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Presentation Krakow G.Schmitt 01.10.2010

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  • 1. How to Overcome the Crisis: Survival of the Fittest Turnaround Transformation of Segodnya Multimedia CJSC from Value Destruction to Value Creation Guillermo Schmitt CEO – Editor-in-Chief – Publisher Krakow, October 1, 2010
  • 2. Ukraine
    • Area: 603,700 sq km, (France – 547, 000 sq km)
    • Population: of 47 million
    • Capital: Kyiv, 3,5 million inhabitants
    • 5 cities with population over 5 million people
    • Average temperature: in winter -20°C and in summer 35°C
    • Average monthly salary in Ukraine: $ 310
    • Circulation per thousand 17, Russia 24, Hungary 171, Czech 175
    A Land Of Opportunities
  • 3. Daily Newspaper Audience-TNS
  • 4. Growth GDP UAH-USD Consumer Price Index Key Macroeconomic Indicators
  • 5.
    • 2006 The Internal Crisis
    • 2007 – 2008 Turnaround Actions
    • End of 2008 The External Crisis
    • 2009 – 2010 Turnaround Actions
    • 2006-2011 Crisis Produced by Technology
    • Sharing Ideas. Inspiring Change
    Which Crisis?
  • 6. The Internal Crisis 2006
  • 7.
    • No clear corporate strategy, mission, vision, nor values
    • Yellow tabloid, no clear differentiation with competitors except for full color
    • No edition on the Internet
    • Only one product, no local news in regions
    The Internal Crisis 2006 In this year Segodnya, a young 12 year old newspaper, presented a series of internal situations that together were destroying value and putting at risk its survival:
  • 8.
    • Low cost pricing strategy because no differentiation in content, 15% to 30% less cover price than competitors
    • Disperse organization of affiliated companies with no central direction and control
    • Negative profitability. EBITDA of - 57% over sales, clear indication of value destruction
    The Internal Crisis 2006
  • 9. EBITDA 2006
  • 10.
    • No training programs
    • HR function did not exist, because insufficient importance assigned to HR in management process
    The Internal Crisis 2006
    • Autocratic, and inexperienced leadership
    • Lack of adequate management in key positions, and top heavy structure
    • No management team
    • Low salaries, unlinked to performance
    • No management by objectives (MBA)
    • Generalized de-motivation
    • Widespread use of alcohol during working hours
  • 11.
    • Lack of understanding of customers and preferences, no market surveys
    • No comprehensive Advertising policy nor tools for selling advertising
    • Scant amount of advertising, 1 page per edition, most of it in black and white
    • No marketing activities
    • Insufficient points of sale in principal cities for distribution
    • Insufficient subscription for daily and TV supplement editions
    The Internal Crisis 2006
  • 12.
    • Dilapidated office building with 1/3 of space not used and 3 different newsrooms
    • Enormous technical problems in start up of second hand KBA Commander due to destruction of key control systems, and lack of skilled staff
    • In house development of IT Content Management System which was not effective nor efficient
    • Poor internal control and lack of Management Reports with dynamics of key performance indicators
    The Internal Crisis 2006 REPLACE IT!!!!!!!
  • 13.
    • Lack of confidence of investors in parent company regarding Segodnya
    The Internal Crisis 2006
  • 14. Turnaround Actions 2007-2008
  • 15.
    • Implementation started to convert Segodnya from “yellow” tabloid to mid market, quality, family oriented newspaper
    • Newsroom team enhanced Sports, Politics, and “how to” section. Also included subjects related to CSR
    • We started to become a market driven company
    Turnaround Actions 2007-2008
    • Team produced first strategic plan 2006 – 2010 which was approved by Supervisory Board
    • Hired Innovation Consulting to help:
      • - Eliminate yellow heritage
      • - Adapt content to readers needs
      • - Differentiate from competitors
  • 16. We defined Mission and Values that differentiates us from our competitors
  • 17. Turnaround Actions 2007-2008
  • 18. Turnaround Actions 2007-2008
  • 19.
    • Holding company was established to harbor affiliated companies, and to provide strategic management, and control
    Turnaround Actions 2007-2008
  • 20. Turnaround Actions 2007-2008
  • 21. Our MBA Team E ditor-in-Chief Circulation Director Financial D irector Director of Printing Plan Advertising D irector Business D evelopment D irector P urchasing and T enders Manager E ditor-in-Chief in New Media Director of New Media Deputy E ditor-in-Chief Marketing Director
  • 22.
    • Conferences, Exhibitions
    • Newsroom
    • Design
    • Marketing
    • HRM
    • Workshops on Soft Use
    • Sales of Circulation
    • Sales of Advertising
    • Languages (English)
    • Manager Skills and Leadership
    • MBA
    Educational Programs 2007-2010, (person/hours) Total (’07-’10) 46.525 MBA 14.112 Local progr. 29.627 Conferences 2.756
  • 23.
