Assignment No 1

ORGANIZATIONAL CHANGE AT REUTERS

SUBMITTED TO Mrs. Azizinder Sekhon Asst. Professor

SUBMITTED BY SANISH Roll No. 6249 MBA II (B)

at

SCHOOL OF MANAGEMENT STUDIES PUNJABI UNIVERSITY, PATIALA

ORGANIZATIONAL CHANGE AND HOW IT AFFECT REUTERS

Prior to becoming a Partner in Every mind , Carolyn Bresh spent 11 years at Reuters Group plc in finance roles including Group Financial Controller. Carolyn was instrumental in the successful restructuring programme that transformed Reuters from being in deep trouble in 2003 to the successful 2007 merger with Thomson Corporation.

In the early 2000s, structural problems emerged at the large international information based group Reuters the share price fell and confidence eroded. Serious change was necessary to rebuild the fortunes of the business. Financial writer Mike Tate talks first to David Grigson, chief financial officer (CFO) of Reuters Group PLC, and then to Carolyn Bresh, Grigsons deputy at the time, about this vast exercise. He describes some of the steps that were taken in an ultimately successful reorganization. Between March 2000 and March 2003, the Reuters share price nosedived from over 16 to just 95p. It was a reflection of the markets slowly dawning recognition that this pioneer of information-gathering was a company in deep trouble. What it did not show was that, by the time it had bottomed, plans for recovery were well under way. But it was to take another four years for the transformation to be validated by last years announcement of a 8.7bn merger with Thomson Corporation, the Canada-based international media and business publishing group It was a somewhat dysfunctional, structurally cumbersome and unnecessarily complex organization that David Grigson joined as chief financial officer in 2000. Under Tom Glocer, the new chief executive who was to take over at the helm the following year, he was charged with masterminding what was effectively a rescue campaign. We found a company that had grown very rapidly with no idea of where it was going or why, says Grigson. Through the 1980s and early 1990s Reuters had seen revenue pour in the door faster than it could cope with. But in 2000 the internet bubble burst and the financial services industry was on the brink of a sharp downturn. It was a downturn that Reuters was totally unprepared for. At the heart of its problems were a product range with thousands of price lines and a poor service record. In contrast, its main rival, the New York-based financial information group Bloomberg, was going from strength to strength, offering a single product what came out of the box was what you got. We were competitively weak, our service record was appalling and management was dysfunctional, comments Grigson. We had data centers that were old, running on old-fashioned technology, no disaster recovery or business continuity. All the basic things that a tech-based organization should have. Geographic How had this happened? It is important to understand that, despite its huge global reach, Reuters is a relatively small company. For 150 years it had grown by just planting its flag in a new territory and telling people to get on with it, and it was still being run on this geographic model. There was also a view held by many of the senior management that Reuters existed for the global good rather than to make money for its shareholders. Crucially, however, all the power within the organization resided in the heads of the geographies. They made all their own decisions how they built their product, how they supported it

and how they priced it. It was immediately clear to Glocer and Grigson that a complete overhaul of the company structure was vital. Only a re organization along divisional lines with ultimate control restored to head office would give Reuters the chance of a future. Early attempts, however, fizzled out as it proved impossible to wrest control from the geographies without effective financial management information systems and at a time when the business was hanging badly. The complexity of the existing structure provided everyone with an excuse, something to hide behind. It enabled the forces of resistance to grow and multiply. So we said lets not try and fight that problem because well just lose it and meanwhile the companys sinking, Grigson recalls. We had another battle to fight to get cost out and get it out fast. Fortunately the balkanized nature of the business meant that there was a lot of cost to take out. In 12 months of near-carnage, some 450m about 15% was slashed from the cost base. That became Phase One. It didnt have a project name just Help!

