Nearly a year ago, Nancy McKinstry moved from New York to the Netherlands to take over as chair of the executive board of Wolters Kluwer, the company that owns CCH and Aspen Publishers. Her title, equivalent to the position of CEO in the United States, puts her in charge of a multi-billion dollar operation with more than 20,000 employees, and makes her one of the most powerful women in the professional tax and accounting market. It also puts her in command of a company that is trimming almost 1,600 workers and trying to slash costs by about 290 million over three years as it changes from a holding company to an operating company.
McKinstry met with WebCPA in August to discuss her progress in her new position.
How would you grade yourself on the first year?
We are encouraged by the progress we are making on our strategy. The way I think about the progress is against the three strategic goals we have. These are to invest in growth around our leading positions, to restructure the cost base, and to reorganize to get closer to the customers. We are tracking well against all of those dimensions. Our cost savings is running ahead of schedule.
I think one of the things that is very encouraging is that the management team has come together behind the strategy. As we evaluate our own operations internally, we can see more of a change in how we operate ourselves in terms of faster decision-making, given that the division CEOs report directly to myself and for the first time the divisions are really integrating the businesses. There is more cooperation between the divisions, which there historically had not been.
When you say that the CEOs are reporting to you, how does that differ from past practice?
Previously each board member had a portfolio, and while we were each responsible for the portfolio, it was not the same degree of authority and control over the operations because the portfolios shifted quite a bit. You might be the owner of education today and in a year you’d be the owner of health or another division. It was viewed more as the collective responsibility of the board. Now, we’ve moved to a CEO model, more similar to how 99.99 percent of the companies in the world operate.
Was that model peculiar to Wolters Kluwer or was it a Dutch business model?
It was a Dutch model. Many of the boards operate as a collective. We are still active in terms of discussion about the long-term strategy of the business and about acquisitions. But the operating control is more centralized and we are operating more in a hierarchical fashion.
Why did Wolters Kluwer need to change its structure?
From 1985 and 1986, it was largely a Dutch business. Now our Dutch business accounts for only 10 or 12 percent of our businesses. Wolters Kluwer began buying businesses from 1987 onwards. It was a big metamorphosis. That strategy made sense for a number of years. We bought family-owned businesses that were operating at relatively low levels of operating income. We integrated some of their activities in our core business and stripped out a lot of costs and used that cash to buy more companies. It worked successfully. We could drive up our EPS at 15 percent a year for more than a decade. But at the end of the 1990s, there were fewer companies to buy. Also, we had to invest to bring our companies into the Internet world. Those two factors, coming together on top of a very poor economic climate starting in 2001, meant that we had to change the course for the strategy of the business and to invest for long-term growth.
What are the key elements of that strategy and how is that different than before?
We are not buying as the only way to grow. We are investing around our market positions. And what’s different about that is we have gone through the portfolio and prioritized where we believe we have the best growth opportunities. Worldwide tax is one of the key growth areas, as are corporate and financial services, and health.
In the past, we operated the business as a financial holding company, which meant every unit competed with each other for capital regardless of what we thought were the inherent opportunities in our market position.
The second thing that has changed quite dramatically is that we are really integrating the businesses. If you go back five years, every individual operating company acted extremely decentralized and that was the way we wanted them to behave. There was no ability to share data centers. There was no ability to share customer information. Now we recognize as we move to deliver not just content, but software and solutions, we have to have more scale in the business and we have to get a lot closer to the customers. The only way you can do that is bring the units together and truly integrate the businesses.
How has this affected your CCH operations?
We had operated the tax compliance business and the tax research business independently. We have brought them together and we see benefits from how we serve our customers as well as the obvious benefit on the cost side.
CCH is a microcosm of the opportunity we see throughout Wolters Kluwer. A good example is in the legal sector. We brought CCH together with Aspen and they bought some pension libraries that exist in the online world. A customer looking at pension law can now easily link over to an expert author and a product on pensions. These two products existed for a long time, but we are selling brand-new customers these products because they add more value than either product delivered independently.
When you talk about operating on the Internet, what does that mean?
The Internet in its most basic form is a delivery method. We are going from dynamic content, content you can aggregate, to real applications. One thing the Internet has done is to reinforce among our customers that they want solutions. It’s not particularly efficient to go do a search and come back with 10,000 documents. It’s about all-around precision and taking that information and putting it in a form that they can use.
Although the company’s growth has been sluggish, the financial reports have noted that the tax and accounting operations have had a strong performance in North America. What's driving that?
It has been strong, particularly on the compliance side. The compliance business has difference characteristics than the research business. We have much higher retention rates. The product is essential to how accounting firms make money. Now that we are bringing the two units together, one of the things Kevin [Robert, president of CCH Tax and Accounting] and his team are looking at are ways to link the content side with the research side. This ability to integrate products is providing us with opportunities where you can really be someone’s sole source provider, which a decade or go was next to impossible.
The other trend we can take advantage of is the whole focus on productivity. All professional customers care about time and managing time. In the accounting field, it’s difficult to get experienced employees, so there is more focus on productivity. That creates the value around seamless integration. It puts the value around CCH as a provider of multiple applications.
Will we see more of the Wolters Kluwer name in this country, or will we continue to see names like CCH?
The brand equity is still at the local level, the CCHes, the Lippincott Williamses. What we are doing is beginning to create an umbrella brand around the name Wolters Kluwer, largely to help the investors and other types of constituent groups to see there is a connection. We won’t take the step that Thomson [the Thomson Corporation] did, where they spent tons of money to make a global brand. We are planning tactical efforts to build connections between strong local brands. We believe customers care more about strong local brands.
What different kinds of services do you plan on delivering?
I think one of the exciting things in the tax and accounting arena is the business outsourcing line. That is providing us with additional ways to add value to our customers. I think you’ll see us do more and more of these kinds of things as these opportunities emerge.
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