How might Welch redefine the newspaper business?

Posted by David Richards on June 3, 2009, 9:15 PM EDT

Jack Welch used market definition to drive growth

 Jack Welch, at least to me, remains the pre-eminent business strategist. While there is a litany of reasons, I find most compelling how his thinking on market definition and positioning evolved.  I also believe it's 100% apropos to newspapers today.

Must Be #1 or #2: Wrong

One of Welch's early strategic mantras was that GE divisions had to be first or second in their markets or get the heck out.  But after many years of proselytizing the #1 or #2 thesis Welch dramatically changed course.  He realized such a strategy actually had the unintended effect of limiting growth and innovation.  Being a leader in the market isn't a bad consequence. But if it becomes the objective it comes with serious risks. Why?  Because any reasonably intelligent executive can define their market such that they're first or second.  As a silly example, if the Richards household were a business, we could reasonably state we're the #1 supplier of athletic products in our market.  Pretty impressive.  Not Sports Authority, not Play-It-Again-Sports, but us.  How so?  We'd simply define our market as the 7600 block of Maury Arch and our customers as young kids looking for used skate boarding parts. [And thus, Jack would have to keep us]  Welch saw the same dynamic happening in GE.

So mid career Welch showed the strength of ego to say, woops, i was wrong.  His new approach had GE divisions define their markets such that they had a small market share, but where they had the opportunity to leverage existing assets, brand, relationships, etc.  In this way executives would naturally see greater opportunity.  Instead of being limited by an artificial definition that deemed them successful, they were challenged. It both liberated and forced them to see the world anew.

Context For Newspapers:

I believe newspapers find themselves in exactly this trap with respect to the revenue (i.e advertising) side of their business. They still define success as we did back in the 90s by "Percent of Local Advertising Spend" captured.  It's not a bad measure, but it's incredibly limiting as Welch might point out as it defines the sand box in which you play.  And it's getting crowded.  In the ad department I oversaw we measured this year to year.  We were always first, always around 40%, and regardless of what we did we could hardly move the needle.

So imagine what might happen if instead of defining the market as the dollars local businesses spend on advertising, a newspaper defined the market as ALL the dollars local businesses spend on ACQUIRING, RETAINING & SERVICING customers. That's a much larger field in which to scour for opportunities.  Newspapers would go from having a 40% share like they have today to probably less than a percentage point.  The total dollars businesses spend on acquiring, retaining and servicing customers not only includes advertising, but it covers promotions, direct marketing, software, temporary help, training, consulting, customer service, and so, so much more.

I'm not sure such a market definition is the right one, but it certainly would force (liberate?) newspapers to consider adjacent value domains that might make sense to enter.  If publishers continue to see the revenue side of their world as only/mainly consisting of advertising, they've put themselves in a hole.  It's hard to see how they grow as the likes of Google, Yahoo and others are jumping in. Newspapers need to compete there, but they can expand more easily if they allow themselves to conceive of opportunities more broadly.  

It's not too late.... but it may be close