Media Pic. Case TJS8-457655 Tomi DahlbergAbout the Case: Media Plc. » The case as such is fictive. It is, however, a synopsis of several real media company cases and their strategic IT related issues in the following way The Media Pi. case description has bean comple rom several comparies by picking carta elements of thse companies at Aiteren points of time. The destin fs reeforefebve= ere has hot beet or does ent ary real enterprise wih al shoracterstes of he Meda ple. Yet the og othe material fs fom real worl Brondcastng business (TV, faci) ofthe media nt has been excited fom the case with the exception of intemet TVs ran by newspapers and joumals. The reasons fo have he possbly fo pay more attenton to those business areas of the media inst tard to ter ig tal ranfermaton neh have sia estes as those of the anifactsing industry, commerce nut and sence incustry compares. nthe case thes insties ae te capital itersve pining, whieh has smiles uth manutacturng nutes {he whale and etal sales inthe bookstore ousiness, which fs Characterized by mUlicharnel delivery of goods and services sir to. ammerco, and te pulsing of magazines, jumals, books and educational males, which is ore te Wasitonal cores ofthe media ingusty ara similar o other ifoematon intansive sonics industies such as narce or exam. ~The ret version ofthe case descrnton saw day several years ago, Ate tha the transformation of media industy has been vorueiming and rapid. Consosuery. Idecdes to freeze tre casa Te reason ste folowing sone Othe media Reus companies depicted in ts case dd perform poorly dung the early years of 2010s and hence some sues and decisions eisioned inthe case wel no longer be poset as these Compares have eed wih tar more succesful peer companies o sold some of {Har besinesses. Others have Boon fred 0 et caw her ines ates. One may sil wonder. what hey had behaved Seren etme {n2018, one ofthe main ours in Finland Suomen Kuvalehi had a cover that asked wil he Mec industry disappear. Werow know {he answer, Mela ndusty hes not onl been able to survive but has started to pecorm bot wih growing revenues and tunover. ‘The journey hough has ben butl an fc anc may sl bo that. Please, do not take is story oa setulae fr no mada industry expert The case has been crafter only or educational purposes ani razon down to approximately years 2014-2016. » Only publicly available information combined with the writer's imagination to make the case story more interesting have been used to to craft the Media Plc. case description Tho case is used to make the topics of the course (Govemanco and svatagic management of digital business) moro practical and concrete ~ and to show haw messy the deployment and governance of Irs real ife digtal businesses. iso want to demonsirate and descrioe what kinds of chalonges IT managers, IT executives and business executives meet a they try to cope with digital raneformaton and lead #srategealy, Real chalenges are seldor ecrmcal but Telated fo people and organizations including ther bells, values as well as persons’ behavioral and organizational Fistory. The after words for thal are change managomont and people management °Media Plc. and its three business divisions — at the beginning of 2014 » Media Plc. consisted of three independent business divisions as the result of both organic growth (= brown and green field) and mergers and acquisitions during the last 20 years: Publishing and printing division. Within the company this is called the printing (division), for short © Newspaper and journal division. The internal shorter name is the newspaper (division) » Whole and retail-sales of books, newspapers, journals, office supplies, learning and educational material. Within the company this is called the bookstores (division) » In addition to Finland Media Plc. Operated or has operated in 16 other European Union countries. Still, in addition to Finland, Media Plc. has printing facilities to print newspapers, journals, books etc. only in Finland and two other countries. ~The case focuses on the prime market, Finland. (Author note: some of real-world case companies behind the case are predominantly single-country companies in Finland, Yet, my perception is that the same issues, which describe the main market, are relevant in other EU countries and probably in other developed economies. Thus the development initiatives, must-win battles etc discussed in context of the case could be considered relevant for other companies of the media industry. Must-win battles reflect contemporary strategy management practices.Case: Media Plc. The Printing division (1) » The Printing division owns the books, newspaper and journal printing facilities of Media Pic. as well as the immaterial rights of books and other printed and related materials. Printing is offered also to other companies and customers, print your own book, in addition to the printing of Media Plc.'s own books, journals, newspapers and other printed materials. Investments into printing facilities, that is into printing factory buildings and facilities, printing machines, related IT, transport and logistics, account for a significant proportion of Media Plc.’s balance sheet (capital expenditure = capex). The printing volumes of books, journal and especially newspapers have declined during the recent years — at an alarming rate. The total number of printed journals has. increased due to specialized journals. Many of these journals are, however, published only for a few years, have small volumes and require advanced printing technologies. There are constant pressures to increase efficiency, to cut costs and to find new businesses due to these developments. Automation and interoperability of printing value chain