RE: McGraw-Hill Companies Inc., Case Study
Reader’s Digest – Executive summary
This case examines the New York-based provider of global services that range from the publishing of textbooks and other educational material, to providing financial market services, and the business information markets. The McGraw-Hill Company is in the business of providing credit ratings, publishing textbooks, and has a major rand in radio and television broadcasting. They operated in three distinct segments in the global market that include, Financial Services, Information & Media, and Education with companies such as, Standard & Poor’s, McGraw-Hill Publishers, McGraw-Hill Constructions, Aviation Week, S&P Capital and S&P Indices, J.D Power & Associates, and BusinessWeek that was sold to Bloomberg in 2010. The company has an estimated $6 billion in annual revenue, and after a tumultuous year in 2011 after downgrading the U.S credit rating, they lost revenue and business interest. It was time to over view their finances and operations in order to get back on track. McGraw-Hill Company faces several challenges and obstacles with the all their companies and hands in their changing markets. The company is facing the major decision to split their operations into to two companies in order to efficiently and effectively operate all of their acquisitions and businesses.
Introduction and Overview
The McGraw-Hill Company began in 1884 with the Upstate New York former teacher, James H. McGraw. He started off in the publishing industry purchasing the American Journal of Railway Appliances in 1888, as John A. Hill was the editor at Locomotive Engineer at the same time. Over the course of fifteen years the two men pursued separate cares in trade publications and technical publication. McGraw created in 1899, The McGraw Publishing Company, and in 1902, Hill followed suit and created, The Hill Publishing Company. Over the years running both of the companies, McGraw and Hill crossed paths on several occasions, but it wasn’t until the year 1909 they decided to merge their publishing companies to form the McGraw-Hill Book Company. John Hill served as the president, with McGraw as the vice president. 8 years later in 1917, the remaining divisions of each subsequent business merged to complete the McGraw-Hill Publishing Company Inc. John A. Hill however died a year earlier that allowed for McGraw to assume the position as president for net twelve years until he retired in 1928. McGraw remained the chairman of the board until 1935, and with his leave from the presidential position it has been passed down to other members of the McGraw family, expect on three occasions.
The McGraw-Hill Company took advantage of the many opportunities that both men were able to foresee in the industry, as they made strategic moves to expand their company from the textbook publishing industry to other lucrative markets. They moved to the public in 1929, by trading stocks on the New York Stock Exchange and published their first issue of The Business Week weeks before the Great Depression was ignited by the stock market crash. During the 30s and 40s, McGraw-Hill Company consistently delve into other markets as it began to develop products in the health and atomic energy fields, aviation, and other fields. By this time they were developing products that specialized in social science textbooks, business and management, and specialties in engineering. The interest demand in these areas was sparked by World War II’s baby boom, and the job areas that were increasing. During the 1950s however, McGraw really began to expand and take off into the educational publishing field as they began to market to the collegiate level in the fields of science and engineering. They then started to find their niche in publishing for elementary and secondary schools publishing industry. They acquired two major companies that included a company that developed educational testing systems, and a company that was involved in vocational textbook publishing industry merged together to provide McGraw-Hill with the dominance it needed within the elementary and secondary markets.
As the success of McGraw-Hill continue from the publishing industry, they continued to acquire new companies within diverse areas that would diversify their portfolio in order to achieve their long-term goals of success. In 1953, McGraw-Hill acquired The National Petroleum Publishing Co, the Platt’s Price Service, and the W.C. Platt Co. Nine years late, McGraw-Hill acquired F.W Dodge that provided the company an entrance into the construction industry. In 1966 came their largest acquisitions of Standard & Poor’s, which was a provider of trusted financial analysis and information. This not only expanded the company into the financial and business markets but also helped to develop a new system used to track and identify securities in 1968. The company was a success, and with the rejection of the attempted hostile takeover by American Express 1979, McGraw-Hill was more determined than ever to continue to delve into financial and business markets. McGraw-Hill has over $1 billion in revenue in 1980, and was able to introduce the Primis Custom Publishing Co, due in part to R.R. Donnelley and Eastman Kodak. It was the first customized publishing system that enable teachers and professors to design their own textbooks. During the 90’s after its creation the share in market grew to 18.5 percent, as they the leading U.S customer publisher. During the time of the roll out for Primis Custom Publishing Co, in 1986, McGraw-Hill continued to acquire over 14 diverse businesses in the health, education, transportation business information, and financial services markets. In 1993, McGraw-Hill formed a joint venture with Macmillan to form MacMillan/McGraw-Hill School Publishing, where they would later acquire in 1993 Macmillan’s shares.
