Don Kuykendall
Shea Morenz / Bladonmore (Europe ) Ltd
10-11 Percy Street
London W1T 1DN
Telephone: +44(0)20 7631 1155
Bladonmore (Middle East)
PO Box 77754Abu Dhabi
United Arab Emirates
Telephone: +971 240 12530
bladonmore.com
Company: / Stratfor
From: / Richard Rivlin
Subject: / The Value Creation Challenge
Date: / Friday July 8th,2011
Contextpage 2
Organisational & Cultural Recommendations:pages 3-9
Product & Pricing Recommendationspages 10-20
Sales & Marketing Recommendationspages 21-24
Branding Recommendationspages 25-26
Riskspages 27-28
Appendix: Meetings Conductedpage 29
Context:
Why has the report been christened The Value Creation Challenge? This is a business that has generated huge amounts of goodwill with its staff, subscribers and those who interact with it. Now is the time when Stratfor needs to start converting those feelings of goodwill into more profitable revenues,ultimately fuelling the value of the underlying business.
Put simply the business needs to generate more value from the effort it deploys: This can be done by focusing attention on doing a small number of work-flows particularly well. These include:
- Scaling the publishing business in the US and in parallel seeking to internationalise it. The route to doing this will be driven by institutionalising the intelligence management system, developing key talent and raising governance standards.
- Launching Stratcap in an effective fashion without breaking the operational rhythm of the intelligence generating team
- Taking a decision to define and institutionalise elements of the consulting business that can have a material benefit for driving subscriptions for Stratfor, or investors for Stratcap
These three challenges represent a giant in-box. There is also a cultural dimension that cannot be under-estimated. The expression, ‘Culture eats strategy for breakfast’ springs to mind especially for Stratfor. This business is more cult than company and needs to sensitively and selectively decide which facets of corporate life it is willing to embrace and enshrine into its day to day operations.
Successfully delivering will demand more organisational structure and internal transparency; an injection of human talent to support an over-stretched incumbent team; the deployment of investment capital in a targeted fashion; ever more efficient processes and a relentless ability – at the senior levels within the organisation - to be disciplined about staying focused.
Bladonmore spent the week of June 27th–July 1stin Austin meeting with various Stratfor personnel to gain a deeper insight of the organisation; its structure and the unique culture underpinning it. It was an enjoyable and engaging experience.
Based on the conversations – detailed in Appendix 1 – and our own insight and analysis we have generated the following report.The comments and recommendations that follow have been split into four groups: (i) Organisational & Cultural; (ii) Product & Pricing; (iii) Sales & Marketing;(iv) Branding;
These are the four legs to the table; the four engines to the fighter jet intended to demonstrate a set of workable initiatives designed to help the organisation cross the chasm in the most risk-free way possible.
Richard Rivlin
Friday July 8th, 2011
Organisational & Cultural Recommendations
1. Focus on where the true value lies – Stratfor subscribers and Stratcap investors: Getting to 50,000 of one and $100m of another should be initial targets within a structured plan.
The leadership of the business understands the sheer power of an effective subscription model that providesa recurring stream of revenue to a loyal base of followers. Sustaining and increasing the subscriber numbers provides the best evidence of the health of the business and equals value to prospective purchasers in years to come.
The Economist has a North American circulation of 822,695 out of a global circulation of more than 1.4 million. It has four million monthly unique visitors to the web-site. Getting details on the valuation of these types of businesses is notoriously difficult however the best types of operations attract a premium valuation based on recurring subscribers and their trophy status.
With 50,000 subscribers and rising, Stratfor would achieve breakthrough status and be generating enough revenue and cash-flow to support a deeper investment into its intelligence network. Could the business achieve this surge to 50,000 by December 2012? Doing so would equate to 1,000 new subscribers a month.
During this time, Stratcap is likely to hit the road and be formally fundraising in Q1, 2012 after a successful model portfolio demonstrates the proof of concept. Getting an initial $100m of commitments would make for a good first closing ahead of targeting a further $100m plus in 2013.
Given George has stated a willingness to spend the remainder of 2011 refining how he crosses the chasm, it is our belief that achieving these two landmarks of 50,000 subscribers and $100m in investment commitments would make for a material improvement in the strength, sustainability and underlying value of the business.
This focused quest will raise a host of questions related to pricing, retention, relationship with the institutional business, branding, sales, marketing, George’s time etc which this report seeks to address.
This report is not a business plan in disguise. At best it can feed into the development of one but on its own it is not. The organisation should not be afraid to document its ambitions within a formal, signed-off business plan that is updated on two yearly cycles. That would provide a new backbone to the development of a stronger and more sure-footed business.
