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Supply Chain Management of Houghton Mifflin Company
Supply Chain Management of Houghton Mifflin Company - January 10th, 2011
Houghton Mifflin Company is an established leader in textbook publishing, providing indispensable materials for the elementary, secondary, and college markets. The company also produces testing materials, reference books, children's literature, and a growing line of award-winning trade books of interest to the general public. Formed in the 1800s as a printing house, the company grew and diversified, playing an important role in the intellectual development of generations of Americans. In time Houghton's focus shifted to scholastic publications, and the company has become a major presence in the burgeoning educational market, both in traditional materials as well interactive and electronic products.
From Printer to Publisher: 1820s-60s
Henry Oscar Houghton was born into poverty in Vermont in 1823. At age 13, he was apprenticed to a printer in Burlington. In 1842, he entered the University of Vermont, earning his way through college by working in various printers' offices. In an effort to pay off the debts he had amassed while in school, Houghton moved to Boston after his college graduation in 1846, where he held a series of jobs in journalism and printing. Houghton paid off his debts within two years and bought out one of the partners in one of Boston's premier printing businesses for $3,100 (paid in installments); thus Bolles & Houghton was formed. The business had changed its name by 1851 to Houghton & Haywood, when Houghton exchanged his former partner for one of his cousins. The company moved the following year to an expanded printing plant on the banks of the Charles River and began to call itself the Riverside Press. In 1852 the business changed hands again and took the name H.O. Houghton & Company.
Five years later, in 1857, Houghton was shaken by a widespread economic panic, the lingering effects of which wore on for the next four years. As banks and other businesses closed and paper money lost its value, Houghton found itself in possession of the stereotype plates, used to print off new copies, for a number of books. These assets were given to the printer in lieu of payment by insolvent publishers. Soon after, Houghton purchased the stereotype plates for a 39-volume book on English law from the Boston publisher Little, Brown & Company. With these moves, Houghton took the first step in the process of changing from a printer into a publisher. To exploit the value of the stereotype printing plates he owned, it was necessary for Henry Houghton to print the books, which then needed to be distributed.
By 1863 Houghton had amassed enough plates to flesh out a basic publisher's list: law books, general classics, and a lucrative arithmetic textbook. When one of his primary clients, Little, Brown & Company, terminated their contract, Houghton was forced to diversify to ensure his company's continued financial health. Accordingly, in 1864 Houghton entered into a partnership with Melancthon M. Hurd, a wealthy New Yorker with whose firm Houghton had previously produced a series of books by Charles Dickens. Houghton planned to handle the printing, advertising, and distribution aspects of the business, leaving authors, manuscripts, and editors in the hands of his partner, Hurd. The new New York-based company was called Hurd & Houghton, and a shield with two interlocked Hs became its colophon.
The first catalogue of books published by the new firm included the texts for which Houghton owned the stereotype printing plates, works by Englishmen, and several books written by Americans. In January 1865, the company purchased an additional 20 titles, including works by James Fenimore Cooper. Later the same year, the fledgling enterprise found itself the object of a lawsuit by Hurd's former partners over the rights to publish the Dickens books. Eventually, this was resolved to Houghton's satisfaction.
In 1866, Hurd & Houghton was reorganized when one of Houghton's brothers contributed additional capital. With this money, the company moved to newer, more stylish offices in New York and expanded its Cambridge printing facilities. After purchasing the Riverside Press site, the company added a new four-story building and ten new presses. These new facilities, inaugurated at the end of 1867, allowed the press to keep up with demand for its most popular product, the Merriam Webster Unabridged Dictionary, as well as to print newspapers, periodicals, and the books of the Hurd & Houghton line (which included law books, school books, Bibles, prayer books, theological works, and children's literature). Although Houghton's Massachusetts-based printing operations were turning a profit, its New York publishing arm languished. Hurd & Houghton's periodicals, such as the Riverside Magazine for Young People, suffered from stiff competition and were expensive to produce. Nonetheless, by the end of the firm's second year in operation it remained profitable overall.
Becoming Houghton Mifflin: 1870s-90s
In 1872, Hurd & Houghton took on several additional business partners, among them Horace Elisha Scudder, who worked on the children's magazine, and George Harrison Mifflin, a rich young man who had joined the firm in 1868. In the 1870s, Houghton & Hurd expanded steadily, acquiring publications in a number of fields, including the Atlantic Monthly, and garnered a number of lucrative government contracts. Gradually, it was becoming the predominant Boston publishing house.