The company soon formed a new identity two years later revealed in their new campaigns and renamed themselves, The McGraw-Hill Companies. The company would reorganize their business structure and focus on their three rapid growing segments such as financial services, education, and information and media. They would soon launch their first intranet and internet sites in 1996, which helped them to gain over $3 billion in revenue. The beginning of the millennium sparked new acquisitions as the company acquired Tribune Education in 2000, followed by the lucrative purchase of J.D Power and Associations which specialized in marketing information with very essential industries in 2005. McGraw-Hill decided to sell of BusinessWeek in 2009 to Bloomberg, and they began to reorganize and restructure once again as they decide to break up their financial services segment into two separate divisions. McGraw-Hill wasn’t through with the changes as they also decided to let go of their broadcasting businesses in 2011, and with decided to downgrade the U.S credit rating within the midst of the global financial crisis. This controversial move, sparked a drop in there stock and create a firestorm with major industries as well as the government. In 2011 the Justice Department launched a full scale investigation into the company subsidiary, S&P for its ratings on the subprime mortgages, derivatives, and mortgage backed securities that were at the root and one of the primary causes to the 2008 financial crisis. In the present time, McGraw-Hill is still operating at an impressive revenue, but president and CEO, Harold McGraw II has decided for another reorganization and restructuring of the company’s business segments as it plans to split the company into two companies, McGraw-Hill Financial and McGraw-Hill Education, as they feel it is the right move in continuing to be a success in the global market for each of their business segments.
Mission, Goals and Current Strategies
According to the case study, McGraw-Hill Company’s mission is, “our mission worldwide is to enhance the professional and personal development of our customers and help them to reach their potential.” (McGraw-Hill Case Study) They have bulleted five essential points they feel is pertinent in their success: “grow globally in financial services, expand our global publishing operations, increase our penetration of the U.S. education market, capitalize on opportunities in electronic commerce, and grow our business-to-business information services and products.” (McGraw-Hill Financial 2013) McGraw-Hill mission is to provide the necessary financial and educational information that will help to elevate the company and the markets to perform at their optimal levels. As a part of the company’s mission they want to continue to satisfactorily serve their clients and customers while continuing their global efforts in need of increasing their knowledge, transparency, and capital. In order for McGraw-Hill to be effective in their mission they have to rely on their embracement of the diverse talent helps to pinpoint the key factors in encouraging leadership and performance. McGraw-Hill focuses on accurately catering to the wide-range in markets they serve everyday while using their five fundamentals towards success, and vision statement. McGraw-Hill’s vision statement is, “Our vision is to create a smarter, better worldone where everyone succeeds in the knowledge economy.” (McGraw-Hill Case Study) The five fundamentals are their need for; “capital, knowledge, education and training, business information, and transparency.” (McGraw-Hill Case Study) Their mission and vision statement is rooted in their business strategy to conduct their business in a responsible manner while ensuring the maximum values for their shareholders. In focusing to adhere to their commitment to corporate responsibility, and on the improvement of their social, environmental, and economic impacts on the communities they serve. The company wants to main sustainability in the way they conduct business every day.
Internal Analysis
The McGraw-Hill Companies is a multinational, multibillion dollar global company that makes its money acquiring and investing in multiple areas instead of just focusing on publishing. They are an important part of textbooks and educational material for elementary, secondary, and high school schools. They also serve as an integral part in the collegiate level by preparing and developing key tests for some of the nation’s most important academic fields. Within their over hundred year history they have provided publications and products that were essential throughout history, and have helped to provide a multitude of vital information to a diverse clientele that includes; governments, corporations, investors, financial institutions, and others. The overall foundation of McGraw-Hill’s business strategy is to focus on their commitments outlined in their vision and mission statements to the public and their customers. The IFEM score that is given to McGraw-Hill is 3.1. This score is the indication that they are a very strong company overall, their weaknesses only lie in their research and development that affects the progression of their financial services and education sectors. They also have prices that can hinder them in the international markets, and their overdependence on the U.S market. McGraw-Hill is still the market leader in Education and Financial Services and in order to continue their key positions and propel their Information & Media to the top they must make key changes and tough decisions.
