By Ross InglisAs a long-time former employee of Thomson Reuters (over 14 years), I took little pleasure in seeing the changes announced last month. 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 organisation 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 organisation 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 excellence 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 sat in global mutual funds, according to ICI. 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 when 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? You’re 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% to 15% of the ex-Investment & Advisory business. The business is high-margin, low-cost and high-retention – why not focus on it? It’s 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 organisation along these business lines:
1. Global Financial Customers – global multi-service banks
2. Hedge Fund Customers – hedge funds and fund of funds
3. Investment Management Customers – asset management firms and mutual fund companies
4. Research & Advisory Customers – wealth advisories, private equity and venture capital firms
5. 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’:
1. Transaction Solutions – delivering order management, trading and market execution capabilities across all asset-classes
2. 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
3. Analytics and Tools – delivering next-gen analytics and tools including visualisation and quant tools for hedge funds, traders, as well as performance valuation tools for asset/portfolio managers,
4. Mobile Solutions – encompassing the next gen of applications and services for non-tethered users
5. 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 within the unit, yet flexibility to address unique regional needs; clear accountability for business growth or capability development; focus on alliances – both content and technology – to hasten time to market, improve acquisition returns and 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 centralising 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 and 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 on 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 Markets 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 is key to success. I believe my proposed changes could help further that alignment.