Case Study Description of 24 Hour Fitness (A): The Rise, 1983-2004
In October 2004, Mark S. Mastrov, CEO of 24 Hour Fitness, reflected on how far his company had come in just over 20 years. From humble beginnings in 1983 in San Leandro, California, 24 Hour Fitness had grown to become the largest privately-owned health-club chain in the world. The company operated 346 clubs in 15 U.S. states and 10 countries, and it employed 16,000, serving 3 million members. Revenues exceeded $1 billion. The challenge ahead for Mastrov was making choices in the face of so many opportunities. Should he focus the business on the domestic market and expand into the many states the company had not entered yet or devote more resources to international expansion? If he decided to expand into the Northeast, how should the company enter against entrenched competitors like Bally Total Fitness? Would a major acquisition make sense, or would it threaten the company's culture? And how should he fund such an acquisition? An IPO had many attractions, but it would expose the company to a whole new set of challenges.
Authors :: John R. Wells, Elizabeth A. Raabe, Gabriel Ellsworth
Swot Analysis of "24 Hour Fitness (A): The Rise, 1983-2004" written by John R. Wells, Elizabeth A. Raabe, Gabriel Ellsworth includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Fitness Mastrov facing as an external strategic factors. Some of the topics covered in 24 Hour Fitness (A): The Rise, 1983-2004 case study are - Strategic Management Strategies, Costs, Customers, Entrepreneurial finance, Growth strategy, Health, Internet, IT, Leadership, Organizational culture, Organizational structure, Strategy execution, Supply chain and Strategy & Execution.
Some of the macro environment factors that can be used to understand the 24 Hour Fitness (A): The Rise, 1983-2004 casestudy better are - – talent flight as more people leaving formal jobs, technology disruption, increasing energy prices, wage bills are increasing, increasing household debt because of falling income levels, competitive advantages are harder to sustain because of technology dispersion, increasing inequality as vast percentage of new income is going to the top 1%,
geopolitical disruptions, increasing government debt because of Covid-19 spendings, etc
Introduction to SWOT Analysis of 24 Hour Fitness (A): The Rise, 1983-2004
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in 24 Hour Fitness (A): The Rise, 1983-2004 case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Fitness Mastrov, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Fitness Mastrov operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of 24 Hour Fitness (A): The Rise, 1983-2004 can be done for the following purposes –
1. Strategic planning using facts provided in 24 Hour Fitness (A): The Rise, 1983-2004 case study
2. Improving business portfolio management of Fitness Mastrov
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Fitness Mastrov
Strengths 24 Hour Fitness (A): The Rise, 1983-2004 | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Fitness Mastrov in 24 Hour Fitness (A): The Rise, 1983-2004 Harvard Business Review case study are -
Organizational Resilience of Fitness Mastrov
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Fitness Mastrov does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Fitness Mastrov in the sector have low bargaining power. 24 Hour Fitness (A): The Rise, 1983-2004 has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Fitness Mastrov to manage not only supply disruptions but also source products at highly competitive prices.
Innovation driven organization
– Fitness Mastrov is one of the most innovative firm in sector. Manager in 24 Hour Fitness (A): The Rise, 1983-2004 Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Highly skilled collaborators
– Fitness Mastrov has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in 24 Hour Fitness (A): The Rise, 1983-2004 HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Successful track record of launching new products
– Fitness Mastrov has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Fitness Mastrov has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Analytics focus
– Fitness Mastrov is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by John R. Wells, Elizabeth A. Raabe, Gabriel Ellsworth can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Operational resilience
– The operational resilience strategy in the 24 Hour Fitness (A): The Rise, 1983-2004 Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Training and development
– Fitness Mastrov has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in 24 Hour Fitness (A): The Rise, 1983-2004 Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Ability to lead change in Strategy & Execution field
– Fitness Mastrov is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Fitness Mastrov in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Learning organization
- Fitness Mastrov is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Fitness Mastrov is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in 24 Hour Fitness (A): The Rise, 1983-2004 Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Cross disciplinary teams
– Horizontal connected teams at the Fitness Mastrov are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Ability to recruit top talent
– Fitness Mastrov is one of the leading recruiters in the industry. Managers in the 24 Hour Fitness (A): The Rise, 1983-2004 are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses 24 Hour Fitness (A): The Rise, 1983-2004 | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of 24 Hour Fitness (A): The Rise, 1983-2004 are -
Capital Spending Reduction
– Even during the low interest decade, Fitness Mastrov has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Fitness Mastrov is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study 24 Hour Fitness (A): The Rise, 1983-2004 can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Skills based hiring
– The stress on hiring functional specialists at Fitness Mastrov has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Interest costs
– Compare to the competition, Fitness Mastrov has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Fitness Mastrov supply chain. Even after few cautionary changes mentioned in the HBR case study - 24 Hour Fitness (A): The Rise, 1983-2004, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Fitness Mastrov vulnerable to further global disruptions in South East Asia.
