1

Fighting the bear with pea shooter? Publishing companies’online strategies

Miia KosonenLappeenranta University of Technology, School of Business, Finland

miia.kosonen@lut.fi

AbstractThe rise of the Internet and digitalization are strongly influencing the media industry. They arechanging the existing market dynamics and activities, and thus require new strategies. Thepurpose of this paper is to explore the strategic impact of online services in newspaper andmagazine publishing. Drawing on a comparative case study of six publishing companies, thestudy examines how the strategic objectives and means, i.e. firm capabilities and the availableresources, match with each other. Based on the study, it seems that there is asymmetry aspublishers have aimed at targeting a too wide a set of objectives with the provision of onlineservices but with very limited resources. With their existing resources and capabilities,publishers seem to get support to their strategic objectives regarding brand support and beingcloser to customers. Yet considering the long-term strategic objectives – growth andprofitability – the available resources and capabilities remain a pea shooter with which it isimpossible to shoot ‘the profitability bear’. The study identifies new capability areas that arerequired in order to set up novel types of online applications and also target new customergroups with them.

Keywordsstrategy, online strategy, publishing companies, media business

Introduction

In recent years, the media industry has been confronted by complex and rapid change, highcompetition, new forms of production and distribution, and also entirely new types ofproducts (Küng, 2004, Chan-Olmsted, 2006). Researchers have followed this developmentand proposed that the rise of the Internet and digitalization are strongly influencing theindustry. They are changing the existing market dynamics and activities, and thus require newstrategies (Doyle, 2002). While several researchers (Doyle, 2002, Küng, 2004, Chan-Olmsted,2006) have noted the dramatic changes that are going on in the industry, current research failsto address the competitive implications of this development. Respectively, Shaver and Shaver(2006) have called for studies investigating strategic issues to do with the Internet in mediaindustries (see also Ellonen, 2007, Ellonen and Kuivalainen, 2007).

The purpose of this paper is to explore the strategic impact of online services in newspaperand magazine publishing. In particular, the study focuses on the perceived match/mismatch

2

between strategic objectives and means, i.e. firm capabilities and the available resources. Theresearch questions can be stated as the following:

1. What kind of online strategies do publishing companies have?2. How do publishing companies’ strategic objectives and means (resources and capabilities)match with each other?

The rest of the paper is structured as follows: firstly, the theoretical background of the study isshortly introduced. Thereafter, research design, methods and data are described, after whichthe empirical findings are presented. The paper concludes by discussing the theoretical andpractical implications of the study.

Theoretical background

Competitive advantage is a central concept in strategy research and refers to the ability of afirm to outperform its industry and create above-average returns or rents (Besanko et al.,2000). However, strategy theories differ in terms of explanatory factors used investigating thesources of competitive advantage (Rumelt 1991, McGahan and Porter, 1997, Hawawini et al.,2003). Since 1990’s, the dominating view in strategy research has been the so-calledresource-based view that links competitive advantage to the rare and value-creating resourcesand capabilities of a single company.

The central tenet of the resource-based view is that a firm is a bundle of idiosyncraticresources and capabilities (Wernerfelt, 1984, Barney, 1991, Peteraf, 1993). Resources aretangible or intangible assets that a firm possesses, controls, or has access to, and from which itmay potentially derive rents (Helfat and Peteraf, 2003), whereas capabilities reflect firm’scapacity to deploy these resources (Amit and Schoemaker, 1993). Respectively, firms areheterogeneous with regard to the resources and capabilities they possess. Firms endowed withsuperior resources are able to produce more economically and/or better satisfy customerneeds. According to Barney (1991), a firm’s competitive advantage is based on its valuable,rare, imperfectly imitable and non-substitutable resources, i.e. so-called VRIN attributes. Inaddition, both ex post limits on competition and imperfect mobility of resources are neededfor the sustainability of rents (Peteraf, 1993). In summary, resource-based view of the firmcan be seen as a ‘meta-theory’ behind the strategy selection, building and operationalizationof the strategy in firms.

