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The Financial Director interview – Performance monitor

When an investment bank sneezes, Reuters catches cold. When it is a chorus of revenue-starved banks blowing their noses simultaneously, the world’s largest news and financial information provider is rushed to the intensive care unit. In late 2000, with the global financial markets (ie, Reuters’ lifeblood) in a tailspin, chief surgeon David Grigson was called in to revive a sick patient.

In terms of character, Grigson, 49, was arguably the ideal choice of FD to take on a company whose success is largely dependent on speed of delivery. Grigson’s personal delivery is Uzi velocity, and it is all a listener can do to keep up with the rapid-fire information and data that flow from his conversation. Small wonder that ‘Fast Forward’ was the name chosen for the turnaround plan.

Whatever was keeping Grigson up at night when he took over the FD post almost four years ago has now been relegated to the archives of ancient history. “I doubt I could even recall what it was that was keeping me up in those days,” he says. “I think that has shifted and the biggest constant concern for us now is whether we can do all the things we’re doing fast enough. Our competition isn’t standing still. New competitors are striving to move into this space. So the question has be whether we can turn this ship, the heavy-duty luxury liner that it is, quickly enough and sharply enough, and then accelerate it off into the new world so we can leave our competition behind. There’s a lot of change going on here and we’re never satisfied that we’re doing it fast enough.”

The luxury liner analogy is only partially valid. A ship’s captain can rely on navigational charts to signal the approach of danger. The world’s financial markets are a fluid and unpredictable beast, a constantly moving target. As Reuters CEO Tom Glocer remarked when asked to forecast when economic conditions might allow Reuters to run its rebuilt, high-power engine at full throttle, “If I could answer that question, I would be trading with a Reuters terminal, not selling them.” Nobody could forecast the tens of thousands of financial services jobs that would be lost in the global economic downturn that is only now beginning to turn the corner.

What is certain, however, is that each Reuters screen sitting on the desk of a jobless banker is likely to result in a cancelled subscription as soon as possible after that individual leaves the company, and there is very little Reuters can do about it in terms of protecting its revenue line.

“What we can do, and what we have done, is to ensure we address the consequences for our overall profitability by looking into our own cost line,” says Grigson.

There is a certain irony in the fact that Grigson comes to Reuters from the Emap publishing empire, where he held the post of FD for more than a decade. One might think he had merely stepped out of one media giant into another. But Reuters, whose name is synonymous with news to the world at large, today derives less than 10% of group revenue from its news service.

When Grigson arrived in August 2000 at Reuters’ landmark headquarters, the Lutyens-designed building at 85 Fleet Street (soon to be abandoned for a less stately abode in Canary Wharf), he knew the company was in trouble. The full extent of the crisis, however, was yet to make itself felt. He took a look around and saw a company that had had a fantastically successful run-through to the early to mid-1990s. “Then I think it rested rather heavily on its laurels, failed to invest and allowed, at that point, a reasonably recent upstart as was Bloomberg to steal a considerable part of its lunch. I think the management at that time simply missed the fact that Reuters was becoming unmanageable. It had grown geographically and was still relying on its local managers and local regions and local geographies around the world to make all the product decisions, and all the service decisions.

“So when the recession hit in late 2000 or early 2001, Reuters was somewhat found out. Its service was poor, its products were too many, too disparate and not really fit for purpose. When it came to trying to fix itself, it discovered it didn’t have in place a management structure that allowed quick action to rectify those situations. It had to run itself through about 60-70 key geographies for most of the decisions, and managers were inclined to continue to take them locally. So the plan we have going forward is to rectify that by simplifying the business down to a very small number of core products that work on a common and single platform.”

Grigson points with some satisfaction at the centralised decision-making structure he has put in place. “All the key decisions are taken here because it’s the only place at which the total profitability of this business comes together; that is, in this office and in the CEO’s office,” he says.

“Everybody else is running a piece of the jigsaw so it’s a large and somewhat complex matrix organisation. What this is really all about is actually driving decision-making down so that the project manager knows precisely what profitability he’s making and what levers he can pull to improve the profitability of that product.” Grigson didn’t see his task as a rescue operation when he came on board. “I don’t think the seas were so rough that the ship was sinking at that time,” he says. “I think there was no question in my mind, and there was no question in the minds of many of the observers of the organisation who I talked to at that time, that Reuters needed a complete overhaul. But I felt in those somewhat heady days that we were likely to be overhauling this beast in more benign circumstances.

“Within a year, it became clear that the concept of benign-ness was optimistic and that the storm had hit. We were actually overhauling this thing in pretty rough seas against a pretty gloomy backdrop. The challenges became harder, and then they actually became easier as we turned those circumstances to our advantage. By that I mean that by actively engaging with an organisation somewhat reluctant to change, the task became a lot easier,” he explains.

Looking at costs has inevitably led to a headcount reduction in line with what has been happening in the ranks of its key customer – the financial services industry. Journalists have largely been spared the axe, in an organisation that, until fairly recently, was looked upon as a model of Victorian paternalism. In a word, people were not sacked. Reuters began swinging its scythe round company headquarters three years ago, when 1,000 jobs bit the dust, mainly administrative and marketing personnel.