activities from manuscripts to outbound logistics are also high on the nda of the printing division executives.Case: Media Plc. The Printing division (2) » Over the years, Media Pic has purchases several smaller newspapers and publishers and has been rather successful in offering printing services to non Media Plc. Companies. On the other hand, the executives of some newspapers and journals within the Media Plc. claim that external customers are served better than internal customers. » The publishing of learning and educational material including educational and entertainment games is the growth business of this division with high profit margins. Yet, the proportion of revenues is still fairly low. Moreover, all the time larger proportion of learning and educational material is offered in digital formats including leaning platforms and learning environments in terminals such as lap-top PCs, PADs and smart phones or as games. Supplementary material downloadable via the Internet is also increasingly important. Pads with preloaded educational material and links were piloted as a new delivery channel for several years and could become commercially established. Active development of these businesses are seen to cannibalize the traditional printing business. One of the issues discussed constantly is whether these new digital businesses should be organized into a separate Jness unit or used to transform the other activities of the printing division.Case: Media Plc. The Newspaper division (1) » The Newspaper division owns the newspapers and journals of Media Plc. with their brands and digital contents such as electronic (versions of) newspapers/journals, their web- pages, archives and community portals. In main markets, the household-name newspapers have also broadcasting activities via Internet TV (television, radio, on-demand TVivideo). Internet TV occasionally provides and receives material to and from Media 1 broadcasting company. Media 1 is an interest company, in which the Media Plc. has 34 % ‘ownership. One of the journals runs the most popular social media site and discussion forum with more than one million visits a month. » The printing of newspapers/journals is purchased from Media Plc.'s printing division or in some cases from external printing companies. The purchase of printing services from ‘external printing houses is a constant discussion topic with the printing division. » Following the tradition of the newspaper industry, each newspaperijournal has been managed very autonomously, almost like an independent company led by the chief editor and the newspaper/journal board. As a consequence of this Media plc. has dozens of customer (subscriber) and other business related registers, web-sites, email addresses,Case: Media Plc. The Newspaper division (2) » Hence also electronic contents, publications etc. have been developed and operated independently. In addition to the industry tradition, local needs and the history of M&A activities, that is purchase of magazines and journals, with very limited integrations of businesses and data have contributed to this. » The profitability of the division is under severe pressure as the volumes of printed media decrease. There are significant differences in the media services consumption behavior related to the age of consumers. Lower volumes have negative impacts both through lower subscription/sales income and through lower printed advertisement incomes. Although the growth of electronic media is very rapid, actually this growth exceeds the decrease of printed media, revenues (subscription and other fees, advertisement income) from electronic media are only a fraction of those during the golden era of printed media Furthermore, It has proved difficult to get subscription fees from digital media apart from the few household brands. Some newspapers/jourals have intensified their marketing substantially as they have moved to being electronic only. » Disputes whether or not to produce shared digital contents within the Media Plc. has continued already for years. Other typical issues are how to exploit the huge legacy content storages of the Media Plc, or how to involve consumers into content productionCase: Media Plc. The Bookstore division (1) » The whole and retail sales of books, newspapers, journals, office supplies, educational materials and other bookstore products is carried out both through physical (shops, warehouse sales) and electronic (eCommerce) channels. » Asignificant proportion of wholesale items and a very clear majority of retail sales items are produced by other enterprises than the Media Plc. The Bookstore division conducts also some bookstore importing and agency businesses » The digitalization of printed media, office supplies and educational material and contents in general has enhanced the logistics of this division. External and internal web pages/services have become crucial to the operations especially in consumer business. In physical and electronic products, the bookstores and the websites of the bookstore division compete against domestic but also against international competitors, such as Amazon. Electronic products could be delivered electronically to retail clients, although the volumes are relatively low. Retail and wholesale of digital contents is considered an interesting new business opportunity. Close cooperation with the printing division is deemed necessary.Case: Media Plc. The Bookstore division (2) » Digital business in the form electronic transaction execution and delivery has become more and more important in consumer business due to the actions of domestic and international competitors and rapid growth of electronic business. Most profitable clients with