCFC, Mansour and Al Mubarak began planning
a fully integrated training, entertainment, and administrative complex alongside
the stadium. Brian Marwood, a former Arsenal player and Nike executive,
designed the new training facilities by adopting the best features of other clubs’
facilities and drawing, in particular, on AC Milan’s Milanello training complex.
The Etihad Campus was opened in 2014. It housed training facilities for all
the club’s teams, from age-group sides to men’s and women’s senior squads.
It included 16 football pitches, a 7000-seat stadium for academy and women’s
teams, a 50-seat auditorium for reviewing video, 4-star accommodation for
players and their families, retail stores, and CFG’s administrative headquarters.
The first-team’s facilities feature a hypoxic chamber where players can run at
altitude or in extreme temperatures, a hydrotherapy area for treating injuries,
and a hydro treadmill with underwater cameras. The complex also accommodates the Beswick Community Hub whose facilities include a leisure center for
local residents, a sixth form college, and the Manchester Institute of Health and
Performance. The addition of a third tier to the South and North stands of the
main stadium increased its capacity to 61,000.

City Football Group Ltd.
The Abu Dhabi United Group, which Mansour created as a vehicle for acquiring MCFC,
became its parent company. However, Mansour’s interests in football were not limited
to Manchester City. By 2012, he was already looking elsewhere for investment and
development opportunities. To manage these interests, City Football Group Ltd. (CFG)
was created as a holding company, headquartered at Manchester City’s Etihad campus,
to manage Abu Dhabi United Group’s worldwide footballing investments.
Internationalization began in 2013 with in the creation of a new US Major League
Soccer franchise—New York City FC. Manchester City executives pioneered the
initiative and CFG took an 80% equity stake. In 2014, CFG acquired the Australian
A-League club, Melbourne Heart (which was renamed Melbourne City FC), a 20%
stake in Japan’s Yokohama F. Marinos, and Club Atlético Torque in Montevideo, Uruguay. In 2017, Girona FC in Spain’s La Liga was acquired. Table 1 shows the football
clubs owned by CFG and those with which the CFG has co-operation agreements.
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556 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE 1
Clubs owned by or allied with City Football Group
Manchester City
FC (England)
Acquired in 2004. Average home attendance 53,600 (women’s team
2300) Three-time winners of Premier League since 2010.
New York City FC (US)
Founded in 2014 with CFG holding 80% equity. Finished 2nd In Eastern
Conference In 2017. Average attendance 23,000.
Melbourne City
FC (Australia)
Acquired in 2014, became wholly owned in 2015. Has finished in
top 5 of A-league during past 3 seasons ((2015–17). Average
attendance 10,700.
Yokohama
F. Marinos (Japan)
20% equity stake acquired in May 2014. The remaining 80%
owned by Nissan Motor Co. Plays in Japan’s J1 league. Average
attendance 24,000.
Club Atlético
Torque (Uruguay)
Acquired by CFG in March 2017. Promoted to Uruguay Primera
Division in 2017.
Girona FC (Spain)
44.3% acquired by CFG in August 2017. Another 44.3% held by Girona
Football Group, led by Pere Guardiola, the brother of Pep Guardiola.
Promoted to La Liga in 2017.