Management
McGraw-Hill Company management is one of their strong suits as it follows as Currently the company operates from a Strategic Business Unit (SBU) type organizational structure, where there are 12 divisions grouped into four SBUS. The company management is divided into a three-tier system which the VPs and assistant work under the President, Chairman, and CEO, while the Presidents of each division serve as the third tier.
- The CEO has been in charge for decades, and was raised in the family business knowing the ins and outs of the company and the market.
- The CEO and the other Presidents realize that restructuring and change is essential in their continued success
- They rely on research and development in knowing how to meet the demands of their numerous clientele.
- The structure of their divisions in Strategic Business Units are important to their overall organization.
Finances
According to the case study, McGraw-Hill saw an income of $1.8 billion in 2010, and they saw revenue increase of 3.6 percent from 2009 to 2010. Their revenues respectively were $6.255, $6.772, $6.355, $5.952, and $6.168 from 2006 to 2010. (McGraw-Hill Case Study) The reported assets have increase with an 8.8 percent change from 2009 to 2010. The financial position of McGraw-Hill is a major strength as they serve as the market leader in Education and Financial Services which both make up a major chunk of their revenue. The following table shows the leverage ratio, liquidity ratio, and the probability ratio.
Marketing and Service
Marketing is an area in which McGraw-Hill excels as they are known throughout the global market, in educational institutions, the financial world, and in other industries. Not much money needs to be spend on marketing and advertising because of their brand notoriety and brand loyalty. This is one of the company’s strong points as they have superb name recognition to the general public, their products serve as their advertisements to their targeted client base.
Production and Operations
The operations of McGraw-Hill is rooted in their operations that serve the company well. They have split the company into four main strategic business units (SBUs) that have outlined each essential division that serves the company. The structure of the company as well as their operations that have made them more efficient and effective is important for the success of the company. Their overdependence on the U.S markets, puts them at a weaknesses when serving the global markets, specifically with the price differences that might hinder their growth.
Human Resource Management
The human resource management of McGraw-Hill Company is not mentioned within the case study, however, from speculation it seems that much importance is placed on their employees and their commitment to their corporate responsibility that is followed by each executive and manager within their company. Through effective hiring, recruiting, and training, it is essential that the company does its best in order to sustain its market leadership position to compete with other companies within the market.
Research and Development
The research and development has long served as a strong point for the company, however the decline of paper with their Education unit has prompted for more research and changes needed to the operations. This serves as a weak point, as the price of R&D is increasing, which McGraw-Hill must counteract in order for them to continue to be in the top position. This is indicated in the strengths and the weaknesses of the company.
External Analysis
McGraw-Hill Company works within multiple markets that are changing and introducing new companies that serve the three distinct business focuses of the company. The weaknesses that the company face is rooted in their dependence for the education sector, dependence of the U.S Market that is constantly changing, and their seemingly lack of knowledge on price differences in the global market. The increase in online data is important for them to control, as well as competition from global companies, and other online publication companies. The EFEM score given of 3.20, reflective of the global market in which, McGraw-Hill still serves as the market leader.
Competition
McGraw-Hill Company is the market leader in Education and Financial Services, however they do face threats from the global market which include the international global players that provide a more cost effective publications for their education unit. (Strong point) They also face national competition from companies such as Pearson Plc., Houghton Mifflin Harcourt Publishing, and Reed Elsevier Group PLC.
Economic
The economic value of the industry on the global and national scale is essential as they work primarily in the Financial Services market, they have reported increases profits, incomes, and revenue, although their stock price did drop in 2011, they have begun to bounce back. They have major opportunities in expanding their operations in Asia and Europe, and also in Latin America. They can provide subsidies to developing countries that put them on par with their competition and also provide a beneficial need to people across the world.