lots of purchase transactions may order books directly from Amazon. Especially the prices and delivery terms of most popular books and other well-known items are compared and purchased electronically. In addition to customer loyalty programs, the bookstore division has experimented customer profiling, suggestive marketing and other electronic marketing means based on data analytics Fragmentation of product and customer data is a major challenge since the bookstore division has purchased several smaller brands with their own IS. The bookstore division would also like to have access to the customer data of other divisions, especially the newspaper division, to increase its reach. » The placement and functions of retail stores as well as automation and integration of the supply chain is another issue often discussed in the steering committee meeting of the bookstore division. Could it be possible to reduce manual work in purchasing by automating both inbound and outbound logistics of bookstore business?Case: Media Plc. Head-quarter/corporate functions (1) » In addition to business divisions the Media Plc. has company executive board and head- quarter functions, Accounting and financial control, Human resources, Information technology and management (IM), Legal, Corporate planning, Marketing, Communication and Investor relations serve divisions and coordinate these activities within the Media plc. » Each division as well as several units within divisions, especially the newspaper division, have their own IT professionals. This is one of the consequences of merger and acquisition (M&A) activities without major business and IT integrations. IT professionals are needed to develop and operate the various separate IT applications and services. As a whole, Media Plo. has dozens of customer, product etc. registers and applications for the same purposes such as web pages, intranets, editorial systems, data warehouses, ERP systems, CRM systems, » From the perspective of company executive board the resulting fragmentation of business data makes if difficult to establish a holistic picture over the business, business divisions or even units within divisions, The headquarter of Media Pic. does not know how many employees, customers, vendors, ... it has, what are the relations to each of them, or how the customers of Media Ple behave. 10Case: Media Plc. Head-quarter/corporate functions (2) > The traditional task of corporate IT has been to coordinate IT and to develop and operate enterprise-wide IT such as infrastructure, hardware, communication, applications etc. Enterprise-wide IT has been defined very narrowly. The IT function offers widest service portfolio to the other head-quarter functions whereas business divisions have been highly independent in the development and operations of IT services. » During the recent years, the harmonization of IT has progressed to the point where the majority of Media Plc.’s personnel have the same email address extension (media.com) and are under the shared active directory (AD). This is the result of the new CEO's initiative. The new CEO wanted to send an email to all employees of the Media Plc. after appointment but could not do that since there were several incompatible email systems and active directories. Yet, brand specific aliases are used extensively and most of the personnel prefer their alias affliation rather than the group affiliation, 1"The overall organization of Media Plc. (1) » Corporate and corporate head-quarter « Corporate management: Board, CEO, Executive board, which consists of division executives (with the EVP title = “CEO" of division and/or some larger newspapers) and head-quarter function executives, establish a two-layered executive board (business executive board, extended executive board) « ITis coordinated and governed by an IT board, to which divisions and largest units have nominated representatives. Agenda consists of enterprise-wide IT issues and services. > Printing division © Division executive VP ("CEO") and division executive board with the executives of the largest printing units (two of the executives are legally CEOs as their printing facilities are independent legal companies owned by the Media Pic). The Pringing Division CIO is an executive board member in the printing division steering committee © There is no printing division IT steering committee © Each major printing facility (3) has an own local executive board and the IT manager of the facility is one of its members 12The overall organization of Media Plc. (2) » Newspaper and Journal division © Division executive (EVP) coordinates the activities of fairly independent publication houses, that is newspapers and journals © Each publication house has its own executive board, The executive boards of the major publications houses are very influential as this is the historical background of Media Plc. Publication house IT managers/ClOs are members in some of these executive boards. » Bookstore division © Division executive (CEO) and division executive board. The bookstore Division CIO is the member of the division executive board. This division is organized on the basis of customer- segments, geographical regions and product groups. © All executives including the ClO describe themselves as book-sellers with specialized roles and responsibilities such as sales or IT. 13» Case: Media Plc. Steering of the Company (1) The businesses of the group have been supervised primarily via profit and loss and other financial control reports. The Media Plc. has thus operated similarly to an investment company. Business divisions and their units have been considered as portfolio investments Due to this, there has been a lot of mergers and