    • Training programs were implemented in Printing Plant
    • Retrofit of control system
    • Printing Plant Team was formed
    • Third party printing was implemented
    • Special program to reduce newsprint waste was implemented
    • Newsprint and staff productivity increased significantly
    Turnaround Actions 2007-2008
  • 24. Average Newsprint Waste Kiev Edition Manufacture 50%
  • 25. Newsprint Productivity Revenue per ton of Newsprint
  • 26.
    • Productivity of staff increased by 12% in between 2008 – 2009
    Turnaround Actions 2009-2010 Productivity of Personnel 2006-2010
  • 27. Turnaround Actions 2007-2008
  • 28. Paid Pages of Advertising per Issue 2005-2010 (on the average)
  • 29.
    • Segodnya
    Share by Income 2006-2009, (%) Komsomolskaya pravda Facty Source: Adex monitoring 25 43 32 2006 2007 36 38 26 2008 42 35 23 2009 51 28 21
  • 30.
    • Distribution channels were revised, and “street sellers” hired to improve number of points of sale. These now comprise 7% of our circulation
    • Important improvements in logistics originated a reduction in unreturned copies from 13% in 2007 to 8% in 2009
    • Circulation Team designed new aggressive subscription campaign which increased circulation significantly
    Turnaround Actions 2007-2008
  • 31. Daily Subscription September 2010 (copies)
  • 32. TV Subscription September 2010 (copies)
  • 33. Turnaround Actions 2007-2008 Market Share of Sold Circulation in Principal Cities of Ukraine 2006 – May 2010 Segodnya Komsomolskaya pravda Facty 40,5 36,5 23,0 2006 54,8 21,9 23,3 May 2010
  • 34. Turnaround Actions 2007-2008
  • 35.
    • Cutting edge technology for Editorial Content Management System was acquired from Atex and implemented
    Turnaround Actions 2007-2008
  • 36.
    • As a result of all these measures our total income increased by 153% in between 2006 and 2008
    • Advertising – 160%
    • Printing – 1.133%
    • Newspaper sales – 58%
    Turnaround Actions 2007-2008 Comparison Of Income 2006-2009 Newspaper Sales Printing Services Advertising Other
  • 37. The External Crisis – End of 2008
  • 38.
    • In the month of October 2008, when advertising revenue was at its peak, we decided to restructure the company, in anticipation of the consequences of the crisis
    The External Crisis – End of 2008 Advertising Revenue 2006-2009
  • 39.
    • The world financial crisis hit Ukraine in 2009, and GDP fell by 15,1
    • The only other country affected more was Latvia with 18%
    The External Crisis – End of 2008 Latvia -18.0 Ukraine -15.1 Lithania -15.0 Armenia -14.4 Estonia -14.1 Russia -7.9 Romania -7.1 Hungary -6.3 United Kingdom -4.9 Slovac Republic -4.7 Austria -3.6 Belgium -3.0 United States -2.4 France -2.2 Poland 1.7 Real GDP Growth 2009 (Annual percent change) Source: IMF
  • 40.
    • The real economy of the country was hit with lightning force
    • Unemployment rose sharply
    • Construction from 10 .496 .000 sq.mts to 6 .400. 000 in 2009, 37% decrease
    • Auto production from 400 .000 units to 65. 000, down 84%
    • Auto sales from 654.000 units to 175.000, a 68% drop
    • Retail turnover dropped 17%
    The External Crisis – End of 2008
  • 41.
    • The crisis had a devastating effect on the printed advertising market, on average it dropped 36%
    • Circulation of all printed media dropped by 45%
    • Numerous publications were unable to survive crisis and closed, including Telegraph Media Group and other foreign publications
    The External Crisis – End of 2008 DROP Car editions -63% Analytical editions -52% Business editions -15.0 Woman’s editions -14.4 Daily and weekly national editions -23% TV guides -15% Sport editions -13% Average -36% Advertising Market in the Period of Recession 2009 Source: Adex monitoring
  • 42.
    • In October 2008 the Segodnya team designed a “Survival Scenario”
    • Survival Scenario had objective of minimizing cash drain and had 3 components:
      • Revenue increases
      • Cost cuts
      • Investment cuts
    • Revenue increases included
      • Increasing copy prices by 75%
      • Increasing advertising prices by 10%
      • Defining a vigorous plan of attracting New Clients, which in 2009 accounted for 23% of advertising income
    Turnaround Actions 2009-2010
  • 43. Turnaround Actions 2009-2010
    • Cost cutting
      • Pagination was decreased by 25%
      • We downsized our staff by 35%
      • Branches were downsized and smaller offices rented
      • We closed Vechercom and Yours
      • We changed formats from broad sheet to tabloid in one of our affiliated companies
      • New suppliers were developed for newsprint
      • We started to use newsprint of 42 grams in a proportion of 50%, which reduced our costs
  • 44.
