McGraw-Hill cuts new business-data trail
OUT on the high frontier of what some futurists have labeled ``The Information Age'' is hard-nosed, down-to-earth Joe Dionne, a man serious enough about the information revolution to turn his highly profitable company inside out. The old adage ``if it ain't broke, don't fix it'' clearly doesn't do much for Mr. Dionne, who has pushed and pulled McGraw-Hill Inc., a monolithic $1.4 billion publishing giant, through a major corporate reorganization.
``The logic is very clear -- open up your system. Provide the information through whatever means can best get to the customer,'' Dionne, a former college professor and now McGraw-Hill's chief executive officer, told investment analysts in Boston recently.
Anyone involved in, or simply interested in, business and finance knows McGraw-Hill by its many publications and services. Business Week magazine, Standard & Poor's 500 stock index and financial services, Data Resources Inc. economic data bases, and F. W. Dodge construction data top the list of its well-known products.
Along with Dow Jones and Dun & Bradstreet, McGraw-Hill is one of the ``big three'' purveyors of specialty information that rates, studies, and reports on business in the United States and, increasingly, around the world.
Since analyzing its operations and reforming its product-development process a year ago, McGraw-Hill has become a hotbed for innovative ideas that have spilled out into the market.
In Boulder, Colo., 157 personal computer owners recently hooked into a local cable television channel to receive a package of McGraw-Hill financial data. About 170 cable systems have joined McGraw-Hill in the venture.
In Boston this month, some 2,000 personal computer users began attending technology seminars and talking (not just corresponding by electronic mail) with one another via their terminals, thanks to McGraw's new nationwide Byte Information Exchange, or BIX network. For subscribers to McGraw-Hill's Byte magazine, the BIX cost includes a one-time fee of $25, with a $9-an-hour charge for computer time.
Most significant, however, was the September announcement by Citibank (the nation's largest bank) that it was setting up a 24-hour global electronic trading, information, and financial service for a range of commodity spot and contract markets. The plan: to feed banks' computer terminals around the world with McGraw-Hill commodity and other financial data.
``You will find McGraw-Hill information being offered not only by McGraw-Hill but by Mead Data Central or Merrill-Lynch or Dow Jones or anyone else that gets to a meaningful market,'' Dionne says.
``What we're looking for here is to be a multimedia publisher, but in doing that we're looking to offer the total solution. Whatever you require in the way of media to meet your problems, we are the one-stop shop where you can get it done.''
A tall order?
Reorganization according to the ``open system'' philosophy is a big step for McGraw-Hill -- and for Dionne. As company president, he must show that an expected dip in earnings late this year and possibly early in 1986 is an aberration due mainly to unusual market forces rather than the management shift.
Information industry observers generally applaud Dionne's effort to prepare for the 1990s, saying they expect stronger earnings through most of '86. They are encouraged by McGraw's appetite for buying up relatively small electronic information companies and services. And with each bite, they see McGraw growing stronger as it gets an ever bigger chunk of a fast-growing market with high profit margins. Security analysts also see debt-free McGraw as relatively undervalued, with a stock price only abo ut 16 times earnings.
The 97-year-old company began as a small magazine publisher, later merging with a book publisher. It began branching out in the '60s, purchasing several TV stations and other information services. Now, Dionne has said he intends to sell the broadcast division so as to add another information systems company.
``The restructuring makes sense,'' says First Boston analyst Kevin Gruneich. ``McGraw-Hill is often thought of as bureaucratic. It has given McGraw information leverage -- the process of increasing information output -- and increased profitability.''
``I think McGraw was very wise to restructure,'' says research analyst George Domolky of Fidelity Investments, a Boston-based mutual fund management company. He says, ``They've tried to broaden their scope to embrace all kinds of financial information businesses.''
Yet, what may be most important about McGraw-Hill's restructuring is not its short-term profitability, analysts say, but what its changed ways portend for the nation's business managers and the information industry itself. Whether they know it or not, many corporate managers depend on McGraw-Hill's massive information base for at least some decisions.
Right now the company is making an intensive effort to coalesce its diverse information sources, then edit them to fit specific packages. The idea: Get the customer the right information at the right time to make the right business decision.
``They [McGraw-Hill] have taken a look at the information flow and identified the valuable parts in it,'' says Peter Keen, a former Massachusetts Institute of Technology professor, now an information technology consultant. ``They have found that what's important is not just the information, but the editing of it.
``Internally, they understand the information culture as well as anyone. They've been selective in their acquisitions. They've found the right partners [for joint ventures]. It's nicely positioned.''
To do that, ``we had to turn the company sort of inside out, from product-related to more market focus,'' says Michael Porter, author of ``Competitive Advantage'' (Free Press, 1985) and a professor at the Harvard Business School. Mr. Porter was a consultant to McGraw-Hill from 1982 through 1984 and a key player in the overhaul.
``We certainly were setting out to create some new rules for competition in the information industry. . . . The idea was to take DRI and break it into parts, which then would be attached to McGraw-Hill units serving different market areas. There's a unit around financial, health care, and so forth.''
Joseph Kasputys, McGraw-Hill's executive vice-president for development, says the company has followed Porter's ``value chain'' theory by identifying value in various company operations, such as information collection, processing, storage, transmission, and selection by customers.
The company has also set up 18 market-focus management teams to target end-user markets and services such as construction, banking, transportation, health, legal, and education.
The principal aim was to see where a competitive advantage could be gained, either through greater efficiency and lower cost, or through product differentiation. Right now the focus is both on delivering value-added packages of information and on cutting production costs, Mr. Kasputys says.
``We identified product platforms where we could gain economies of scale by centralizing our operations in an effort to become the low-cost producer,'' he says.
A few operations centralized under the restructuring are circulation management; computer conferencing; videotex (sending and receiving data and graphics); full text retrieval; on-line networks for financial, construction, and commodity data; magazines; books; and direct satellite broadcasting (such as the cable television linkup).
``It was done in response to our long-term vision of where the market is going,'' Kasputys says.
``Users want a totally integrated information system. They want somebody out there to put all the pieces together for them.''
Where is the market going? And where does all McGraw's restructuring leave it in relation to the competition?
Most analysts identify Dun & Bradstreet and Dow Jones as the preeminent business information companies competing in the mammoth and rapidly growing $10 billion to $12 billion business information market. IBM, Reuters, and AT&T are also in the game, competing with McGraw-Hill, Dow, and Dun & Bradstreet to swallow as many promising small information companies as possible to strengthen their positions.
``I think one thing you ought to look for in McGraw-Hill and other information providers is that a lot of our industries are becoming global industries,'' Dionne says.
``Those that don't take advantage of it are going to have a short future.''