Reuters in Crisis

Authors

Authors: Ravi Madapati,
Faculty Member
ICMR (IBS Center for Management Research).

Links

Free Resources,
Articles,
Book Reviews,
Interviews

Tools

Glocer's Challenge Contd...

The third building block was Reuters' community building capabilities, the ability to trade, to communicate and to share data. Reuters announced it would withdraw from pure technology consulting and technology solutions that did not involve its products. These businesses generated revenues of about £ 40 mn in 2002. Even after all the restructuring, many analysts believed that Reuters' core business of supplying financial information to the desks of City dealers, analysts and financiers would continue to deteriorate in 2003. Glocer predicted a 12% operating profit margin in 2003, before restructuring charges of about £160 mn. But many analysts believed he was being too optimistic.

UBS said⁵:

"Given current market conditions and continued cost-cutting among Reuters' clients, we believe that a pick-up in the second half of the year is likely to prove too optimistic."

In 2002, Douglas Atkin, CEO of Instinet stepped down. Instinet, which made a loss in 2002, was under pressure as customers defected to cheaper online trading companies after the NASDAQ crash. The loss was a serious hit to Reuters' finances. Instinet accounted for 22% of Reuters' revenues in 2001, and 28% of operating profits. Glocer wondered whether Instinet made a good fit with Reuters at all. There were indications that Reuters could move away from the banking and financial community towards large corporations such as Unilever. Glocer believed that his company's services could be sold to multinational companies and not just the banking industry. Reuters' existing client base is mostly made up of investment banks, stockbrokers and other financial institutions that accounted for around 90% of its revenues.

Future Outlook

By the end of 2002, it was widely feared that Reuters would issue a dismal forecast for 2003. Reuters underperformed a buoyant FTSE 100 continuously in early 2003. Although Reuters had not issued any guidance for 2003, analysts expected sales to fall by 10%. Reuters' major priority now is to implement the Fast Forward plan. Reuters also needed to improve its customer service. Another important priority was to launch next generation products starting with Reuters Knowledge⁶. Most of its products had been launched many years ago and there had been little product innovation. Reuters also needed to bring down its costs. Fast Forward is primarily about doing the right things in the short-term, to build up Reuters for the future. Whether Glocer would successfully implement Fast Forward or not is something only time could tell. Meanwhile, technology spending was at its lowest in many years. Glocer believed that launching cheaper variants of its existing business would bring the much-needed growth.

He also planned to build on Reuters' reputation for entering into equity research. He intended to position Reuters as a wholesaler of independent research. Transforming Reuters' culture from a stifling bureaucracy into something more dynamic and commercial remained a major challenge. Competition from Bloomberg and Thomson was increasing. The investment banking business did not look like it was going to pick up in the near future. Reuters had not faced such a bleak situation in its 150-year-old history.

5] The Guardian, UBS Delivers Bad News On Reuters, February 14, 2003.
6] Reuters Knowledge is a browser-based global information and analytics service specifically designed to meet the needs of investment bankers and research analysts. This product is yet to be launched as of June 2003.