Tuesday, August 9, 2011

Open Letter to Geoff Beattle, Tom Glocer and Bob Daleo

With the dramatic changes at Thomson Reuters and a long time former employee who still has a soft spot (must be my Canadian ties), I thought I'd offer my advice to the senior executive as they assess what to do next with the firm.  I'm not going to name people here or offer my opinion on who is best for which roles, but simply to offer a possible organizational structure for the new Financial Professionals and Marketplaces group.  As always, comments are welcome - enjoy!

As a long-time former employee of Thomson Reuters (over 14 years), I took little pleasure in seeing the changes announced last week.  It has been a difficult period following the acquisition of Reuters by the Thomson Corporation and it has not been made any easier by upheaval in the world's financial markets and economies.  However, change to the organization was necessary to meet the changes in Thomson Reuters customers and the marketplace since April 2008.  I have no skin in the game, as it were, and speak only as someone who hopes to see Thomson Reuters continue to grow as an organization and reach the potential we all saw in the days following the acquisition announcement.  With that in mind, I humbly propose the following changes and formal structure for the new Financial Professionals & Marketplaces group.
  1.  Create a unit focused on top global investment, multi-service banks.  Banks have grown increasingly complex and as a service provider, Thomson Reuters needs to dedicate focus to them.  Institutions like Goldman Sachs or UBS are not only global, but have investment banking, asset management, wealth management, prime brokerage and prop trading groups.  Trying to serve them with a Chinese menu of services from a number of sales and business unit groups makes no sense.  Address it.
  2. Unify the Research portfolio.  Research is a transactional business now.  Sell-side, buy-side and independent providers need better end to end management of the research services they offer and consume.  New issues of compliance and readership liability need to be addressed for this market.  Further, a more sophisticated retail class is looking for more insight and an opportunity to invest in thought leadership, based on editorial excellent exists.  Merge the Investment Banking and Investment Research groups dealing with research and address it in one capability.  Having it fractured creates chaos and competing motives.
  3. Hedge Funds are unique - treat them as such.  A good move was enabling the Enterprise group and Sales & Trading to work together to deliver a hedge funds trading service.  Put  the quantitative capabilities from Investment Management (including Starmine) and from S&T to create a group focused on Hedge Funds.  Follow that by moving out all direct customer datafeed services into the new Enterprise group.
  4. Mutual Funds are a big enough business to stand on their own.  At the end of 2010, approximately $16 trillion dollars according to ICI sat in global mutual funds.  Consolidating your view of mutual funds allows you to both deliver into the US market as well as address international opportunities (Islamic Finance funds, BRIC funds), and be flexible enough to look at strict asset-class and multi-asset class funds holistically.  As well, consolidating allows you to integrate front and back office much more effectively leveraging assets within existing Sales & Trading, Investment Management and Wealth Management groups.
  5. Merge the M&A and Deals activities into the Professional group.  M&A is not a financial activity - it is a legal activity.  Underwriting and lending are legal activities.  Move the unit to the legal businesses, specifically the newly formed US Law and/or Business of Law units.  The Financial unit competes with Lexis Nexis, OneSource and other nascent legal competitive offerings, so move the entire business to compete more aggressively
  6. Don't Sell Risk Business - Sell Corporate Services.  At a time with management of risk is becoming the key issue thanks to Dodd-Frank, you want to sell the business?  Ask yourself this -  are the businesses of corporate investor website hosting, web-casting, corporate communication services and business intelligence services really businesses you ought to be in?  Your better served leveraging your data through the Enterprise division than trying to build tools and services outside your main business.
  7. Get serious about your alliances business.  Third party data distribution constitutes about 10% of the ex-Investment & Advisory business.  The business is high-margin, low cost and high retention - why not focus on it?  Its not the threat to your desktop business as many insiders would let you believe.  Ask the customers - they love this business and would want you to do more here.  Carve a separate unit to show dedication.  Your customers will respond positively - and your competitors will hate you.
 The result of these changes would be an organization along these business lines:
  • Global Financial Customers - global multi-service banks
  • Hedge Fund Customers - hedge funds and fund of funds
  • Investment Management Customers - asset management firms and mutual fund companies
  • Research & Advisory Customers - wealth advisories, private equity and venture capital firms
  • Strategic Alliances - in-bound and out-bound content and technology partnerships for the desktop and support market transparency
As well, you will need a horizontal group addressing the various functional needs from a desktop/workflow solution stand point.  Within that horizontal, have the following 'capabilities':
  • Transaction Solutions - delivering order management, trading and market execution capabilities across all asset-classes
  • Risk and Compliance Solutions - delivering the next gen of risk and compliance solutions for the front office while supporting back-office needs thus unifying the two groups
  • Analytics and Tools - delivering next gen analytics and tools including visualization and quant tools for hedge funds, traders, as well as performance valuation tools for asset/portfolio managers,
  • Mobile Solutions - encompassing the next gen of applications and services for non-tethered users
  • Collaboration Solutions - providing next gen collaboration tools for buy and sell-side collaboration, intra-company communications and collaboration including research access, control and distribution across all sources and consumers
The result is a simplified business with clear focus; capabilities become 'shared services' to be leveraged by each business unit; central management of the strategy sits firmly within the unit, yet flexibility to address unique regional needs exists; clear accountability for business growth or capability development is set; focus on alliances - both content and technology - to hasten time to market, improve acquisition returns and meet customer needs.

