Long years as an observer of information and media marketplaces have underlined one critical finding: whenever you hear someone say they will never sell an asset, you should be thinking about the circumstances under which they will sell it. I have long applied this thinking to Pearson, or at least since the early days of Marjorie Scardino, since she was so evidently pursuing the meatstore strategy for portfolio decomposition. Under this strategy you first detect the core strategy, in this case the pursuit of education markets globally, and then subordinate the other holdings to that strategy, only investing in non-core where you wanted to ensure that asset values were maintained. Then, every time you needed to make a strategic acquisition, you reached into the meatstore and sold a non-core unit, allowing strategic expansion without heavy debt and encumbrance.
This strategy has moved Pearson from being a collection of brands inherited by Scardino from the family of Lord Cowdray into the largest global force in education markets. It has brilliantly funded strategic purchases like Wall Street English. It has enabled the move from education content to services and now to solutions. It will yet see Pearson emerge as a major global force in online schools and institutions as well as accreditation and content: in a networked world it will be possible to be both a solution, and a supplier to competitor solutions, and a traditional service supplier as markets mature at different speeds and distance or location become less important than measurable quality in educational outputs.
Yet, for all its size, Pearson is still a small player in a large marketplace. And the market is still not fully networked or global, but slow, conservative and locally prone to government spending reduction or cultural differentiation. The downturn in the US disrupted Pearson’s banker market at a time when investment in rest of world markets was the key focus, and slow recovery at a time when governments are getting wise to how to leverage outsourcing, especially in testing and assessment markets, has affected growth and reduced margins. For the first time it may be possible to say that Pearson is shedding non-core assets not to buy strategic positioning but to buy time to allow growth strategies to unfold. This is a new take on the meatstore strategy.
In one real sense the sale of the Financial Times to Nikkei and the currently projected sale of the Economist Group must be good news for all involved. While the Economist had always been managerially independent, the FT had the potential to be a distraction, both in terms of investment needs and managerial time. And the FT, one of the few newspaper groups in the world worth buying, like the Economist, is in part a truly consumer-facing venture. As Pearson has found as it moves into consumer end-user educational markets, the business of selling to consumers is different from institutions. And managing operations that do both is difficult. And indeed structuring the management reporting lines of global consumer/institutional sales and marketing alongside the need for both vertical and global IT strategies is a taxing one. Clearly the two major information corporations who drew on Deloittes in recent years to create global matrix management schema are only in the very earliest stages of getting this right. Increasingly managing process and change is becoming as great a disruptor as technology or markets.
And it could be argued as well that under Pearson’s management the Financial Times has accomplished the huge transition that was required of it, and emerged as a digitally-led business. OK, it’s not a very big nor a very profitable business, but the world must get used to digital information businesses being smaller, and taking time to build margins. Dropping costly print would help, of course. And in the age of automated journalism it may be over-manned, but in that case it has gone to the right home in privately-held, hugely over-manned Nikkei, who will have the patience to see the job through while respecting the tradition. As a bid to move Nikkei off its domestic Japanese base into global markets the move carries less conviction since this is a trick which few Japanese information businesses have managed, but it may be that this is an opportunity for FT management to continue their global brand building in a market where Dow Jones seems to offer less competition than it did in pre-Murdoch days.
Back at Pearsons too, the ball is clearly at management’s feet, since they cannot plead lack of resources once they have completed the disposal of the FT and the Economist, and only have their minority position in Random House Penguin left in the meatstore (though arguably that deal could not have been done without the retention of that stake, so this may not be an active asset for the time being). Can they find an answer to ongoing tests market issues in the now hugely competitive US market (note the sale of the service side of California Test Bureau by McGraw-Hill Education this month). Can they sort the growth prospects in Latin America and make sense of those difficult trading economies? Can they re-align western Europe and exploit the private education potential there? Can they still grow rapidly in China while getting into smartphone dominated markets in India and elsewhere in the region? And all this at speed, using English language learning as a spearhead but not as the sole destination? Well, they have the management talent, though they may not yet have the configuration to make it gel. And they have the technology, though they need to be able to concentrate it on uniform platforms that allow rapid new product iteration. And now, sans FT, they have removed the distractions. The next year is thus critical.