Slow decision making process
– As mentioned earlier in the report, Fitness Mastrov has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Fitness Mastrov even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Lack of clear differentiation of Fitness Mastrov products
– To increase the profitability and margins on the products, Fitness Mastrov needs to provide more differentiated products than what it is currently offering in the marketplace.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study 24 Hour Fitness (A): The Rise, 1983-2004, it seems that the employees of Fitness Mastrov don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Workers concerns about automation
– As automation is fast increasing in the segment, Fitness Mastrov needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High cash cycle compare to competitors
Fitness Mastrov has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Need for greater diversity
– Fitness Mastrov has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Opportunities 24 Hour Fitness (A): The Rise, 1983-2004 | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study 24 Hour Fitness (A): The Rise, 1983-2004 are -
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Fitness Mastrov can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Fitness Mastrov can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Using analytics as competitive advantage
– Fitness Mastrov has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study 24 Hour Fitness (A): The Rise, 1983-2004 - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Fitness Mastrov to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Learning at scale
– Online learning technologies has now opened space for Fitness Mastrov to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Fitness Mastrov can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, 24 Hour Fitness (A): The Rise, 1983-2004, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Creating value in data economy
– The success of analytics program of Fitness Mastrov has opened avenues for new revenue streams for the organization in the industry. This can help Fitness Mastrov to build a more holistic ecosystem as suggested in the 24 Hour Fitness (A): The Rise, 1983-2004 case study. Fitness Mastrov can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Fitness Mastrov can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Better consumer reach
– The expansion of the 5G network will help Fitness Mastrov to increase its market reach. Fitness Mastrov will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Fitness Mastrov can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Fitness Mastrov in the consumer business. Now Fitness Mastrov can target international markets with far fewer capital restrictions requirements than the existing system.
Low interest rates
– Even though inflation is raising its head in most developed economies, Fitness Mastrov can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Fitness Mastrov is facing challenges because of the dominance of functional experts in the organization. 24 Hour Fitness (A): The Rise, 1983-2004 case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Fitness Mastrov can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Manufacturing automation
– Fitness Mastrov can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Threats 24 Hour Fitness (A): The Rise, 1983-2004 External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study 24 Hour Fitness (A): The Rise, 1983-2004 are -
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Fitness Mastrov can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study 24 Hour Fitness (A): The Rise, 1983-2004 .
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Fitness Mastrov.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Fitness Mastrov can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Fitness Mastrov business can come under increasing regulations regarding data privacy, data security, etc.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study 24 Hour Fitness (A): The Rise, 1983-2004, Fitness Mastrov may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Consumer confidence and its impact on Fitness Mastrov demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Regulatory challenges
– Fitness Mastrov needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Environmental challenges
– Fitness Mastrov needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Fitness Mastrov can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Fitness Mastrov will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Stagnating economy with rate increase
– Fitness Mastrov can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Increasing wage structure of Fitness Mastrov
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Fitness Mastrov.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Fitness Mastrov with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of 24 Hour Fitness (A): The Rise, 1983-2004 Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study 24 Hour Fitness (A): The Rise, 1983-2004 needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study 24 Hour Fitness (A): The Rise, 1983-2004 is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study 24 Hour Fitness (A): The Rise, 1983-2004 is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of 24 Hour Fitness (A): The Rise, 1983-2004 is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Fitness Mastrov needs to make to build a sustainable competitive advantage.