ALLIANCES
NAC Breda (Netherlands)
Agreement to loan youth players—primarily to gain EU citizenship
Long Island Rough
Riders (US)
Agreement with New York City FC to assist in player development
San Antonio FC (US)
Agreement with New York City FC to co-operate on training, scouting,
and player loans
Atletico Venezuela
Agreement with CFG to share scouting data and provide coaching
support. Atletico midfielder Yandel Herrera signed for Man City and
was loaned to New York City FC
CF Pearled
Feeder club for Girona FC
Ghana Football Association
Training collaboration. Also, CFG has agreement with the Right to
Dream Academy in Accra, Ghana, for recruiting its graduates
Strategy
In creating a multiteam, multinational enterprise, CFG is unusual in football (and in
most other professional sports). Historically, football clubs—like most sports clubs—
were local in their fan base, their players, and their sources of finance. When Glasgow
Celtic won the European Cup in 1967, all the players and the manager had been born
within 30 miles of the stadium, and the club’s owners were also from Glasgow. But
since then, the teams, their fans, and their financing have internationalized. In English
football, the new owners came from Russia (Roman Abramovitch and Chelsea, Maxim
Demin and Bournemouth), the United States (Malcolm Glazer and Manchester United,
John Henry and Liverpool, Steve Kaplan and Swansea), and China (Gao Jisheng and
Southampton, Guochuan Lai and West Bromwich Albion).
CFG was not the first sports enterprise to own clubs in different countries: Stan Kroenke
is majority owner of Arsenal and the Colorado Rapids; Vichai Srivaddhanaprabha owns
both Leicester City and OK Leuven. The soft drinks company Red Bull owns football
CASE 16
MANCHESTER CITY: BUILDING A MULTINATIONAL SOCCER ENTERPRISE
clubs in the United States, Brazil, Germany, and Austria. However, CFG is unique in
creating a multinational operating company to run its football clubs, the principal
activity of which is “the operation of professional football clubs as well as providing
football and commercial services to other organizations.”1 In operating different clubs
in different countries, CFG has sought to create a common identity for its clubs. This is
evident in the naming of its three principle clubs as “City Football Club” and its choice
of sky blue for its teams’ strip.
This common identity extends beyond a unified brand presence. CFG has also
promoted the “City Way,” a concept whereby all the City teams adopt a style of football based on passing, possession and a commitment to attack. This style of play was
developed at Barcelona and then transferred to MCFC by its team manager Pep Guardiola and CEO Ferran Soriano. The same style of football is practiced not only in the
various CFG first teams but also women’s and academy teams right down to the youngest age groups. In April 2015, Soriano outlined the City approach:
There is a core of values, a core of beliefs that we all have. We win and we lose, but
we never leave these values. We always play attacking football, we try to keep the
ball, we play with a high defensive line and we apply pressure to recover the ball.
These are very simple things that all our teams do and, hopefully, when you see our
teams in Melbourne and Manchester play and you will see the same kind of football.
This doesn’t mean we’ll win. At the weekend, Manchester City had 73 per cent possession in a game we lost. But we never, ever renounce our values of the way we
play football … because all organizations need some set of basic values that people
believe in.2
The Management Team
Although Mansour is the majority owner of CFG (through his ownership of its parent
company, Abu Dhabi United Group), he has no formal role in the management of CFG
or its member clubs. The key executives within the group are shown in Table 2.
CFG’s business model has been shaped primarily by the vision of Soriano. While at
FC Barcelona, he developed the concept of a football organization with the capability
to build a highly successful team while also creating shareholder value. Central to this
concept was a global brand and a global system for sourcing and developing players.
At a presentation at Birkbeck College, London, in February 2006, Soriano outlined his
vision for turning FC Barcelona into a “global entertainment brand” through product
management, human resource development, cost control and value chain management,
revenue growth, and globalization.3 However, it was CFG that was to give Soriano the
opportunity to realize that vision.
Player Sourcing, Assessment, and Development
At the heart of CFG’s approach to combining team success with financial success is
its global system for finding and nurturing world-class players. Early on, Soriano recognized that UEFA’s new financial fair play rules (introduced in 2009) meant that the
old “benefactor model” of clubs being bankrolled by billionaire owners was no longer
viable. A major implication of the new rules was that clubs could no longer rely on
recruiting superstar players at vast expense—they would have to grow their own talent.
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558 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
TABLE 2
Key members of CFG board and executive team
Khaldoon Khalifa Al Mubarak, Chairman
and CEO, CFG; Chairman of MCFC
(also CEO of Mubadala Development
Co., an Abu Dhabi state-owned
investment company)
Born in Abu Dhabi 1976. Educated at Tufts University.
