Case Analysis of Compass Records: A good strategy Implementation

When we are willing to analysis the case of Compass Records, we encounter the huge data.

There are some cases which present us so many data and assumptions but sometimes we do not need to use all data to analyze them. But in the case of Compass Records, we have to care about all data and utilize them to analysis this case.

In my opinion, the most crucial approach of this case is to design and plan a true income statement in accordance with all data for both financial strategies (to license artist’s music for a limited period of time or to produce and own the artist’s master recording outright). As the matter of fact, the designing of these income statements are the similar basic and detail engineering of a project in the field of Engineering science (the engineers who have the designing experiences, can understand the concept of my opinion). 

After preparing of these income statements, we should forecast them for next 4 and 5 years in accordance with the case’s assumptions. Then we will calculate cash in and cash out flows to obtain net cash flows. Finally, we should calculate Payback, IRR and NPV for each strategy by using of net cash flows. 

How can we design the income statements by using of data?

At the first, we should write all assumptions and data as follows:

-Sale units

-Average unit price

-Sales

-Variable costs

-Fixed costs

-Dividends

Then, we should insert all above data into an income statement framework.

Here are my results of case analysis:

Scenario (A):  The record label licensed

-Payback = 3.73 year

-IRR = 15%

-NPV = $3942.1

Scenario (B): To produce and own a master recording

-Payback = 2.45 year

-IRR = 22%

-NPV = $45808.8

Therefore, scenario (B) will be ok.

Note (1):  “All spreadsheets are available. The people, who are interested in having my spreadsheets of this case analysis as a template for further practice, do not hesitate to ask me by sending an email to: soleimani_gh@hotmail.com or call me on my cellphone: +98 9109250225.. Please be informed these spreadsheets are not free of charge.”

Note (2): As you can see through my spreadsheet, I did not consider 1500 units which will be sold by Roscommon by herself. Why? There were two reasons as follows:

- I should make a new template of spreadsheet for 1500 units while the impact of the result was negligible. If we use from same template of excel, the unit price for 8500 units will be equal to $9.93  whereas we have the unit price for 1500 units  just equal to $ 6.85. It means that  we will lose our net profit for both status ( A &B) by selling of 1500 units. Therefore,the direction of  the case analysis result for 10,000 units will be the same to 8500 units. 

-Since Compass will sell only 5000 units throughout the USA, it is not logical and accurate in accordance with the Marketing Management issues in which the additional sales approximately equal to third of 5000. It means that there is the probabilities which are assigned to the people are purchasing the albums form Compass or Roscommon, will be the same people.

Why did I choose this case?

Because I found a good strategy implementation in this case as follows:

As you can see, the case of Compass Records stated:

“The trouble with those huge corporations is that they have to have enough sales volume on a release……”

Usually we do not use from W – T section of SWOT analysis as the new strategies in action.

In the next my article, I will illustrate this strategy implementation and I will tell you how we can expand it as a new strategy for other goods and services so.

Case Analysis of Euroland Foods S.A. plus a new implement strategy

Nowadays, we can see the huge disasters around the world that some of them are natural disasters such as earthquake, tsunami and so on and others are artificial ones for instance, financial crisis, energy crisis, revolution and so on.

 When we are faced the problem or the case the following should be our reaction:

1) If the case or the problem is related to our life directly, we should assume that it is a case of another person and we are a consultant to solve her/his problem.

2) If the case is related to other people, we should consider that it is our problem directly and proceed to solve this case.

When we receive a case or problem, we should mush pit into the pool and only utilize from references and other people experiences focused on case. It means that we do not need read all of pages of book to analysis the case. At the first, we should consider that we are the leader of the world and we are able to solve each problem. Therefore, we do not need to be a skilled person on a special field such as finance, Economic, Physics, Mathematics or engineering and so on. I think that It is actual concept of MBA course.

In the case of Euroland Foods, we face to the constriction of capital spending (initial investment) equal Euro 120 million for 11 projects. How can we cope with this investment?

Which projects should be chosen?

My analysis is based on two categories as follows:

1) Quantitative Analysis (Internal Analysis)

I used from Capital Budgeting Techniques below cited:

-Sensitivity Analysis

I consider IRR as independent variable, NPV at minimum ROR and Equivalent Annuity as functions (just like Polynomials function in Math) for each 10 projects because project 6 (Effluent – water treatment at four plants) definitely should be done.

