Business Strategy

Case study: Cirque du Soleil

Instructor: Dr. Faith Mathew

Submitted on: June 5, 2016

Contents
Introduction.............................................................................................................. 2
Key Issues............................................................................................................... 2
Analysis................................................................................................................... 4
Recommendation...................................................................................................... 7
Implementation......................................................................................................... 8
Conclusion............................................................................................................... 8
Bibliography........................................................................................................... 10

Introduction
Cirque du Soleil is an artistic organization founded in 1984 by a group of entertainers
with a grant from the government of Quebec. It was formed by Guy Laliberte and
Daniel Gauthier who had the intention to reinvent the circus. The Montreal based
performance group re-invented the circus as a popular entertainment with each
daring stage shows. In its first few years following its tours in Quebec and Canada it
experienced rapid growth. Cirque du Soleil performed in California, Japan and
Europe in the late 1990s. Before 2000, the organization had employed about 2000
people. At that time, Cirque already had 3 permanent shows: La Nouba presented at
the Walt Disney resort since 1998, Bellagio and Mystere which had been presented
in Las Vegas since 1998 and 1993 respectively. On june 2, 2007, Guy Laliberte
received 2007 'Ernst and Young Entrepreneur of the Year award.
With the success Cirque has recorded over the past 30 years come the issue of
finding ways to sustain the growth it has achieved. This case sets out the key issues
faced by Cirque, analyzes its issues and problems and makes recommendation and
implementation plan on how the company can support the upcoming substantial
growth planned.

Key Issues
Cirque du Soleil has been experiencing various issues over the years, which has
impacted negatively in the operation of the business. The key issues of the
organization are identified in this case using the PESTEL method of analysis.
Political factors: Cirque du Soleil is faced with high corporate taxes by the
Canadian government which charges an average of 25% as corporate tax. However
Cirque du Soleil has tried to manage this issue and avoid the high tax rate by
transferring its trademark to a subsidiary in Luxembourg. Luxembourg has a tax
treaty with Canada for the avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and on Capital.
Also Political ban on animals in over 30 countries has affected the business that
once depended on animal acts. The ban was instigated by negative publicity of

circus companies by animal welfare group which affected the publics interest in
animal shows.
Economic factors: The financial crisis of 2008 hit Cirque du Soleil hard and caused
a lot of problems for the company. The company had a lot of productions going on at
the time, and with the high purchasing power of money, people were contemplating
about purchasing expensive tickets just to see a show. This resulted in Laliberte, the
then sole owner selling 20% of the companys shares to two Dubai World
subsidiaries in search for strategic partnership.
The U.S market is of great importance to Cirque du Soleil as most of the
organizations revenue is generated from its large permanent shows in Las Vegas.
However the weak economy south of the border part has affected the performance
industry forcing Americans not to spend their money.
Cirque du Soleil was also faced with limitation in cities for tours as the cost of
touring increased together with the reduction in public spaces where the touring
shows can be staged. In 2013 the company was operating at a loss with its biggest
touring expense of $6.2m spent on accommodation for its employees and $5.5
million on transportation of equipment. Each two-and-a-half-hour show requires the
transportation of about 80 performers, 800 tonnes of equipment, 20 technicians and
four generators. A capital investment of around $21m is required to create a tour
show, however its tour shows brings in less revenue than its 10 permanent shows
in the United States and Mexico. With most of its shows touring in Europe, its net
turnover would most likely reduce due to the general downturn in most European
Economies.
Social factors: Circus has become less popular over the years and this is an issue
of great concern for Cirque du Soleil as it affects the growth of the company. The
rise of popular entertainments like sports and the advent of video games have
reduced peoples desire in circus shows. Also, peoples cultural preference of
entertainment has also had negative impact on the companys profitability.
Technological Factors: Advancement in technology is also an issue affecting the
Cirque. The influence of web based free contents such as and video clips of past
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shows and performances on websites like you-tube makes certain people not to
feel the need to buy tickets to live show as it can be seen on the internet.
Technological advancement has also resulted in the automation of its production.
This has made the companys shows to be too structured thus preventing
individual performers from reaching full potential.
Ecological Factors: Cirque du Soleil has been faced with problems regarding the
use of generators to power its shows. Generators emit exhaust containing
Carbon-monoxide. Strict local logistic regulation is an issue Cirque De Soleil is
facing which is of great concern to the organisation because of its over-reliance
on generators to stage its shows. An incident also arose in September, 2012
during a theatrical show in Toronto where one of its generators went ablaze and
caused a huge economic loss, serious air pollution and property damage.
However, this instigated the filing of a law suit by Cirque De Soleil against Power
and Electronic Co. (PECo) the manufacturer and supplier of the generator.
Natural disaster such as earthquake in the past has affected its scheduled shows
especially in Asia. For example in 2011, the earthquake and tsunami forced the
shutdown of its Tokyo Disney show, Zed.
Legal Factors: Another critical issue face by Cirque de Soleil is the management
of activities necessary in setting up touring shows. These activities include
facilitating the arrival of many of its performers and technicians. The procedure
includes Visa Papers, Plane tickets, working permits, and other travel
arrangements that need to be done. As an organisation that depends a lot on
touring shows they should find a walk-around for these activities as they support
the business.