acquisitions (M&A). After a M&A such parts of an acquisition that have not been deemed to fit to the Media Plc. have been sold off. The Media Plc. has also made divestments if the profitability of acquisitions or even traditional businesses have turned unsatisfactory or if a non-competing company has bought the business for higher valuation than the Media ple. has been able to justify. The corporate headquarter has been relatively thin as the responsibility for organizing business operations and support functions have been given primarily to the business divisions and their units. The idea has been to make units to compete for in-house investments and funds in terms of profitability, return of investments and revenue growth Investments have been made mainly into businesses which (in isolation) have been considered to offer highest returns on investment, profitability and revenue growth. Thus business divisions and their units have competed for the financing of investments. Due to the focus on profit and loss reporting the resulting overlapping and competing activities, competencies etc. have not been considered a significant problem 14» Case: Media Plc. Steering of the Company (2) The corporate board of Media Plc. (representing owners) as well as the corporate executive board has come to the conclusion that it is not possible to continue with this investment company type corporate governance model. The executive management of Media Plc. And the board have no visibility to customer relations within any country, or to the profitability drivers of various businesses and activities. Internal transfer prices and competition for funding have caused a lot of disputes within the Media ple. Lack of visibility has complicated investment decisions already for a long time due to the heavy internal competition for head-quarter funded investments and lack of M&A integrations. The rapid digitalization of products, services, operations and processes accompanied by adverse changes in financial margins, competition from other industries (especially telecom operators and IT companies) and the need to avoid overlapping investments has led to the conclusion that a more integrated corporate governance model and better integrated customer care is necessary for future success. Furthermore the corporate board suspects that a lot of overlapping inefficient and non-produetive activities are carried out within the Media Plc. since no real integrations of units and business have been carried out after mergers and acquisitions. An especially annoying issue is inability and unwillingness to share digital content between units. Similar contents are created lently in several units and the contents even compete with each other. 15Case: Media Plc. New strategy (2015-2017) The business strategy of Media Plc. has been renewed. The slogan "One Media Plc.” by the year 2015 has been launched to characterize the core idea of the new strategy. Five development programs have been established to implement the new strategy. They are called “must-win battles” and are led by the corporate executive committee members. One of the development programs - must win battles - is to increase the integration and harmonization of IT and information in order have more efficient processes, more reliable managerial reporting and holistic customer information. The target is also to manage better the digital transformation of products, services, operations and processes. IT and information has a significant role also in three other development programs: «The establishment of holistic customer experience and the creation of compelling bundled customer offerings. One of the goals is to become able to follow and analyze customer behavior and predictively and proactively offer products and services which add value to customers © New digital products and services especially new innovative mobile web-based services which integrate the various products and services of the Media plc., and which use new electronic delivery channels. The desire is to transform this into digital platform business © Development of distribution logistics with the aim to automate and better integrate the logistics processes of digital and physical channels — “end-to-end” is the term used. Leaner logistics should also facilitate the decentralization and/or higher use of the printing division’s services locally © The final development program is to increase profit margin and to secure strong cash reserves and cash position. The target is to have room for possible M&A operations. IT probably has lesser the pursuing of this 16Case: Media Plc. ”One Media Plc.” strategic objectives (1) » Develop more customer centric way to plan and execute business where customer behavior is understood better and where customer contacts are managed as a whole. “Customer listening approach’ is to be applied in all customer segments and business divisions with their units. As a whole the Media Plc. has served more than 3 million consumers during the recent years and close to 200 000 corporate customers. It is necessary to harmonize and standardize customer and product information, to provide better access to business transactions and to intensify data analytics. The CEO has stated: "We need to know our customers better and we need to make better use of the data we have. For example, in Finland, we have data about most Finnish adults and enterprises on what kind of business they have done with us. We don't even need permission from aulhories to analyze this data and stil act with high ethical standards," » Make processes more harmonized and effective at the minimum within business divisions but also across business divisions and geographical regions. CEO: » “We