Instructors Manual

CASE TEACHING NOTES

Brown Bag
John Cullen

1. Introduction
This case study charts the development of an Irish animation company from small, unambitious beginnings to becoming an award-winning, globally recognised company with a growing list of international clients nearly ten years later. It describes how the enterprise emerged at a time of demographic and cultural change in Ireland, and how the withdrawal of significant investment in the animation sector created entrepreneurial opportunities. Having charted the issues that underpinned Brown Bags early success and acclaim, the case ends by highlighting a set of strategic decisions which the directors faced eight years after an accidental beginning in 1994.

2. The position of the case

This case provides an opportunity to examine the evolution of a small enterprise which was very much a labour of love in its start-up phase rather than a profit-oriented business. It tells the story of how a small start-up begins by explaining the socio-cultural background which predated the establishment of Brown Bag. The genesis of the firm is described in terms which unearths the unique cultural, demographic and market conditions which influenced the directors, and the forces within the animation market, and the global and Irish national economies which shaped these. The case explores some of the detail behind the firms initial projects and the rationales which presented to the directors and encouraged them to change their strategic direction.

3. Learning objectives
The Brown Bag case study is intended to provide a business case that is in many respects typical of entrepreneurial start-up companies who reach their goals and need to re-think strategy to survive and compete. It is written in a straightforward fashion which attempts to unpack the social, cultural and economic factors which led to the growth of the Irish animation sector and takes the reader through Brown Bags gradual accumulation of a structure and a strategy. The case provides an opportunity to conduct strategic analyses, e.g. employing competence analysis, PESTEL and SWOT analyses.
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The case can be used as follows:

To conduct a strategic analysis and review the options available to the firm at a particular strategic juncture To provide an example of a post-startup scenario often faced by entrepreneurs.

4. Teaching process
The case is suitable for undergraduate and MBA students as an introduction to some of the basic concepts and techniques associated with strategy. A suggested learning sequence might be as follows:

Students individually read and consider the case prior to the case session Students may then be provided with the case questions and form groups to consider all of the questions while specialising in one of the questions in order to develop a brief class presentation Each class presentation is followed by a wider class discussion.

This structure provides a logical development for a case session.

5. Questions for discussion

Some of the tasks and questions that might be asked include: 1. Conduct competence, PESTEL and SWOT analyses on Brown Bag Films. 2. How should the directors capitalise on their Oscar nomination? 3. What should the key elements of Brown Bags strategy for enlargement be? 4. How can Brown Bag overcome its lack of investment capital? 5. How can the directors increase their understanding of business management issues? 6. Should the company be restructured? If so, how? If not, why not? 7. How typical is this case of the experience of directors of SMEs? 8. If Brown Bag could hire one extra person as a member of its core staff, what role should that person hold?

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6. Case analysis
6.1 Conduct competence, PESTEL and SWOT analyses on Brown Bag Films
Competence Analysis

Proven ability to deliver quality product to a growing base of commercial clients. Access to experienced talent pool and appropriate technology. Commercially oriented management team. Brown Bag has achieved international recognition for its work, and was nominated for one of the most prestigious awards in their field. The Oscar nomination has proven to be a door-opener for the firm; the product was expanded into an 8-part mini-series that was shown through Christmas on Irish national television. Brown Bag has also been commissioned to replicate the format in advertising campaigns. This indicates solid brand recognition for the firm and its outputs. Growing understanding of the markets (national and international) in which it operates.

PESTEL Analysis

Some points which might arise in a PESTEL analysis are as follows.

Political

Irish government has been very stable for a number of years. Ireland has one of the lowest corporate taxation regimes in the world. Ireland is a small, open economy dependent on international trade.

Sociocultural factors

Ireland has one of the youngest populations and highest birthrates in Europe. However, recent figures indicate that there is evidence that this may be declining. Ireland, particularly the greater Dublin area, has undergone significant social and cultural change since the economic boom/Celtic Tiger days of the mid-1990s which saw massive return emigration, and emigration from populations of which the country had no previous experience. A series of scandals related to political and church figures has damaged trust in the institutions and largely removed the control which they had on Irish life. The rapid modernisation of Irish society has impacted in various ways, such as an upsurge in the suicide rate amongst young males.
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Environmental factors

Dublin has become a highly congested, grid-locked city with an inadequate public transportation system. Property prices, particularly in Dublin, have accelerated strongly. The cost of doing business is very high in the capital city. Brown Bag offices and studios are located at the heart of Dublin City Centre.

Economic factors

Ireland has recently come out of a high inflation spiral where, in January 2003, the rate of inflation increased at double the rate of the EU average and the rate of price increase was 3.5 times that of the UK. This rate has abated since then, but Dublin has been identified as one of the most expensive cities in Europe to visit and live in.

