Most people know Wolters Kluwer as a publisher. But the disappearance of traditional business models has prompted the company to transform and focus on digital products.
Wolters Kluwer scores highly in Accenture's high performance business survey. Originally a Dutch publishing house, the company made a clear choice and focused fully on its digital transformation. Currently, 80% of its revenues come from digital products and 20% from print – the opposite ratio compared to ten years ago. This has led to savings and a structural focus on new products. CFO Kevin Entricken explains what he sees as the most important future strategic areas for attention, the role of innovation, the importance of emerging markets and how he sees Wolters Kluwer ‘s position compared to its direct competitors and major information providers such as Google. He also sheds light on what all this means for the agenda of the CFO in the coming years.
“And I hope that we can also contribute a little to a better society.” The down-to-earth American CFO Kevin Entricken ends a passionate plea for the role of software in health care. He is a real CFO, quoting figures or percentages with ease, though he seems mostly driven by his enthusiasm for the products Wolters Kluwer is working on. “If we had stuck with print, you wouldn't be sitting here today.”
Wolters Kluwer scores exceptionally well in the High Performance Businesses survey. What caused this, and what were the most important breakthroughs in the struggle to transform into a truly digital company?
“The main driver behind the innovation in our business is the fact that the needs and business models of our clients change. Take for example, healthcare, one of our most important divisions. As a result of the aging population, demand for healthcare is growing and at the same time the number of doctors and nurses graduating is decreasing. This development represents a big opportunity for us. Our expertise in healthcare and the way of working in this sector enables us to develop digital solutions, such as software, that medical specialists need to make more efficient diagnoses.
We see a similar development with tax and accounting consultants. I recently saw figures from a sector organization in New Jersey, showing that 75% of its members will retire over the next ten years. The increase in new members is not large enough to close that gap. This is why accountancy firms have to focus on greater efficiency in the future. “
The changes Wolters Kluwer went through were quite rigorous; how has this affected the structure of your organization?
“It's fair to say these were dramatic changes. Compared to ten years ago, when I started at Wolters Kluwer, we not only have more programmers and software developers than editors on the payroll, we have also overhauled our [organizational] structure. Wolters Kluwer used to be a group of strong brands that largely drew their own plans. Today, our company's organization is structured along the lines of our customers, who mostly work in the segments health, financial, tax and accounting, and legal.
We centralized new product development in several areas. Software, digital platforms and the like are being developed centrally and then rolled-out throughout the organization and adjusted to make them relevant to the local situation. The most important change, after ten years of transformation, is that we no longer just sell information, but rather software, service and solutions for professionals.
These professionals are no longer sitting behind their desks but are on the road. This is why our products and services must also be available in mobile versions; mobility first and software in the cloud. Our customer service must be continuously available, and if there is new regulation, new legislation or a scientific breakthrough, these must be immediately available online.”
How important have acquisitions been to this new organizational structure?
“Both acquisitions and investments have been very important to our portfolio. Over the past 10 years, we spent approximately US $900 million on acquiring companies, but also sold divisions for around 800 million. Acquisitions to us are an important means to enter new markets, like we did in Brazil. Thanks to the acquisition of ProSoft Technology, we now have experts who have excellent knowledge about the market and can bring our expertise and products to their clients. This has proven to be a very successful strategy. We take a similar approach in China. There, we acquired Dingxin Chuangzhi, an auditing-software specialist.”
You mention two emerging markets. How important are these to the future of Wolters Kluwer?
“Very important. Their demographic developments offer major opportunities for us. Healthcare is improving, standards are becoming stricter and demand for specialists and for our products is increasing. As the economy grows, demand for financial experts increases. Regulation is becoming stricter, which requires more from professionals in terms of their knowledge. Our products can help with all of these trends.
Brazil is a separate story. It has one of the most complex tax systems in the world. And where things are complex, there are opportunities for us. We can help our customers navigate these new rules and solve their problems.”
