Business transformation

business game —
Newspaper industry

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 Scenario
Hinton Independent News (HIN) is a privately
owned newspaper group that publishes,
prints and circulates 10 regional newspapers
daily and 40 regional newspapers weekly.
Circulation figures are shown in the graph
below and indicate a steady decline in sales
— a trend experienced across the entire UK
and international newspaper industry.

HIN newspaper circulation

400000

300000

200000

100000

0
2014 2015 2016 2017 2018

Year ended 30 June

Daily newspaper circulation Weekly newspaper circulation

Increasingly, people in the UK are accessing news in other

ways, including news on TV and smartphones.

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 All HIN’s newspapers have experienced falling circulation,
and HIN acted two years ago to make a few of its
newspapers available to view online for free. These online
newspapers attract digital advertising, and the number
of readers in this medium has been promising.
The founding family of HIN owns 60% of the shares and
the remaining 40% of shares are owned by a private equity
investor, BBD. HIN is NOT listed on the stock exchange
and shares cannot be easily sold or valued.
The HIN Board has been slow to react to external factors,
resulting in a significant decline in profits over the last five
years, due to falling revenues (both newspaper sales and
advertising revenues). Following some rationalisation, costs
have been reduced and controlled, but most of the operating
costs for HIN are fixed. As a result, the revenue reduction
has hit profits hard and operating profit has fallen from £48
million in 2014 to only £3.5 million for the year to June 2018.
It is forecast that HIN will have an operating loss of £6.0
million in this financial year.
HIN Operating Profit
60
40
20
0 a few offers from other newspaper groups, as the other
2014 2015 2016 2017 2018 2019
Forecast
-20
Year ended June
Operating Profit £ million
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Currently, HIN produces its newspapers in a traditional way
— by determining the volume of editorial content in each
edition, depending on advertising space that has been sold.
Then, the journalists research and write their stories, submit
them to a news editor who edits and fine-tunes the story
and then this is submitted to the copy desk, which may
make further changes, such as changing the size or title of
the headline or to make the story shorter depending on the
intended space and location in the newspaper layout. All
newspapers are printed in HIN’s own print site, which uses
modern high-speed printing presses. Excess available print
capacity is sold to external customers, which generates
a small amount of additional revenues.
At a recent board meeting, the board representative of the
private equity investor, BBD, stressed that urgent action needs
to be taken due to falling circulation figures, falling revenues
and the latest forecast of an operating loss in the current
financial year. The private equity board representative of
BBD believes that if action is not urgently taken, HIN
could be bankrupt within 2–3 years.
The board discussed at length that the entire newspaper
industry is experiencing declining circulation and that HIN
has three possible courses of action: Merge with another
newspaper group, close completely or take radical action
to undergo a business transformation process (see glossary
of terms).
The board agreed that it did not want to merge with another
newspaper group. The board had previously agreed to decline
newspaper companies only wanted access to HIN’s
newspaper titles, but they wanted to make large numbers of
HIN’s employees redundant. The founding family of HIN,
which has three board members, did not want to see the end
of HIN and the loss of jobs. The board also does not want to
close the family newspaper company.
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 After much discussion, the board agreed to urgently
investigate a business transformation process. This would
involve a major change to the way that HIN operates and
would result in some job losses but would let HIN become
profitable again within two years and would create a more
long-term sustainable business model. The business
transformation proposal is summarised as follows:
w Install a new IT system to automate the editorial, page
layout, flow of data and content production. Automated
Journalism (AJ) software already is operational within
other newspaper groups.
w Close around 15 of HIN’s regional offices, which will result
in some job losses and will also require some journalists
to work from their homes, as they only need access to
the internet to access the new AJ system
wT
 his would require HIN to train its journalists to input all
their stories into the AJ system, using HIN-supplied
laptop computers
wT
 he AJ system would also allow HIN to easily produce
a wide range of digital publications
wP
 rinted editions of some newspapers will cease and
online (digital) versions will be available
w HIN will plan to attract more digital advertising, which
will generate higher revenues than printed newspaper
advertising
w Additionally, HIN plans to introduce a “paywall” (see
glossary of terms) for some of its new online newspapers.
Already, some of HIN’s competitors operate a “paywall”
that only allows subscribers access to the online news.
The board faces the dilemma of whether to undertake the
Business Transformation process. It will require around £10
million investment to cover the cost of the AJ system,
training costs and the required redundancy payments for
staff in the regional offices whose jobs will be lost. HIN
currently has adequate finance for this investment.
Requirement
The board has asked you as HIN’s senior management
accountant to review this business transformation
proposal and prepare a presentation for the next board
meeting, which addresses the following specific
concerns of the board members:
1. R
 ecommend whether the business transformation
process for HIN should be approved or not, and
explain the reasons for your recommendation with
three justifications..
2. Identify three risks caused by implementing the
business transformation process and recommend
actions that should be taken to overcome the three
risks you’ve identified.
3. R
 ecommend one way the use of big data could help
improve HIN’s revenues following the business
transformation process.