But, as Grigson explains, the recovery strategy is focused more on looking for ways to drive new efficiencies through the business and taking up the challenge of migrating from a base of too many products built on too many platforms serving clients in a sub-scale way to a smaller number of more efficient products providing lower cost of ownership to the company and its customers. It isn’t a slash-and-burn operation, but how else to respond when your core customer base is wading through a bloodbath of redundancies and retrenchment?

In steps lateral thinking. “Apart from taking costs out of the system, another option is to devise ways with bank clients to achieve the same cost-cutting objectives,” says Grigson. “We have had numerous conversations with banks, offering to substitute alternative products for their existing range, where the provider thinks they can meet user needs at a lower price.” As Grigson explains it, the strategy is to help the banks solve part of their cost problems, and also keep the customer and subscriber for Reuters, which is clearly a better option than losing the subscription altogether.

There are areas where Reuters has discovered alternative suppliers into some of these organisations, in some instances charging high costs and prices where Reuters believes it can substitute a lower cost product and gain some market share advantage at the same time. “The upside of consolidation in the financial services industry is that it forces management to look quite hard into the bowels of their organisation and ask themselves questions, such as whether they want to merge two trading floors or create a new one elsewhere,” says Grigson. “In the latter case, Reuters would see an opportunity to be part of that setup, as well as strategies on how to use information in an organisation to improve workflow efficiencies and dynamics.”

The initial challenge was to move the dialogue away from the technology people and address the issues with the head of desk: whether it’s equities, fixed-income or foreign exchange, the idea is to move it up another level.

“We’ve now come out of the stage where the only conversation they were willing to have was one about how do you get costs down 20%,” he says.

“We had to move the conversation up to the fellow whose job it is to think about how to return this organisation, this bank, to growth. And how to position ourselves to be able to take market share from our competitors. And what can you do, Reuters, to help us?”

For starters, Grigson realised the need for a drastic cutback in the number of products the company had dumped into the market during its years of glory, when Reuters ruled the financial information world and Bloomberg was, tragically, dismissed as a poodle yapping at its heels. At one stage, Reuters had a staggering 1,300 products on offer. This has now been slashed to some 500 in active service, with several hundred others having been withdrawn from sale, and Grigson has set a target of 50 core products by the end of next year. “As always, the 80-20 rule suggests you can take off some large numbers with relatively minor affect, but you know the last year of that exercise will be quite a lot harder,” he says. “What is clear in our own minds is precisely what those products are. The last bit of the tail may linger a little beyond the end of 2005, but most of the job will have been done.”

Grigson is confident that Reuters’ service levels are now on a par with Bloomberg’s and other competitors’. The key differentiator, he argues, is that Reuters can offer products up and down the market tiers. “We’re not selling just a Bentley or a Rolls-Royce,” he says. “It’s more like a BMW – a 7-series, 5-series or 3-series BMW, depending on your needs.

“So Reuters is the full BMW range in the same way that you might describe Bloomberg as the S-Class Mercedes and nothing else. The critical thing for us is that products are defined by functionality and content. When you talk to Goldman Sachs or Morgan Stanley or Deutsche Bank or UBS, they don’t want to have to pick and choose from different suppliers from different places. Offering that segmented product mix is seen by our customers as a clear point of differentiation,” he explains.

Market data suggests that Grigson and his team may have managed to stop the rot. Last year, Reuters grew its premium space number of accesses by 10%, while Bloomberg is believed to have shrunk by about 1%, although this is hard to confirm as Bloomberg is not a public company. “The fact is that, in some parts of our business, such as in sales and trading in the US, certainly our largest single division, we’re now seeing very slight but sequential quarter-to-quarter growth,” he says. “So the tide has turned. It won’t show up in terms of annual growth until 2005, possibly even 2006, depending on whether the rate of progress is rapid enough to put 2005 into positive territory.”

Grigson says his role is about organisational effectiveness, ensuring that the company has the right tools and the right insight to make more effective decisions in terms of how Reuters continues to drive itself forward. “We have to ensure that our investment decisions are focused on the things that will deliver the highest return, and that every one of our products and customer relationships and channels is optimising its potential, both in terms of growth and in terms of profitability. So I guess you might call that a broad set of management capabilities.”

Grigson has a second role as chairman of the budget and investment committee. In this role, the first task is to have a fair proportion of the group’s costs dedicated towards investing in the new, with a lower proportion dedicated to maintaining the status quo. “The second task,” he says, “is to ensure that those resources that are discretionary, and therefore of an investment nature, are dedicated to the dozen or so key projects that will deliver the greatest medium- to long-term benefits.

“A third element will continue to be what I would describe as portfolio rationalisation or configuration. This is about acknowledging that the business we inherited nearly four years ago was a sort of mish-mash. The seeds had been somewhat scattered, on the basis that if a thousand flowers blossom then something will grow into an oak tree.

“Indeed, Reuters has one or two attractive oak trees in it. But that process has also arrived at the point where the portfolio has a number of nonstrategic assets in it which we are in the process of selling or closing, and we have a tail of activity still to do.”

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