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BROADWAY
BROADWAY ENTERTAINMENT
ENTERTAINMENT COMPANY,
COMPANY, INC.
INC.
Company Background

C A S E I NTR O D U C TI O N BEC TABLE 3-1 BEC Domestic Revenue, by Category,

Broadway Entertainment Company, Inc. (BEC) is a fic- Calendar Year 2006
tional company in the video rental and recorded music Category Revenue (in $000s) Percent
retail industry, but its size, strategies, and business prob-
Sales Revenue
lems (and opportunities) are comparable to those of real
Music Sales $572,020 34%
businesses in this fast-growing industry.
Video Sales (DVD) $154,000 9%
Video Game Sales $92,760 5%
Rental Revenue
In this section, we’ll introduce you to the company, Video Rentals $742,080 44%
the people who work for it, and the company’s Video Game Rentals $139,140 8%
information systems. At the end of all subsequent
Total $1,700,000 100%
chapters, we’ll revisit BEC to illustrate the phase of the
life cycle discussed in that chapter. Our aim is to provide
you with a realistic case example of how the systems
In addition to these store offerings, BEC is seriously
development life cycle moves through its phases and how
considering the launch of an online rental subscription
analysts, managers, and users work together to develop an
service. Over the last few years, there has been a
information system. Through this example, you’ll
significant and growing market for online rental
practice working on tasks and discussing issues related to
subscription services and to remain competitive in this
each phase in an ongoing systems development project.
business, BEC recognized that it needs to invest in this
business opportunity. BEC will leverage the use of its
existing distribution network and the Internet to
TH E C O M PA NY
compete in the online rental market. Because of this new
As of January 1, 2007, BEC owned 2,443 outlets across the
development, the company will incur a short-term impact
United States, Canada, Mexico, and Costa Rica. There is
on its operating costs. But in the long run, BEC is
at least one BEC outlet in every state and in each
determined to maintain a presence in the online rental
Canadian province. There are 58 stores in Canada, 25 in
subscription business. The home video and music retail
Mexico, and 6 in Costa Rica. The company is currently
industries are strong and growing, both domestically and
struggling to open a retail outlet in Japan and plans to
internationally. For several years, home video has
expand into the European Union (EU) within a year.
generated more revenue than either theatrical box office
BEC’s U.S. operations are headquartered in Spartanburg,
or movie pay-per-view. Recently, the growth of DVD has
South Carolina; Canadian operations are headquartered
brought home video into the digital age, providing
in Vancouver, British Columbia; Latin American opera-
higher quality and broader content.
tions are based in Mexico City, Mexico.
To get a good idea of the industry in which Broadway
Each BEC outlet offers for sale two product lines:
competes, we look at five key elements of the home video
recorded music (on CDs) and video games. Each outlet
and music retail industries:
also rents two product lines: recorded videos (on DVDs)
and video games. In 2006, music sales and video rentals 1. Suppliers—all of the major distributors of recorded
together accounted for over 75 percent of Broadway’s music (e.g., EMI, Sony BMG, Univeral, and Warner
U.S. revenues (see BEC Table 3-1). Foreign operations Music Group), video games (e.g., Microsoft, Nintendo,
added another $24,500,000 to company revenues. Sony), and recorded videos (e.g., Fox, Sony, Viacom).

