Tough Love

There have been some early, sweeping changes at Reader’s Digest Association in the last few months since Mary Berner took over as president and CEO following the sudden $2.4 billion acquisition of the company by an investment group led by Ripplewood Holdings. The company has adopted a new fiscal year, with fiscal 2008 starting in July. It folded Reiman Media Group, absorbing it into several corporate divisions.

Berner has also seen some dramatic changes with Reader’s Digest, the company flagship which has been fighting a battle for increased relevance in recent years. On the executive side, publisher Ben Madden, associate publisher Sean Flanagan and group publisher Denise Favorule left the company in March, shortly after the takeover. Berner brought in some of her former Conde Nast associates, including Suzanne Grimes as division president of food and entertainment (including all-star Everyday with Rachel Ray), and Eva Dillon, former publisher of Cookie and Jane, as publisher of Reader’s Digest.

Berner has also made it her mission to challenge some of the “accepted myths” surrounding Reader’s Digest. Among other things, she’s cut the ratebase by 20 percent from 10 million to 8 million and opened up the back cover to advertising.

Berner spoke to Folio: about her plan, dubbed FACE, for Reader’s Digest Association and how she’s working to change a long entrenched culture.

Folio: What was the opportunity you saw with Reader’s Digest?
Berner: It’s a company that has all the things you want to see when you do a private equity deal. It has a very strong brand, a global footprint and the issues that exist are fixable. It’s a direct marketing powerhouse that maybe needed a cultural shift and some new talent.

Folio: What were your priorities coming in?
Berner: My priorities were pretty clear. I wanted to get the right structure for a global company. We have 6,000 employees, almost $3 billion in revenue, and we’re in 70 countries. We wanted to make sure we had a structure for the company for the long-term rather than a structure to accommodate certain people. The first thing I asked was, “How do I want my own top management to look?” Secondly, do I have the right people in the right jobs, and third, get a plan both for the first year and for years two through five. Fourth, we had to communicate this and get buy-in throughout the organization. That was the focus for the first five months.

Folio: You’ve made the point that the magazine is only part of the company. Talk about how you see the different divisions working together.
Berner: There’s a ton of good assets here and we could see it as a blocking-and-tackling exercise. By just blocking and tackling and getting the right people in and the right strategy and taking out some costs, we could turn this company around. The flagship is the cornerstone of the company, it accounts for just under 15 percent of the profit for the company. It’s our brand, it’s where the brand identity is reflected.

But we’re also the number-one seller of cookbooks internationally. Taste of Home is the largest circulating food magazine in the world. Allrecipes.com is the number two food portal in the world. The first thing we did in North America was to organize around customer and advertiser affinities. Using the Food Group as an example—we already had Allrecipes.com, and Taste of Home which has sold more cookbooks and has more magazines in the U.S. than anyone. We have Everyday with Rachel Ray, we have cooking schools, we have everything that advertisers and consumers are interested in—if you’re someone who likes to cook. The previous company structure was that magazine people reported to magazine people, Internet people reported to Internet people, so you could not cross-promote to advertisers and consumers. The first thing was to address that. It didn’t require acquisitions, it didn’t require some fancy strategy, it was simply building on the platform that was there. We have four affinity groups now, which are Food & Entertaining, Home & Garden, Health & Wellness and what we call Reader’s Digest Inspiration—which is the RD flagship brand. By virtue of organizing this, we were able to go to our customers and advertisers with a full array of products that pique their interest. It’s already been wildly successful on the advertising front, and on the consumer side it systematizes a more seamless way for customers with like interests.

Folio: You’ve made some pretty dramatic moves with the magazine right off the bat—cutting the ratebase and opening up the back cover to advertisers. Talk a little about the rationale behind those decisions.
Berner: We’ve tried to separate fact from urban legend. It’s easier to do when you’re coming from the outside. What happens sometimes at companies is things are taken as fact and when you do a little digging, you find out they aren’t. For example, ‘Reader’s Digest readers do not want advertising on the fourth cover, what they want is the painting.’ We did research and found out they didn’t care either way. We looked at all the ways we could further our business in terms of revenue, then tested it against what were considered to be common assumptions. Reiman taking advertising is a non-issue with readers. We looked at what has an upside for the company—and for sure advertising is an upside. We have huge circulation and other advertising opportunities that speak to specific advertiser needs, yet we weren’t selling advertising. The ratebase was the same thing—we felt that we were going to run the magazine at a profitable circulation. While it was profitable, it was cutting into our ability to invest into the magazine by holding up a ratebase that is still significantly higher than anybody else’s. Eight million is still a significant number. We’ll take that money and invest it back into the magazine.

Folio: What’s the next step?
Berner: We had a global team meeting and the top 130 people among the 6,000 employees discussed our new initiative, which is called the “FACE Plan,” which stands for “Fast, Accountable, Candid, Engaged.” We’ve identified now what we need to do in the short term to build value for this company and what we need to do to turn around the topline and start seeing growth. We’ve got the right people in the right jobs and we’ve got the right structure to support that. We’ve communicated every facet right down to our comp plans being different. How we reward people and incent people is completely different according to this plan. That will get us through ’08 and ’09. The next phase is we need to take a longer-term point of view with what we can and should be as a global direct marketing and publishing business.