Appointed to Abu Dhabi Executive Council.
Trusted adviser to the Abu Dhabi royal family.
Li Ruigang, CFG Board Member; Chairman of
China Media Capital
Born in China, 1969. Created China’s most global
media company, China Media Capital, which owns
16% of CFG. Regarded as “China’s most connected
media mogul.”
Martin Edelman, CFG Board Member, vicechairman NY City FC
US lawyer specializing in international law and real
estate development.
Simon Pearce, CFG Board Member, Vice
Chairman Melbourne City FC
Business associate of Mansour and Al Mubarak, who
worked for Abu Dhabi government to build the
Abu Dhabi brand, develop tourism, and attract
business partners
Ferran Soriano, CEO of CFG, also
CEO of MCFC
Born in 1967 in Barcelona, Spain. After a career
in consumer goods management consulting,
elected vice president and CFO of Barcelona FC in
2003, then resigned in 2008. CEO of MCFC from
August 2012.
Pep Guardiola, Team Manager, MCFC
Born in 1971 in Catalonia, Spain. Played as midfielder
for Barcelona FC and Spain. Coach at Barcelona
(2007–12) and Bayern Munich (2012–16).
Patrick Vieira, Football Development
Executive 2012–15; Head Coach New
York City FC 2016–18
Born in Senegal, 1976. Playing career spanned
Arsenal, Inter Milan, MCFC. At MCFC responsible for youth development and Community
involvement.
Brian Marwood, Managing Director, City
Football Services (since October 2015)
Born in 1960 in Durham, England. Played for
Sheffield Wednesday and Arsenal. Marketing
Manager for Nike, then Director of Football at
MCFC (2008–12) and in charge of developing
its academy.
For CFG, one of the key drivers of globalization was the priority given to locating
young talent, wherever it might be in the world. By owning multiple clubs and having collaborations with other clubs across the world, CFG is reckoned to have the
world’s biggest and most effective talent-spotting network. Its international spread
alleviates some of the problems of work permits and immigration restrictions that
bedevil professional football. This international scope also increases CFG’s appeal to
young talent: “The fact that the CFG’s tentacles stretch so far makes it easier to attract
young players particularly, because recruitment staff can make the case that if life
does not work out for them in Manchester, they might later find their level in other
appealing cities.”4
In terms of scouting, CFG’s global network represents a massive extension in the
talent-finding capability of the individual clubs. In 2014, CFG employed 36 scouts, of
CASE 16
MANCHESTER CITY: BUILDING A MULTINATIONAL SOCCER ENTERPRISE
whom 14 were based in South America. Announcing CFG’s acquisition of Club Atlético
Torque and agreement with Atletico Venezuela, Soriano observed:
The investment in CA Torque enables our organization to build on existing connectivity in Uruguay and helps to expand the options for identifying and developing local
and South American talent. This move also provides us with an administrative hub for
our pre-existing scouting operations in the region and provides a footprint for City
Football Group in South America. I am also delighted to start a working partnership
with Atletico Venezuela to the benefit of both clubs. The collaboration agreement
allows us to share knowledge, insights and hard data, all of which enables us to further
complement and increase our scouting and recruitment operations on the continent.5
Two players exemplify the merits of CFG’S global approach to player assessment
and deployment.
Yangel Herrera was signed by MCFC from its affiliate, Atlético Venezuela, in
January 2017 for about £1.7 million and immediately loaned to New York City
FC, where he became one of the stars of the team. During 2018, CFG will assess
Herrera’s performance and prospects and determine whether he stays at New
York City, joins MCFC, or is sold to another club.6
● Bruno Fornaroli captains Melbourne City FC. Despite his early promise in
Uruguay’s top youth team, his subsequent performance in both Italian and
Greek leagues was disappointing. However, back in Uruguay and aged 27, a
report from one of CFG’s scouts recommended a fuller analysis of Fornaroli.