How do you balance local and international? Many products are being developed centrally, but not rolled-out centrally. How do you do this?
“The tax system in Brazil is different from that in Austria or the Netherlands, but the way a tax advisor, lawyer or doctor works is very similar. We develop one search engine, e-reader or digital platform and then every country can load it with relevant content. This is the big advantage of our global scale. That is where we generate our profit and differentiate from our competitors. “
What do you see as the major cornerstones of the growth strategy for the next five years? How will Wolters Kluwer continue to distinguish itself from competitors and newcomers in the information world, such as Google?
“Our strategy is based on three pillars: we invest in the divisions that show the fastest growth and where we can realize the highest margins. These are: tax software, accountancy and clinical solutions for hospitals. These show strong growth globally, so we invest in them. The second pillar of our strategy is going mobile. We make information and solutions available to professionals where and when they need them. The third pillar is efficiency, and there we still have something to gain. Every euro I can save on a back office application, I can invest in new solutions for our customers. “
But how do you differ from direct competitors such as Thomson Reuters or RELX – formerly known as Reed Elsevier – in this regard?
“What we have in common is that we all want to resolve professionals’ problems. But we do this in different markets. We see great opportunities in clinical solutions and there we are well ahead of our competitors. There are companies that have strong positions in certain regional legal markets, for instance, but we are the only one serving legal professionals across the entire world.”
What opportunities do you see for the near future? What changes can we expect to occur in digital information services in the coming years?
“Here too, we are guided by our customers. Their business models change and we must be sufficiently lean and mean to quickly adjust to them. Take, for example, the legal sector: the days are over when lawyers could simply charge by the hour. Professional service providers must add value and are judged based on that. If the products we provide can automate the basic services of a law firm, it will cost them less time so they'll have more time and money available to further improve the quality of their service.”
The focus shifts from paying for business to paying for outcomes. Insurers are increasingly saying to hospitals: I pay you to cure patients. If they have to be hospitalized again soon with the same symptoms, then you didn't do your work properly and I won't pay you. Just make sure your treatment is right the first time. We can help these doctors make a better diagnosis. An independent statistical study from Harvard shows that physicians who use our products achieve better results.
A nice example is the POC Advisor. This product is developed by our own people. It registers all kinds of hospital data; blood counts, well-being, blood pressure, temperature etc. Combined, they provide an early warning in case of sepsis or infections. These are potentially lethal conditions, though can be treated effectively if diagnosed at an early stage. Our future lies in these kinds of products. It takes time to develop this, but I believe such a long-term vision is essential to a company like ours, even if is sometimes at odds with the short-term interests of shareholders.”
To round off, a few figures.
“CFOs also have to add value. Many simple tasks can be off- or outsourced, which means there is time and money to focus on developing products and explore new markets. What helped us build a strong organization is that we consistently invested 8 to 10% of our turnover in new products, even during the crisis.
Of course we are judged by our numbers. Nancy McKinstry, myself and the entire board are judged on our electronic product revenues. Retention rates are also important; are our customers happy, do they come back? In software especially, we notice that if we become an essential part of their work processes, the retention rate can increase to a percentage in the high 90s.”
How do these developments affect your CFO-agenda?
The world is changing and we must change with it. Our financial departments have to play a much more active role. Just registering what is going on is no longer enough. CFOs in our industry should cooperate with development teams and initiate and stimulate. In other words: we need to move from the back seat to the driving seat. Only there can you see what is happening in front of you.
Wolters Kluwer has an entrepreneurial culture, with little bureaucracy. People with good ideas get access to the board room quickly. They don't need to go through all kinds of management layers first. We have short reporting lines and this is something I immediately liked when I joined the company 10 years ago. Even if your idea is not immediately implemented, or if it is heavily criticized, you still feel encouraged to continue to develop new ideas. If you give people this freedom, and listen to them, it brings out the best in them.”
This Management Scope interview with CFO Kevin Entricken originally appeared in Dutch.