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Business Plan

LO1: Be able to use a variety of sources for the collection of data, both primary and secondary

LO2: Understand a range of techniques to analyse data effectively for business purposes

LO3: Be able to produce information in appropriate formats for decision-making in an organizational context

LO4: Be able to use software-generated information to make decisions in an organization

CASE STUDY

‘Books Central’ operate in the very competitive publishing industry, where they have carved out a niche market supplying cheap, out of print and end-of-run copies of books. They focus on the discount book sector, much beloved by those avid readers on a tight budget. They themselves do not publish any books or operate any high-street outlets, but rather act as a central „clearing house‟ within the publishing industry whereby publishers wishing to dispose of large quantities of redundant book stocks sell such stock to the company at extremely low prices (which is still better than pulping them and throwing them away) and the company then re-sells the books at a large profit to high-street book shops - mainly small independent retailors but a couple of chain book discounters also.

The current market is limited to the United Kingdom and the discount sector – which has served the company well - but now, with the arrival of a new Chief Executive, the company is seeking to branch out into other, higher-end markets where profit margins are much larger, possibly with an international horizon. The company has undertaken some initial analysis of this potential new market but has not yet finished its preliminary reports for the Board.

You, as a leading management consultant, have recently been engaged as the project leader and it is your responsibility to compile these reports into a single decision-useful document which will comprise:

1. A brief analysis of the core retail customer in the established markets.

2. A plan to undertake significant market research in the new target market.

3. A preliminary investment appraisal and project plan for entering the new market.

Additional Information for Step 1:

The data presented below in Task One was captured by a third-party market research company using follow-up telephone calls to retail customers in only ONE region of the UK. The response rate was only modest and with only a single region being used, the sample size is thus small.

Additional Information for Step 2:

The company are particularly interested in the new customer‟s socio-economic profile, likely sales opportunities, credit ratings and what types of books they may be interested in.

Additional Information for Step 3:

The Finance Department has undertaken some research into the estimated costs associated with entering this new market and the associated likely increases in sales revenue. See the table below:

Period (Year) 0 1 2 3 4 5 Cash Outflow (£,000) 1,200 300 300 300 300 300 Cash Inflow (£,000) 0 400 400 500 900 900

The company has, in recent years, adopted a payback period of four years as a hurdle rate for any new project. However, given the importance to the company (and in particular the strong enthusiasm of the Finance Director), the Board is now interested at looking at discounted cash flow and the net present value as alternative metrics to this investment appraisal and decision process. The company has a weighted cost of capital of 12%

The company has also undertaken a review of the projected activities and times to completion in setting up the new operations, as shown in the table below:

Key Process Dependent Tasks Time to Completion A Reviewing the market None 90 days B Planning and building new warehousing capacity None 270 days C Sourcing new book suppliers A 30 days D Identifying likely new retail outlets A, C 60 days E Updating supply-chain logistic processes A, B, C, D 60 days F Formalizing contracts with new retail partners A, B, C, D, E 90 days G Acquiring additional new book stock A, B, C, D, E, F 60 days H Rolling out book deliveries to new retail outlets A, B, C, D, E, F, G 30 days

End of Case Study

Assignment Tasks

Task 1

As alluded to above, some initial data gathering has been carried out on existing retail customers and this is shown in the table below. The columns are:

 Customer ID – Each client has a unique identifier (some clients have one store, others a chain)  SEB – The „Socio-Economic Banding‟ of store location: up-market (U), mid-market (M) or poor (P)  Spend – The annual value of orders taken by that customer (£)  Most Popular – The best-selling category of books in that store (crime, biography, education etc.)  History – How long that customer has been taking books from the company (in years)  Credit Worth – An internal judgment on a client‟s payment reliability (1 = Disallowed, 10 = Excellent)*

Customer ID SEB Spend (£) Most Popular History Credit Worth 1 U 75,000 Biography 3 1 2 M 125,000 Education 7 7 3 M 100,000 Travel 6 7 4 P 350,000 Crime 11 10 5 U 65,000 History 4 4 6 U 80,000 History 4 3 7 P 400,000 Crime 12 10 8 M 135,000 Travel 7 6 9 M 150,000 Education 8 4 10 M 145,000 Education 10 5 11 M 180,000 History 7 4 12 P 300,000 Cookery 9 9 13 P 220,000 Education 12 10 14 U 55,000 Biography 5 5 15 U 90,000 History 2 1 16 U 40,000 History 4 6 17 P 250,000 Cookery 13 10 18 M 130,000 Travel 6 7 19 M 170,000 Education 8 7 20 M 120,000 Cookery 7 8

* Clients with a ‘Disallowed’ credit rating can obviously still buy books – but only in cash (in full)

Page 5 of 12

You are now required to:

(a) Produce a spreadsheet of descriptive statistics (LO 3.1 & 4.1) to show the following:

 The mean values for Spend and History (LO 2.1 & 2.3)  The standard deviation for Spend and History (LO 2.1 & 2.3)  Histograms of the distribution of Spend and History (LO 3.1)  The median & Interquartile Range of Credit Worth (LO 2.3 & 2.4)  The correlation coefficient between Spend & Credit Worth (LO 2.4)

(b) Produce a presentation to the Board (LO 3.3) entitled „Taking Reading Up-Market‟ which will contain (fully labelled) graphical representations and trend lines, along with your interpretation of the descriptive statistics you have just calculated – presented as a series of bullet points. As part of your presentation, be sure to comment on issues such as sample size, reliability and any potential bias in the sample. (LO 2.1, 2.2, 2.4, 3.1, 3.3)

Task 2

You are required to…

Write a short formal business report (maximum 1000 words) (LO 3.4) to cover the following items:

 A formal plan to conduct a more robust sample of potential new customers in the new target market (LO 1.1)  A detailed explanation of any possible secondary sources of data which would be useful to the company (LO 1.1)  A justification of the Survey Methodology and Sampling Frame, including strategies for reducing any potential bias (LO 1.2)  As an appendix, attach a draft questionnaire for Board approval (LO 1.3)

Task 3

You are required to…

Write a second short formal business report (maximum 1000 words) (LO 3.4) on the proposed capital project outlined in the case study. Be sure to cover the following items:

 An analysis of payback and discounted payback (LO 4.3)  An analysis of the net present value and an explanation of its superiority over payback analysis (LO 4.3)  A decision based on the financial criteria (LO 2.2, 4.3 & 4.1)

Page 6 of 12

 A network diagram including a critical pathway for the set-up processes of year zero, and if the project can be delivered on time (LO 4.2)

Skills: Business Plans

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