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 - – increasing inequality as vast percentage of new income is going to the top 1%, central banks are concerned over increasing inflation, increasing energy prices, supply chains are disrupted by pandemic , there is backlash against globalization, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing transportation and logistics costs,
increasing household debt because of falling income levels, challanges to central banks by blockchain based private currencies, 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 -
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.
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.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Fitness Mastrov digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Fitness Mastrov has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
High switching costs
– The high switching costs that Fitness Mastrov has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
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.
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.
Diverse revenue streams
– Fitness Mastrov is present in almost all the verticals within the industry. This has provided firm in 24 Hour Fitness (A): The Rise, 1983-2004 case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High brand equity
– Fitness Mastrov has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Fitness Mastrov to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
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.
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.
Effective Research and Development (R&D)
– Fitness Mastrov has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study 24 Hour Fitness (A): The Rise, 1983-2004 - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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.
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 -
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.
Slow to strategic competitive environment developments
– As 24 Hour Fitness (A): The Rise, 1983-2004 HBR case study mentions - Fitness Mastrov takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
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.
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.
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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study 24 Hour Fitness (A): The Rise, 1983-2004, is just above the industry average. Fitness Mastrov needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
No frontier risks strategy
– After analyzing the HBR case study 24 Hour Fitness (A): The Rise, 1983-2004, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Products dominated business model
– Even though Fitness Mastrov has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - 24 Hour Fitness (A): The Rise, 1983-2004 should strive to include more intangible value offerings along with its core products and services.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study 24 Hour Fitness (A): The Rise, 1983-2004, in the dynamic environment Fitness Mastrov has struggled to respond to the nimble upstart competition. Fitness Mastrov has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High bargaining power of channel partners
– Because of the regulatory requirements, John R. Wells, Elizabeth A. Raabe, Gabriel Ellsworth suggests that, Fitness Mastrov is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
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.
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 -
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.
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.
Buying journey improvements
– Fitness Mastrov can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. 24 Hour Fitness (A): The Rise, 1983-2004 suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Leveraging digital technologies
– Fitness Mastrov can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
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.
Loyalty marketing
– Fitness Mastrov has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Fitness Mastrov can use these opportunities to build new business models that can help the communities that Fitness Mastrov operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
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.
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.
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Fitness Mastrov to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Fitness Mastrov to hire the very best people irrespective of their geographical location.
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.
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 -
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.
Technology acceleration in Forth Industrial Revolution
– Fitness Mastrov has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Fitness Mastrov needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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.
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 .
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.
Shortening product life cycle
– it is one of the major threat that Fitness Mastrov is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Fitness Mastrov in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Fitness Mastrov in the Strategy & Execution sector and impact the bottomline of the organization.
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.
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.
