EMI is one of the world's largest music companies and the largest global popular music publisher with a catalogue of over 1 million songs. On the recorded music side, it has a catalogue of over 3 million tracks from artists such as The Beatles, Coldplay, The Rolling Stones and Pink Floyd. However, EMI's revenue had declined due to the structural shift in the consumer music market and a slow response, by both the industry and the Company, to the shift to digital consumption.
As part of its restructuring Programme the new owner, Terra Firma invited Knox D’Arcy to assist it in better understanding both the risks and the opportunities available in its royalties department. The control and payment of royalties is a critical process in the organisation and although a decision to outsource was being considered there were a number of concerns to be addressed. Therefore an analysis was carried out with the following objectives:
Firstly, there was a need to validate precisely where the cut-off point should be regarding that which should be kept in-house and that which should be outsourced. There was also a need to understand and validate the existing view on the value of any performance improvement/savings available in order to support the negotiations regarding the outsourcing. Finally, as the royalties department is an absolutely key part of the business and any errors here would have potentially huge consequences for the reputation of the business, EMI wanted the analysis to examine all angles and ensure that the potential outsourcing exercise was de-risked as much as possible.
A number of key findings were made. Firstly the opportunity for cost reduction and performance improvement was objectively quantified, providing EMI with a bench mark in its negotiations with the outsource partner regarding savings.
Secondly it was identified that EMI needed to radically upgrade and enhance its approach and methodology related to its management control systems. This was particularly so for those systems related to the planning and measurement of work-load, performance and output. Without this very robust system change there was a risk that EMI would be unable to accurately monitor the outsource partner’s performance and control that performance and costs in the future.
Finally, the need to improve the communication links and processes that joined the outsourced elements with the in-house elements was outlined. Failure to remedy this would lead to friction and failure between EMI and the outsource partner in the future.
These points have now been built into EMI’s strategy for the outsourcing arrangement.