The new AJ system uses a form of artificial intelligence (AI)

in the production of news stories, in innovative ways, which
include:
1. S
 treamlining the workflow of gathering news by allowing
journalists to focus on what they do best, which is writing
news stories
2. A
 utomation of mundane and routine tasks which allows
journalists to concentrate on writing the stories rather than
tracking down relevant backup information
3. C
 runching more data more quickly, which helps with
financial news stories
4. L
 ocating relevant media insights so that information can
be correlated quickly and efficiently, and included in the
news stories
5. E
 liminating “fake news” by checking facts in a speedy
and reliable way

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 Glossary of terms
Business Transformation This is a plan to fundamentally change the way a company conducts its business. It is usually
undertaken in response to external factors, such as competitive forces or changes in technology.

A Business Transformation process involves a change management process to completely

change its operational and management processes to achieve new strategic goals. It is often
used to help a company survive, when all the other changes that have been made have not been
successful in turning a company around.

Change Management Change management is a term used to bring about change in a company. There are many
reasons why changes need to be made, such as after an acquisition of another company, in
response to changes in technology or to make a company more efficient and competitive.

There are several business models that are used to help bring about change and these include:

• Lewin’s three-stage model; which involves “Unfreezing” the current operations, “Change”
and then “Refreezing” the new pattern of work and behaviour
• Lewin’s Force field analysis – which helps to identify the factors driving the change
(driving forces) and the factors that hinder change (the restraining forces)
• Kotter and Schlesinger’s approach to deal with resistance to change
• Kotter and Schlesinger’s 8 step process for change leadership, which sets out the
8 steps that are required to help bring about organisational change successfully.

Paywall A paywall is a method of restricting access to online content via a paid subscription.
Newspapers started implementing paywalls, since around 2010, on their websites
to increase revenue after years of decline in paid print readership and advertising revenue.

E-business E-business is defined as a way of conducting business electronically, by aligning a company’s

information systems with its business strategy, such as to achieve competitive advantage.
E-business also involves the commercial use of the internet, for the use of Big Data
(see definition below) as well as digital marketing.

Big Data Big Data is a term for a collection of data which is so large that it becomes difficult to store
and process using traditional databases and data processing applications. Big Data often also
includes more than simply financial information and can involve other organisational data (both
internal and external) which is often unstructured. The amount of unstructured data generated by
electronic interactions has increased significantly, such as through emails, online shopping, text
messages, social media sites as well as various electronic devices (such as smartphones) which
gather and transmit data.

Big Data can help an online newspaper company to tailor the content of the news reports so that
it appeals to the profiles of its readers, based on past responses from readers and their interaction
with the newspaper with online messages or using social media. The Big Data also allows the
newspapers to sell advertising which is targeted to specific groups of its readers and to generate
higher advertising revenues.

Digital skilling One of the difficulties with Big Data is the ability to convert it to useful information. Many new
roles are emerging in business such as “data scientists”, whose role is to help the company to get
meaning from the data it stores. However, due to the rapidly changing nature of Big Data analysis,
there is a shortage of skills. The fast-growing digitalisation of businesses is creating new jobs
across every business sector and whilst technology causes job losses, more jobs are created
than are eliminated.

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 Cybercrime As more companies use e-business they are faced with the threat of cybercrime, which is defined
as offences that are committed against individuals or companies, and is often known as
“hacking”. These offences have a criminal motive to intentionally harm the reputation or to gain
information to be used to cause a financial loss, to the individual or to the company, or for the
theft of Intellectual Property (breach of copyright).

Cyber security This relates to IT security practices and data management techniques. Cyber security is required
to protect data against hackers, viruses and electronic fraud. It is also necessary to protect
customer information and to adhere to relevant data protection laws.

Blockchains A blockchain is a digital database for recording transactions, which all companies or individuals
concerned can access securely. Each transaction is recorded as a block in a chain, after everyone
involved agrees it has happened (when certain previously agreed conditions have been met). All
transactions are encrypted to ensure that it is tamper-proof, and this makes the information about
any transaction hard to change, after each transaction has been completed.

Blockchains are extensively used in business already in Finance, manufacturing, engineering as

well as procurement.

HIN could use blockchains with its digital advertisers.

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 Presentation of answers

Requirement 1

Recommend whether the business transformation process for HIN should be approved or not,
and explain your recommendation with three justifications.

I recommend:

Three justifications for this recommendation are:

1. 

2.

3.

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 Requirement 2

Identify three risks caused by implementing the business transformation process and recommend
actions that should be taken to overcome the three risks you’ve identified.

Three risks of the business transformation process and recommended actions to overcome them:

Risk 1:

Risk 1 – Actions to overcome this:



Risk 2:



Risk 2 – Actions to overcome this:

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 Risk 3:

Risk 3 – Actions to overcome this:



Requirement 3

Recommend one way the use of big data could help improve HIN’s revenues:

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