Rudi Gassner and BMG International
Team 1 – Chuck Norris and the Karate Commandos
Michael Hughes, Jenifer Stafford, Tina Hoffman, Sandy Smith, Luis Soto
MBA 532x
Professor Miller
7 December 2010
2
Rudi Gassner and BMG International
The case of Rudi Gassner and the executive committee at BMG International is an
international tale of effective business management. The team at BMG has been extremely
successful after acquiring the RCA label and establishing the international arm of the BMG
music group, never having failed to meet profitability goals. The current problem facing the
executive committee is how to respond to the problem of whether or not to restructure the bonus
plan for Managing Directors in response to newly negotiated more favorable manufacturing
costs.
Rudi Gassner was hired as the CEO and president of BMG International in 1987. BMG
International was a subsidiary of Bertelsmann AG, a media conglomerate with over 200
companies and 50,000 employees operating in 37 countries. Bertelsmann’s corporate charter
mandated autonomous business divisions and entrepreneurial operating management, with an
emphasis on the respect of the cultural traditions of each country it operates within. Gassner’s
extensive resume which included President of PolyGram International and Deutsche
Gramophone made him an excellent fit for the newly-formed division. The years at PolyGram
gave him the experience to run a global business. The style of business culture at Bertelsmann
was close to Gassner’s own personal style. One of Gassner’s priorities when he came on board
was to create a nine member executive team. The members of this team, or managing directors,
purpose was to develop domestic talent for the region they operate with-in and the globalization
of the division. Gassner’s strategic vision and hands on, management style demanded excellence
and follow through by his team. “Rudi has a reputation for being tough –fair, but tough.”
If
Rudi’s life story were made into a film Kevin Spacey would make an excellent choice to portray
him. Rudi and Kevin look similar and the intensity that Kevin Spacey brings to a role would fit
right in with Rudi’s personal style.
3
Rudi Gassner and BMG International
Rudi Gassner established his leadership style of being fair, tough and direct early on in
his career at BMG. He was clear, and upfront with his goals and expectations for the success of
his division. His management style can be described as transactional. This type of leadership
style involves complete interaction between a leader and the followers of his team. It involves
giving employees something in return, such as monetary bonuses, for their compliance. Gassner
focused on detailed business plans that included in-depth analysis of the risks and opportunities
each managing director faced within their region. While the managing directors where involved
in the process of developing their own business plans, Gassner had the final say. He remained
hands on with all aspects of the business and even talked to local employees informally to ensure
his message was being received.
As the company began to grow and there was more territory to cover, Rudi Gassner
created an executive committee, a team of nine who would focus on a specific territory. He
chose people whose management style closely resembled his own. The purpose of this team
was to establish a formal committee that consisted five regional directors and four senior staff
members. The territories that Gassner established were GSA Territories, Central Europe/UK,
Ireland, Spain/Latin America, and Asia/Pacific. By creating these divisions, a regional director
can focus on the specific targets, and interest of their region.
The remaining senior staff
members were dedicated to legal affairs, marketing, employee relations, and finances. In order
to develop the business for each region, Gassner relied on his regional directors to provide
feedback, and constructive conflict to help develop ideas to grow the success in each region.
While Gassner gave the directors involvement in the decision process for the plans for
each region, he still had the final say. The management style that brought so much success to the
BMG International division was also a source of conflict within the executive committee.
Rudi Gassner and BMG International
4
Gassner was involved with every aspect of the business, including local employees. This type of
micro management could breed doubt in his managing and regional director’s management
abilities.
Another source of conflict for the team was how to handle the reduced production costs
in relation to the bonus structure. There had been a manufacturing price reduction as a result of
negotiations with Sonopress, the central manufacturing operation in Europe. European countries
were required to purchase a percentage of their cassettes, CDs and records from Sonopress.
Non-European countries however did not source through Sonopress and would not be affected
by the price change. The concern was what to do in response to the new prices. Some regions
targets would not be affected by the change while other’s profit plus interests cost would be
increased by more than 50%. Targets for previous years were not changed to reflect pricing and
exchange rates.
Gassner’s main concern for his team is that he didn’t want his directors to
become complacent if their targets were easier to achieve. It would be difficult for Gassner to
get the directors to address the question of changing the targets.
“You don’t have a leader, if you don’t have a dictator.” Gassner, his managing directors
and regional directors understood that democracy doesn’t work in a business. Gassner created
an environment that bred conflict, and each member felt free to voice their own opinion. There
was a mutual respect between each of the members. The team was set up so that there was an
organized structure, administration and decision making process. The plan was the plan and
Gassner always had the final say. The team’s design has a clear impact on how it functions. The
mission and strategy is laid out for all of the groups and everyone in the groups understands their
role and fulfills it.
Rudi Gassner and BMG International
5
Gassner’s structure of the executive committee had some flaws. The first issue was the
language barrier between the members. An example of this is during one of the conventions, a
director wouldn’t express his ideas because he felt his English wasn’t good enough. Another
issue was the design of the organization meant that directors of a specific region could not share
their input on the issues concerning another region. Gassner made it feels as though he wasn’t
taking the ideas into consideration because it was not specific to their region. When the
European sub group was created, it created a click in the group.
The sub group of the executive committee undermined the remaining members due to
their own agenda. This was evident in the conflict involving the reduction of manufacturing
price. The reduced manufacturing price had the most impact on the members of the European
subcommittee and they were hesitant to go back and change things on their Managing Directors.
Rudi was looking for some leadership out of the Regional Directors to voluntarily go back to
their Managing Directors and challenge them with different quotas instead of giving them a
break and potentially creating some complacency. The Regional Directors are afraid to go back
on the agreement they feel was implicit in the goals established at the leadership conference just
one month ago.
In the future, the executive committee is facing some serious challenges. As
technology develops from cassettes and CDs to MP3 and digital music, they have to develop new
strategy to utilize their influence in this type of market. Napster, a file share platform allows
consumers to download and listen to music for free. The team must figure out how to continue
to develop new music, and possibly use these platforms create awareness to drive their business.
Another challenge coming for the group will be the Asian financial crisis just around the corner.
Rudi Gassner and BMG International
These challenges will require a strong management group willing to make the tough
decisions in their areas and to push people in their units when it is needed. Rudi knows that to
survive the team needs to be able to face this immediate challenge with the bonuses and get
ready for whatever the future may hold.
6