need to make our processes more efficient by identifying the best ways to operate and by copying these ways to other parts of Media Pic. We need to acquire information from our customers faster and better and feed it back tothe various channels and activities, through which we are in contact with customers and through which we serve them. This is also one of the most important ways to inerease reach and value to our customers” 7Case: Media Plc. "One Media Plc.” strategic objectives (2) With the harmonization and integration of IT operations the aim is to establish closer relationship between business and IT and by doing so to deploy IT better and more coordinated in business development. At the same time activities are taken to steer IT purchases better and to achieve cost savings. The means to achieve cost savings include the harmonization of platforms, services and solutions, removals of overlapping services and technologies and increased use of standardization in IT solutions and business data. Hardware, terminal and material purchases will be centralized. The objective is to provide the similar functionalities more reliable with significantly reduced costs. IT managers need to transform IT departments and units from technology centricity to business centricity in order to enable and support business and its transformation. CEO: "We use IT extensively every day not only in operations but also our products and services are highly IT intensive. We must consolidate our IT operations and business infrastructure, which are now too fragmented, overlapping and poorly integrated. To achieve this we need to consolidate IT platforms and solutions Its unwise that all units purchase IT devices, systems and services independently at high prices and with no inter-operabiliy. At the same time, as we receive cost ‘savings from this change in the way we run IT, we need to increase digital business, development nd innovativeness, maintain critical functionalities and make IT services more user centric nological superiority in our core operations." 18Case: Media Plc. "One Media Plc.” new strategic objectives (3) » Media-industry experiences rapid transformation, where strategies, business models and operative models change together with products, services and processes. Entry and competition of new enterprises from other industries as well as reliance of new types of partners such as IT and telecom companies has to be considered. Media Plc. uses substantial amount of its annual profit margin to innovate new products, services, processes, design etc. CEO: + "We need to be innovative and rapid in exploiting new business opportunities and to respond to the industry challenges proactively rather than just wait and defense our positions. The latter ‘would lead to a peril, Naturally we defend our printed products to the extent reasonable but at the same time we need to embrace Web, digital and mobile products and services. Our legacy and strong brand names provide us ample opportunities for innovations and relevancy.’ » Maintenance of profitability and strong balance sheet is important for the future of Media Plc. CEO "With the One Media Pic. strategy we are transforming from an investment portfolio corporate governance type of company model to a synergetic corporate model. In order to be able to participate fully to the transformation of our industry we need to secure with all means our profitability and cash reserves. We need to do this in order to able to participate into all those mergers and acquisitions we desire and to be able to fund those brown and green field operations at the implementation of our strategy requires. We do not want to be the objects of M&A.” 19Media Plc. Strategic Busines Objectives for 2015-2017 » The strategic business objectives of Media Plc. for 2015-2017 are: Launch of new products and services to the markets so that in 2016 the proportion of revenues from » products launched in 2015 is 10 % of total revenues and profit margin is 5 % of total profit margin. In 2017 the same figures should be 25 % of total revenues for products launched in 2015-2016 and 15 % of total profit margin for products launched in 2015-2016. Set new target levels for 2018, 2019 and 2020 © Increase of Gross Profit Margin from the current 12 % level to the 15 % level at the latest in 2017 by increasing the use shared services, platforms and other means including cut downs. Keep that level © Keep current market shares in Finland (22 % in printing, 35 % in newspapers and journals, 24 % in bookstore business), grow at least as fast as markets grow in other markets andlor keep market share in other markets. Penetrate significantly (10 % market share) to atleast two new preferable digital markets by 2017/2018 and set new targets for 2019, 2020 © Increase the proportion of digital media revenues from the current 20 % of revenues to 33 % of revenues at the latest year-end 2017 and set new targets for 2018, 2019 and 2020 © Offer better coordinated value deliveries and use other means to reduce customer chur with the objective to decrease chu by 10 % and to reach lower churn rate than any other company in our field already by 2016. This requires that we are first able to calculate customer churn Sustain strong financial position in order to facilitate mergers and acquisitions.Case: Media Plc. Case summary (1) » All business divisions, units and operations of the Media Plc. are in the middle of a major transformations characterized by digitalization of products and services. In strategy analysis this could be described with the concept of digital strategy, more specifically with the need of digital strategy. Digital data and IT supports, enables and even drives the