Folio: What specifically does the FACE Plan address?
Berner: There are three parts to the FACE Plan. One is a cost-savings initiative, another is growth strategy, which includes affinity structure in North America. The third part is culture change. This company has had an embedded culture that at times has been detrimental to its growth. When I got here, we interviewed the top 200 people. The most pressing thing people said is we need to be more accountable. We need to be faster, we need to be less bureaucratic, we need to get out of our own way so we can start to perform. These are very hard working people but it gets tiresome to not reach goals year after year.

They attribute that to the culture. We committed to a systematic plan to change the culture and that starts right at the very top. With comp plans, we said we’ll pay for performance. Period. Not for trying hard, not because we had a good effort but for performance. Every executive is challenged with pushing the FACE attributes through the organization. If you don’t follow that, you probably won’t have a future with us. We’re rigorously holding people to that.

Folio: What’s been the internal response?
Berner: Most people, surprisingly to me, have enthusiastically embraced it for many reasons. They’ve stayed here through hard times. People have worked together for a long time, they’re proud of the brand, but there was a frustration that despite their hard work, it was like a hamster in a wheel. They’re willing to follow the course as long as we follow through on it.

Folio: How do you manage against the mass exodus other publishers often face with a management change?
Berner: We never managed against it. We never tried to “motivate” people or “retain” people. My feeling is people will see it as a direction they want to go in and a team they want to be on or they won’t. We’ve put together a really good team of people who are both outside talent and veterans. We’ve started the change at the top, so we’re walking the walk. We’ve attracted a lot of outside talent, people we’ve worked with before. My goal is to make it the kind of company people want to work for not just because they know me or we’ve worked together before.

Folio: How will digital be more of a focus for the company?
Berner: Digital is well on its way, and it will be a combination of things, including acquisition in affinity areas. On a tactical level, we’ve already made an enormous amount of progress selling our books and magazines online across the globe. The strategy is simple—build a sizeable audience, using the medium for what it’s good at. Plans are completed for North America, and we’re preparing to roll out internationally.

Allrecipes.com is transformative for the company because it can be an anchor food portal. The way we look at it—in the rush for everyone to get into digital, companies have thrown a lot of stuff against the wall. My feeling is, you have to use the medium for what it is good at and it has to complement what you are already doing. Use digital as an extension of what print can’t do.

Folio: How’s your perception of the company changed over the last five months?
Berner: What’s surprised me is how willing people are to change and get things done. I expected to get a lot of resistance. We haven’t seen that at all. The breadth and depth of experience is really extraordinary. People have moved 15 times all around the world to stay with this brand.

Folio: What benchmarks have you set for the company, both financial and cultural?
Berner: We’ve set our financial goals and for individual units to deliver against goals. People have asked me when will we know that the culture has changed, my answer is we’ll just know it. We’ve got certain benchmarks within the countries we want to launch in. Beyond that, I can’t get into any more specifics.

Folio: Five or six months from now, what do you need to look at to be able to say your first year has been a success?
Berner: What makes the first year successful is that we stay on track and stay on the plan we’re all committed to. The plan we have is specific, it accounts for exactly how much savings we need. It’s not just about FedEx bills. It’s how we run our business, how we buy our paper, how we do our printing. The culture goals—we’ll know by January how that’s going, by the quality of people we hire. We’ll know by how people are evaluated, how much bureaucracy we have to cut out. On the growth side, when the affinity structure starts coming together, we should see more new product development and more advertising. On the international front, we have plans to launch in Turkey and Morocco, we’re looking at Vietnam and our biggest launch will be this January in China. We need to keep those plans on track. When that all comes together in January, I’ll know where we are.

Folio: What’s been the reaction to these changes from readers and advertisers?
Berner: Readers wouldn’t notice it. To them, Reader’s Digest is Reader’s Digest. What they will notice hopefully, is the affinity focus, more and better products that meet their needs. We put all consumer marketing under Dawn Zier because I wanted someone to be in charge of the customer and make sure the customer was sold the right things.

The advertisers certainly have noticed. The feedback I’ve gotten directly is, “It’s about time. These are great assets, now package it in a way that makes sense to us.” Average marketers want to hit people at different touchpoints. Suzanne Grimes is in charge of organizing how to do that. You don’t have to go to the digital people separately or a corporate marketing group. We have a president who is in charge of everything including the consumer, not just the advertisers. I was the beneficiary of inheriting a lot of the investments at the time they were just starting to make significant money.

Cutting Costs Out of Reader’s Digest
While new owner Ripplewood Holdings quickly took Reader’s Digest private following its acquisition last November, and has been guarded about the company’s financial performance since, it’s no secret that the company has been challenged on the business side. New CEO Mary Berner has enacted a series of cost savings plans including The Business Improvement Initiative, which has targeted three-year cost reductions of $220 million from the company’s total spend of $2 billion a year on purchased goods and services.

The Fiscal 2008 budget calls for cost savings of $80 million, of which $55 million has been identified but $25 million must come from new sources, and the company is counting on at least $30 million in savings coming from the Print Utility initiative, which includes outsourcing the company’s promotional print buy worldwide to leverage savings from working with a global partner.

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