2. Crossing the Chasm means preparing to go beyond George…
George suggested the organisation could be as long as five years away from appointing an internal candidate to succeed him. It is certainly true that an internal candidate is likely to prove more successful than any outsider in fulfilling the potential of the organisation. Outsiders are probably simply unable to get their head round the DNA, methodology and unique approach underpinning the business.
This time horizon deserves to be interrogated and discussed at board level on a half yearly basis to ensure the business is getting what it needs from the most senior person in its rank. At the risk of sounding ridiculous the CEO should be a servant of the business and there are moments when it feels as if the business is closer to being an extension of George’s persona and the cult like following he has from the analysts and many others within the business. Great leaders put in place effective succession plans. They do this throughout their leadership term and not simply at the end.
It should not be a given that George is the CEO for the coming years as that outlook runs the risk of delaying actions that are important to the sustainability of the franchise. These following work-flows could be designed to help maximise the value of the business with or without George’s involvement within it:
- Board Governance: The investment by Shea and the anticipated requirements related to Stratcap becoming SEC regulated should be a catalyst for the Stratfor board to examine governance issues in a much more holistic fashion. Governance is not a sexy subject but it is an important one: A well run board would want to document exactly how the new investment capital from Shea is to be deployed; it would ensure the reporting levels were robust and be providing a framework to review how the evolving structural changes in the business are delivering against plan. Looking to the future, the generation of documented processes at board level will provide defensible walls against future purchasers seeking to cut the value of the business in times to come. Good governance will fundamentally add value to the underlying asset.
- Board Composition: Following the investment provided by Shea, there must be merit in determining what is the right composition and responsibilities of a Stratfor board. A small top team that has a collaborative, disciplined and challenging atmosphere will be most effective. It would and should remain the ultimate decision making entity. There would be merit in reviewing the job descriptions for each function within the board on asemi-annual or annual basis to ensure the business is getting what it requires from its most senior team.
Currently the board does not have an orthodox chief executive or chief financial officer. The act of the existing board coming together and writing the functions required to be delivered by these roles de-personalises the issue entirely from the individuals in the room and enables those individuals to decide if the boot-strapped approach that has worked to date will continue to do so. A CFO is probably more of a pressing need than CEO today.
There would also be merit in bringing on board one or a maximum of two external board members who will be able to add material value to the needs of the business. The right sort of individuals will add another layer of urgency to ensuring the business meets and stays to plan.
- Management Committee: The business should enshrine a management committee made up of the key component roles deemed critical to driving its future success. As small as the board is, this management committee is likely to include a larger group of individuals. These should be the individuals who operationally drive the business forward on a day to day basis: It should be tasked by the board to meet on a monthly basis with an agenda driven by the management committee members so long as they are delivering against plans. The management committee should present to the board on a quarterly basis.
The effective development and running of a management committee can be a critical part of the succession planning process. How the board communicates with the management committee should be thought through: Are the Sunday Service emails really adding value? They are folksy and from the heart but do not demonstrate how the two cultures – of intelligence and business – are working together as one. Just because the CEO likes communicating by email doesn’t mean everyone on the end likes receiving that transmission.
- New Additions: The business needs to appoint a Commercial Director – with responsibility for branding, sales and marketing – freeing Darryl up to be the operations director he actually is.
Whether either a newly created Commercial Director role or the existing COO/Operations Director role would be full board positions is a decision to be made in times to come. It may be enough for them both to be members of the Management Committee.
Certainly the business is constrained by the breadth of responsibilities placed on the shoulders of Darryl. He is a proud, loyal and supportive member of the team but there is a requirement for additional senior support. It would be useful for Don to spend time with Darryl to investigate this in more depth.
Whether the business has enough strategic HR support is a subject that was not explored fully enough during my time on the ground. The incumbent HR leader may have potential to show more strategic strength and play a more useful role in the recruitment and development of senior members of the team. She is certainly aware of the business not succeeding in collapsing two cultures – an intelligence side and business side – into one business and feels this is holding back the development of the firm. Alternatively this expertise could be added on a consultancy basis. For instance the business does not seem to have a formally structured review process in place. Having reviews conducted on a half yearly basis and having 360 degree reviews conducted on an annual basis would inevitably add a layer of bureaucracy but would – in the long term – help to create more value and structure to this special business.
- CEO Succession Planning:The business could begin a CEO succession programme in January 2012 looking to announce a new appointment in Q3 or Q4 2013 ahead of a formal start date in Q1, 2014 at the absolute latest. This timetable would provide significant opportunities for internal candidates to demonstrate their capabilities and appropriateness whilst also giving the organisation an opportunity to look externally as well.