Social and Cultural
The opportunities to provide subsidies to developing countries is not only economical but also a social benefit that serves their mission and vision statements to provide educational materials and information to those around the world, including those in developing nations. What makes McGraw-Hill appealing is that they have name recognition that helps them go into markets that other companies are not able to. (Major opportunity)
Demographic
The changing demographic is not having much affect, but the change to more online publications and materials is forcing the company to change their business operations and strategies in order to keep up with the growing demand. This presents a major opportunity and threat if they are not able to lower their costs and provide educational material to supplement the change to more electronic sources.
I&E Matrix Analysis
Strong 3.0 to 4.0 Average 2.0 to 2.99 Weak 1.0 to 1.99
High 3.0 to 4. 0
Medium 2.0 to 2.99
Low 1.0 to 1.99
The I&E Matrix places McGraw-Hill in the first quadrant that suggest the grow and build strategy, were the company has and maintains an aggressive and intensive tactical strategies. The strategies that McGraw-Hill implements focuses on market development, market penetration, and product development. The global and domestic market plays an integral role in their success, and the two focuses that make them market leaders are also the main sources of their revenue.
Recommended Strategic Vision and Supporting Strategies
Vision
The vision of McGraw-Hill vision is to coincide with their already stated mission and vision statement to continue to be the worldwide leader in providing information that is essential in the personal and professional development of their customers around the world. This information is vital for each consumer to reach their full potential in helping them and the company going forward to grow and expand, while penetrating the Education market further, and capitalizing on the opportunities online.
Grand Strategies
The grand strategies that McGraw-Hill should follow and implement is based on their I&E Matrix is a grand growth strategy in which, they are located in quadrant I that puts them in a strong competitive position detailing that:
1. Market development
2. Product development
3. Market penetration
4. Forward Integration
5. Backward Integration
6. Horizontal integration
7. Related diversification
In focusing on the market penetration in the U.S and Global Education market, they are able to remain the market leader and expand their services to the global market.
Functional Areas
The functional areas that need to be considered is rooted in their attention that needs to be paid to their global competition, the prices, the rising costs to R&D, and the change within the education market for more electronic sources. By using a forward strategy they will be able to price and develop their products on a more competitive basis that helps them in the global markets.
SWOT Factors
Conclusion
Overall, McGraw-Hill Company will continue to perform successfully in their operations. As they continue to focus on the educational and financial sectors of their business they will remain market leaders. The industry will continue to expand with global players competing for market shares, while McGraw-Hill must continue to differentiate itself from the competition by focusing their R&D on new developments in online and electronic materials. Their sales, income, and revenue will continue to increase as they adhere to their vision and mission statements that affirms their commitment to their corporate responsibilities.
References
Business Strategy. (n.d). Strategy Capstone. Retrieved from http://strategycapstone.ning.com/page/grand-strategy-choice
Forward Integration. (2011). Investopedia. Retrieved from http://www.investopedia.com/terms/f/forwardintegration.asp
Internal-External (IE) Matrix. (n.d). Maxi-Pedia. Retrieved from http://www.maxi-pedia.com/internal+external+IE+matrix
McGraw-Hill Financial. “About”. (2013) McGraw-Hill Financial. Retrieved from http://www.mhfi.com/about
McGraw-Hill Financial Industry. (2013). Yahoo Finance. Retrieved from http://finance.yahoo.com/q/in?s=MHFI+Industry
McGraw-Hill Companies. (n.d). MBA Skool. Retrieved from http://www.mbaskool.com/brandguide/media-and-entertainment/5651-mcgraw-hill-companies.html
McGraw-Hill Companies. (n.d). WikiInvest. Retrieved from http://www.wikinvest.com/stock/McGraw-Hill_Companies_%28MHP%29
Narapareddy, Vijaya. (2011). McGraw-Hill Companies, Inc. Case Study. University of Denver.
Poggi, Jeanine. (2011). McGraw-Hill: Old School Company History. The Street. Retrieved from http://www.thestreet.com/story/11245711/1/mcgraw-hill-old-school-company-history.html
The McGraw-Hill Financial. (2013). Retrieved from http://www.mcgraw-hill.com/
Thompson, John, Martin, Frank. (2010). Strategic Management: Awareness & Change. Cengage Learning EMEA.