89

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2. Buyers—individual consumers.
3. Substitutes—television (broadcast, cable, satellite),
subscription entertainment (such as HBO and
Showtime), first-run movies, pay-per-view, video-on-
demand services, Internet-based multimedia, theater,
radio, concerts, and sporting events.
4. Barriers to entry—few barriers and many threats,
including alliances between telecommunications and
entertainment companies to create cable television
and Web TV, which lets consumers choose from a large
number and variety of videos, music, and other home
entertainment products from a computerized menu
system in their homes. Indeed, one of BEC’s rivals in
the online movie rental service, Netflix, has already
started to test this new service for videos, which is
known as video-on-demand, which would allow the
downloading of movies that can be viewed on a TV
using TiVo hardware. Another imminent threat is the
growing acceptance of Digital Video Recorders
(DVR), which allow the digital recording of television.
The most prominent provider of DVR is TiVo.
5. Rivalries among competing firms—large music chains
(such as Musicland and Tower Records, all smaller
than BEC), large video chains (such as Blockbuster
Entertainment, which is larger and more globally
competitive than BEC), and online movie rental
service providers (such as Blockbuster and Netflix,
which are larger and more competitive than BEC).
C O M PA NY H I STO RY
The first BEC outlet opened in the Westgate Mall in
Spartanburg, South Carolina, in 1977 as a music (record)
sales store. The first store exclusively sold recorded music,
primarily in vinyl format, but also stocked cassette tapes.
BEC’s founder and current chairman of the board, Nigel
Broad, immigrated to South Carolina from his native
Great Britain in 1968. After nine years of playing in a
band in jazz clubs, Nigel used money he had inherited
from his mother to form Broadway Entertainment
Company, Inc., and opened the first BEC outlet.
Sales were steady and profits increased. Soon Nigel
was able to open a second outlet and then a third.
Predicting that his BEC stores had already met
Spartanburg’s demand for recorded music, Nigel decided
to open his fourth store in nearby Greenville in 1981. At
about the same time, he added a new product line—Atari
video game cartridges. Atari’s release of its Space Invaders
game cartridge resulted in huge profits for Nigel. The
company continued to grow, and Broadway expanded
beyond South Carolina into neighboring states.
In the early 1980s, Nigel saw the potential in
videotapes. A few video rental outlets had opened in
some of Broadway’s markets, but they were all small
independent operations. Nigel saw the opportunity to
# 45865 Cust: PHNJ B&E Au: Hoffer Pg. No. 90
combine video rentals with music sales in one place. He
also decided that he could rent more videos to customers
if he changed some of the typical video store rules such as
eliminating the heavy membership fee and allowing
customers to keep videos more than one night. Nigel also
wanted to offer the best selection of videos anywhere.
Nigel opened his first joint music and video store at
the original BEC outlet in Spartanburg in 1985. Customer
response was overwhelming. In 1986, Nigel decided to
turn all 17 BEC outlets into joint music and video stores.
To move into the video rental business in a big way, Nigel
and his chief financial officer, Bill Patton, decided to have
a public offering. They were happily surprised when all
one million shares sold at $7 per share. The proceeds also
allowed Broadway to revive the dying video game line by
dropping Atari and adding the newly released Nintendo
game cartridges.
Profits from BEC outlets continued to grow
throughout the 1980s, and Broadway further expanded
by acquiring existing music and video store chains,
including Music World. From 1987 through 1993, the
number of BEC outlets roughly doubled each year. The
decision to go international, made in 1991, resulted in 12
Canadian stores that year. The initial three Latin
American stores were opened in mid-1994.
During 2003, the home video game industry
continued to expand. Nigel noticed an emerging trend
when analyzing the video game sales figures. Whenever a
new hardware platform or game is introduced, there is a
significant growth on sales, but the sales volume tapers
down after a while as consumers hold back their
purchases in expectation of new platforms or games.
Nigel realized that BEC can take advantage of this cyclical
nature of the home video game industry. A game trading
model has been integrated in the outlets, where
consumers can exchange games for new games or other
used games if they can get a fair value for them. This new
initiative has resulted in the revenue from video game
rentals being much higher than the revenue from video
game sales.
In 2007, Nigel recognized that in order for his
company to remain competitive in the movie rental
industry, BEC has to provide an online rental
subscription service. The major player in this new
industry, Netflix, Inc., already has a significant market
share and another big player in the movie rental industry,