The reality is that the complex nature of the organisation means that an internal candidate is likely to be the better option and lead to a more effective long term impact on the value of the business.
The flip-side of this approach is the inevitable likelihood of internal competition potentially fuelling the development of cliques or splinter groups, thereby jeopardising the culture of the organisation. The same love and nurturing that goes into the Analyst Development Programme would need to be directed in this area to avoid it from happening.
- Addressing the Resourcing Conundrum: The business has a medium to high number of people on its total head-count and yet there is an over-arching sense of an organisation that is permanently stretched. This starts with George and cascades. The sense of being over-stretched and under-resourced is somethingthat constantly percolates the organisation and permeates the conversations about it. It is used as a reason that prevents the business from realising its potential.
The catalyst of fresh capital coming into the business presents an opportunity for the business to pause for breath and to analyse in a considered fashion all roles and whether expectations are realistic. Clearly deciding how the investment capital is to be spent and explaining this in an open and public fashion – with an opportunity for Q&A – would be a positive step forward.
Secondly getting part time or consultant strategic HR support would perhaps be a useful tool. This external perspective would and should challenge the business to consider whether individuals who have been involved or engaged by the business in evolving roles are truly adding the value required?
There is a warm, paternalistic culture that comes from on high but there are question marks over various individuals’ ability to do the jobs they have. Is there a necessary sense of urgency to constantly review the resourcing requirements and part company with those who are no longer adding the value the business demands?
At the very least, it would be a wasted opportunity for the business to headlong appoint a series of new hires without considering the organisation in a total sense to demonstrate a commitment to improving all elements of it.
3. Institutionalise SIMS (Stratfor Intelligence Management System): Trial the path by which Stratcap interacts with it:
Stratfor has a unique way in which it captures, analyses and distributes intelligence. So much so the US Marines have selected it ahead of the CIA to examine ways of structuring its own intelligence management system. We have decided to name this SIMS as our own shorthand for the Stratfor Intelligence Management System.
In years to come it would not surprise us for the McKinsey Quarterly or Harvard Business Review to want to do a case study of the system underpinning Stratfor, if allowed to do so. It would be an interesting exercise for the business to produce its own proprietary – for internal eyes only – version of this case study and to review it and refine it on a quarterly basis.
The business is however only now in a position to invest in the institutionalisation of this structure and to think about scaling it effectively, with built in flex to create and deliver new products.
The engine is an intelligence one but the output ultimately needs to be able to work as if it is in a 24-7 news environment. If the business is ever to become to international affairs, what CNN is to news or ESPN is to sport, then it has to find a path to institutionalising an engine that never stops running.
Huge effort is going into the development of the system. It is to the credit of the business that such a significant programme of change is underway and the individuals who are impacted by it seem to be fully embracing the opportunity to improve and evolve. There was no sense of fear about this transition which demonstrates underlying strength within the culture. There are a number of highly talented if lesser experienced members of staff who will contribute significantly in developing this on your behalf.
Success will lead to increased, higher calibre output, delivered in a more efficient fashion. If the business is to fulfil its ambitions to grow, it needs to put more structure into this area which has grown into an oddly shaped, albeit highly effective operation. In practice what might this mean?
- Every role within SIMS needs to be documented. How each of these roles connects in theory and in practice needs to be documented. There needs to be a system by which SIMS reviews and refines itself on a regular basis. Within those who contribute to the development of SIMS there will certainly be a need to invest more in the training and development of those who are not analysts. Another way of looking at this is to compare and contrast this process with how the Analyst Development Programme has evolved in recent times. This is seen as one of the key foundation blocks of the business. Instead of the nurturing being directed exclusively towards the analysts, there is a need to deliver this sort of continuous learning process to all those within SIMS.
- The component parts of this unit needs to work in a collaborative yet challenging fashion; There is a need for each unit to have a deep understanding of what their colleagues are doing but more importantly to be given access to continuous training and development capabilities to become ever more effective.
- The process of institutionalising this structure could run a number of risks. The left side of the organisational brain wants to enable the natural freedoms demanded by an effective intelligence operation to generate the highest quality analysis. And it is a given that the intelligence side of the organisation requires latitude and freedom to do what it does.
Meanwhile, the right side of the organisational brain will be unable to help itself seek to measure efficiencies within the organisation and track outputs to benchmark performance. Identifying and selecting a set of relevant key performance indicators is a valid quest but will need to be executed in a sensitive fashion to ensure SIMS does not jeopardise quality of output for quantity of organisational data.