Cirque du Soleil

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Cirquedu Soleil

Cirquedu Soleil

Manyorganizations have been experiencing financial difficulties as aresult of global economic downturn and an increase in competition. has reported a decline in revenue, an increase inthe cost of production, and a continuous decrease in net profit. is an entertainment firm that was founded in theyear 1984 (Delong &amp Vijayaghavan, 2002). The company’sheadquarters are located in Montreal, but shows are performedworldwide. has been growing over the years and ithad managed to attract an audience of about 6 million annually by theyear 2001 (Delong &amp Vijayaghavan, 2002). The company recordedrevenue of about $ 1 billion, but expenses were more than revenue.This prompted the management to develop three major strategies(including staff-layoffs, cutting cost, and cancellations) in orderto help the company make profits amidst its external as well asinternal challenges.

Layoffs

Humancapital is among the most significant type of resources thatorganizations cannot operate successfully without. However,ineffective employee management strategies can reduce the company’sprofitability as well as the ability to achieve the desired goals. Inthe case of , which operates in the arts industry,employees are the only resources that can help it sell its brandsince the skills and tactics required in each show are held by theartists. However, the current situation of excessive cost ofproduction can be attributed to employees who have gained experienceover the years and have become quite expensive to compensate. Inaddition, a large number of staff since the company has beenrecruiting 50-100 new employees each year has also inflated the costof production (Berzon, 2014). This implies that the layoff ofemployees is among the most effective strategies that Cirque duSoleil can use to contain the escalating cost of production anddeclining returns.

Stafflayoff is considered as one of the downsizing strategies that resultin an instant reduction in overhead costs. This is because layoffhelps the organization cut on salaries, wages, and benefits that weregiven to retrenched members of staff (Cascio, 2009). By freeing upexpensive human capital, the organization gets new, cheaperopportunities, such as hiring low-cost staff, motivating theremaining employees with a better pay, or recruiting employees on thepart-time basis. In the case of , it is evident thatthe company had recruited more than the required number of staff. Forexample, the organization had six contortionists in Las Vegas, whichimplies that it can lay off five and retain the quality of servicewhile reducing the cost of preparing a given show (Berzon, 2014).However, the layoff should be done carefully in order to ensure thatthe company does not lose its critical expertise.

Cost-cuttingmeasures

Apartfrom managing the payroll, the management of hasbeen focusing on alternative methods of containing the cost ofproduction. The main objective of the cost-cutting strategies is tohelp the organization net some profit amidst a gradual decline in thetotal revenue. In the past, the cost of preparing and presenting eachshow has been increasing while the total revenue collected from allshows per year has been reduced, which has subjected the organizationto financial difficulties (Wyatt, 2013). Since some of the factors(such as market saturation and stiff competition) that havecontributed towards a decline in total revenue may be out of thecontrol of the management, reducing the cost is the only viablealternative to help the organization record a net profit. Forexample, recorded revenue of $ 1 billion and a lossin the year 2012, but it recorded revenue of $ 850 million in 2013,but still reported a net profit in spite of a decline in revenue,which was attributed to the cost-reduction strategies (Berzon, 2014).

Thecost cutting strategy functions by enhancing the competitiveadvantage of the organization. This is because an organization thatis able to produce goods or offer services at a lower cost comparedto other players in the same industry manages to break-even, even intimes when competitors are making losses (Srivasta, 2015). Inaddition, the cost-cutting strategies enhances the liquidity of theorganization and safeguards its going concern by reducing the risk ofclosing down as a result of making losses continuously. In the caseof , the cost-cutting strategies have already startedyielding fruits. For example, the company managed to record savingsof about $ 100 million by reducing the number of anniversary jacketsissued to members of staff among other redundant expenses (Berzon,2014). Therefore, it is clear that cutting costs will help Cirque duSoleil overcome its current financial challenges.

Cancellations

Thecancellation strategy involves putting off some of the shows andperformances that are considered to be unprofitable. The objective ofthis strategy is to help the management of focus onmore profitable shows, direct resources to a few shows, and diversifythe organization’s operations into new products, such as movies(Wyatt, 2013). In addition, the cancellation strategy will help retain services that are appealing to its customers.The management has achieved the cancellation strategy for closingseveral shows for different reasons as shown in Table 1.

Table 1: Reasons for closing different shows

Show

Reasons for closure

Zarkana

Failure to cover production costs

Iris

Played in a commercially marginal area

Zaia

Failure to appeal to the local audiences

Banana Shpeel and Viva

Negative reviews

Source:Berzon(2014)

Theexistence of the shows that do not appeal to the targeted audiencehave been diluting organization’s brand, which justifies thatcancellation.

Theidea of cancellation some shows is based on the idea that engaging ina large number of shows that do not appeal to the audience tend todamage the reputation of the rest of the shows and the entireorganization. This is because customers develop a perception that theorganization has failed to meet their expectations. To this end, thedecision to analyze the performance of each show in the market andcancel non-performing ones is a good decision that will give the an opportunity to salvage the declining reputationof its brand. According to Donovan (2013) customer value should beconsidered as a strategic approach for conducting business since thegoing concern of an organization as well as financial performance aresolely dependent on the satisfaction of the customers who consume itsservices or products. Therefore, cancelling non-performing shows withthe objective of enhancing the quality of those that are appealing tothe audience and reduce wastage of resources is a viable strategy.

Conclusion

Thethree major strategies (staff-layoffs, cutting cost, andcancellations) taken by the management of are wellthough and will help the organization overcome its current financialdifficulties. By laying-off its excess and unnecessarily expensiveemployees, will be able to reduce its payrollexpenses. In addition, cutting the cost of preparing and presentingthe shows to its audiences will help anniversary jackets continuerecording net profit amidst the decline in total revenues. Moreover,the cancellation strategy will help the management avoid dilutingbrands that meet the expectations of the company’s customers anddirect resources to more profitable shows and ventures.

References

Berzon,A. (2014, December 1). ’s next act: Rebalancing thebusiness. TheWall Street Journal.Retrieved December 16, 2015, fromhttp://www.wsj.com/articles/cirque-du-soleils-next-act-rebalancing-the-business-1417474778

Cascio,F. (2009). Ifyou must downsize, do it right.Denver: University of Colorado.

Delong,J. &amp Vijayaghavan, V. (2002). Cirquedu Soleil.Boston, MA: Harvard Business School.

Donovan,A. (2013). The strategic importance of customer value. AtlanticMarketing Journal,2 (1), 1-15.

Srivasta,R. (2015, July 8). How to reduce cost and gain competitive advantage.FoundingFuel Publishing PVT Ltd.Retrieved December 16, 2015, fromhttp://www.foundingfuel.com/column/new-rules-of-business/how-to-reduce-cost-and-gain-competitive-advantage/

Wyatt,E. (2013, January 16). announces 400 layoffs. TheToronto Star.Retrieved December 16, 2015, fromhttp://www.thestar.com/entertainment/stage/2013/01/16/cirque_du_soleil_announces_400_layoffs.html

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