Monday, May 23, 2011

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.