Boston suffered a devastating fire in 1872, worsened by the fact that all of the fire department's horses had an equine illness. Many paper manufacturers and printing businesses were destroyed in the catastrophe, which ushered in a prolonged economic slump. The events had forced one of New England's oldest and most illustrious publishing houses, Ticknor & Fields (at the time known as James R. Osgood & Company), into dire economic straits. The 50-year-old publisher had published such leading intellectuals as Ralph Waldo Emerson, Henry David Thoreau, Nathaniel Hawthorne, Mark Twain, Henry Wadsworth Longfellow, Harriet Beecher Stowe, John Greenleaf Whittier, and others. In 1878 Houghton bought out the older firm and formed Houghton, Osgood & Company, moving the company more firmly into the realm of literary publishing, away from the lucrative printing and textbook publishing with which it had begun.
By the start of the 1880s Houghton, Osgood was operating under the burden of heavy debts assumed under the Osgood takeover. To ameliorate this dangerous situation, the company was reorganized in 1880, to become Houghton, Mifflin & Company. The company spent the next decade reducing its debt, helped by the publications of books by authors such as Henry James and Kate Douglas Wiggins (Rebecca of Sunnybrook Farm). During this time Houghton also established an educational department, which worked to update the company's academic offerings. Chief among the company's schoolbooks was the Riverside Literature Series, also inaugurated in 1882, comprised of unabridged American classics annotated with study guides, available to schools as cheaply as possible. One version of the project was printed on opaque paper, with inexpensive paper covers, and sold for 15 cents a volume.
In 1895 company founder Henry Oscar Houghton died and control of the firm passed to his younger partner, George Harrison Mifflin. Houghton left the firm in strong, if not invincible, economic shape, as it faced slowing profits in response to another general economic depression. In the late 1890s, in addition to the firm's standard list of children's works and educational tomes, Houghton added a number of novels designed to attract public attention. Several of these books sold well, moving significantly more than 10,000 copies. In addition to its fiction, Houghton also offered newly updated schoolbooks and the popular Atlantic Monthly.
A New Era: 1900s-30s
In 1901 Houghton Mifflin opened a book shop in downtown Boston. In the windows, the company mounted displays promoting its best-selling novels, and inside, samples of the fine printing and binding of the Riverside Press were available. Seven years later, in 1908, after a series of deaths among the firm's original partners, Houghton, Mifflin & Company restructured itself, changing from a partnership into a corporation, under the name Houghton Mifflin Company. At this time, the firm sold its journal, the Atlantic Monthly, to a group of investors who planned to install new editors while maintaining some ties with Houghton.
By 1914 George Mifflin's desire to publish novels that would win widespread popularity had brought about a decline in the overall literary quality of the company's offerings. One of the publisher's most prominent poets, Amy Lowell, quit the house for another charging that the company had suffered a decline in prestige through its practice of publishing second-rate fiction. Houghton lost further literary currency when World War I broke out in Europe in 1914. Under the leadership of its Anglophilic editor-in-chief, the company avidly supported the Allied war effort, working with Wellington House, the propaganda division of the British Foreign Office, a policy that later earned Houghton the suspicion of many scholars.
Between 1914 and 1918, Houghton published more than 100 books related to the war effort. Many of Houghton's books concerning the war proved profitable. An additional, unexpected side effect of World War I was an increase in the size of the reading public, and consequently, the market for books. Programs to put inexpensive books in the hands of servicemen during the war had introduced the habit of reading to a vast number of men. In the years following the war, American letters underwent a renaissance, as new authors introduced fresh literary movements. Despite its heritage of having published many of the leading literary lights of the 19th century, Houghton was, in large part, left out of the contemporary movements.
The company had a strong reputation for conservatism, a product of the archaic tastes of several of its key editors, who sought uplifting works with pleasant themes and found the new stark realism unpalatable. In addition, Houghton's editors perceived themselves to be handicapped in the publication of radical material by their location in Boston, where local authorities frequently banned books found objectionable or dangerous. The company feared the Boston police could seize the entire print run of an offending work as it came off the presses in Cambridge, preventing a book from even entering circulation. Although the literary tumult of the 1920s passed by Houghton, the company did show more success with its nonfiction offerings, and its educational books division thrived. It had begun publishing intelligence quota, or 'I.Q.' tests back in 1916, and continued to update these best-sellers for decades.
