Rudi Gassner And The Executive Committee Of Bmg International

Rudi Gassner and the Executive Committee of BMG International

BMG International is a subsidiary of Bertelsmann AG, a German media conglomerate that became the second largest media enterprise with 1992 sales of $9.7 billion. At that time Bertelsmann was comprised of over 200 companies and 50,000 employees in 37 countries whose business interests included music, radio, television, film, book, magazine and newspaper publishing and distribution, printing and manufacturing operations. Headquarted in a small rural German town called Guetersloh, the company did not enter the US market until 1986 through the purchase of several companies, one of which was RCA Records, a label that had put its name on the map in the 1950's through one artist: Elvis Presley. The acquisition of RCA elevated Bertelsmann Music Group (BMG) into the ranks of the "Big Six" record companies. The other five companies - CBS, Warner, PolyGram, MCA, Capitol-EMI - and BMG were responsible for supplying 80% of worldwide music sales at that time.

Rudi Gassner became CEO of BMG International in 1987. At that time the company operated in 17 countries with headquarters in New York. Gassner described the organization as "a patchwork of companies around the world. It had no mission, no goals, and in total, it didn't make any money..." (p 369) Due to the lack of structure, Gassner was able to build his idea of what a global company should look like, and he wasted no time in getting started. The structure he created for BMG was a centralized corporate structure and decentralized local management structure emphasizing a flat hierarchal form. He established this in creating five regional divisions led by regional directors (RD's) who were responsible for the strategic development of the region in conjunction with the whole company, in addition to managing the managing directors (MD's). This structure tackled two crucial business issues: globalization and domestic repertoire. After he created the regional structure, Gassner established an executive committee consisting of the regional directors and four members that were corporate staff. At the end of the case, the executive committee was having trouble reaching a consensus about some major issues.

Rudi Gassner is credited with expanding BMG's overseas presence from 17 countries to 37 in his first six years. He accomplished this by forming joint ventures, purchasing small labels, and launching new satellite companies. With Gassner leading the company, annual sales increased at an average of 20%, hitting $2 billion in 1993, accounting for two-thirds of BMG's overall revenue that year. International market share was at 17% compared to 11% when Gassner first took charge. According to Gassner, a 1% worldwide market share gain was equivalent to approximately $250 million in revenue. How can you argue with results like that? Its hard to suggest that there may be alternative courses of action for a company on a hot streak like this. However, the complexity of managing and expanding a global business like BMG International is enormous; and the success they have experienced with Gassner as CEO is not sustainable long. Therefore, I am inclined to disagree with the executive committee, regarding the decisions that need to be made. A fiscally conservative choice would be in the best interest for BMG International.

I have to agree with Gassner that they should change the business targets for each country to reflect the new manufacturing price, and then using these figures as the basis for calculating the managing directors' bonuses. This route would be the best for the company, preventing employees from complacency, but more importantly holding MD's accountable for their own performance. BMG International should take full advantage of these savings, and use the $20 million in a way that benefits the company as a whole. It appears that the regional directors' are taking the path of least resistance and not looking at the situation from a business perspective. The organization of BMG makes it imperative that the business targets be adjusted - the delegation of responsibility and authority is supported by performance linked compensation for managers and profit sharing by all employees - this structure can thrive only so long as employees are held accountable for their own performance (and not for windfall profits.)

However, the most important thing in making this decision is that the result is something the entire executive committee agrees with. At the end of this case, it felt as though the executive committee would never reach a consensus. The RD's all agreed that the business targets should not be altered because they had never been changed in the past. The leader of the committee completely disagreed with this argument for reasons previously stated. As CEO of the company, Gassner was concerned about maintaining and increasing the success that BMG had achieved over the previous six years. He knew that they would have to carefully monitor the economics of the business and maintain