Reuters in crisis

Ravi Madapati 
Faculty Member
Icfai Knowledge Center

Glocer’s challenge

Glocer, the first American and the first non-journalist to head Reuters, inherited in December 2000, what many believe to be a complacent organization where decisions were made very slow and had to go through many chains of command. In the first nine months of 2002, the company’s revenues fell by 7% to $1.4 bn^[1] .

Recurring revenues made up 90% of Reuters’ core sales and came largely from financial institutions, which paid monthly subscriptions to receive Reuters’ news and data. Banks and brokerages were canceling subscriptions as they slashed costs to cope with the biggest slump in stock markets for a generation. Investment banks alone, which contributed almost a third of core revenues, had eliminated about 100,000 jobs during 2001 and 2002. The number of Reuters’ information screens in the marketplace fell by about 17% at the end of December 2002.
Reuters unveiled 3,000 job cuts, as part of a three-year plan called “Fast Forward” to get the business into shape. The company had already laid off around 3,200 staff across the group during 2001 and 2002. The Fast Forward plan consisted of four key initiatives.

1. To make Reuters’ information absolutely indispensable to customers by building up content, analytics, trading messaging capabilities (what Reuters called community) and open technology platform.
2. To take advantage of global scale by moving to a single, scalable data distribution architecture, which was based primarily on the technology, Reuters acquired with Bridge in 2001.
3. To use Reuters’ next generation product and existing product obsolescence plan to develop a rigorously segmented product line.
4. To sharpen the focus on key risk management, content management and treasury solutions.

Reuters’ main goal in Fast Forward is to emerge as a player respected for financial data as it is for the news. Reuters also wanted to build on its strong platform of analytics and graphics to allow customers to use data for analysis and modeling. Around 87,000 clients already used Reuters Power Plus Pro to run their model on its data. The third building block was Reuters’ community building capabilities, the ability to trade, to communicate and to share data. Reuters announced it would withdraw from pure technology consulting and technology solutions that did not involve its products. These businesses generated revenues of about £ 40 mn in 2002. Even after all the restructuring, many analysts believed that Reuters’ core business of supplying financial information to the desks of City dealers, analysts and financiers would continue to deteriorate in 2003. Glocer predicted a 12% operating profit margin in 2003, before restructuring charges of about £160 mn. But many analysts believed he was being too optimistic.


 

UBS said^[2]:

“Given current market conditions and continued cost-cutting among Reuters’ clients, we believe that a pick-up in the second half of the year is likely to prove too optimistic.”

In 2002, Douglas Atkin, CEO of Instinet stepped down. Instinet, which made a loss in 2002, was under pressure as customers defected to cheaper online trading companies after the NASDAQ crash. The loss was a serious hit to Reuters’ finances. Instinet accounted for 22% of Reuters’ revenues in 2001, and 28% of operating profits. Glocer wondered whether Instinet made a good fit with Reuters at all. There were indications that Reuters could move away from the banking and financial community towards large corporations such as Unilever. Glocer believed that his company’s services could be sold to multinational companies and not just the banking industry. Reuters’ existing client base is mostly made up of investment banks, stockbrokers and other financial institutions that accounted for around 90% of its revenues.

[1] Fortune March 2, 2003, Deadline for Reuters.

[2] The Guardian, UBS Delivers Bad News On Reuters, February 14, 2003.

© Icfai Press. Global CEO • December 2003, All Rights Reserved.