“We’re Moving Faster Than I Would Have Thought”
In our interview, Bertelsmann Chairman and CEO Thomas Rabe talks about the genesis of the new Bertelsmann, the Group’s investments in growth and its restructuring as a marathon.
Mr. Rabe, what was the starting point for the new Bertelsmann?
In the first half of 2012 we systematically reviewed Bertelsmann’s strategic direction. Our taking stock led to an intensive strategy process, the results of which we presented at the Management Meeting in September 2012. In essence, we agreed to transform Bertelsmann and restructure the Group along four strategic priorities. Now, less than four years later, the foundations of the new Bertelsmann have been created on this basis – as a company on three pillars, with eight divisions.
Bertelsmann was already very profitable, so you launched this strategy process from a position of strength. That doesn’t sound like a natural or typical motivation to reinvent a group.
Nor did we have to do so. Bertelsmann is one of the oldest media companies in the world. It has a well-established corporate culture that has grown over time, and a reliable ownership structure. All this is also part of the new Bertelsmann. But there were things we wanted to improve.
First, we wanted to increase the proportion of high-growth businesses. Second, we wanted to accelerate the digital transformation of Bertelsmann – digitization is the most important megatrend. Third, we wanted to strengthen our footprint in the world’s growth regions – our portfolio was too heavily focused on Europe.
Faster growth, more digital, more international: What have you done to achieve these goals?
Our four strategic priorities were decisive for the transformation of Bertelsmann: strengthening our core businesses; transforming them to digital; establishing and developing growth platforms; and promoting the regional expansion of our businesses. We have developed our businesses accordingly, withdrawing from structurally declining ones and building new ones.
What effect has this had?
For one thing, it is reflected in our breakdown of revenues: In the past four years, we have increased the share of our growth businesses in Group revenues from 20 to 28 percent. Conversely, in 2015, structurally declining businesses contributed only 5 percent to revenues – compared to 16 percent in 2011.
And for another?
We have continued to evolve our businesses and portfolio – and Bertelsmann has changed visibly in the course of this. Now, we are reflecting this evolution in our structure. Looking forward, Bertelsmann will be comprised of eight divisions around the three pillars of media, services and education. In addition to RTL Group, Penguin Random House, Gruner + Jahr, Arvato and Bertelsmann Printing Group, there are now BMG, the Bertelsmann Education Group and Bertelsmann Investments.
Can you go into greater detail about what specific changes you have made the past few years?
Let me start with our media businesses: RTL Group is Europe’s leading entertainment network – and within less than three years has become one of the four leading international providers of online video. By combining Penguin and Random House, we created the world’s largest trade book publisher. We have completely taken over ownership and strategically realigned Gruner + Jahr. And as for our new music business BMG: while in 2012, BMG was still a relatively small company, today it is number four in the music rights market, and is 100 percent owned by Bertelsmann.
What pillars are there besides media content?
Bertelsmann’s second pillar is services. This includes Arvato, where we have further strengthened the entrepreneurial autonomy of the Solution Groups and accelerated the decision-making processes with a new organizational structure. Also, the Bertelsmann Printing Group began operation on January 1, 2016. It pools all our offset and gravure printing operations into a single unit for the first time, to form Europe’s largest printing group.
That leaves the third pillar ...
... which is education. We have significantly expanded this area in the past few years – in particular, through acquisitions and investments in the United States. Demand for qualified educational offerings is on the rise worldwide. The global education market already has a volume of more than five trillion US dollars – and the number is rising. One key driver is digitization. Learning content taught digitally is not only much cheaper but also more effective in terms of learning success. We want to take advantage of this trend.
What segments are especially interesting for Bertelsmann?
We’ve built up a strong presence in the field of e-learning. Here, we are active first in healthcare training, through our subsidiary Relias Learning, and second in the technology sector, through our stake in Udacity. In the years ahead, we are especially looking to support both companies in their global expansion. Beyond this, we are developing the market of services for universities. Our shareholding in HotChalk gives us a good starting position here as well. These and several other activities have been combined in the Bertelsmann Education Group since September.
So that makes seven divisions in three pillars. What sets your eighth division, Bertelsmann Investments, apart?
In recent years, Bertelsmann has built a global network of investments in digital businesses. We are involved in some of the most innovative startups, particularly in Asia, but also in the Americas. We currently own stakes in more than 100 young companies. This provides us with valuable knowledge transfer and innovation scouting. The fact that our Bertelsmann Asia Investments fund bought more new shareholdings in 2015 than in any previous year demonstrates that our investment activities are a significant pillar of our corporate strategy.
The new structure now contains some divisions that were not called divisions a year ago. Does this not create extra complexity?
It increases not so much complexity but transparency, because Bertelsmann’s various businesses also will now be reflected in our reporting – incidentally, for the first time, in the presentation of our half-year results on August 31, 2016. Apart from that, our divisions continue to work in clear structures, with a high degree of entrepreneurial autonomy and responsibility, and of course with the valuable support of our Corporate Centers in Gütersloh, New York, Beijing, New Delhi and São Paulo.
What significance do you attach to the new structure as part of the Group’s ongoing restructuring?
It’s fair to say that the organizational part of the Group restructuring into eight divisions has been completed. We now go forward to the years ahead with this structure, and will significantly expand our businesses.
How far do you feel you’ve already come with this?
I’ve always emphasized that this task is similar to running a marathon. I now see us as more than halfway, which means we are moving faster than I would have thought in the beginning.
If you look back at the journey so far, what do you feel was most remarkable?
Quite aside from the Group’s restructuring, Bertelsmann’s creative achievements always fascinate me. I believe that there is no other company in the world that produces such a variety of creative content and offerings. With regard to our strategy, I’m particularly pleased that we have not only built a new Bertelsmann, but have also had some of the most successful years in our history on the way there. The fact that we managed this while the Group was restructuring is a great achievement, for which I would like to sincerely thank our employees. But we know very well that in a marathon, the second half is crucial.
What should or will happen in the future?
We will continue to systematically implement our four strategic priorities to make Bertelsmann an even faster-growing, more digital and more international company. Our growth businesses currently contribute 28 percent of Bertelsmann’s revenues; four years ago, this was 20 percent. Going forward, we plan to increase this proportion to over 40 percent. So we’ve already done a lot – but we still have much ahead of us!