Friday, March 4, 2005

Wolters Kluwer: The Transformers

It's not easy transforming a large diverse corporation. Like any change, the transformation process takes time and a delicate balancing of resources to maintain current revenue streams while investing in new products and services.

On Wednesday, Wolters Kluwer released its 2004 results, which showed substantial improvements over the previous year, but the overall top-line growth when stated in the most rosy terms (organic, net of exchange rate effects, acquisitions, and divestments) was only 1%. Without these adjustments, revenues for the year declined 5%.

Wolters Kluwer's chairman, Nancy McKinstry, who initiated a restructuring plan in late 2003 shortly after she was appointed to lead the company, has focused heavily on transforming WK from a publisher of static print and electronic products to a provider of end-to-end solutions that help their target customers become more productive in performing their job functions. As Shore affiliate Russell Perkins pointed out in his recent post, McKinstry illustrated her commitment to developing software-based solutions in her statement: "we have as many programmers as we do editors".

Indeed, it is refreshing to witness McKinstry's tight focus on providing solutions that incorporate a mix of content, software, and an understanding of their customers' fundamental objectives. By now, everyone who knows Shore, knows that this mix is what we call vContent and we fully support the efforts of publishers who are moving in this direction. But, the move to vContent requires balancing resources, including investments in new infrastructure, content assets, and key personnel with current operational expenses. Finding the right personnel may be the most difficult aspect. It isn't easy to find top executives who have the ability to lead operations that produce both quality content and produce, sell, and service effective software solutions. In its Health division, WK has moved quite dramatically toward hiring top execs with experience in developing large scale technical products and services (several from GE Healthcare, which seems to be the favored breeding ground for WK Health and Thomson Healthcare). These tech-savvy executives are certain to help WK keep their eyes on the future and help them move them toward their goal of delivering high-value content-based solutions.

However, investors won't allow Wolters Kluwer to ignore the here-and-now. Despite improvements in organic growth, WK lags behind Reed Elsevier and Thomson in top-line growth. Like other European-based global publishers, Wolters Kluwer is also hurt by the weak dollar. As we said, it's a delicate balancing act to transform a large company.
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