ZIFFPAGE TITLEThe Harrington Effect

By Rob Garretson  |  Posted 07-05-2005 Print Email

The Harrington Effect

Richard Harrington took over as CEO of Thomson Corp. seven years ago, after having served as president and CEO of Thomson Newspapers since 1993. In his five years running the newspaper group, Harrington continued to prune the portfolio, which had peaked in 1980 at nearly 200 dailies and weeklies spread across North America and the U.K., including Toronto's Globe and Mail, the Times of London and Scotland's the Scotsman.

The family-owned company had been in perpetual transition, casting about into wildly divergent businesses, whether it was expanding into Scottish television in the 1950s and 1960s, or exploring for North Sea oil in the 1970s. But newspaper publishing had always been at the core. Harrington, however, read the handwriting—or the newsprint—on the wall, and foresaw the impact of the Internet on a business already declining in profitability.

The explosive growth of the Internet, as well as the proliferation of cable and satellite television stations, was eroding the fundamental assets of newspapers from both ends of their double-sided customer base: readers and advertisers. In 1949, newspapers accounted for 40 percent of all advertising spending. Today, they account for just 18 percent, a trend that has only been accelerated by the Web. And circulation numbers have been in steady decline since the early 1990s, according to the Newspaper Association of America.

This shook Harrington's faith in the long-term prospects for newspapers, especially the regional papers that made up the bulk of Thomson's strategic marketing groups. At the same time, he and his management team realized that, in an economy increasingly driven by knowledge workers, some of Thomson's professional publications were well positioned to exploit the economic shift.

Severing ties to the company's tradition as a newspaper publisher was no easy task. But Harrington was supported by a Thomson family motto, "Never take a backward step," a vow reportedly issued by Roy Thomson after his 1934 purchase of the Ontario newspaper that proved to be his first profitable venture. Harrington was also supported by Thomson's board, which was then chaired by Roy's son, Ken Thomson.

Harrington convinced the board that a small number of the company's professional information businesses—such as the confederation of financial services under the Thomson Financial umbrella—could use proprietary technologies to transform the way information was delivered and integrated into the workplace. The 1998 sale of Thomson Travel was an obvious place to start divesting noncore businesses, even though it still provided roughly a third of the company's revenues. Over a six-year period, Thomson divested itself of more than 60 companies and 130 newspapers, most of which were sold near the peak of their profitability during the booming economy of the late 1990s. All told, Thomson raised an estimated $7 billion from the divestitures, which helped finance $10 billion in acquisitions of more than 200 businesses focused on the legal, tax and accounting, education, financial, science and healthcare fields.

Thomson is now organized into four divisions: Legal & Regulatory, Learning, Financial, and Scientific & Healthcare. Each group serves a distinctly different market but with the same overarching strategy of delivering critical information that—when in electronic form—can be integrated into the customer's workflow. The biggest, Legal & Regulatory, accounts for 42 percent of Thomson's revenue, generating nearly $3.4 billion in 2004. Tellingly, it now delivers two-thirds of its products and services electronically and only one-third in print. The second largest unit, Thomson Learning, with nearly $2.2 billion in 2004 revenue, delivered only 34 percent of its products and services electronically last year, and was also the laggard among the units with 2004 revenue growth of only 6 percent. In contrast, the fastest growing business in the stable, Thomson Financial, generated 98 percent of its 2004 revenue of $1.7 billion through electronic products, services and software. Even Thomson Scientific & Healthcare, the smallest of the four divisions, with only $934 million in 2004 revenue, delivered a healthy 81 percent of its products and services electronically and, consequently, is the second-fastest growing unit, with a 10 percent revenue increase and a 19 percent jump in adjusted operating profit in 2004.



 

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