Analysis
Cirque du Soleil successfully entered the circus industry using an innovative strategy
to reinvent the industry creating a new space in the market. They attained a
differentiation advantage by breaking away from the traditional circuses with an

approach to finding talents, using creativity and building a loved brand. One of
Cirques first productions was titled we Re-invented the circus.
Strength, and Weakness, opportunity, and threat (SWOT) analysis is specifically
influential in demonstrating the idea that good strategy indicates enduring a fit
between the external situations an organization confronts (opportunities and threats),
and its own internal features (strengths and weaknesses) (Hill & Westbrook, 1997).
Strengths: Cirque du Soleil has many years of experience and a big image in the
circus industry. It uses an innovative strategy to reinvent the circus art, eliminating
the use of animals in shows and also applies the innovation concept for its logistics,
staff recruitment and design. It has high quality shows and unique shows that involve
adult live entertainment.
Weakness: Cirque du Soleil has high overhead and management cost. Its tour
shows requires transportation and the use of 20 technicians, 800 tonnes of
equipment, 70 containers, four generators. It also has a single owner and decision
maker and a business model that can easily be copied.
Opportunities: it can expand to new markets and more audience all around the
world, establish fixed shows and make its tickets more affordable.
Threat: A somnolent economy could result in its customers selecting lower cost. Also
increasing competition from Pickle Family Circus, Big Apple Circus and Fuerzabruta
and Argentine Troupe could disrupt the business model. The growth of the Business
could also be harmed by poor management of resources.
Cirque du Soleil is further analyzed using Michael Porters five force models that
helps businesses know how they can best compete in the market place.
Threat of Substitute: This is a restraining force for Cirque du Soleil as the threat for
substitution is relatively high. When there is economic downturn, customers can
easily choose low cost substitutes such as movies, television, internet, theatres,
cinemas and concerts.
Bargaining Power of Buyers: This is a driving force for the company as its
products are highly differentiated and unique. Cirque du Soleil produce unique
shows that cannot be easily imitated. It created shows for adults and made them
prepared to pay for shows that are several times higher than that of a conventional

circus show for a thrilling entertainment experience. This adds value and positively
affects the company.
Bargaining Power of Suppliers: The bargaining power of suppliers is relatively low.
There are high numbers of suppliers for technical equipment and logistics, in other
words the switching cost is relatively low. This impacts the company positively and
leads to an increase in profit for the entity.
Barriers to Entry: Barrier to entry to the circus industry is high mainly because of
the huge capital investment required in workforce, equipments and performers. This
is a driving force for the company.
Competitive rivalry: Cirque du Soleil faces moderate competition in the circus
industry because of the general decline of the industry and the huge capital
requirement needed to start up such a business. Their top three competitors in the
industry are: Feld Entertainment, Live Nation and Six flags.
Circus incurs increasingly expensive cost to run its shows globally. The development
of each show costs as much as $25million. However the company has tried to trim
its cost by laying off employees in its head office in Montreal. The company laid off
400 of 2,000 employees in its head quarters in an attempt to cut its cost.
Daniel Lamarre, the CEO who joined the company in 2001, tried to utilize economies
of scale by tripling production of shows to three a year. However this was
unsuccessful as the company was unable to keep up the pace of producing multiple
shows in various continents. In addition to the expenses linked to its expansion, the
company is facing shortage of outside investors in its production.
Managing its behind the scene workers, departments and talents from continent to
continent has not been an easy task for Cirque. As a business with about 5,000
employees that requires moving from country to country, the company needs to
properly manage its human resources.
A large company like Cirque du Soleil needs to use IT to preserve and integrate the
data from different activities such as applications, suppliers and design (of images,
sketches, videos, notes etc) for future creativity. Data preservation and integration
encompass the entire creative and design activities at Cirque du Soleil, especially
costume and make-up process. Daniel Savoie the Vice President of IT at Cirque
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needs to find a solution to integrate data to preserve the knowledge embedded in

them.

