The McGraw-Hill Companies, Inc. - 2011

Bryant M. WhiteMatthew Robinet

Siena Heights University

Case StatementMcGraw-Hill is currently deciding

what course of action will provide the most benefit to shareholders: Moving away from traditional book publishing and/or completely divesting the broadcasting division.

Critical Milestones1917 – McGraw and Hill’s companies merged to form

the McGraw-Hill Publishing Company, Inc., with James H. McGraw as president

1966 – Standard and Poor’s was acquired2005 – J.D. Power was acquired2009 – McGraw-Hill Education launches McGraw-Hill

Connect2011 – McGraw-Hill and NJR Clean Energy Ventures

began construction on the largest privately owned, net metered solar project in the Western Hemisphere

Trend StatementMcGraw-Hill began as a publishing

company and has grown through the years mainly through acquisitions, mergers, and joint ventures that add to the ingenuity and effectiveness of McGraw-Hill’s current products and services.

New Mission StatementStarted in 1888 by James H. McGraw, (Survival, Growth)

The McGraw-Hill Companies, Inc. provides products and services such as credit ratings, digital and traditional research, analytical tools, book publishing, eLearning platforms and programs, and delivery of critical information worldwide (Market Scope) (Products and Services) to business professionals, general consumers, educators, students, book readers, banks, insurance companies, wealth managers, investment advisors, institutional investors, and corporate executives in many different occupations (Consumers). We are dedicated to protecting the environment using our 14.1 megawatt solar panel system, which lowers our carbon emissions by 10% (Social Responsibility).

New Mission Statement (cont.)We offer our books in print and eBook versions,

giving consumers the option to choose one or the other (Technology). Our goal is to provide essential information and insight that help individuals, market and societies perform to their highest potential (Philosophy). We have created employee programs that help our workforce to learn, stay safe, manage their career and personal lives, and make the best use of the company resources available (Concern Employees). With our Standard and Poor’s division, we are among the leaders of credit rating agencies and view ourselves as a critical part of the global financial infrastructure.

SWOT AnalysisStrengths

Highly diversified companyOwns Standard & Poor’sCommitted to corporate responsibilitySells digital platforms, textbooks, and other higher

education resourcesContinue to make acquisitions to improve existing

divisions of the company

SWOT AnalysisWeaknesses

$100 million in Revenues from Broadcast UnitTextbook unit has been a drag on the company

because of the recession$1.88 billion in GoodwillDrop in stock prices

SWOT AnalysisOpportunities

Emerging economies (China and India) have sharp rises in postsecondary enrollments

Increase in global population and the importance of education as a means to achieving financial success

PAEasy program dedicated to helping Physicians Assistants become Certifies or Recertified

Enrollments in degree-granting higher education institutions projected to rise 13 percent to 20.6 million by 2018

Online Education classes Numerous acquisitions Federal government support to state and local governments

to mitigate the cutbacks in K-12 education

SWOT AnalysisThreats

Declining education budgetsTerry McGraw is Chairman, President, and CEO of the

companyCompetitorsChange in Indian regulations forcing the sale of stake

in Indian Commodity Exchange

Financial RatiosTotal Asset Turnover

6,168,331/7,046,561 = 0.88 (0.9, 1.2, 1.6) WFor every $1 invested in total assets, McGraw-Hill

makes $0.88 in sales, which is below the industry average.

Capital Intensity 1/0.88 = 1.14

For every $1 McGraw-Hill generates in total revenues, $1.14 needs to be invested into the company.

Financial RatiosOperating Profit Margin

1,421,059/6,168,331 = 0.23 or 23% (4.1%) S

For every $1 in total revenues, McGraw-Hill has 23 cents to pay off interest and taxes, which is above the industry average.

Net Profit Margin828,063/6,168,331 = 0.13 or 13% (1.9%) S

For every $1 in total revenues, McGraw-Hill has 23

cents to pay off interest and taxes, which is above the industry average.

