Changing Direction
Nancy McKinstry CEO Wolters Kluwer THE NETHERLANDS
By Interviewed by Janet Guyon

(FORTUNE Magazine) – WHEN I BECAME CEO in the fall of 2003, the company wasn't growing. Although our operating margins were a healthy 17% to 18%, we were posting losses on a net income basis. The company, a leader in online information services, had historically grown by acquisition. Many of our publishing businesses were milked for cash to fund new purchases. This strategy just wasn't working anymore.

I talked to our customers and our employees, analyzed our market positions and our capabilities, and decided we had to radically change the culture of the company and move it toward one that generated its own growth. To do so, we decided to spend €800 million ($1 billion) in new and existing product development, particularly in driving online products and workflow solutions. The money would come from restructuring our cost base by centralizing functions such as human resources--each of the 300 companies we had acquired had its own HR department--and by reducing our profit margins by two percentage points, to between 15% and 16%. We planned to reduce staff by 8% (the equivalent of 1,800 full-time positions) as part of this three-year strategy.

At first the investment community did not react positively. We had never previously demonstrated an ability to grow the business through internal development, so there was a fair amount of skepticism. But the core management team embraced the strategy. It provided us with a common direction that had been lacking.

The most important factor was getting people across businesses to work together in order to drive product development and build shared services in HR, technology, and finance. Many people didn't think we could do it. But I knew the company and I knew our employees, because I'd been promoted from a U.S. division of the company. We had excellent brands, such as Ovid and CCH. We just needed to develop them. So far we've been right. Our internal growth has gone from negative to positive--we're up by two percentage points in the first half of 2005, to a positive 2% organic growth. And we're on track to boost our operating margins to between 19% and 20% by 2007.

Which is what we promised.