Rebound of Educational Publishing: 1940s-60s
Houghton relied on its perennial sellers and its solid educational lists throughout the economic depression of the 1930s. A key part of this approach was the development of the market for standardized tests. Working with educators at the University of Iowa, the company developed the Iowa Tests of Basic Skills. Also during this time, Houghton Mifflin added Adolf Hitler's Mein Kampf to its nonfiction list. All royalties from this work were paid to the Office of Foreign Litigation of the U.S. government. After publishing Hitler, the company went on to publish the works of his adversaries in the wake of World War II. In the late 1940s, Houghton paid its largest advance ever for Winston Churchill's six-volume account of World War II, for which he was later awarded the Nobel Prize in Literature. In addition, the company published the works of General George Patton and Field Marshall Bernard Montgomery.
Following World War II, the U.S. government passed the G.I. Bill, promising a free college education to all who had fought in the war. This move dramatically increased the market for college textbooks, and Houghton's operations in this area expanded greatly. In 1949 the company also introduced the McKee readers, which taught young children how to read, and were purchased by school systems expanding to accommodate the baby boom of the 1950s. Houghton also increased its participation in the standardized testing field.
The company grew in size throughout the 1950s and 1960s, adding such works as Rachel Carson's controversial Silent Spring to its nonfiction list. In 1967 Houghton sold stock to the public for the first time, listing its shares on the New York Stock Exchange. Two years later, Houghton introduced the best-selling American Heritage Dictionary, one of the first such works to be created using a computerized word base.
Modernization of Houghton: 1970s-80s
The company moved further into the field of computer publishing in 1971 when it began working with a small New Hampshire-based firm called Time-Sharing Information to develop computer programs for use in schools. Four years later, in 1975, Houghton purchased the company, to better integrate its operations with its textbook division. This year also was noteworthy because the company was sued by three women and charged by the Massachusetts attorney general with discrimination against women in hiring and promotions. Two years later, Houghton agreed to pay $750,000 to its female employees and increase its Affirmative Action program. In a separate later settlement, Houghton paid an additional $325,000.
By the late 1970s, as the number of school-age children dwindled, Houghton began to shift its emphasis in educational publishing. The company started to move away from primary and secondary school texts toward college texts, particularly business course and professional offerings. In 1977, it purchased the Pinecliff Publishing Company, a California-based medical publisher, and its textbook sales gained steadily. These gains attracted the attention of Western Pacific Industries, a railroad conglomerate, which had acquired 6.7 percent of the company's stock by March 1978. Concerned about a possible corporate takeover, Houghton authors such as John Kenneth Galbraith and Arthur Schlesinger organized an Author's Guild inquiry into the matter, wrote letters of protest to the buyer, and announced that they might quit the publisher if it was not able to remain independent. The campaign worked, and Houghton bought back its shares.
Houghton established a Chicago subsidiary in 1979, calling it the Riverside Publishing Company, to produce reading textbooks with a new approach. To sell this line, the subsidiary was given its own separate sales force. Further, in its trade books division, Houghton reintroduced the Ticknor & Fields imprint belonging to the venerated Boston publisher the company had purchased long ago. The division was set up to publish a small list of distinguished authors on politics, biography, and historical fiction. Another imprint, J.P. Tarcher, Inc., was added for science books, and all of Houghton's trade activities were consolidated into one division, in the hope of increasing profits.
In 1980, Houghton moved to secure its dominance of the textbook market by purchasing the educational publishing operations of Rand McNally & Company for $11.6 million, though these activities remained separate from Houghton's other businesses. Throughout the 1980s, textbooks reigned supreme in Houghton's publishing empire, growing at a rate of more than ten percent annually.
New Leadership, New Directions: The 1990s
In the early 1990s Houghton was revamped under the leadership of a new chief executive officer, Nader F. Darehshori. Darehshori, who had joined the company as a sales representative in 1966, trimmed Houghton's workforce and gave more autonomy to its publishing divisions. He was also keenly aware of the technological changes in publishing and sought not only to keep up, but to lead the industry. Such titles as 1992's International Electronic Thesaurus and the latest edition of the American Heritage Electronic Dictionary were major sellers. To bolster the educational divisions, Darehshori spearheaded efforts to buy a 17.5 percent stake in Cassell for $4.4 million, spent $17 million for the testing assets of DLM, and acquired the publishing arm of College Survival Inc. for $10 million. The company also reorganized its foreign publishing operation by shedding a few units.
