1. To illustrate the importance of the assumptions embedded in a profit plan
2. To familiarise students with various sources of business information
3. To learn how to use a profit plan to test key business decisions
The case portrays a series of profit planning decisions in a family-owned publishing company. The case is written by and about the same individual, Ramsey Walker, a young, recent business school graduate. The case begins with a quick overview of Walker & Company's (Walker) history.
Case Theory and Background
Companies use profit plans for several reasons:
To translate the strategy of the business into a detailed plan to create value. This helps managers quantify trade-offs and provides a framework for analysis for a variety of strategic decisions.
To evaluate whether sufficient resources are available to implement the intended strategy. This highlights the importance of the cash flow for small companies.
To create a foundation to link economic goals with leading indicators of strategy implementation.
To enable benchmarking with competitors and identify areas for efficiency gains.
To aid in internal communication, coordination and education. An interactive profit planning process sets up a motivational contract with managers and increases their knowledge of the business.
There are three interrelated analyses that are required for profit planning: (a) the profit "wheel"; (b) the cash wheel; and (c) return on equity (ROE) wheel. All profit plans can change, as managers' assumptions about the future and understanding of cause and effect relationships change.
Sequence of Analysis
Part A. Complete a profit plan for the children's book line What assumptions are made and identify which of these is critical to your analysis?
Part B. Based on your analysis, prepare an agenda of the top three action items that Ramsey should discuss with George Gibson and Ted Rosenfeld...