Blockbuster, Inc., is entering this market. To maintain the
existing consumer base, Nigel realized that a strategic
move for BEC will be to invest in this new initiative.
Instead of investing in new distribution centers, BEC will
use the existing outlets as distribution points for the
online rental service, which will allow for shorter delivery
times and lower operating costs. Because of the
convenience this new service will offer, BEC will be able to
maintain the existing consumer base, while at the same
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time, bringing back customers who have been lost to
competing rental services.
From its beginnings in 1977, with 10 employees and
$398,000 in revenues, Broadway Entertainment
Company, Inc., grew to 24,225 employees and worldwide
revenues of $1.7 billion by January 1, 2007.
C O M PA NY O R G A N IZ ATI O N
In 1992, when the company opened its one-thousandth
store, Nigel decided that he no longer wanted to be chief
executive officer of the company. He decided to fill only
the position of chairman, and promoted his close friend
Ira Abramowitz to the offices of president and CEO (see
BEC Figure 3-1).
Most of Broadway’s other senior officers have also
been promoted from within. Bill Patton, the chief
financial officer, started as the fledgling company’s first
bookkeeper and accountant. Karen Gardner had been
part of the outside consulting team that built Broadway’s
first information system in 1986 and 1987. She became
the vice president in charge of IS for BEC in 1990. Bob
Panofsky, the vice president for human resources, had
been with the company since 1981. An exception to the
promote-from-within tendency, W. D. Nancy Chen, the
vice president for domestic operations, had been
recruited from Music World in 1991, shortly before the
chain was purchased by Broadway. Oscar Morales had
been hired in 1992 from Blockbuster Entertainment,
where he had been in charge of Latin American
expansion.
D E V E L O P M E NT O F I N F O R M ATI O N SYSTE M S
Broadway Entertainment Company operated from 1977
until 1984 without any computer-based information sys-
tems support. As the company grew, accounting ledgers,
Bill Patton Karen Gardner
VP Finance VP Info Systems
BEC Figure 3-1
Broadway Entertainment Company, Inc. organization chart
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B R O A D W A Y E N T E R T A I N M E N T C O M P A N Y, I N C . 91
files, and customer account information became unruly.
Like many businesses this size, the owner did not have the
expertise or the capital for developing the company’s own
information systems. For example, Bill Patton managed
inventory by hand until he bought an IBM AT in 1984.
Computerizing the company made the expansion to 10
stores in 1984 much easier.
In 1985, BEC had no personnel trained in
information systems on staff, and all the BEC managers
were quite busy coping with the business expansion. Nigel
and Bill considered hiring a small staff of experienced IS
professionals, but they did not know how to manage such
a group, how to select quality staff, or what to expect from
such employees. Nigel and Bill realized that computer
software could be quite complicated, and building
systems for a rapidly changing organization could be
quite a challenge. They also knew that building
information systems required discipline. So Nigel, after
talking with leaders of several other South Carolina
businesses, contacted the information consulting firm of
Fitzgerald McNally, Inc., about designing and building a
custom computer-based information system for
Broadway. In 1985, no prewritten programs were available
to help run the still relatively new business of video and
music rental and sales stores.
Nigel and Bill wanted the new system to perform
accounting, payroll, and inventory control. Nigel wanted
the system to be readily expandable in preparation for
Broadway’s rapid growth. At the operational level, he
realized that the video rental business would require
unique features in its information system. For one thing,
rental customers would not only be taking product from
the store; they would also be returning it at the end of the
rental period. Further, customers would be required to
register with Broadway and attach some kind of deposit to
their account in order to help ensure that videos would
be returned.
Nigel Broad
Chairman
Ira Abramowitz
President and CEO
W.D. Nancy Chen Bob Panofsky Oscar Morales
VP U.S. Operations VP Human Resources VP Foreign Operations
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At a managerial level, Nigel wanted the movement of
videos in and out of the stores and all customer accounts
computerized. He also wanted to be able to search
through the data on Broadway’s customers describing
their rental habits. He wanted to know which videos were
the most popular, and he wanted to know who Broadway’s
most frequent customers were, not only in South
Carolina, but also in every location where Broadway did
business.
Fitzgerald McNally, Inc., was happy to get Broadway’s
account. They assigned Karen Gardner to head the
development team. Karen led a team of her own staff of
