March 5, 2012

The Search for a New Business Model

Obstacles to Change: The Culture Wars

In our interviews, we asked executives to identify the biggest internal and institutional obstacle at their companies to forging a successful business model.

The response was nearly unanimous. Officials at 10 of the 13 companies said their biggest challenge was the continuing tension between people in their organizations who are advocating a more aggressive digital approach and those more aligned with the legacy tradition. In essence, they described a conflict between going faster and going slower. (One other executive didn’t cite this as a problem at his particular company, but said it was the crucial issue for the industry at large.)

In other words, there remains a continuing disagreement over how to proceed.

"Probably the most difficult thing is to change a corporate culture because you don’t really have the power to do it," noted one executive. "You can change CEOs, executive VPs, digital VPs. You can wave this magic wand all you want. But at the end of the day, the troops in the field hunker down. From our company, and I would venture for other organizations as well, the most difficult thing to do is change it. "

One cultural change that several newspaper executives spoke about was the need to centralize the decision-making in the digital age-shifting some of that power from the individual newspapers to corporate headquarters. This trend marks a significant change. Some of those newspaper companies had prided themselves on the autonomy given to local papers over news and sales.

"Years ago we were founded on the concept of decentralization," said one executive. "Now I would not say that….We are probably far more centralized than we were in the past."

Another executive who also said his company is growing more centralized explained that "newspaper publishers obviously still have autonomy in terms of the stories they cover. Sales is also mostly autonomous. From an operational standpoint, circulation, backend, systems, HR, and finance, all that stuff is being centralized."

The core cultural issue, executives told us, is the tension between the old ways and the new ways-and some of that stems from newspaper leadership that came of age in the days of monopoly newspapers and 20% profit margins.

"We haven’t needed innovative people," explained one executive. "So you get what you need. The kind of people that came into this industry were more operationally focused, executors instead of innovator risk takers."

Some of these cultural tensions may also have produced casualties. Several of the digital executives that we talked to in 2011 were no longer at their companies by the end of the year.

In interview after interview, the newspaper officials talked about this cultural clash, even if they sometimes used different ways to describe it. One executive, who stressed the importance of having digital talent working in every aspect of the organization said, "There’s a big difference between understanding the new media environment and comprehending what it takes to adapt."

Another said that there is some culturally engrained "inertia" at his company, people still clinging to the "this is the way we do business" ideology of the old days. In this executive’s mind, that attitude leads to denial of the seriousness of the circumstances facing the newspaper industry.

That sentiment about inertia was echoed by executives at other companies as well. One said the challenge at his company was "just convincing people that we can start making these changes without abandoning what it is that they know."

Another executive described much the same problem this way: His company had too many publishers with "ink in their blood" and too many sales directors steeped in the old days. He added that the newspaper business had changed substantially and that companies had to adjust their traditional ways of thinking. "You’ve got monopolies that are no longer monopolies."

Culture change is a huge issue for the industry, warned another official who added that it’s happening at a slower pace than people think.

At one company, an official colorfully described the challenge of implementing culture change across the organization as "a contact sport, one collision at a time."

One major reason why these collisions may still be occurring is that, despite all the travails, the print newspaper still provides the overwhelming majority of the revenue at every paper examined. Thus some of the resistance to change, executives acknowledged, was based on practicality. "We spend 90% of our time talking about 10% of our revenue," one said. At his company, he explained, they focused much of their energy on a digital model that still wasn’t paying the bills. 

John R. Kimberly, a professor of management at the University of Pennsylvania’s Wharton business school who was interviewed as part of the research, says these internal cultural tensions are "not at all atypical of industries that are undergoing disruptive change…The unhappy saga at Kodak, that’s a great example."

"The problem is not hard to understand at one level," Kimberly said. "You have developed a set of skills that have been valued and all of a sudden, this isn’t so valued anymore." The pace of change at each news organization, he said, will largely depend on "who are going to be the leaders and who are going to be the followers."