On the basis of additional analysis, CFG acquired Fornaroli’s registration for
Melbourne City FC. At Melbourne, Fornaroli became the club’s leading goal
scorer and has also won most of the A League’s individual awards.7

Having different teams in different countries helps player development. Soriano
refers to a “development gap” that is especially problematic for English clubs. “If the
player is top quality, he needs to play competitive football to develop. It’s not only for
the technical aspect of the game, but also for the pressure. The under-21 or under-19
competitions in England don’t provide this, because games aren’t in front of a lot of
fans and there isn’t enough competitive tension.”8 However, in Europe, clubs such as
Barcelona, Real Madrid, and Bayern Munich all have reserve teams that play in their
countries’ second or third division against other professional clubs—not in a separate
league, as English youth teams do. Hence, according to Academy chief, Brian Marwood, the importance to MCFC of loaning its young players to other clubs: “We did
some research last year and discovered that in the last 10 years, 83% of players who
featured in the quarter-final stage of the Champions League had played first team football at 17 … That’s why you’ll find more than 30 Blues on loan …”9
CFG’s investment in its academies has centered on its Manchester campus, where
its training and youth development facilities are reckoned to be among the best in the
world. However, in 2015, a new academy was unveiled at Melbourne City FC, and in 2018
New York City FC opened its new academy. The features of both were based on those
of the Manchester academy and both were designed by the same architect, Rafael Viñoly.
Inspired by the tradition of FC Barcelona and its renowned La Masia academy, CFG
placed a massive emphasis on youth development. According to Academy director,
Mark Allen:
Our focus remains on style of play. Every single side, from the under-nines right up
to the elite development squad team, play the game in the same way … Coaches
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560 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS
focus on the technical and tactical side of the game as soon as a youngster joins the
academy, with the physical development seen as secondary … Last season saw success at almost every level. The under-10s became national champions … The under13s are national champions. The under-15s are the Floodlit Cup national winners. And
the under-18s reached the FA Youth Cup for the second consecutive season.10
CFG’s commitment to youth development is apparent from the Group’s investment
in facilities for its younger teams at the Manchester Academy: “Two-thirds of the 16.
pitches on site are primarily used for youth football, and the wider development of the
young players is supported by tailored coaching and education facilities, medical and
sports science services, sleeping accommodation and parents’ facilities.”11A common
style of football (“The City Way”) assists young players to rise up the hierarchy. In
addition, youth development takes a holistic approach: City’s academy collaborates
with a local independent school, St. Bede’s, which allows City’s youth players to enroll
on an integrated football and education program designed by the club and the school.
CFG’s involvement in developing young players is also apparent in the residential
soccer camps offered by its member clubs (including MCFC’s intensive football and
language immersion program) and its joint venture with Goals Soccer Centres PLC to
develop a chain of dedicated, five-a-side pitches and training facilities across North
America. The sites will be jointly City and Goals branded, with the new identity to be
launched later this year.
Technology
Information technology has had a huge impact on football management over the past
decade. Although statistical analysis has long been applied in training, team selection,
and recruiting in US professional sports,12 its application to soccer was delayed by the
intensely interactive nature of the game. In English football, Bolton Wanderers FC was
an early convert to data analytics—it was there that Gavin Fleig, who would become
head of performance analysis at MCFC, gained early experience.
Following the Mansour takeover, data analysis has played a growing role in team
performance at MCFC. Initial applications included postgame analysis using the
detailed player tracking data supplied by Opta and Prozone and player recruitment.