Divisional The transformation from a geographic to divisional structure, while crucial to Reuters future, was shelved until phase two. Fast Forward, as it was known, was about making a small number of very big changes that would fundamentally change how Reuters did business, says Grigson. But divisionalisation itself was to take three more years. While it was clear that power had to be prised away from the geographies it was far from clear how. Reuters did not have the necessary management information systems in place. A huge programme of simplification was going to be needed first. Grigson knew only that Bloomberg had shown what could be achieved by its rapid growth over two decades. Bloomberg, however, had the advantage of being a private company. Operating under the public gaze was, for Grigson, a major handicap. You need more than one bite at the cherry, because you cant see more than a year or two ahead, and markets hate that. But he and Glocer were turning it into an advantage. In February 2003, they took what proved to be a momentous decision. They went public with Fast Forwardand, crucially, their target a further 440m of savings. There were no detailed plans in place, Grigson recalls. Wed done some desktop calculations, but they didnt come anywhere near 440m. Our necks were on the line. According to Grigson, only then did the outside world begin to grasp just how serious Reuters problems were. What mattered was the impact it had internally. Nobody had an excuse for thinking we were not serious anymore. Transformation The transformation began in finance, whose first task was to get the companys information processed in a way that everybody could understand and act on. In order to drive the same message consistently throughout the organization, finance had to be brought into a single global organization reporting to the centre. Previously there were a large number of embedded finance people working alongside the business in individual geographies. Three major changes took place. First, transaction procession was taken out of

the geographies and moved to regional shared service centers and the new finance centre in Bangalore, India (all of which were owned and managed by finance), this resulted in increased independence and objectivity in terms of the numbers. Second, all reporting lines for finance staff went through Grigson, rather than the previous route through local managing directors. Finally, financial support was strengthened in critical areas high quality people were transferred from the geographies to the divisions and shared service centres where they could provide support to the wider organization. Once finance had been streamlined in this way, it was able to help shape the re organization elsewhere, oiling the wheels, keeping the scorecard. With a better quality and flow of management information, Grigson developed profitability insight, an activity-based costing methodology which allowed him to allocate cost from the big central buckets of activity against products in a way that enabled people to see true profitability up and down their product groupings. Grigson is very proud of his new team in Bangalore. They have become exceptionally good at looking through the other end of the telescope, identifying inefficiencies within the organization and designing solutions. By shining the light in the opposite direction they are adding real input. This was vital as Reuters finally embarked on its quest to drive down costs from 2.9% of total revenue to 1.5% within three years by fundamentally changing the way it did business. Fast Forward would call initially for a massive reduction in the product set from 1,500 to less than 50, a simplification of the pricing structure, a comprehensive realignment of reporting lines and a shrinking in the data centre network from 256 to just nine. Hitches There were hitches. A change team was established early on, but was dismantled. We found decisions were just being referred up rather than being taken where people could be held accountable, Grigson explains. Benchmarking progress proved a problem; Reuters main competitor was a private company and its other rival, Thomson, semi-private. In finance, Grigson used third party benchmarking data. We benchmarked individually our data systems operations against people who ran data systems, our software product development operations against similar businesses and our networks against other high-speed networks. Grigson estimates that it probably took two to three years to get operations intellectually onside and even longer until they were fully behind the strategy. It was like completely rebuilding all four engines on a jumbo jet while in flight. You have to be really careful not to just dismantle everything and see the thing fall out of the sky. By the end of 2005, Grigson and his team had taken out 900m of costs, but they knew they had not put anything back in. Financial markets were growing and flourishing but Reuters had not been investing. With the divisional structure now in place, they launched the third phase of their programme, Core Plus, with twin objectives of a further 150m of cost saving and taking advantage of the new growth opportunities that were appearing. For the first time ever we felt comfortable that, when we were investing money in new products, someone, somewhere was keeping an eye on the profitability of that product, over its lifespan and that therefore wed know whether we had successes or failures on our hands.

Market rate Taking out 1bn-plus in costs is an achievement but could only really be regarded as a success if Reuters met its Core Plus growth target, set at the anticipated market rate plus 3%, by Year 3 2008. We feel very comfortable that weve achieved it, Grigson purrs. It feels like quite a good time to sell the company, actually.