      • We cut practically all marketing costs
      • Training costs were minimized by eliminating outside trainers and replacing them by members of our own staff
      • We rationalized our distribution costs
      • We reduced circulation in unprofitable regions
    • Investment cuts
      • Cancelled US%16 Million project of installing a new KBA printing plant
    Turnaround Actions 2009-2010
  • 45.
    • As a result of these actions, in between 2008 and 2009:
    Turnaround Actions 2009-2010
      • Total revenue decreased only by 6%
        • Advertising…. -21%
        • Printing……… -29%
        • Paper sales… +17%
      • Total costs decreased by 36%
            • Direct . . . . . . . 31%
        • Staff . . . . . . . . 20%
        • Marketing . . . . 93%
        • Other .. . . . . . . 37%
  • 46. Turnaround Actions 2009-2010
    • Circulation revenue is up by 12%
    • Advertising – by 10%
    • Printing – by 10%
    • We continued to control and reduce some minor costs
    • We will break even by the end of year 2010 in our paper operations
    • We continued to invest in our digital operations
    • During 2010 there has been a weak recovery:
  • 47.
    • Segodnya was able to change in time to survive the Internal Crisis, and be flexible to adapt to the External Crisis, coming out of them creating value
    • On paper from -57% EBITDA, to about +10 in 2011
    Turnaround Actions 2009-2010 EBITDTA 2006-VALUE DESTRUCTION EBITDA 2011-VALUE CREATION
  • 48. Crisis Produced by Technology 2006-2011
  • 49. Crisis Produced by Technology 2006-2011
    • In April 2007 www.segodnya.ua was launched
    • Our ambitions were modest then: “We had to have an Internet edition”
    • First Internet news site had been launched 9 years earlier, www.korrespondent.net, which formed part of a portal Bigmir
    • Late 2008 we studied market seriously – our competitors, market, and ourselves in order to have a New Media Strategy, which was adopted
    • Our objective now was to “beat www.korrespondent.net in 3 years and become market leader”
    • An integrated Newsroom was implemented, journalists who work both for print and digital version, we assigned new Management to the site, and we outsourced our Advertising
  • 50. Crisis Produced by Technology 2006-2011
    • We have complied with our objective of becoming market leader in news sites 18 months before expected
    • According to independent market research agency, Gemius, in the month of May we became the Number 1 news site of Ukraine
    Ranking of Unique Users, Gemius. January – July 2010 Segodnya.ua Korrespondent.net Gazeta.ua Podrobnosti.ua
  • 51. Crisis Produced by Technology 2006-2011
    • We have increases of over 100% in the first 8 months of this year in comparison to 2009 (Google Analytics), superior to those of www.korrespondent.net
    Number of Users Number of Visits Page view
  • 52. Sharing Ideas. Inspiring Change
  • 53. Sharing Ideas. Inspiring Change – Peter Drucker INMA Conferences are about Sharing Ideas and Inspiring Change I thought maybe a bit presumptuous that you could have learned something up to this point of my talk I decided that Peter Drucker had more of a chance of inspiring you than me So in this final part of my talk I will try to tell you what ideas I took from him
  • 54. Sharing Ideas. Inspiring Change – Peter Drucker
    • Leadership is doing the right things and Management is doing things right
    • A Mission statement should fit on a T-shirt and be inspiring
  • 55. Sharing Ideas. Inspiring Change – Peter Drucker
    • Management is about human beings . Its task is to make people capable of joint performance , to make their strengths effective and weaknesses irrelevant
    • People will respond to a set of values and proven ideas and principles to produce unbelievable results
    • What differentiates organizations is whether they can make common people perform uncommon things
  • 56. Sharing Ideas. Inspiring Change – Peter Drucker
    • Results depend on the customer who decides whether the efforts of the business become economic results or waste
  • 57. Sharing Ideas. Inspiring Change – Peter Drucker
    • Profits are rewards for making a unique or distinct contribution in a meaningful area
    • Economic results are earned by leadership not merely competence
    EBITDA 2011
  • 58. Sharing Ideas. Inspiring Change – Peter Drucker
    • The CEO has to live the purpose, values and principles of the organization
    • The CEO nurtures and forms the organization’s personality
    • The CEO must do 3 things:
        • 1. Make the present business effective
        • 2. Identify and realize it’s potential, and
        • 3. Make it into a different business for a different future
  • 59. A Land of Opportunities For Print and Digital Media Ukraine
  • 60. Segodnya’s Management Team

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