Pearson International's Lessons in Global Growth: People are the Secret Sauce
On the face of it, it's tough to draw parallels between one of Britain's oldest publishing business and small, fast-growing firms in the digital, or any other, industry sector. But there's some useful lessons to be learnt here that apply to any business, especially those based on intellectual property.
Last week, the folks at Fresh Minds invited me to a breakfast roundtable with guest speaker, Mark Anderson, President of Strategy for Pearson International who took us on a tour of Pearson International's journey from book publisher to one of the world's largest education providers.
What does it take to transform an organisation in a very traditional and challenged business to a truly global corporation with profitable businesses in emerging markets? The answer it turns out, is taken straight from the start-up lexicon, a pivot. For 3 founders in a co-working space, this is no big deal for a £1bn FTSE-listed company it's a slightly bigger deal.
The answer for Pearson has been to focus on its educational business and a slow transformation from a high-volume, low margin publishing business to a lower volume, far higher margin education business. It's a story of understanding customers and where they place value. If it's not in your traditional products or services, it's time to change.
The underlying change for the business is the shift from reliance on content as the backbone of revenues to the delivery of content through educational. That's certainly a challenge for a large organisation, but coincidentally also a great position to benefit from the opportunities in the emerging markets.
As Mark explained, "[Pearson] is becoming the kind of organisation that we used to regard as our customer. There's not much more of a profound change than that. 5 years ago, schools, universities, and language schools were customers. Now Pearson owns these businesses and acquisition capital is focused on owning these operations."
Understanding the Consumer
At the heart of this change is a thorough understanding of the customer. What's their behaviour? What's their motivation? For Pearson, and likely many other companies looking at BRIC and other emerging markets these customers are markedly different from those in the Europe and the US.
Pearson's laser-like focus on education was driven by some astounding numbers, as Mark explained, "Driven by income increase and aspiration, the sheer number of people at university, between now and 2020 will rise from 155m to nearly 250m. That's an extra 100m students. Governments around the world, especially in this financial climate can't afford to cater for this."
That's a colossal opportunity, especially when emerging markets don't have the rapidly shrinking legacy that we enjoy in Europe of tax-payer funded 'free' education. Mark continued, "the view in the developing world is in stark contrast, 44% of children in India go to private schools, whilst most of the 6m people at university in Brazil attend one of the 2,000 private universities."
The expectation is that education will cost, and that cost must have a benefit for the individuals paying i.e. increased salary, benefits and a better standard of living. When that cost is a significant chunk of household expenditure, the decision isn't taken lightly often requiring life-long saving by the parents.
In China, Mark described how, "Students pay $5k for a 12 month language course. It's a simple investment return calculation. Students ask 'what will that outlay do for my employment prospects'." The company can't build language schools fast enough. There are as many people learning English in China as speak it in the rest of the world.
Finding the Value or Where Did My Intellectual Property Go?
In the 1960s, Longman's English textbook became the standard textbook for learning English in China. Trouble is, of the hundreds of millions of copies printed, most of them were pirated. The characteristics of many of the markets in China, India and Brazil is piracy.
This doesn't bode well for a business that relies on publishing, as Mark explained, "For every £100 spent globally on education only £8 spent on books or resources. The approach in developing markets is a move from publishing and selling books to digitising content to delivering education. It's a profound change."
For those interested in the dynamics of how piracy shapes markets The Pirate's Dilemma is worth a gander. In this instance the piracy in China has helped establish Longman as the standard textbook in English language learning, but "earnt pennies" for the company and the book's authors.
He continued, "60% of Pearson's business remains in content, most of that in print. There's lots of talk about Internet delivery but the reality is that most people at school and university still buy books and will do so for a while yet. 40% of the business is not publishing, and in 5 years, as little as 30% of business will be in content."
What's telling in this description of the change in business is the way that the piracy of the emerging markets has driven a fundamental change across Pearson. The focus from publishing and production of content is shifting dramatically to the delivery of that content.
The 'real' content, if anything, is the training and methodologies that are used within the schools, universities and language schools that the company is busy buying and building.
This kind of shift in an company's business model is difficult to imagine without a correspondingly large change in the organisation itself. As Mark pointed out, "[It meant] re-thinking the kind of organisation that Pearson is." The focus shifting from content to people brings a whole new set of challenges, underlined by the sheer scale of engagement that's required.
One of the company's businesses, the Wall St language school chain in China, employs 18,000 people. Next year that business will need to recruit an additional 3,500 people.
"That's probably more than everyone that's been hired in the main Pearson business to date", he said, continuing, "Equally profound changes in doing that not least of which is managing risk and reputation. Do your schools delivery quality education. Pearson owns edexcel who are currently doing A level marking. People rely on this being correct, when it's not, all hell breaks loose and you can find yourself on Breakfast News and the Daily Mail."
That's quite a shift and it's clear that the approach in the emerging markets is what's driving this, "In China and India, nearly 100% of business won't be in content. To fuel that, have had to learn about new business models and ways of doing business, some through startup, some through acquisition."
During the Q&A, I asked Mark how the 'mothership' of Pearson International had had to re-organise itself to cope with these changes, and what it meant for leadership.
"When I joined (for the second time), the centre of the international business with sales of £1bn had a staff of just 4 people! I re-joined company and with the new HR director the head count grew to 6 people. Now centrally the company has 100 staff, but it's still not enough.", adding, "Switching focus to people is putting a huge stress on Pearson's people systems."
And it's very, very much about having a centre which is extremely multi-cultural and therefore understands the regional responsibility. The team are from South Africa, America, India and far more besides. It also need strongly empowered regional heads, not a case of 'sending people out to the colonies' any more. A very two-way relationship."
He also mentioned that the international CEO, "had a clear view that this was they way the business was going to shift" and that the core values of the company provided the foundations for this shift, "Certain things that bind Pearson together for last 15 years, the values that are common currency. There's a very tough view e.g. anti-bribery and corruption which have a huge reputational risk."
The last couple of weeks, I've begun the planning Social Media Week London, a week of events that on the surface is about social media, but in reality is about the connections between people. It's interesting reflecting on the session with Mark, in how a international firm is shifting direction based on finding the value in the connection and communication between people.