Recommendation
Based on the SWOT analysis of Cirque du Soleil, to sustain the growth
theyve managed to achieve requires that they diversify their line of product to
give customers a new experience with shows. Cirque De Soleil re-invented
the circus, however everybody has seen that now, they should diversify more
into commercial activities such as movie productions, music, amusement park
and even commercial goods.
Danielle Savoie should focus on integration process and data management
and also the resources available at Cirque so as to reduce the loss of
information and increase collaboration, knowledge retention efficiency and
data retention. Business value from information depends on best practices
and effective use of data-management technologies. A simple customized
database enabled system be built with great emphasis on making sure that
its integrated with all software or hardware and running on one platform, so
that separate application interacting with the system has a way of integrating
smoothly with it.
Based on the SWOT analysis of Cirque du Soleil, to sustain the growth
theyve managed to achieve requires that they diversify their line of product to
give customers a new experience with shows. Cirque de Soleil re-invented the
circus, however everybody has seen that now, they should diversify more into
commercial activities such as movie productions, music, amusement park and
even commercial goods.
Cirque du Soleil should also bear in mind that value system varies as they
expand their business globally and the organization needs to discover the
values and background of people that the touring shows are going to meet.
With the findings they can then design a show that is compatible with the
values and culture of the people. This would result in people accepting shows
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and looking forward to on coming shows rather than offering a show designed
for a particular culture to a different culture.
Cirque du Soleil should hire more creative artist and rely less on automation
of shows. The organization should hire more talents based on an evaluation
of their passion, commitment and creativity to draw more audience to shows.

Implementation
Cirque du Soleil needs to review the pricing for its shows and should have a
defined diverse strategic approach. It should come up with a pricing policy
and a level of show production annually. By setting up a level of show
production annually they would maintain a fixed cost in setting up shows and
use their resources to market shows and sell tickets thereby reducing the
number of vacant seats per show, thus making use of economies of scale
which would result in an increase in Cirques profit.
Cirque should set up a regional division with a separate marketing and market
research to meet the diverse needs of people. They should also make find
partners that could add value to their production and make it more attractive
to the organizations customers.
Cirque should develop or acquire an Enterprise Resource Planning (ERP)
System to handle data processing and integration.

Conclusion
Cirque has proven its success since it was found in 1984 with the belief that
innovation is more about culture than just a process. Cirque du Soleil culture of
innovation values is inspired by new challenges, creation of a democratized
environment, cultivating debate and openness, and diversity where the best ideas
win.
Cirque re-invented the circus which everyone has seen, but how much longer would
they keep filling the seats in theatres at high admission prices. The company has to
review its strategy because their competitive advantage would not last forever.
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Bibliography
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Grant, R. M., & Jordan, J. (2012). Foundations of strategy. Hoboken, NJ: Wiley and
Sons.
Hill, T., & Westbrook, R. (1997). SWOT analysis: It's time for a product recall. Long
Range Planning, 30(1), 46-52. doi:10.1016/s0024-6301(96)00095-7
Igniting the Creative Spark at Cirque du Soleil. (n.d.). Retrieved June 05, 2016, from
http://www.hr.com/en/app/blog/2007/06/igniting-the-creative-spark-at-cirque-dusoleil_f33ixy9b.html
Kvasny, L., & Richardson, H. (2006). Critical research in information systems:
Looking forward, looking back. Information Technology & People Info Technology &
People, 19(3), 196-202. doi:10.1108/09593840610689813
Please stop going to the circus. Its an awful place, and ... (n.d.). Retrieved June 5,
2016, from http://www.upworthy.com/please-stop-going-to-the-circus-its-an-awfulplace-and-this-graphic-proves-it
Sylt, C. (n.d.). Cirque du Soleil tour revenue tumbles to 40m. Retrieved June 05,
2016, from
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/1142851
1/Cirque-du-Soleil-tour-revenue-tumbles-to-40m.html
View Treaty - E103320. (n.d.). Retrieved June 05, 2016, from http://www.treatyaccord.gc.ca/text-texte.aspx?id=103320