Technological factors

Animation is a technologically reliant industry and investment is continually required in this area.

Legal issues

The protection of intellectual property is key to developing animation projects which can be made available on the international stage.

Points which could be possibly be used in a SWOT analysis of Brown Bags position as described in the case are outlined below.
SWOT Analysis Strengths

Well-recognised brand in a national context International industry recognition for the firms work Ten years spent on a learning curve Development of a library of intellectual capital Beginning to work in foreign markets in a significant way Strong understanding of the animation sector.

Weaknesses

Animation production is expensive

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Limited indigenous markets for their television productions Production is time-consuming.

Opportunities

Capitalising on Oscar nomination Growing exposure in international markets Strategic alliances with major force in US market.

Threats

Cutting-edge, highly resourced competitors such as Pixar utilise advanced technologies which have altered consumers perceptions of what animation is International competitors have much stronger brand recognition in key markets such as the US.

6.2 How should the directors capitalise on their Oscar nomination?

The directors made themselves available to the Irish media extensively following their Oscar nomination. They have become something of media spokespeople on commercial arts (particularly in their own sector). They have used this free publicity to re-distribute new showreels to a number of advertising agencies and have entered into discussions with several mainstream directors with a view to creating strategic alliances in order to gain a surer footing in television productions. However, there is only a limited amount of mileage which the directors should use the Oscar nomination for, as they would otherwise run the risk of being perceived as a onetrick pony. There is a need to develop a new flagship project with which they can continue to be identified.
6.3 What should the key elements of Brown Bags strategy for enlargement be?

It could be suggested that Brown Bags growth is dependent on focusing on two areas: the first is developing its commercials work which will provide finance in the short term; the second is developing its archive of intellectual property which, although costly, will serve to generate profits in the longer run. The internationalisation of the business is also an important option to be considered (see 6.4). The question which the directors must address is: Should Brown Bag be an Irish company working in a global market, or a global company based in Ireland?

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6.4 How can Brown Bag overcome its lack of investment capital?

It could be suggested that Brown Bag might develop its commercials work as a separate business unit. This unit should have a strong business development emphasis which should have a singularly commercial orientation. The Oscar nomination has won the firm some work in the Middle East and it has strong relationships with a leading North American company working in this field. The Irish market is quite small and crowded; very real opportunities exist for the company in markets outside Ireland. Opportunities are also available to the firm to reduce its operating costs. Globally successful television shows such as the X-files and the Simpsons have conducted significant amount of production work in less expensive locations. Brown Bag could also move its own offices and production facilities outside Dublin City Centre to a less expensive and congested location.
6.5 How can the directors increase their understanding of business management issues?

Like many entrepreneurs who experience some early success, the directors of Brown Bag might possibly be of an opinion that additional business education, perhaps in the form of an MBA or a similar qualification, might not be of benefit. However, if the directors could be convinced of the benefits of participating in a management development or executive education programme, the question remains as to which would be the correct approach for them to take. Is an introductory management course appropriate to their experience? If not, what particular flavour of MBA should they pursue (for example, should they purse MBAs which emphasise leadership or innovation etc.)? Other options for the directors to increase their understanding of business management might involve engaging with business development specialists or management consultants, or joining a representative organisation for businesses.
6.6 Should the company be restructured? If so, how? If not, why not?

If the company restructured its existing business units and concentrated mainly on only one of its main activities, the question remains: what part of the business should be downsized? Television production is very close to the organisations core ideology and raison dtre. Commercials are valuable, and in an industry where available capital is often very scarce, the firm can ill afford to turn down revenues in the digital media sector. Reasons for not re-structuring, include:

The company is too small to reorganise The company is too young to discuss changing its organisational identity

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Restructuring might fragment the existing tight team atmosphere and destabilise creative and operational relationships between staff.

6.7 How typical is this case of the experience of directors of SMEs?

This case is not entirely reflective of SMEs but might be more indicative of the case of entrepreneurs who remain emotionally attached to their enterprise, but know that it needs to change if it is to survive and grow.
6.8 If Brown Bag could hire one extra person as a member of its core staff, what role should that person hold?

As mentioned above, the firm and its directors are still quite young. The introduction of a new member of core staff will very possibly change Brown Bags corporate identity. The possible additions mentioned below are suggested with a view to presenting two very different staffing approaches which would fundamentally reshape the organisational culture.
A finance executive The possible impact would be a tightening up of costs, possible closure of less profitable activities, relocation of the company headquarters, and outsourcing. This would involve a fundamental re-think of Brown Bags raison dtre. A marketing expert Possible impact might include more investment in longer-term projects, and nonrevenue generating activities such as more press work, travel to international conferences and trade shows. Greater investment in learning and researching international animation and commercials markets would be needed.

Other possibilities might include retaining the services of sales agents in target international markets.

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