transformation of Media Plc. by being a significant part of most if not all changes: » For the printing division printed products could be combined all the time more into packages, which include complementary digital products and services and/or fully digital parallel products to printed materials such as digital books, audio books, digital games and digital add-on contents. © Digital products and services are distributed via the web to various types of mobile consumer electronics devices, which have Android, iOS (and Windows which was still relevant in 2014) operating systems. Digital products and services could be accesses via platforms as cloud services with new business models such as white labeling, pay as you go, classification of service levels. ‘Automation and integration of logistics both for physical and electronic products ervices are significant for this division. 2Case: Media Plc. Case summary (2) » Newspaper and journals division: The publishing of newspapers and to some extent journals has become 24/7 activity where customers produce or give input to a significant amount of the content. Published articles and archives — sometimes labeled as legacy content - are used to provide background to current events and content. Digitalized legacy could also be offered separately as a service business Pressures and opportunities to jointly produce content and to otherwise increase cooperation between various newspapers and journals are felt daily. Delivery of content to various types of consumer electronics devices is a typical topic of meetings even when not on agenda. Furthermore the line between newspapers and radio/TV broadcasting has almost disappeared. Reliable good quality content appears to be the key to the future success. » Bookstore division: The whole and retail sales of bookstore products have already to some extent moved from shops to Web. Ability to provide interesting up-do-date information about the products and their availability is becoming the new-normal way of doing business. Pressures to constantly improve customer portal and to increase cooperation with other business units and also with competitors against Amazon and other similar global competitors is ever present. Telecom and IT companies are seen both as prospective competitors but also as potential distribution allies for the newspaper and bookstore division 22Case: Media Plc. Summary: IT deployment perspective (1) » ITand IT enabled solutions have traditionally been important to the operations of Media Plc.’s business divisions and to headquarter functions, in such issues as: Contents to printing machines are delivered electronically from editorial information systems and from other applications. IT is applied to steer printing machines, to monitor the quality of printing, to schedule, run and monitor printing jobs, to process and pack printed products, to deliver them in logistics, ete Journals and newspapers are written and edited with editorial information systems, Electronic archives of text audio and video as well as information services are used to find background information. Materials for advertisements are also received electronically, and billing, customer contacts rely on IT. Contents are distributed via electronic platforms. Media Plc. has tremendous amounts of data about billing, sales and web activities as they are required to register such data due to regulatory requirements to show how the various services have been used and billed © Social media websites offer ample data to analyze consumer behavior even on the basis of anonymized data, for example by using machine learning 23Case: Media Plc. Summary: IT deployment perspective (2) » [Tand IT enabled solutions have traditionally been important to the operations of Media Plc.'s business divisions and to headquarter functions, in such issues as: Bookstore business relies on logistics systems, which are integrated to point-of-sales (POS) terminals. Thus the division knows warehouse/inventory levels and the outcomes of various marketing campaigns. This division is in theory able to profile customers both through web activities and through POS sales for those customers who are in their customer loyalty program. © Headquarter functions use accounting, financial control, HR as well as data warehouse & business intelligence and reporting systems extensively. © Employees of Media Plc. are not able to work without wide and local area networks (WLANILAN) and services accessed through them such as extra- and intranets, office systems, email and message systems, web browsers, groupware etc. or without devices used to access those services such as PCs, laptops, smart phones and pads. Product and services offered to the clients are all the time delivered more via smart phones and other consumer electronics devices and as cloud services. Even broadcasted content is delivered extensively via the web. New products and services either rely entirely on IT, or the IT enabled parts of them are in significant role. The growth of social media related transactions has been phenomenal However, service attacks, phishing and hate messages are the other side of the coin, 24Case Media Plc.: IT Governance / current decision rights matrix - eof |g |: |bed The Board of Media Fe ePopPr ftp Chief Executive Officer (CEO). Group executive committee chaired by the CEO. Executive VP: printing division L c c R c [Executive VP newspaper and journal dviion en a ecutive VP bookstore division on a Chet financial Offer (FO) pete fe pa Chie Development Ofieer [EDO] coe be bee Chief Information Officer (ClO) TT manager: Printing Bvson a TT manager: Newspaper and jouraldvlion a IIT manager: Bookstore division Cc c c R R T steering committee 25