analysts and programmers, along with several BEC
managers, in a thorough analysis and design study. The
methodology applied in this study provided the discipline
needed for such a major systems development effort. The
methodology began with information planning and
continued through all phases of the systems development
life cycle.
Karen and her team delivered and installed the
system at the end of the two-year project. The system was
centralized, with an IBM 4381 mainframe installed at
headquarters in Spartanburg and three terminals, three
light pens, and three dot-matrix printers installed in each
BEC outlet. The light pens recorded, for example, when
the copies were rented and when they were returned by
reading the bar code on the DVD box. The light pens
were also used to read the customer’s account number,
which was recorded in a bar code on the customer’s BEC
account card. The printers generated receipts. In
addition, the system included a small personal computer
and printer to handle a few office functions such as the
ordering and receiving of goods. The software monitored
and updated inventory levels. Another software product
generated and updated the customer database, whereas
other parts of the final software package were designed
for accounting and payroll.
In 1990, Karen Gardner left Fitzgerald McNally and
joined Broadway as the head of its information systems
group. Karen led the effort to expand and enhance
Broadway’s information systems as the company grew to
over 2,000 company-owned stores in 1995. Broadway now
uses a client/server network of computers at headquarters
and in-store point-of-sale (POS) computer systems to
handle the transaction volume generated by millions of
customers at all BEC outlets.
I N F O R M ATI O N SYSTE M S AT B E C TO D AY
BEC has two systems development and support groups:
one for in-store applications and another for corporate,
regional, and country-specific applications. The corpo-
rate development group has liaison staff with the in-store
group, because data in many corporate systems feed or
are fed by in-store applications (e.g., market analysis sys-
tems depend on transaction data collected by the in-store
# 45865 Cust: PHNJ B&E Au: Hoffer Pg. No. 92
systems). BEC creates both one-year and three-year IS
plans that encompass both store and corporate functions.
The functions of the original in-store systems at BEC
have changed very little since they were installed in
1987—for example, customer and inventory tracking are
still done by pen-based, bar code scanning of product
labels and membership cards. Rentals and returns, sales,
and other changes in inventory as well as employee time
in and out are all captured at the store in electronic form
via a local POS computer system. These data are
transmitted in batches at night using modems and
regular telephone connections to corporate headquarters
where all records are stored in a network of IBM AS/400
computers (see BEC Figure 3-2).
As shown in BEC Figure 3-2, each BEC store has an
NCR computer that serves as a host for a number of POS
terminals at checkout counters and is used for generating
reports. Some managers have also learned how to use
spreadsheet, word processing, and other packages to
handle functions not supported by systems provided by
BEC. The front-end communications processor offloads
traffic from the IBM AS/400 network so that the servers
can concentrate on data processing applications. BEC’s
communication protocol is SNA (System Network
Architecture), an IBM standard. Corporate databases are
managed by IBM’s relational DBMS DB2. BEC uses a
variety of programming environments, including C,
COBOL, SQL (as part of DB2), and code generators.
Inventory control and purchasing are done centrally,
and employees are paid by the corporation. Each store
has electronic records of only its own activity, including
inventory and personnel. Profit and loss, balance sheets,
and other financial statements are produced for each
store by centralized systems. In the following sections, we
will review the applications that exist in the stores and at
the corporate level.
I N-STO R E SYSTE M S
BEC Table 3-2 lists the application systems installed in
each store. BEC has developed a turnkey package of hard-
ware and software (called Entertainment Tracker—ET),
which is installed in each store worldwide. Besides
English, the system also works in Spanish and French.
As you can see from BEC Table 3-2, all of these
applications are transaction processing systems. In fact,
there is a master screen on the POS terminals from which
each ET application is activated. These systems work off a
local decentralized database, and there is a similarly
structured database for each store. Various batched data
transfers occur between corporate and store systems at
night (store transactions, price and membership data
updates, etc.). The local database contains data on
members, products, sales, rentals, returns, employees,
and work assignments. The database contains only
current data—the history of customer sales and rentals is
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B R O A D W A Y E N T E R T A I N M E N T C O M P A N Y, I N C . 93