Under Brian Marwood (MCFC Director of Football, 2008–12), player recruitment relied
increasingly on quantitative data. For youth recruits, 30-page, color-coded reports were
the norm, while for major signings, the dossiers would run to 40 or 50 pages.13
In 2015, CFG signed a partnership agreement with SAP to use SAP’s cloud and analytics technology across its backroom operations and on-field activities, and replaced
CFG’s paper-based systems with SAP’s cloud-based system. The SAP platform includes
components for team management, training, player fitness, and performance analysis,
all of which can be used to customize training, create tactics, and create individual
player development plans. SAP’s software for postmatch analysis integrates Opta and
Prozone data. In monitoring youth squads, the system integrates videoed coaching
sessions, GPS data, biometrics including heart rate, and sleep data.14
Digital technology also plays a growing role both in deepening the City clubs’ relationships with their fans and in expanding the fan base. CityTV creates video content
for all the City clubs, which is then distributed via the Web, mobile apps, and different social media platforms. In addition, CFG has been a leader in launching enhanced
game-viewing through providing real-time analytics, chat bots, hackathons, and virtual
reality—including participation in eSports.15
CASE 16
MANCHESTER CITY: BUILDING A MULTINATIONAL SOCCER ENTERPRISE
Marketing
In terms of generating commercial revenues—licensing, sponsorship, and retail sales—
MCFC has lagged far behind its cross-town rival, Manchester United, long regarded as
football’s most commercially successful club. In 2006/7, MCFC’s commercial revenues
were £14.1 million; Manchester United’s were £56.1 million. Building MCFC’s commercial
revenues initially involved other Abu Dhabi businesses. In July 2011, MCFC announced
a £400 million sponsorship deal with Etihad Airways that covered 10-year naming rights
for the stadium and financial support for MCFC’s Etihad Campus. This was followed in
2013 by a six-year kit sponsorship deal with Nike worth £72 million ($109 million).
With the creation of CFG, marketing was established as a global unit—City Football
Marketing—based in its own London offices in order to allow the different clubs to
access the same marketing assets. Omar Berrada (Commercial Director of City Football
Marketing, 2015–16) emphasized the benefits to clients from the global approach CFG’s
family of clubs offered: “It allows brands to have the best of both worlds: a consistent
global marketing platform in terms of the assets and inventory they can use to engage
with our fans, as well as the ability to deliver messages that are very specific to the local
markets of our clubs around the world.”16
In 2014, Nissan entered into a global marketing relationship with CFG when it
became the official automotive partner of all four City clubs. Similarly, Etihad Airways
extended its kit sponsorship of Manchester City to include both New York City and
Melbourne City.
Community Involvement and Corporate Social Responsibility
Despite the efforts to create a unified, global, brand presence for the City clubs and to
agree with global sponsorship and licensing deals, Tom Glick, President of New York
City FC (previously Chief Commercial and Operating Officer for MCFC), stressed that
it was vital to sustain and build the individual character of each club, in a way which
respects the tribal loyalties of each fanbase: “… the most important thing is that each
one of our clubs is connected to its local city and the fans of that city.”
To build engagement, the CFG clubs have sought to involve fans in club decisions.
In both New York and Melbourne, fans participated in the design of the new club
badges. In Melbourne, this resulted in the inclusion of the city’s municipal flag in
the design.17
CFG’s emphasis on developing and exploiting its global reach has been balanced
with close attention to the cultivation of the local fan base of its clubs and responsibility
to the local communities within which its clubs are located. As a result, CFG has been
able to avoid the hostility directed by the fans of Manchester United, Liverpool, and
Hull City toward the foreign acquirers of their clubs.
At MCFC, CFG has worked closely with Manchester City Council in its development
strategy for the club. This was mandated by the City Council’s ownership of the stadium
and the need for CFG to obtain planning permits for developing the Etihad complex
and other real estate developments adjacent to the stadium. More generally, however,
CFG and the City Council have viewed themselves as partners in developing an economically depressed area of Manchester, while also providing opportunities for additional investment by Abu Dhabi in the city (e.g., increased flights by Etihad Airways
from Manchester Airport).
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