Question #1What emphasis should Walker & Co. place on the children’s book line over the long term and why?| Question #2Assume that Ramsay is committed to publishing 9 new titles in the picture format, but the target number of titles for each of the other four formats (within the children’s book line) must still be set. What targets should be set for new titles for each of the remaining formats within the children’s book line in 1998 and why?| Question #3Complete Ramsay Walker’s profit plan for the children’s book line (Income Statement section of Exhibit 5 only). What are your working assumptions (limit to 3)? Which of these assumptions are critical to your analysis? Use the attached Excel spreadsheet which contains Exhibits 2,3,4, and 5.| Question #4Review the list of financial performance measures. What 3 measures or calculations could Ramsay use to manage the business and why?| Question #5Based on your analysis, prepare an agenda of the top three action items that Ramsay should discuss with George and Ted during their upcoming meeting?|
Walker and Company: Profit Plan Decisions
Ramsey Walker faced important decisions in May 1997 as he walked to his meeting with George and Ted. From what he had learned at business school, he realized that the company should publish fewer titles in fewer segments. Fewer new titles would allow the company to lower its overhead expenses and improve margins. It would also allow the company to publish faster selling books, manage inventory better, and lower the asset base. He believed that the business would benefit by focusing more resources on making Walker and Company books stand out in the marketplace.
Walker and Company was a medium sized book publisher that employed 31 people and 45 commissioned sales representatives. Founded in 1959 by Ramsey’s father, Walker was one of only a handful of companies that had survived the last 35 years in the book publishing industry. (Exhibit 1 presents an organization chart.) Ramsey had taken over the reigns of the business at age 27, upon the death of his father. After managing the business for three years, he had attended business school and earned his MBA in 1997.
The Monday after my father died, I took over his position as president and publisher of Walker and Company. For a relatively small publisher, the company had an enormously diverse product line and published a huge number of titles: 150 new titles a year across 20 different segments. In all, there were over 1,000 active products.
I immediately tried to get my hands around the business, but discovered only two things: our cash reserves were rapidly going south; and our most important suppliers—printing companies—were beginning to cut us off. I knew our access to additional capital was virtually nil. I figured we had four to six months before we might have to close our doors.
We had almost no information about where we were making money or where we were generating cash. As a result, I first spent three months putting together rudimentary profit and loss statements for each product line. We used these as our rationale for cutting back annual new titles from 150 to 100. With fewer new products, we reduced our overhead by 20%. A few months later, we moved our office from fancy Fifth Avenue to the West Village, sold the educational workbook line, and stopped developing new reference books. We then spent 6 months recruiting George Gibson, a well-known, experienced publishing person to build our editorial, marketing and sales expertise. These were radical and difficult changes for a family company that had undergone very little change in its 33-year history.
The majority of the company (64%) is owned by my two brothers...