Recommendation Report

FOR ARROW PRINTING AND PUBLISHING

ANALYSIS OF

By Raghavendra Naduvinamani (18PT2-39) and Avinash Singh (18PT2-XX)

for Business Communication Course
EMP October 2018
Date of submission: 28 October 2018

Submitted to
Dr. Niva Bhandari

Letter of Transmittal

Raghavendra and Avinash Consulting Firm

contactus@ravcf.in
+91-888-21-555-66

28 October 2018

Mr. Sam Dunnett

Arrow Printing and Publishing

Subject: Analysis of possible options for continued profits of Arrow Printing and
Publishing

Dear Mr. Dunnett,

First of all, we thank you for providing us an opportunity to work with you for exploring
the possible options for continued profits for Arrow Printing and Publishing. We have
carried out detailed assessment based on the information provided and recommending
the best possible option. Please find attached recommendation report with this covering
letter.

The alternative suggested for implementation has been carefully stacked against the
other alternatives based on predefined decision criterion. The alternative with minimum
risk and most optimistic outcome is chosen. A contingency plan has also been
suggested at the end of report.

Please feel free to reach out for any clarification. We look forward to work with you in
future.

Sincerely,

(Raghavendra and Avinash)

Enclosure: Recommendation report for turnaround team for Arrow Printing and
Publishing

PAGE 1
• Table of Contents

PAGE 2
• Executive Summary

PAGE 3
I. SITUATION ANALYSIS:

A. History and Background:

1. Arrow Printing and Publishing (Arrow) is one of the reputed and trustworthy
printing company in the Northern Ontario region in the north of Huntsville, Burk’s Falls,
owned by Mr. Sam Dunnett in the year 1979, after dividing from The Almaguin News in
the year 1975.

2. Mr. Dunnett has experience not only in technical side of the printing industry, but
also great deal of business sense. The Arrow was purchased considering its
accumulated goodwill and loyal customer base in the region at Canadian Dollars ($)
60,000, despite the company was facing financial difficulties and having very old printing
equipment valued less than $15,000.

3. By involving in Burk’s Falls community, contributing to local organization, Mr.

Dunnett developed interest in the field of local politics to make greater contribution to the
community. His interest grew him to the level of Mayor in the town and served the
position for eight years. Mr. Dunnett had good success in political career and managed
both jobs, politics and Arrow. Mr. Dunnett developed more interest towards politics than
Arrow, as he finds it not challenging as it once was.

B. Current Situation of Northern Ontario and Printing Industries

4. Current situation is divided into two major points to describe in brief:

a. Economic situation of Northern Ontario and limited internet and transportation
access; and
b. Competition in the industry

5. Economic situation of Northern Ontario: Since the Northern Ontario region’s

main economic driver was tourism, followed by manufacturing and farming. Due to
limited internet and transport access in the region, most of the business were
constrained, and needed improvements for economic prosperity. Since the first cellular
phone tower would not be installed until 2005 (two more years), short term prospectus of
internet is not optimistic. Transportation was always a challenging due to heavy traffic on
Highway 11. Current progress (October 2002) of construction of highway is 36
kilometers (km) out of total 125 km with a construction period of over seven years. It is
estimated to complete the expansion by 2012. Once highway is completed, it is
expected to business growth of 15% in annual sales from 2002 level, at a 1.5% rate for
next 10 years.

6. Competition in the industry: Arrow faced competition in the industry mainly by

four types of printing business:

(i) local printers – are with similar history as of Arrow’s, they used salesperson
to solicit business away from Arrow.

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 (ii) in-home printing – developed with significant improvement in power of home
computers, using personal computer, printer and software, people completed
much of the work. Limitation was they can take low volume jobs with minimal
design requirement
(iii) Kwik Kopy and FedEx Kinko’s – these were large franchise with sizable
printing capacity, offering services of “do-it-yourselfers”, in addition they aided
of computer design assistance to customers. These large firms benefitted
from extensive national marketing campaign
(iv) Internet-based printing – this type of printing offered service that allows
customers to provide their design and submit orders online, but it was
customers responsibility to pick-up or arrange for its delivery

C. Arrow’s Business

7. Arrow currently offering three types of services:

(i) specialty web work – constituted about 10% of Arrow’s revenue. This type of
work had job of printing only without design or editing work. However, the
work had attractive margins but affected cash flow position, due to long
production run, and payment upon completion of work.
(ii) black and white printing – constituted about 70% of Arrow’s revenue. High
volume work with minimal effort, but margins were not as high as specialty
color work.
(iii) specialty color work – constituted about 20% of Arrow’s revenue. This type of
work is popular for items such as brochures, magazines etc., with attractive
margins of 25 percent.

