Being too much of a specialist is a burden when faced with radical change.
If you had been in the railway business, when the first aeroplanes took to the air, you had a choice: you could have carried on playing with your train set and seen a lot of transportation dollars move to aeroplanes over time; or, you could have decided that, fundamentally, you were in the transportation business and bought yourself a few planes. Of course, that alone wouldn’t have been enough, as you’d also need people who knew about planes and how to manage the aeroplane business, as it is quite different to railways. My guess is that if you carried on running an airline like you ran a railway you might not be as successful as new entrants who only knew about planes. But, isn’t that exactly what, until recently at least, Richard Branson did?
Forget about trains and planes for a minute and think newspapers instead. The Johnston Press is the second-largest publisher of local papers in the UK. It has grown over 150 years and so is something of a survivor, as most businesses don’t last anywhere near as long as that. In fact, the average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.
Sadly, at the Johnston Press revenues from print advertising, newspaper sales and contract printing have all continued to slide of late, much as expected: it’s become a familiar pattern. In April, the company reported a pre-tax loss for the third time in four years and wrote down the value if its titles by £164M. The owner of The Scotsman and the Yorkshire Post, as well as 300 (yes, 300!) other less well known titles, has just reported that interim revenues have reduced by 8% to £176M and underlying pre-tax profit has halved to £8M. Print revenues have reduced by 12.5%, over the past six months, to £97.6M; not only that, but revenues were worse in 2012, with ad revenues down 14.7% in the last six weeks. The new CEO seems pleased though with a growth in digital revenues of 8.4% to £10.3M.
Of course it’s not just Johnston Press that has suffered from the transfer of much of what it sells online; local newspapers are something of an anachronism, as all print media will one day be. Unfortunately though, Johnston Press has put itself in a near leadership position in an industry that is fast disappearing and how often have we seen that in the last year or so? The Game Group and HMV spring immediately to mind. It’s a bit like the board of directors, of the railway I started talking about, looking at a plane and deciding to corner the market in trains.
Apart from cutting costs and heads Johnston Press has also attempted to diversify into other online business including recruitment, discount schemes and cars. This is all much too little and much too late. The CEO should be embarrassed by the low level of online sales, not pleased with it. To have any hope of managing its way through this technological revolution, and surviving in the local advertising business, Johnston Press should have started many years ago, with a much stronger internet focus. It now has little chance of competing with the new entrants, who are very successfully taking all its business.
Of course, it is hard to do and it is particularly hard to do if you are a specialist in one industry. How many CEO’s of market leaders are able to admit that they know nothing about the technology, or the business model, of the business they now aspire to be in and have the guts to seriously diversify the business competence base? Not many to be fair, it’s much easier if you are a brand, rather than an industry specialist, and need to rely on specialist management for each business you splash the brand over, like Richard Branson has done. It’s because he knew he wasn’t a sector expert that has allowed him such wide scope to diversify his interests.
All too late for Johnston Press though; it will be interesting to see how it ends for them, but sad to see such a long-lived business struggle so. What about you? Are you too specialised to survive radical change? If so, get some help, just like Richard did.