When Scott Flanders took over as CEO of Freedom Communications Inc. last January, there was a pent-up desire to move the family-owned company in a new direction.
The company derived 97 percent of its $1 billion in 2005 revenue and almost all of its profits from the newspapers and television stations it operates, but customers’ news and information-consuming habits were rapidly changing. No longer was the traditional daily newspaper or 6 o’clock news broadcast the main source of information. Internet news sites and alternative publications were taking market share.
The company’s long-term prospects were at stake. With so much of Freedom’s revenue tied to what are generally declining markets, the company had to make some sobering assessments of its business model.
“Short-term performance would have continued to be strong, but the long-term position of the company would have gradually weakened as the long-term trends of our readership moved its time from print to interactive without the company investing into where they were spending their time,” Flanders says. “So over a longer period of time, as our audiences erode, advertising dollars would have migrated away from us, and the business would have moved into cyclical decline. What I’m trying to do is not run the company for a day or a week or a month but for the next generation of shareholders.”
For Flanders, the answers weren’t going to come out of his experience or from his thinking but out of the minds of the company’s employees. And the managers at Freedom Communications most of them below the senior ranks were Flanders’ greatest asset when it came to devising a new strategy to redirect the company.
“I think the No. 1 thing is to tease out of the organization where that organization believes it should go, to not assume that just because you’re brought in as a change agent that your ideas are the right ones or that ... just because you’re brought in, the organization doesn’t know where it needs to go,” says Flanders. “It just needs new leadership, focus and energy to unleash that.”
Flanders gathered a team of the company’s executives, those who had been identified as thought leaders, to hammer out the company’s new direction.
“The first thing I did when I came on board was [I] polled the executive team the top 50 executives, cross-divisional, multidisciplinary associates from around the company to brainstorm and bubble up ideas about what our future opportunities were and what the obstacles to achieving those were,” Flanders says. “I brought in a facilitator to help guide that team because I wanted to extract from the organization what it thought our future should be. I fully expected to have to bring in external consulting help to flesh out our strategy, but, in fact, the team had the strategy, and it just needed to be unlocked.”
Declare the future
While it was the group that would come up with the plan, it was Flanders who would provide the goal.
“I fundamentally believe that the job of leadership is to declare the future, and I set it up at the beginning,” says Flanders. “I stated that my vision for the business is that we obtain the leading share of audience and advertising sales in every market we serve by 2010. I wanted to make one bold statement, and I challenged them to process that statement, determine whether they agreed with it, and if they did, to spend 12 weeks laying out for me what that was going to take.
“I believe there are two types of knowledge, that which you know and that which you know how to find the answer to. What we tried to do is unleash that creative and innovative passion that our people have, make them understand that I’m looking to them for the answers, that it’s their responsibility. One of the things I said to them is, ‘I’m your leader, therefore, I must follow you.’ It’s my job to extract from the organization its best ideas. Where I contribute value-added is where I help provide the filter of prioritization and gain the board’s and shareholders’ support for resourcing those initiatives.”
While the process of gleaning ideas from the group of 50 managers yielded a robust field of possibilities, there were far too many to implement them all. Flanders says his role, while his knowledge of Freedom Communications was still limited, was to provide a filter for the concepts to determine which of them should be implemented first.
"They developed a comprehensive plan that, as we went through the financial filters and did a risk-adjusted cost-benefit analysis, some of the initiatives were rejected because they were too expensive for the potential benefit,” Flanders says. “And so we ended up with a few percentage points of lower growth, but at about $100 million less investment.”
To sort through everything, Flanders applied a simple concept.
“One of my philosophies is, ‘What’s the fastest way to money?’ and it has been a guiding principle for me,” says Flanders. “In every case where I’ve faced two options, two alternatives, and I chose the one that was more strategic than the other which meant it was less remunerative in the short term I’ve ended up regretting it. We’ve applied that filter because it aligns with my declaration of the future, which is capturing the leading share of audience and advertising dollars.”