8. Arrow has 20 per cent first-time and 80 per cent repeat customers. Repeat
customers were retained on two major factors that has gained the trust among
customers, they are – (a) credit term of 30 days and (b) best quality and service
standards. Mr. Dunnett has good business skills of retaining his repeat customers with
trust without compromising on the price. Most of the customers that Arrow had was
through customer relationship and referrals. Direct marketing was hardly existing. Arrow
had two major suppliers located in Greater Toronto. Even though located far away, the
suppliers paid good attention to Arrow’s needs such as quick delivery times, in addition,
Arrow also gained by 2 per cent discount for payment received within 10 days.

9. Currently, Arrow has two employees – Peter and Mr. Dunnett. However, Ms.
Maria, wife of Mr. Dunnett helped in managing bookkeeping, but she finds it increasingly
challenging to balance with her full-time job.

10. Arrow had shown 10 per cent growth from 2001 to 2002 in sales, with steady
increase in profits. Refer Exhibit 1a for graphical presentation of on Arrow’s growth from
2001 to 2002. Mr. Dunnett has credit line of $30,000 is maintained with local bank for
covering potential working capital. Dunnett has good relationship with bank, so that he
can access loans in case he needs. Based on the balance sheet for 2012, it is noted that
the goodwill for the company has substantially increased to 29 per cent of total assets
(refer Exhibit 1b)

11. With the increasing interest in political career, Mr. Dunnett confronted with
question of continuing the business as usual, which was not challenging, or expand into

PAGE 5
new potentially lucrative market or sell the business and move on. It is important to note
that Arrow had become an important part of Dunnett’s family and its continued success
was important regardless of what form it took in the future.

II. PROBLEM STATEMENT:

12. What decision to be taken for Arrow with for its continued success in the future?

III. DECISION CRITERIA:

13. Carrying forward Arrow’s reputation and goodwill, following criteria could be
considered in the order of priority as below:

(i) Ensuring Arrow’s continued profits,

(ii) Mr. Sam Dunnett’s interest in pursuing career in politics,
(iii) Mr. Peter Dunnett’s interest to pursue career in paramedic.

IV. GENERATION OF ALTERNATIVES:

14. Following are the alternatives available for consideration:

Option 1: To sell Arrow to Peter Dunnett,
Option 2: To sell Arrow to external buyer,
Option 3: To expand the printing business in four color specialty web work.

V. EVALUATION OF ALTERNATIVES:

15. Options stated above in the generation of alternatives have been reviewed and
analyzed in detail using Strength, Weakness, Opportunity and Threat (SWOT) analytical
tool, and the matrix has been presented in the Exhibit 2.

16. SWOT analysis illustrates various opportunities for each of the of the options,
which confirms the alternatives generated are relevant to the objectives set.

17. For Option 1 - To sell Arrow to Peter Dunnett – This option would assure secured
position for Peter, who have over 18 years of experience in the printing industry with
good knowledge on technical aspects. Mr. Dunnett can be assured of repayment from
Peter based on his savings and monthly rent. This option will allow Mr. Dunnett to
pursue political career but will not allow Peter to pursue his career as paramedic. It is
also noted that if Peter alone to run the business, he can manage only 75 per cent of
current output, which will also have effects on the net profits. In addition, Peter has to
make repayment to Mr. Dunnett, and save for operating costs. This may lead Arrow’s
business in less profitable and can also affect the goodwill of Arrow in the region and
among loyal customers.

18. For Option 2 - To sell Arrow to external buyer. This option would enable Arrow to
make good money from buyer on account of goodwill among customers and strong loyal
customer base. The option would also allow Mr. Dunnett and Peter to pursue their
career in their area of interest. However, Mr. Dunnett to opt for this option, has to spend
$500-$750 each quarter for two quarters on advertisement, and the new company has to

PAGE 6
spend 2 to 3 times on advertisement. It is uncertain that the new buyer would
successfully run Arrow business with same reputation as it has now.

19. For Option 3 - To expand the printing business in four color specialty web work.
This this new area of business venture would give challenging spirit for Mr. Dunnett as
the business is lucrative and matching the demand of future needs of Arrow’s
customers. However, Mr. Dunnett to share his business earnings to the tune of 49 per
cent with the salesperson, who will bring new business in the field of four-color specialty
web work. With the expansion of business, it is expected to generate business up to
$200,000 with an annual growth rate of 25% for next four years. This option would also
require capital investment of $500,000 towards purchase of equipment and building
upgradation, which can be met through funding source from Government of Ontario’s
Community Futures Program, that secures 100 per cent investment cost, and requires
only 25 per cent repayment at the rate of prime plus one per cent and remaining 75 per
cent in the form of non-repayable contribution. This option will allow Peter to pursue
career in paramedic and Mr. Dunnett to pursue political career partly, as new
salesperson would take care of expansion of business.

VI. RECOMMENDATIONS:

20. Based on the evaluation of alternatives, it is recommended that Mr. Dunnett to

opt for Option 3: To expand the printing business in four color specialty web work, which
is expected to meet the objective of continued profits for Arrow in the future, as
compared with Option 1 and 2.

