Professional Documents
Culture Documents
For Walker and Company, profitability is a main issue. Managers eyes focus on
profit. To achieve a goal of profit, they need to carefully consider growth and control
at the same time. In this case, employees may give no attention to any aspects.
Creating good books are likely to be a priority for people in a publishing company.
The company has to develop a performance measurement and control system which
creates strong attentions to profit and growth among the employees.
Ramseys strategy seems short-term focus and lacks a long-term vision of the
business. Even though the company has the long history and longstanding
employees, it doesnt mean that all people in the company are doing their job with a
clear image of the future. Again, a person in a publishing company tends to care
about his/her books and readers with a short-term view. The company needs to
develop a way to communicate to the employees the long-term strategic goals of the
business and what they should do now to achieve those goals.
There is a significant tension between the owners (Ramsey and his two brothers) and
employees and customers. For the employees and customers, strong financial
performance is not so important. The bankruptcy of a publishing company is not a
big deal for customers of the company. The employees dont necessarily have a
strong passion to words like ROI, ROA, and gross margin. The company must
translate those performance measures into applicable ways to the employees.
For a small company like Walker and Company, management time and attention are
extensively scare resources and need to be controlled cautiously. For example,
George Gibson has a variety of tasks and should manage both editorial and sales and
marketing parts as President. More focus on financials could derive his time and
attention from editorial efforts. Given that editors probably have few experiences in
business or management, to delegate some works in financials to the editors would
not be a reasonable option for the company. Walker and Company has to develop a
simple performance measurement and control system to save valuable but scarce
resources of the business.
Walker and Company must consider basic assumptions about human nature described
in our text book. Especially, people in a publishing company often have a strong
commitment to their motivation. I used to work for a small publisher when I was an
undergrad. Most of people worked at the company because of opportunities to
achieve their goals to make great books. It was the time when the company was
growing. Then, the growth stopped. It was a very specialized publisher.
Nevertheless, it tried to respond the situation by focusing on more specific areas and
reducing the number of new titles. It couldnt let employees see enough opportunities
for the future. As a result, the company lost young, talented people. While this could
happen in other industries, it has a strong impact on the publishing industry in which
it is easier for people to move to other companies.
Strategy as Perspective
Walker and Company must clarify its mission and vision first. If it develops
strategies without a clear future direction, it will end up with being bought up or gone
out of business soon like other companies in the same category.
Strategy as Position
Strategy as Plan
Based on the fewer titles in fewer segments strategy, Ramsey Walker set the goals:
10% ROA and free cash flow $500,000 in 1999 and $1 million by 2000. These goals
needed to be communicated with employees as a profit plan. I will discuss about the
profit plan later.
How Walker and Company can leverage emergent strategies is unsure. In the current
structure, the possibility is likely to be dependent on the creativeness of top
would be re-allocated, the expenses in childrens line could be reduced by a similar level
to other two productive lines.
Inventory turnover of 2.7 is also critical. Given that accounts receivable could not
be collected any faster and accounts payable could not be stretched any longer, reduction
in working capital must be come from effective inventory management. Fortunately,
there is enough room to be managed in inventories. Compared to other publishing
companies presented in the case, the target is reachable.
Exhibit 1
Total
Growth %
1993
18,61
6
11%
1994
19,69
5
6%
1995
20,48
4
4%
Unit: Mil. $
1996
21,36
3
4%
1997
22,64
8
6%
Source: U.S. Department of Commerce, U.S. Census Bureau, International Trade Administration (ITA).
Exhibit 2
1993
8
72
Hardcover
Growth %
3
27
Paperback
Growth %
1,19
9
Total
Growth %
1994
7
83
-10%
3
78
16%
1,16
1
-3%
1995
7
51
-4%
4
19
11%
1,17
1
1%
1996
7
59
1%
4
96
18%
1,25
5
7%
7
67
1%
5
16
4%
1,28
3
2%
Unit: Mil.
$
1997
78
9
3%
54
4
5%
1,33
2
4%
Exhibit 3
Income Statement by Editorial Line for Year Ended May 31, 1997
Total
Large
Print
Adult
Nonfiction
Children's
Books
5,395,774
665,561
1,802,509
2,109,904
Total COGS
2,622,900
316,213
866,429
Gross margin %
Gross profit
51%
349,348
1,039,869
52%
936,080
51%
1,070,035
Western
689,168
128,632
335,300
65,089
51%
49%
353,868
63,543
48%
44%
36%
54%
65%
66%
Editorial
5%
3%
2%
6%
8%
4%
Marketing/sales overhead
4%
2%
2%
7%
2%
0%
Expenses % of sales
2,772,874
52%
Mystery
-direct
Cost of free copies
Art/production/gen'l edit.
10%
7%
10%
9%
16%
19%
2%
1%
1%
4%
2%
1%
4%
4%
2%
3%
7%
9%
Ship/warehouse
10%
11%
9%
10%
11%
10%
13%
16%
9%
14%
20%
22%
($59,963)
450,659
($96,791
)
84,931
($21,388
)
Total expenses
2,616,145
$156,729
Exhibit 4
294,056
$55,292
656,501
$279,579
1,129,998
1998
2,109,904
2,292,500
Increase 9%
Total COGS
1,039,869
1,088,400
Increase 5%
Gross profit
1,070,035
1,204,100
Increase 13%
Total expenses
1,129,998
1,077,475
Decrease 5%
($59,963)
126,625
Increase 311%
Performance Measures
Sales growth % itself lacks many essential factors of the business and so cannot be
the single important performance measure. However, it must be considered seriously
and well communicated with employees. The fewer titles in fewer segments strategy
is meaningless unless they can keep selling a good numbers of books. There are
many ways to use sales growth percentage. For example, the company can leverage it
as a benchmark for planning. The company can use it for the decision about mix of
book categories. It can also set target sales amount of each book based on desired
growth rate.
Profit %
Healthy profit is essential for sustainability of the business. But, profit percentage
cant show the effectiveness of the strategy in this case. To measure the value of the
strategic plan, the company needs to observe more specific measures to control the
business.
As stated in the case, unit sales dont show the cost. The company must manage the
cost of books thoughtfully. In addition, the business should monitor sales of each title
not average. It sends a strong message to the employees that each title must meet
sales targets of the year. It also allows the company to respond to the market trends
quickly.
Return-on-Assets
Effective asset management is a critical success factor of the company. ROA could
be a good performance measure for the company and top managements (George
Gibson and Ted Rosenfeld). To earn high ROA, the company needs to take advantage
of economies of scale by generating substantial growth because book publishing is
not a high margin business. Efficient asset utilization and persistent growth are
required of the company.
ROI
Operating Expenses
To capture enough amounts of net profits, the company must streamline the operation
and reduce the expenses by a certain level.
Agenda
How should Walker and Company develop simple, reader friendly financial
reports for internal communication?
The success of the strategy depends on whether the company can make the plan day-today operations of publishing. People in the publishing company are usually too busy to
pay attention to financial figures or simply have no interests to them. Updated
information of performance measures should be communicated in various ways. The
plan must be reinforced by written explanations about the strategy. Even though the
number of new titles was reduced, the clarification could show a strong commitment to
the growth which is essential to create exciting opportunities for employees. The key
measures are as follows.
Free Cash Flow = Net Income +/- Change in Net Working Capital
Expenses % of sales
ROA and free cash flow could be managed as annual goals. However, the other three
measures should be monitored and communicated by monthly targets.