A major acquisition came in January 1994 when Houghton bought textbook publisher McDougal, Littell & Company for $138 million in an effort to enhance its secondary school market product line. At the same time, the company announced that it would fold its prestigious Ticknor & Fields imprint and merge its 20 or so trade books into the company's general line, in an effort to stem losses. In further restructuring, Houghton spun off its computer software division into a separate company, InfoSoft Corporation (later renamed Inso Corporation ), of which it retained a 40 percent stake. Sales for the year had climbed to $483 million, but Houghton was soon on the move, announcing its acquisition of D.C. Heath and Company. To cover some of the debt incurred in the Heath purchase, Houghton sold off a portion of its Inso shares in 1995. Darehshori believed the D.C. Heath purchase would play a significant role in the company's future and would help Houghton reach sales of $1 billion by the year 2000.
In general, Houghton, the country's ninth largest publisher, weathered the cyclical nature of educational publishing well. Most educational publishers experienced losses in the first and fourth quarters annually, since the lion's share of textbook sales always fell in the second and third quarters; but, in addition, the adoption of new textbooks and programs occurred only every five to seven years, and sometimes for longer periods of time. Expenses incurred in developing new elementary and secondary programs were absorbed until the texts were sold and tested in schools. Fortunately for Houghton, several new curriculum projects were well received in 1996 and, along with further sales by D.C. Heath, revenues were up by 91 percent in the second quarter. Houghton Mifflin Interactive (later renamed Sunburst Technology Corporation), meanwhile, was also steadily gaining in both products and sales. Houghton finished the year strong, with net sales of $717.9 million, up 36 percent from the previous year's $529 million.
Houghton stockholders had reason to cheer in July 1997 when a two-for-one stock split was announced. Each of Houghton's seven divisions, even the traditionally stolid Trade & Reference unit, had strong showings for the first two quarters that followed through to the end of the year. Net sales for 1997 reached $797.3 million, an increase of 11 percent and on track to reach Darehshori's projections for the new century. The following year Houghton was back on the acquisition trail; one bid failed (for a unit of Simon & Schuster) while another succeeded (the purchase of Computer Adaptive Technologies, Inc. [CAT], a firm that designed and developed computerized testing services and products). Year-end results were still on an upswing, topping $861 million, though the 8.1 percent boost was not as sharp as in previous years (1997's increase of 11 percent or the 36 percent net sales leap in 1996).
In 1999 Houghton continued to buy companies with technologically based product lines, including the assets of the Little Planet Literacy Series, a literary program for preschool- to third grade students, followed by the purchase of Sunburst Communications, Inc., an instructional software and video developer. To help finance its new acquisitions, Houghton sold the remainder of its equity in Inso Corporation and continued to climb closer to its year 2000 goal: net sales hit $920.1 million and net income rose to $76.3 million.
Houghton Mifflin in the New Century: 2000 and Beyond
As it approached the new millennium Houghton Mifflin was healthy, wealthy, and wise; sustained sales and profits in its divisions earned the 136-year-old publisher a solid reputation and a foothold in every educational market sector, from elementary to secondary to college. Throughout its long and colorful history, Houghton not only adapted to change but generally embraced it long before many of its competitors. Its forays into interactive and electronic capabilities, including web pages and online services (which averaged nearly half a million visits per month), reflected Houghton's growing appreciation of and commitment to cutting-edge technology in both educational and general publishing services. This was demonstrated further by its latest acquisition, in May 2000, of Virtual Learning Technologies, Inc., another electronic educational testing services company. Houghton Mifflin Company, with net sales approaching the billion dollar mark, had proven itself as a necessary component to education--whether in schools or at home.
Principal Subsidiaries: Great Source Education Group, Inc.; McDougal Littell Inc.; Riverside Publishing Company; Sunburst Technology Corporation; CAT (Computer Adaptive Technologies, Inc.).
Principal Divisions: School Division; College Publishing; Trade Division & Reference Division.
Principal Competitors: Dorling Kindersley Holdings plc; McGraw-Hill Publishers; Harcourt General, Inc.; Follett Educational Publishing; Random House, Inc.
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