According to this analysis I found the location of abruptions and ranked projects by higher IRR.

- Profitability Index

It can be calculated by using of WACC (10.6%) and free cash flows.

 - Reinvestment Rate Comparisons for projects at WACC and IRR

It has been done by using of Conflicting Ranking concept and ranked by higher IRR and NPV

- Annualized Net Present Value (ANPV) Approach

It has been ranked in accordance with ANPV.

- Double Discounting Technique

According to this technique, FCF of all of projects have been discounted and changed to the least years of FCF. Then, all projects are ranked by IRR and NPV.

All above techniques have approved the projects as follows:

-Project 2. A new Plant (Dijon, France)

This project (2) will be compulsory, if we choose project (7)

-Project 7. Southward Market Expansions

-Project 11. Strategic Acquisition

-Project 6. Effluent – water treatment

But since there is not enough initial investment, we have to take a decision between two options as follows:

Option (1):

-Expanded Plant (Nuremberg, Germany)

-Eastward Expansion

- Strategic Acquisition

-Effluent – water treatment

Total initial investment = Euro 111 million

Total Rank = 108 Score

Option (2):

- Development and introduction of new artificially sweetened yogurt

- Networked, computer-based inventory- control system

- Strategic Acquisition

- Effluent – water treatment

Total initial investment = Euro 115.5 million

Total Rank = 118 Score

Therefore, option 2 has been approved

2) Qualitative Analysis (External Analysis)

It is included a PEST analysis in which the approach is a qualitative analysis as follows:

In this case, I eliminate project (11) even though financial indexes show us a better profit. The reason is to allocate huge initial investment to this project.

In fact, we can distribute total investment to the projects which have intangible benefits. On the other hand, by distribution of investment, we will run many projects instead of one project (11). In the result, the least profit is to decrease unemployment rate, customer satisfaction, environment sustainability, the development of technology and so on.

As a matter of fact, by using a Balance Scorecard framework, we can measure the performance of projects better than using from financial indexes alone.

Here are my choices:

Project1. Replacement and expansion of the truck fleet

-A 15 percent increase in cubic meters of goods hauled on each trip

-The new tractors would also be more fuel and maintenance – efficient

-The increase in the number of trucks would permit more flexible scheduling and more efficient routing and would cut delivery times (possibly inventories)

-To support geographical expansion over the long term

Project5. Plant automation and conveyer systems

-Systems reduce the chance of injury by employees (more than EUR 15000 per year cost saving)

-To be improved throughout speed

Project9. Development and introduction of new artificially sweetened yogurt

-Significant cost saving to food and leverage

-Growing demand for low-calorie products

-Protecting of present market share

-To prevent of brand suffering

Project10. Networked, computer-based inventory- control system

-Shorter delays in ordering and order processing

-Better control of inventory

-Reduction of spoilage

-Faster recognition of changes in demand at the customer level

Total initial investment is equal to EUR109.5 (million).

Now, let me leave financial case analysis and have a debate about a new strategy in food industry.

When you do a strategic analysis for so many big companies in the field of food industry, you will perceive that horizontal integration, market penetration, market development and product development will be the best strategies in action in accordance with QSPM in which all these strategies are led to cost leadership as a Generic strategy (Porter Five Generic).

Here, I am willing to find a new idea (strategy) as an implement strategy for product development.

When the people look at the package of food in store markets or shopping malls, they do not really care about food quality mentioned as energy per 100 gram or weight and so on.

Most people consider the brand, price and promotion. But if food companies present the actual value of food to the people, they will gain good competitive advantages.

When we look at the SWOT matrix especially S-T analysis, we can see that there is a big Treat in external analysis which is significant increase of crude oil price and energy price. On the other hand, so many food companies have the appropriate growth of revenues as Strength.

What can be a good strategy for these Treat and Strength?

I think it will be the nomination and definition of Value for food. In fact, if the analysis of energy on food packages is changed to the value, the people will definitely consider it as an approach to buy goods.

I mean that food companies should bear in mind quantitative factor just like to qualitative factor. What is quantitative factor? It is weight of pack.

Therefore, to obtain the value of a good, we have:

P: price   

E: energy

W: weight

Now, we should define the value as a function of above variables.