The group came up with four areas where Freedom Communications should be investing its resources and capital: interactive ventures, making acquisitions in core markets, improving operational efficiencies, and focusing more on customers and less on short-term financial performance.
With the four areas identified, the next step was to take action.
Flanders says taking the initiative on investing in interactive was spurred by discontent in the ranks over the company’s sluggish activity in online ventures, a response to early ventures that flopped. The reluctance to enter online ventures cost the company dearly.
“Our interactive revenue is half of our industry peers’,” says Flanders. “The company has underinvested in the Internet over the last three years, which was a reaction to the company being an early adopter and losing money in ’99 and 2000, and then shutting down those investments in 2002.”
Flanders didn’t waste any time setting up an interactive group headed by its own president, with a target of staffing it with 57 employees in the next year.
“To me, in order to keep the momentum and to preserve the credibility that we’re going to act on their recommendations, we have to move,” says Flanders. “The challenge was that it wasn’t economically feasible to pursue everything that was teed up. Even if it had been, it wouldn’t have been realistic to pursue everything at once, so we’ve had to prioritize, forgetting the economics, and interactive was what everyone said had to be No. 1.”
When it comes to making acquisitions, Freedom looked to create a position of leadership in the marketplaces it serves. For example, in broadcasting, the company is following a strategy of creating duopolies, or establishing two stations on two different networks in markets where it already operates and divesting of properties where it doesn’t anticipate being the leader in audience share and advertising revenue.
To achieve operational efficiencies, the company looked at establishing buying power across all its properties.
Freedom was a company that was decentralized and had not benefited from the scale of the enterprise. It had 16 different medical plans and no centralized purchasing for anything other than newsprint.
In each case, the local properties, some as small as $10 million, handled all of their own purchasing for telecommunications, energy and office supplies. The strategy group recommended that the company seek ways to leverage its size to reduce costs.
“As we have a need to invest in advance of generating revenue, because much of building out of our strategy will require investment, this team believed correctly that there were tremendous efficiencies that we could capture in our enterprise that could be turned back into investments that would ensure our tomorrows,” says Flanders.
Focusing on customers
As part of its strategy to focus more on customers, Freedom invested $15 million to launch OC Post, a subscription-based tabloid newspaper, first distributed in August in Orange County.
"One of the things that emerged out of our strategy work is the biggest reason that our subscribers churn out is not because of the price or the lack of value, it’s just that they don’t have the time to read a full newspaper every day, and it annoys them when they pile up,” says Flanders. “That’s certainly not our entire audience, but those are the customers that we’re losing. So, it became clear in Orange County, our biggest market, which represents 40 percent of our profits, that we needed a second product because the existing Orange County Register is highly relevant it serves 300,000 households very well but there’s another 700,000 household that we’re not reaching.
“It’s already capturing advertising dollars, it’s already capturing audience, it’s aligned with our strategy. It’s increasing our presence in Orange County, where we’re already the largest advertising generator, but there was a risk of losing share because of the households that we didn’t capture with our core product.”
While it’s a sound strategic investment, Flanders says that making a commitment to a new print product sends a powerful and energizing message to the company’s 7,000 employees.
“You talk about how (to) maintain energy,” says Flanders. “Well, launching a new product in a world where everyone’s bemoaning the demise of newspapers sends the message that we’re going to be proactive. We’ve decided as a company that we hear all the challenges of print, but we believe a lot of those challenges are because print hasn’t remained relevant to the changing needs of its customer base.”
Flanders says that while the company’s willingness to invest in new initiatives is a prerequisite to its success, it would not have been possible to construct an effective strategy without the depth of talent at Freedom Communications. Money is cheap, but talent is invaluable.
“Financial capital is inexpensive in today’s efficient market,” says Flanders. “Rarer are talented people who are committed to success, and finding those and supporting them is how you generate outsized returns for your shareholders, creating an environment that attracts and retains those people, that supports their instincts about what your customers will respond to.”
HOW TO REACH: Freedom Communications Inc., www.freedom.com