Financial RatiosGross Profit Margin

(6,168,331-2,346,028)/6,168,331 = 0.62 or 62% (50.5%) S

After deducting the cost of sales, McGraw-Hill has 62 cents of every $1 made to cover all other expenses, which is above the industry average.

Porter’s Five ForcesThe publishing industry in itself is an oligopolistic

competition. Porter’s Five Forces is broken down into the five forces, which are, rivalry among competitors, potential entry of new competitors, substitute products, power of suppliers, and finally power of consumers.

Potential development of substitute products Mentorship Personal financial analysis

Porter’s Five Forces Rivalry among competing firms

Pearson plc. Houghton Mifflin Harcourt Publishing Company Reed Elsevier Group

Potential entry of new competitors Customer loyalty Advertising and promotion Lower prices Economies of Scale High Profile Clientele Capital

Porter’s Five Forces Bargaining power of suppliers

Paper (Low) Packaging (Low to Medium) Transportation (Medium to High) Labor (Low) Authors/Editors (Low)

Bargaining power of consumers Students (Low) Teachers (Low) K-12 Schools (Low) College Universities (Low) Business professionals (Low) General Consumers (Low)

Competitive StrategiesHorizontal Integration

Mergers, Joint ventures, and acquisitions Acquisitions - Standard & Poor’s Acquisition - J.D. Power Joint Ventures - Macmillan Inc. Mergers – McGraw Publishing Company and The Hill

Publishing Company

Competitive StrategiesMarket Development

Acquisitions and joint ventures in China and India Joint venture – Tata Group in India Joint venture – New Oriental Acquisition – 1.3 percent stake in Ambow Education

Holdings Acquisition – Pipal Research Corporation

Competitive StrategiesProduct Development

Computerized/digital learning McGraw-Hill launches McGraw-Hill Connect McGraw-Hill College Division introduces 1st computer

publishing system McGraw-Hill launches online assessment platform

Competitive StrategiesDivestiture

Television stations, Business Week, Vista Research Divested part of its broadcasting unit Sold its Business Week operations Sold stake in Vista Research

RecommendationMcGraw-Hill should follow Terry McGraw’s dream

of splitting the company into two Strategic Business Units, McGraw-Hill Financial and Information Services and McGraw-Hill Education, as well as continuing to expand into economically developing nations such as India and China.

Implementation PlanDivesting the Broadcasting Strategic Business Unit

Divest the remaining 9 Television stations1-2 year timelineLooking for minimum of $300 million.

Implementation PlanDivesting Aviation Week

Previous sale of our Business Week, we gained $10.5 million

We are looking for about 1/4 of the price at $2.5 million

This no longer fits our business plan1-2 year timeline

Implementation PlanMcGraw Hill Financial and Information Services

Business Unit1 year timelineMerging the remaining divisions of the Information

Strategic Business Unit with Standard & Poor’s SBU and the Financial SBU This creates McGraw-Hill Financial and Information

Services Business Unit1 year timeline

Implementation PlanChange in Organizational Chart

Eliminating some positions in the organizational chart President of Aviation Week President of Broadcasting President of Information and Media

Creating some positions in the organizational chart President of McGraw Hill Financial and Information Services President of McGraw Hill Education

This change will occur within 1 year

Implementation PlanContinue to Expand into China and India:

EducationMany acquisitions and joint venturesPurchase these companies for $25 million apieceProfits to reach about $10 million for both companiesTake about 10 months for us to work out a deal

Implementation PlanExpand Into China and India: Financial

McGraw Hill looks to acquire the China company YiBai Price will be at $10 million Expected profit per year is nearly $2 million

Will take around 8 months to make contact with, negotiate with, and acquire YiBai

SourcesMcGraw-Hill FinancialMcGraw-Hill EducationJD Power and AssociatesPlattsStandard & Poor’sChina YiBaiStrategic Management: Concept and Cases

Questions?

Thank you!