Value = f (P, E, W)

Now, the question is: How can we find the rational relationship among value and variables?

The answer is: It depends on the type of food industry. Here, I have brought you some examples as follows:

In the case of Snacks and Biscuit, we have P/ E and E/W in which E/W is very important because customers usually care about the compaction and distribution of energy on the weight. It means that they will be able to store energy with increase of weight.

Therefore, one of the best formulations can be as follows:

Value = (W . E) / P

In contrast, the approach for Chocolate industry is difference, maybe the similar to below formula:

Value = E / (W . P)

Sometimes we have to find an index by drawing the diagram of P/ E and E / W.

Besides, it is possible that food companies consider Partial Fractions as follows:

V = f (E)   and   V = g (E)

f (E) / g (E) = P(E) + F1(E) + F2 (E) +…..Fk (E)

Where:    

P (E): Polynomial

F1 (E) …..Fk (E): Partial fraction decomposition

Furthermore, some companies maybe consider below formula for value:

V = (P / E) / (P / E)I  * (E / W) / ( E / W)I

Where:

 (P / E)I  and  ( E / W)I are average whole of industry

 Of course, to implement this strategy, all food companies need to help of third party to standardize the value of food such as FDA, FSIS, Codex Alimentarius Commission and Food Standards Agency (UK).

Nowadays, we can see three items of Price, Weight and Energy per 100gr on all food’s packs. I think that the Value as the fourth item can be a new strategy for all food companies. In the matter of fact, customers need to see the value ranking of foods on packages by using of the colors or numbers.

To be continued ....

 

 

Note:  “All spreadsheets are available. The people, who are interested in having my spreadsheets (two Excel files included six sheets) of this case analysis as a template for further practice, do not hesitate to ask me by sending an email to: soleimani_gh@hotmail.com or call me on my cellphone: +98 9109250225.  Please be informed these spreadsheets are not free of charge.”

Where money goes? Where power comes from? (part 2)

 Before anything, let me return back to the second example of philosophic points in which we have:

“The change depends on the direction” and Math used it as follows:

“If a function of w=f(x,y,z,t) wants to move far from a point (p), the change of amounts for this function depends on its direction”

As you know, one of the most crucial things in strategy formulation of a comprehensive strategic management model is to generate, evaluate and select the strategies. I think that Strategic Management can utilize from this fundamental axiom of Mathematics to make new type of strategy.

Can you bring an example for this type of strategy in the field of Strategic Management?

Where money goes? Where power comes from?

Let me remind you about a quotation from the Shahnameh of Ferdowsi as follows:

توانا بود هر که دانا بود" (Knowledge is power)"

Have you even heard the people say: “I wish I had not too much knowledge because when your knowledge increases notably, you will be suffering in your life”.

But there is the fundamental difference between to get knowledge and to make them. For instance, when we find out a problem by ourselves, we are excited and encouraged to solve this problem while there are so many problems that we are not interested in studying about them. First of all, we should have a true definition of the knowledge. What is the meaning of the knowledge?

In my opinion, the knowledge is to discover new constant data by analyzing previous constant data in which all constant data are the stable only for a period of the time.

In the result, I am willing to say: “Someone who are able to make the PARADOX, do not need to war for obtaining the power”.

Of course, this is a Pseudo – Power. Because, someone who are generating paradoxes, once upon a time, will be swallowed by all paradoxes generated by their self.

Therefore, you will gain a Real Power, if your knowledge and also the results of your works are helping and saving the people throughout the world.

When you have a Real Power, you do not need to follow the money but the money will follow you.

The Supporter Systems (sleepers) in the Nature for Tunneling

Have you ever thought about the supporting of the tunneling by using of implement a tie beam framework (or concrete slab) on the ground and connection of this frame with tensional piles (the piles under tension)?

These tensional piles will take some of Soil pressure (lateral & vertical pressure) above tunneling and transfer the loading to tie beam framework in which you can easily do your tunneling. Of course, there is a balance of the cost and the time for utilizing of this plan. Is there any reference for this method?

Definitely, one of the best ways for solving of the problem is to find out the supporter systems (sleepers) in the nature as a strategy or new idea (refer to Point “J”of “The executive methods for solving of the problem” on below link:

http://emfps.blogspot.com/2010/10/executive-methods-for-solving-of.html