Bertelsmann (A) (B) - Bertelsmann (A) Corporate Structures & the Internet Age (B) Corporate Structures for Value Creation

What happens when you build a media group on the values of decentralisation, entrepreneurship and creative content? Well, if you're Bertelsmann, your growth explodes and you become the third largest media company in Europe. In the late 1990s however, new, faster and better coordinated competitors were on the rise, suddenly exposing cracks in the company's strategy. This case study takes a look at how Bertelsmann responded to the Internet challenge. Case B, published in the Summer of 2004, looks at the Internet aftermath.

by Charles Galunic, Jean-Louis Barsoux,Immanuel Hermreck,Steven Moran
Last Updated: 23 Jul 2013

When Thomas Middelhoff took over as CEO of the privately owned media firm, Bertelsmann in 1998 everything was ticking along as it always had in the group's numerous companies; that is to say, cooperation was limited and intra-group rivalry was intense. The lack of coordination in the firm was so evident that rather than promoting other Bertelsmann ventures, its prominent magazine Stern actually advertised direct competitors to the company's other businesses. Though Bertelsmann had existed for generations and had been very successful in expanding its holdings from its initial base as a printer of religious tracts, there were several reasons to be anxious about the future. With the Internet taking over, there were increasing predictions that the printed page would disappear and that all media content would be delivered electronically. Many traditionalists - including those in Bertelsmann's publishing houses - scoffed at the suggestion but Middelhoff was afraid that those willing to embrace the new opportunities would become a threat…even to a media giant.

The problem at Bertelsmann, as this case by Jean-Louis Barsoux and Charles Galunic, senior research fellow and professor of Organisational Behaviour at INSEAD shows, was that the company had been built on the values of autonomy, independence and decentralisation. This strategy had served the company extremely well over the generations, but with over 65,000 employees in more than 50 countries and numerous separate businesses, there was a convincing argument for more coordination.

Until 1994, the company was organised along geographic lines, and even thereafter the four divisions (books, press, industrial holdings and entertainment) communicated only minimally. For instance, unlike media companies such as Disney, Bertelsmann did not try to aggressively cross-promote its products. Also, while start-ups like Yahoo! and Amazon set about aggressively constructing subscriber lists, Bertelsmann made no effort to exploit its businesses' huge client databases.

Secondly, though the Internet competitors had none of the history of Bertelsmann, they were very well financed and were adept at using their shares to grow and attract the best talent. They could, and frequently did raise vast amounts of money on financial markets. Being private, how could Bertelsmann compete with the salaries and stock options that creative talent now expected?

If some at Bertelsmann were reluctant to admit that the industry had changed, it became undeniable once the AOL/Time Warner merger was announced. As Middelhoff had suspected: speed could overtake size and a small Internet start-up could triumph over an established company several times its size.

Case A, then, looks at the changes introduced by Middelhoff to make Bertelsmann more aggressive in the Internet age. Case B examines the post-Middelhoff era, which coincided with the post-Internet era. It examines the changes Bertelsmann would introduce as the Internet bubble burst. Would the pendulum swing back? How many of the changes that a large corporation such as Bertelsmann introduced during the early Internet days remained viable business decisions as corporations went back to the "fundamentals?"

INSEAD 2002-2004

Charles Galunic, Jean-Louis Barsoux,Immanuel Hermreck,Steven Moran recommends

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