Swen Neumann Introduction to Modern Business

L.Thomas and R.Cawley

PENGUIN BOOKS LIMITED

The aim of this essay is to comment on how, over the last six years Penguin Books Limited has grown and managed external and

internal changes.

Sixty one years ago, Allen Lane, the managing director of the Bodley Head, a British publishing company, revolutionised reading with

the introduction of the first ten Penguin paperbacks. Today, over 600 million paperbacks are sold yearly. At a time when there was still

little of entertainment, paperback books brought reading to the masses. Nowadays, paperback books bring reading to the world.

During the last six years (1990-1996) Penguin Books Limited was faced with many "environmentalist pressures," with a continuous

change inside the company, and competitors trying to imitate its successful innovations on both sides of the Atlantic.

The major achievement in 1990 was the introduction of a new computer system into several parts of the Company. The Credit Control

department was the first area and Stock Management, Invoicing Systems, Warehousing, Distribution and Sales Services followed. Now

the whole of the Company's systems are incorporated and networked.

During this period a new lists including the Twentieth Century Classics Series complementing the Penguin Classics, Arkana, the New

Age list and Fantail, the mass-market children's list were introduced.

Internal change that took place during that year was the closing down of the Penguin Bookshops (that expanded to include 12 shops

during the last decade), leaving just one, the specialist Beatrix Potter "House of the Tailer of Gloucester", within the Group. This change

took place due to the fact that the Company was conscious that it had to concentrate on the publishing rather than on the retail.

This decision brought a successful completion of a management buy-out of the shops. This action also compensated the loss that the

Company faced in august 1991, when Pearson (an international enterprise quoted on the London Stock Exchange with major media

interests including many well-known names apart from Penguin, such as Longman, Pitman, Addison Wesley, the Financial Times,

Westminster Press, Mindscape, Thames TV and Madame Tussauds) announced pre-tax profits of Pounds 40.7m for the first half of 1991- a

drop of 58 per cent on the same period of 1990. In this period books fell from a trading profit of Pounds 2.1m to a loss of Pounds 13.4m

with Penguin losing Pounds 8m.

In the following two years no major changes have been recorded. Although, 1993 was generally a successful year for all Penguin

group companies. Penguin UK had produced a strong programme including some major best sellers and agreed to a joint venture with the

BBC for mass market paperbacks and film deals with two major Hollywood studios.

During 1993, Penguin accelerated its media involvement by publishing world-wide "The Viking Opera Guide" as a book and CD Rom.

In 1994, the publishing industry realised that certain amount of people do choose books on the basis of who publishes them rather than

who writes them. The promotion became one of the marketing tricks used by the publishing industry (that other industries have already

used for decades). First came promotions for individual authors and titles, in 1994 publishers took one step further by promoting the

whole brand.

This move showed the change of publishers fighting for market share. "During the recession they increased margins by cutting costs,

now they are desperate to build turnover," said P. Mountain, deputy editor of The Bookseller magazine.

In the next months it was seen how different publishers were competing in their own different ways. Penguin and Wordsworth

Editions declared a price war selling paperback classics for Pounds 1 each. These "up-market" or "down-market" were the ways of selling

literature.

In September 1994 Pearson brought a new change by announcing that publishing should be grouped by theme. As the result,

entertainment- Ladybird Books, the children's publisher was added to Penguin and became a subsidiary of the Penguin Group. As an

outcome, Penguin's world-wide business showed revenues of about Pounds 370m.

A major change took place in September 1995, when the official price-fixing of books collapsed after nearly a century.

Penguin Books announced its withdrawal from the net book agreement (NBA), which has restricted price competition since 1900. This

took place due to the "environmentalist pressures." As Max N. Adam, a managing director of Penguin Books Limited , said: "We had to

face reality. If books are going to compete against compact discs and videos, we've got to have a level playing field and be able to

discount like they do."

Penguin also was celebrating its 60th anniversary in 1995 with a major trade advertising campaign. This campaign included a

publication of 60 Penguin Sixties, small format paperbacks, at 60p each.

In the present year (1996), Penguin Company is still benefiting from repeat contracts for Penguin mini-paperbacks.

In January 1996 another major political change took place, not in favour for Penguin Company. A legislation was produced which

revives copyright protection to an important group of writers. This legislation meant that publishers have to pay several million pounds to

the estates of writers, who died between 1925 and 1945. The change in UK legislation (introduced as part of copyright laws across the

European Union) was brought in in order to cover the works which were previously out of copyright.

Taking the European Union single market that is taking place into consideration, one should remember that "Nothing is "overseas"

anymore," a statement by Kenichi Ohmae that clearly defines he

borderless condition of current business approach. This brings up the international dimension of Penguin - a dimension which is

continually growing in importance. Overseas Penguin has four major companies - Penguin USA, Penguin Canada, Penguin Australia and

Penguin New Zealand. Each of these companies does its own publishing but is monitored by each other's publication programmes.

There are also several smaller marketing companies which carry stock and consignment on behalf of the Group. These companies

include Penguin South Africa, Penguin Italia, Penguin Netherlands, Penguin Germany, etc. They do not currently have their own

publishing programmes but import from the group companies. Due to the socio-cultural differences Penguin India, for example, operate

differently as there are import restrictions in operation and the solution is for Penguin India to do a large amount of its own publishing.

There are also resident representatives in Hong Kong and Singapore.

On the whole, one may conclude that Penguin has grown, with the help of acquisitions, for example, from a loss- making business

with revenues of Pounds 37m to one which in 1995 had world-wide revenues of Pounds 360m and profits of Pounds 34m, and remains

one of the world's largest book publishing groups.

The result of Lane being involved in a move towards democratisation has shown that today, hundreds of thousands of books are

available to millions of readers at a low price, and the market seems to be growing daily, selling into more countries than any other

publisher, and providing a good example of how a company is dealing with change and success by continuing the traditions of Sir Allen

Lane.

Rawsthorn, Alice. "Books cartel collapses." The Financial Times, 27 Sep. 1995, p.18.

Stoner, James. "Management"(sixth edition). Prentice Hall 1995.

BIBLIOGRAPHY

1. Snoddy, Raymond. "Pearson profits." The Financial Times, 13 Aug. 1991, p.15.

2. Snoddy, Raymond. "Pearson rises..." The Financial Times, 03 Sep. 1994, p.9.

3. Snoddy, Raymond. "Pearson shares fall." The Financial Times, 21 Sep. 1994, p.26.

4. Snoddy, Raymond. "Pearson buys stake in book distributor." The Financial Times, 27 Apr. 1995,

p. 26.

5. Marsh, Peter. "Publishers face copyright disputes."The Financial Times, 03 Jan. 1996, p. 5.

6. Fishwick, Francis. "Profits left on the shelf." The Financial Times, 18 Jun. 1996, p. 14.

7. Snoddy, Raymond. "Mayer stands down at Penguin." The Financial Times, 21 Jun. 1996, p. 9.

8. Rawstorn, Alice. "Hollywood head to lead Penguin." The Financial Times, 06 Aug. 1996, p. 16.

9. Schreuders, Peter. "The book of paperbacks." London: Virgin, 1981.

10. "Fame - financial analysis made easy"(update 88.a-October 1996); CD Rom.