With these changes, the existing business lines are broken down and reformed in clear vertical stacks, allowing sales and the business unit to be aligned on customer types.  Further, instead of separating front and back office in some customer groups (as today's hedge funds are for example) the business can take a unified view on delivering end-to-end solutions.

Enterprise Solutions can focus on its core competency - data management and distribution - and can seamlessly fit with the new desktop alignment for all customer types.  Further, by centralizing the alliance business within the new desktop group, commercial and alliance strategy can be meshed with each desktop unit, thus addressing potential channel and revenue conflicts.  Enterprise can continue to focus on data management, distribution alliances to further build out their core capabilities.

These changes will mean selling off the Corporate Services business.  The web casting and corporate communications business would have a number of potential buyers (Cisco & PRNewswire come to mind) and the investor website hosting and IR desktop business would draw interest from exchanges as well as number of niche web site providers

The business intelligence portion of the Corporate Services business, is in a highly competitive market.  Competitors such as InfoGroup, Jigsaw (backed by Salesforce.com), Dun & Bradstreet/Hoovers and ZoomInfo on the information side and Business Objects, Cognos/IBM and Informatica from the technology and tools side, not to mention the hundreds of niche players, create a very crowded market for Thomson Reuters to operate.  A better strategy would be through building content-based alliances to fill gaps in coverage by the other information players or fuel the advanced tools the technology companies offer, rather than trying to deliver packaged application solutions.  

Another change would be to break the current Sales & trading structure to merge into these new business units.  With a more focused horizontal capability group delivering transactions and connectivity solutions, each segment can easily incorporate those tools as best serving their customers.

The final change, would be moving the support of solutions for mergers, acquisitions and underwriting (deals) to the legal business.  Although not trivial, the expertise of the Legal business in addressing this unique workflow will allow for new solutions around deals (such as virtual deal and clean rooms) to be incorporated into a law firm's overall business.

This is my view based on the current state of the Market group's customers.  As we've seen, events can lead to significant changes to how customers operate and are structured.  Thomson Reuters remains a strong brand with valuable assets, but aligning those assets are key to success.  I believe my proposed changes to help further that alignment.


One final personal note - two former colleagues of mine passed away over the weekend.  One, Peter Jackson, died suddenly on August 5.  The other, John McHugh, suffered a massive stroke a couple weeks ago and passed away Saturday afternoon.  

Both were gentlemen in every sense, never speaking harshly of anyone and always offering to help a colleague.  Both had a willingness to learn and expand their knowledge.   I had the pleasure of working with John for a number of years and I'm glad I did.  Peter, was a mentor, helping me with my first blogging attempt while still at Thomson Reuters, challenging me to push boundaries.  I am a better person for knowing them both.

Join me in keeping our thoughts and prayers with both men and their families as they cope with their tragic losses.

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Monday, August 1, 2011

2011 - Check In on Predictions

August 1 - can it be the summer is nearly gone and the year over half way gone?  It is true and as a result, I thought I'd take a look back on my 5 fearless predictions for 2011  and see how I've done.

Prediction 1 - Organizational Shake up at Thomson Reuters.  I guess I got this one right.  After one minor adjustment in February, the much needed shake happened just a couple of weeks ago.  More changes are sure to follow as the Woodbridge team look deep into the organization.  Whether the changes turn around lack-luster performance in some of the units remains to be seen.  We'll weigh in once more becomes available.

Prediction 2 - Factset expands into Investment Banking with more gusto.   Ok, I guess Factset hasn't done much here.  In reading through their quarterly releases, sell-side business has been 18% of new revenues since early 2010.  They remain arguably the choice desktop for portfolio managers and researchers and continue to make in-roads within M&A functions.  However, if they did more to tie the buy and sell-side together through research and advisory tools and collaboration, they could hit 20 to 25% growth.  For now, this is a miss, but to reach a billion dollar company, diversification of their portfolio of products is needed and Banking makes the most sense.

Prediction 3 - InfoGroup enters into financial services.  This might be a 2012 actuality as opposed to 2011, but signs are there.  The company, under Clare Hart, has sold off a couple assets and Gemma Postlethwaite has brought on board ex-Thomson Reuters I&A content strategist Christian Ward, who's work in the financial data space is well known.  With the pending changes at TR, I would expect Ms. Postlethwaite and Mr. Ward to poach a few former colleagues for InfoGroup to set the stage for an aggressive 2012.

Prediction 4 - Market data accelerates to the cloud.  Well, this one was true, and as expected it wasnt a named vendor but an exchange that set the bar.  NYSE Euronext made a couple announcements the first part of the year which showed the exchanges commitment to the cloud as a technology solution for the industry.  In particular, their announcement of a "Community Platform" in cooperation with VMWare and EMC.  As I noted in this research report in partnership with Saugatuck Technology, this move has tremendous upside for customers and NYSE.  Will more exchanges follow NYSE's lead?  It remains to be seen.  As for vendors, they seem to be lagging well behind.

Prediction 5 - Apple acquires Salesforce.com.  This one hasn't happened (yet) but it still remains appealing.  As noted by Business Insider, Apple has over $76 billion in cash on its books, more than the US government at the time of this post.  Saleforce.com market cap is only $19 billion.  Apple hardware and Salesforce.com software/platform make an ideal combination for the enterprise.  Salesforce.com's annual conference is scheduled for August 30 to September 2 and each Dreamforce they have a major announcement.  What will this year's be?

Of the 5, 2 have been correct, 1 is leading to be correct and the other two are still out - not bad.  With another 5 months to go, here's hoping I go 5 for 5.
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