Industry wide, American newspapers today derive an average of 17 percent of their revenue from digital. The Deseret News and Deseret Digital Media averages 45 percent, a little more than three years after former Harvard Business School professor Clark Gilbert took over the company.
How has he done it?
Gilbert laid out the principles behind his strategic model for innovating media businesses in two recent workshops that are part of the American Press Institute’s Transformation Tour. The tour is a series of 14 in-depth training sessions being held around the country that are also being developed into digital training modules with The Poynter Institute.
Gilbert developed his theories as part of his work with Harvard’s Clayton M. Christensen, the author of “The Innovator’s Dilemma” and employed the research to recalibrate the way Deseret is organized and does business.
Some wonder whether Gilbert’s ideas are translatable to other companies. Gilbert argues all of these concepts are relatable to media companies elsewhere.
We identify six core principles in Gilbert’s strategy, some of them difficult but he argues essential to successful transformation.
1. You must make digital a separate company
Across industries, only 9 percent of disrupted organizations ever recover, Gilbert’s work with Christensen found. Of those, 100 percent created a separate digital unit to take on the disruption. Not one company Gilbert studied succeeded trying to develop digital inside the existing company. Such correlations are almost unheard of in social science, he argues. Yet Gilbert says the evidence is so damning it’s “like arguing against gravity.” This is one of the concepts workshop attendees tend to push back on hardest. It is also one on which Gilbert refuses to bend. He even shows video testimonials from digital buyers who talk about how they discount sales staff who try to sell print and broadcast along with digital. A separate digital company won’t ensure success, Gilbert argues. It is “necessary but not sufficient.” Without it, he contends, overwhelming evidence suggests failure is nearly assured.
2. The transformation of a legacy company is really a dual transformation
Part of separating a company’s operations, in Gilbert’s thinking, is recognizing that you are conducting two transformations. One is the evolution of your legacy business — in the case of the Deseret News the print newspaper. The second is the birth of a new business that encompasses more than just digital advertising. Its divisions include, but are not limited to, e-commerce, marketplace services, digital consulting and other emerging revenue streams in which tablets, mobile and social are integral parts. The evolution of the print newspaper is Transformation A, in Gilbert’s thinking, while the simultaneous creation of a new business unit is Transformation B. The people in Transformation B think differently, talk differently and see technology as an unrivaled opportunity.
“You don’t get excellent from either if they’re integrated,” Gilbert says.
3. The transformation of the print newspaper — Transformation A — involves making hard choices, getting smaller and, just as importantly, getting better
Gilbert often refers to analogies from evolutionary biology. In the evolution of species, crocodiles managed to survive from the time of the dinosaurs to present day by becoming half their length, literally altering to fit their current conditions. In this same way, Gilbert argues, the legacy business has to become leaner, more efficient and more up-to-date in purpose.
For Deseret – and for other media organizations— this means, first, cost cutting. Trimming costs alone, though, is not transformation. To transform the legacy organization also means excelling in traditional sales channels like broadcast and print and, on the journalism side, focusing on content areas in which writers and editors can go beyond the work they once did. The Internet, Gilbert and others have argued, rewards sites that are superb at one thing. It tends to punish sites that try to be competent at many things, which, of course, was the model of the community newspaper.
At Deseret, Gilbert and his team used detailed research of the Salt Lake City marketplace as well as larger studies of the national and international audience to identify six core subject areas where its news division could not just improve but become world class. Those beats include: 1) values in media; 2) faith in community; 3) excellence in education; 4) strengthening the family; 5) caring for the poor; 6) and financial responsibility.
Some audience members at the Transformation Tour expressed skepticism that such a model could be replicated in smaller markets, or those not tied to a religion, as is the Deseret News, owned by the Church of the Latter Day Saints. Gilbert vehemently disagrees. Any publication is able to go through the process of uncovering natural advantages and unmet needs in their marketplace. For one newspaper that could mean bolstering coverage of a specific sport or sports team, for another more fully covering an industry that drives the region’s economy. For others it might be an issue such as the environment depending on the region and interests of people in the market. No matter the core subject areas, differentiated coverage allows the organization to distinguish itself and to allocate enhanced resources to those targeted areas of coverage.
4. Transformation B, which happens simultaneously yet apart from Transformation A, is the creation of new businesses and marketplaces
This new unit has separate staff, a separate physical space, a separate balance sheet of profit and loss, its own management structure and distinct content and product teams. Because this unit will be centered on digital, the content produced is different, appealing to the strengths and user behavior inherent to Web-based platforms. That means instead of more traditionally reported articles, the new unit’s content division focuses on such features as interactivity, user-generated stories, SEO-optimized selections, links to other sites, generated lists and posts by remote contributors and more made possible by digital technology. The sales side is populated with digital natives who, similarly, take the opposite of a traditional approach, pushing cutting-edge revenue areas that go well beyond selling ad units to long-time customers.
5. The relationship between A and B is challenging and can easily go awry if not aggressively managed
Gilbert describes the dynamic as a capabilities exchange between the two. The two sides meet solely to share resources and overall vision, not to combine into a hybrid model. Specific tasks that they collaborate on include crafting a unified mission statement, making core navigation decisions about the website and researching the entire customer base. Beyond that, in Gilbert’s model, interactions between A and B are limited in both duration and frequency.
The tendency is for A to “suck the life out of B,” Gilbert says, so top managers have to take great care to let each organization work independently. The legacy transformation will be the better for it, and so will be the new and frankly disruptive entity. If a spirit of competition rises between the two entities, Gilbert encourages fostering it so that each side becomes better at its core mission. Let the legacy organization make the traditional product great while the new business unit solely targets new opportunities that the traditional unit might even consider competitors. Ultimately it takes discipline and courage to keep the units separate. But it’s absolutely critical, Gilbert stresses. It is a point he makes repeatedly.
6. The magnitude of the disruption cannot be ignored
The bottom line for newspapers, Gilbert’s data show, is that the industry has shrunk and has no choice but to morph around that reality. In the 1950s, newspapers were a $20 billion annual revenue industry. At its height, a decade ago, the industry was a $60 billion business. However the industry is back to 1950 levels and needs to rejigger staffing and content decisions to match this. It’s simply impossible to be everything to everyone anymore. Doing so is a “choice to be mediocre,” in Gilbert’s words.
During the Transformation Tour, Gilbert’s charts show the three phases of Christensen’s disruptive innovative model and how the newspaper industry’s rise and fall aligns perfectly with the model. Phase one involves parallel growth for both the legacy industry – in this case newspapers – and the disruptive innovation. During phase two there’s uncertainty for legacy organizations and, often a final surge before phase three, at which point, there is steady permanent decline. Gilbert said undoubtedly the newspaper industry is in the midst of this third phase in which the disruptive innovation freezes all growth.
“Newspapers are still a multibillion dollar industry,” he said. But the growth is all on the digital side, most of it in new businesses.
Dena Levitz covers digital media and innovation for the Newspaper Association of America.