SmartLAN
SmartHUB

A BEC Store

POS Server

POS

SNA

Front-end
Communications
Processor
Terminals

PCs

BEC Corporate
Headquarters

AS/400 Network of
Servers

BEC Figure 3-2

BEC hardware and network architecture

BEC TA B L E 3-2 List of BEC In-Store (Entertainment Tracker)
Applications
System Name Description
Membership Supports enrollment of new members,
issuing membership cards, reinstatement
of inactive members, and local data
management for transient members
Rental Supports rentals and returns of all products
and outstanding rental reports
Sales Supports sales and returns of all
products (including videos, music, snack
food, BEC apparel, and gift certificates)
Inventory control Supports all changes in rental and sales
inventory that are not sales based
(e.g., receipt of a new tape for rental,
rejection of goods damaged in shipment,
and transfer of an item from rental to
sales categories)
Employee Supports hiring and terminating hourly
employees, as well as all time-reporting
activities
retained in a corporate database. Thus, local stores do
not retain any customer sales and rental activity (except
for open rentals).
Data for those members who have had no activity at a
local store for more than one year are purged from the
local database. When members use a BEC membership
card and no member record exists in the local database,
members are asked to provide a local address and phone
number where they can be contacted.
All store employees, except the store manager, who is
on salary, are paid on an hourly basis, so clock-in and clock-
out times are entered as a transaction, using employee
badges with a bar code strip, on the same POS terminal
used for member transactions. Paychecks are delivered by
express mail twice a month. Employee reports (e.g.,
attendance, payroll, and productivity) are produced by
corporate systems and sent to store managers.
All other store recordkeeping is manual, and corporate
offices handle accounts receivables and payables. The local
store manager is responsible for contacting via phone or

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mail members who are late in returning rented items. Each
night a file of delinquent members is transmitted to each
store and, if a member tries to use a delinquent
membership, the member is asked to return all outstanding
rentals before renting any more items and the current
transaction is invalidated. When terminated members try to
use their cards, a BEC store clerk keeps the membership
card and members are given a printed form that explains
their rights at that point. Stolen membership cards are
handled similarly, except that the store manager deals
personally with people using cards that have been reported
stolen.
C O R P O R ATE SYSTE M S
Corporate systems run on IBM servers using IBM’s DB2
relational database management system, although some
run on PCs. Application software is written in COBOL, C,
SQL (a database processing language), and several 4GLs,
and all systems are developed by BEC. Clerks and man-
agers use PCs for interactive access into corporate systems
as well as for stand-alone, end-user applications such as
word processing, spreadsheets, specialized databases, and
business graphics. There are more than 20 major corpo-
rate systems with over 350 programs and approximately
500,000 lines of code. There are many more specialized
systems, often developed for individual managers, pro-
jects, or special events. BEC Table 3-3 lists some of the
most active and largest of the major corporate systems.
One interesting aspect of the banking application is
that because stores have no financial responsibilities, BEC
uses a local bank only for daily deposits and getting
change. BEC’s corporate bank, NCNB, arranges
correspondent banking relationships for BEC so that
local deposits are electronically transferred to BEC’s
corporate accounts with NCNB.
BEC’s applications are still expanding, and they are
under constant revision. For example, in cooperation
with several hotel and motel chains that provide VCRs for
rental, BEC is undertaking a new marketing campaign
aimed at frequent travelers. At any one time, there are
approximately 10 major system changes or new systems
under development for corporate applications with over
250 change requests received annually covering
requirements from minor bug fixes to reformatting or
creating new reports to whole new systems.
STATU S O F SYSTE M S
A rapidly expanding business, BEC has created significant
growth for the information systems group managers.
Karen Gardner is considering reorganizing her staff to
provide more focused attention to the international area.
BEC still uses the services of Fitzgerald McNally when
Karen’s resources are fully committed. Karen’s depart-
ment includes 33 developers (programmers, analysts, and
other specialists in database, networking, etc.) plus data
center staff, which is now large and technically skilled
enough to handle almost all requests.
Karen’s current challenge in managing the IS group
is keeping her staff current in the skills they need to
successfully support the systems in a rapidly changing and