VII. ACTION PLAN

21. Following action plans to be followed for Option 3:

a) To look for companies working in the field of four-color specialty web work,
b) To select best salesperson in the segment, who can expand Arrow’s business,
c) To detail the terms of references and objectives for Arrow to the salesperson,
d) Assessment of salesperson for taking up the challenge for Arrow,
e) Offer the salesperson, if he meets the requirements for Arrow,
f) To arrange for additional investment for Arrow for new area of business,
approach Government of Ontario’s Community Futures Program,
g) Purchase equipment and upgrade building as required,
h) If any additional operating costs required may be obtained from bank in the form
of credit line,
i) Devise strategy along with new salesperson for expanding the business,
j) Implement the strategy

VIII. CONTINGENCY PLAN

22. In case the above stated action plan does not work to the promised results, as
contingency plan, following points may be considered:

a) Advertise on the new area of printing business in the region and national level,
b) Carryout customer need assessment study to assess the current and future
demands,

PAGE 7
 c) Approach Mr. Dunnett’s well known clienteles such as Government of Ontario,
Volkswagen of Canada and State Farm Insurances, for business requirements,
d) To involve Peter for technical aspects in the printing business
e)
f)

IX. EXHIBITS

23. List of exhibits are as below:

a. Exhibit 1a: Arrow’s performance from 2001 to 2002

b. Exhibit 1b: Share of Goodwill in the Arrow’s Total Assets
c. Exhibit 2: SWOT Analysis for Alternatives

PAGE 8
Exhibit 1a: Arrow’s performance from 2001 to 2002.

Arrow's Growth from 2001 to 2002

160,000
141,236
140,000 128,894
120,000
100,000
80,000
62,696
60,000 56,744

40,000 27,194 30,477

20,000
0
Revenue Expenditure Profits

2001 2002

Exhibit 1b: Share of Goodwill in the Arrow’s Total Assets

11%

Current 29%
Asset
Capital
Asset
Goodwill

60%

PAGE 9
Exhibit 2: SWOT Analysis for Alternatives
(a) Option 1: To sell Arrow to Peter Dunnett
Helpful to achieve objective
1. Peter knows printing business for 18
Internal Origin
years
2. Knowledge on Technical aspects in
particular
3. Secured position/business for Peter
4. Peter can repay to his father from
monthly rentals and savings
1. As paramedic is shift-work, which would 1. Has interest in pursuing career in
External Origin
allow Peter to work for Arrow
2. Mr. Dunnett can pursue his political
career
3. Peter can also pursue careen in his
interest area of paramedic
(b) Option 2: To sell Arrow to external buyer,
Helpful to achieve objective
1. Loyal customer base of Arrow would
gain additional income from external
Internal Origin
buyer on account of company’s goodwill.
2. Arrow will become part of big company
who would have larger geographical
presence.
3. Cost of production would reduce by 10%
1. from current can
Mr. Dunnett level, if larger
pursue hiscompany
political 1. Peter’s position in the company would
career
External Origin
2. Peter can also pursue careen in his
interest area of paramedic
3. Advantage of goodwill can gain additional 3. New company will have difficulties in
profits for the new company, thus
ensuring success of Arrow
4. Arrow’s building be still used for
administrative duties and community
(c) Option 3: To expand the printing business in four color specialty web work.
Helpful to achieve objective
Harmful to achieve objective
1. Peter has limited knowledge/skills in
customer management and price
setting
2. Peter’s basic interest is in pursuing
career in paramedic and Arrow
business would be secondary.
paramedic
2. If Peter alone to run the business, he
can manage only 75% of current
output
3. Reduced output and repayment to Mr.
Dunnett, may lead to reduced profits
Harmful to achieve objective
1. To attract strong reputed firms, Mr.
Dunnett must spend for advertisement
in the range of $500-$750 per quarter
for two quarters
be uncertain
2. New company must spend 2-3 times
current advertisement cost.
collecting receivables (about 1.5 to 2
times account could be uncollectable)
4. Unsure, if the buyer would successfully
carryout Arrow business with proud and
Harmful to achieve objective
PAGE 10
 1. Expansion of business in new area of 1. Mr. Dunnett lacks contacts in the new
four-color specialty web work, area of business for expansion
Internal Origin
2. Loyal and large customer base, and 2. Must share 49% of ownership of new
goodwill, business to new partner,
3. Support from large companies and
government of Ontario who can assure
sustained business offers,
4.
1. Secured
New areabusiness for Peter
of business is lucrative with 1. Mr. Dunnett will lose the ownership of
good profit margins, 49% in the new area of business,
External Origin

2. Easy access to loans as Mr. Dunnett has
good relationship with banks
3. Funding opportunity through government
which will secure Mr. Dunnett’s
investment to 100% (75% non-repayable
contribution and 25% on prime lending
rate plus one percent)
2. Mr. Dunnett must invest $500,000 for
purchase of equipment, building
upgrades
3. Will get limited time to pursue
interesting political career for Mr.
Dunnett

PAGE 11