BEC TA B L E 3-3 List of BEC Corporate Applications

System Name Description

Human resources
Accounts receivable
Banking
Accounts payable,
purchasing, and shipping
General ledger and
financial accounting
Property management
Member tracking
Inventory management
Sales tracking and analysis
Store contact
Fraud
Shareholder services
Store and site analysis
Supports all employee functions, including payroll, benefits, employment and evaluation history, training, and
career development (including a college scholarship for employees and dependents)
Supports notification of overdue fees and collection of payment from delinquent customers
Supports interactions with banking institutions, including account management and electronic funds transfers
Supports ordering products and all other purchased items used internally and resold/rented, distribution of
products to stores, and payment to vendors
Supports all financial statement and reporting functions
Supports the purchasing, rental, and management of all properties and real estate used by BEC
Supports record keeping on all BEC members and transmits and receives member data between corporate
and in-store systems
Supports tracking inventory of items in stores and elsewhere and reordering those items that must be
replenished
Supports a variety of sales analysis activities for marketing and product purchasing functions based on sale
and rental transaction data transmitted nightly from stores
Supports transmittal of data between corporate headquarters and stores nightly, and the transfer of data to
and from corporate and store systems
Supports monitoring abuse of membership privileges
Supports all shareholder activities, including recording stock purchases and transfers, disbursement of
dividends, and reporting
Supports the activity and profit analysis of stores and the analysis of potential sites for stores

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competitive business environment. In addition, staff
members need to be excellent project managers,
understand the business completely, and exhibit
excellent communication with clients and each other.
Karen is also concerned about information systems
literacy among BEC management and believes that
technology is not being as thoroughly exploited as it
could be.
To deal with this situation, Karen is considering
several initiatives. First, she has requested a sizable
increase in her training budget, including expanding the
benefits of the college tuition reimbursement program.
Second, Karen is considering instituting a development
program that will better develop junior staff members
and will involve user departments. As part of this
program, BEC personnel will rotate in and out of the IS
group as part of normal career progression. This
program should greatly improve relationships with user
departments and increase end-user understanding of
technology. The development of this set of technical,
managerial, business, and interpersonal skills in and
outside IS is a critical success factor for Karen’s group in
responding to the significant demands and opportunities
of the IS area.
C A S E S U M M A RY
Broadway Entertainment Company is a $1.7 billion inter-
national chain of music, video, and game rental and sales
outlets. BEC started with one store in Spartanburg, South
Carolina, in 1977 and has grown through astute manage-
ment of expansion and acquisitions into over 2,000 stores
in four countries.
BEC’s hardware and software environment is similar
to that used by many national retail chains. Each store has
a computer system with POS terminals that run mainly
sales and rental transaction processing applications, such
as product sales and rental, membership, store-level
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inventory, and employee pay activities. Corporate systems
are executed on a network of computers at a corporate
data center. Corporate systems handle all accounting,
banking, property, sales and member tracking, and other
applications that involve data from all stores.
BEC is a rapidly growing business with significant
demand for information services. To build and maintain
systems, BEC has divided its staff into functional area
groups for both domestic and international needs. BEC
uses modern database management and programming
language technologies. The BEC IS organization is
challenged by keeping current in both business and
technology areas. We will see in case studies in
subsequent chapters how BEC responds to a request for a
new system within this business and technology
environment.
C A S E Q U E STI O N S
1. What qualities have led to BEC’s success so far?
2. Is the IS organization at BEC poised to undertake
significant systems development in the near future?
3. What specific management skills do systems analysts
at BEC need?
4. What specific communication skills do systems
analysts at BEC need?
5. What specific areas of organizational knowledge do
systems analysts at BEC need beyond the information
provided in this case?
6. Why did BEC decide to originally use an outside
contractor, Fitzgerald McNally, to develop its first
computer applications?
7. What has BEC done to facilitate the global utilization
of its application systems?
8. Do corporate and in-store systems seem to be tightly
or loosely related at BEC? Why do you think this is so?
9. What challenges and limitations will affect what and
how systems are developed in the future at BEC?
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