Grant (2002) has categorized resources as tangible, intangible, and human resources. Whiletangible resources are financial or physical in nature, intangible ones may consist e.g. oftechnology and culture. Taking the human-bound nature of knowledge into account,knowledge and skills are approached as human resources (Grant, 2002). Such knowledge-based resources are non-imitable and cannot be replicated due to their nature (Amit andSchoemaker, 1993). In this research, the three-part categorization of tangible, intangible andhuman resources was applied as the basis of the examination, in order to provide acomprehensive view on different types of resources related to publishers’ online operations.

Capabilities, in turn, can be classified based on their type, content and input in firms’ valuecreation processes. Typically a distinction is made between higher vs. lower level capabilities,

3

i.e. the so-called dynamic capabilities required for building new capabilities by combiningexisting ones, vs. capabilities that are needed in everyday operations (e.g. Teece et al., 1997,Danneels, 2002). Further, these operational capabilities can be classified as customer-related(market) and technology-related capabilities (Abernathy and Clark, 1985, Danneels, 2002).Market capabilities consist of customer knowledge, meeting customer needs, customerrelationships, and channels for customer communication, while technology capabilities referto design and manufacturing, production systems and know-how, and managerial skills(Abernathy and Clark, 1985, Danneels, 2002, Valanto et al., forthcoming).

As noted by Danneels (2008), market and technology capabilities also have their “second-order” side, such as market sensing and R&D competences. Market sensing refers e.g. toscanning the environment to identify new customers, or access new customers. Second-ordertechnology capabilities (R&D competences) reflect the firms’ ability to identify promisingopportunities and set up new production facilities. Such explorative organizational learning isneeded to build new capabilities to serve new markets, or to use new technologies. This studyfollows the classification by Danneels (2002, 2008) and approaches capabilities as market andtechnology-based, carrying elements of both operational (first-order) and dynamic (second-order) capabilities.

Finally, firms’ strategies emerge from resources (Bowman and Hurry, 1993). Hence,resources can be perceived as assets that are addressed to reach the strategy purposes. Grant(2002) summarizes firm strategy as a way to match the resources and capabilities toopportunities in the external environment. For the purposes of the current study, we approachmedia companies’ online strategy as a pre-defined set of goals and objectives regarding onlinemarkets, shaped alongside the available resources and capabilities.

Figure 1 summarizes the research framework.

4

Figure 1. Theoretical framework

Methods and data collection

The choice of research design was based on the objectives of the study. In order to gain newinsights from the publishers’ perspective, a descriptive and exploratory research strategy waschosen and a qualitative research approach was applied. A comparative case-study approach(Eisenhardt and Graebner, 2007) was considered suitable for increasing understanding aboutcompanies’ online strategies, as they remain an understudied area (Shaver and Shaver, 2006).

Within this setting, each case is treated as an independent experiment standing on its own asan analytical unit (Yin, 2003). Researchers may justify whether an emergent finding isidiosyncratic to a single case, or consistent within a number of them, by comparing findingsfrom the individual cases (Eisenhardt and Graebner, 2007). The research setting consisted ofsix case companies representing both magazine and newspaper publishers, three of each. Thesampling approach was purposeful sampling, with a view to reaching information-rich cases(Patton, 2002), while allowing coherence and comparability between cases. In other words,the selected companies were rather symmetric regarding their respective markets andcompany size, allowing researchers to focus on the similarities and differences regardingonline strategy objectives and means.

The data collection method was semi-structured interviews (Shank, 2006). Both strategic-level managers and executives/experts responsible for individual newspapers and magazineswere interviewed in order to produce complementary insights from each publishing company.

RESOURCES

Tangible IntangibleHuman

Market capabilitiesFirst-orderSecond-order

Technology capabilitiesFirst-orderSecond-order

ONLINE STRATEGY

5

Altogether, 19 interviews were conducted during the year 2009. The interviews themescovered issues related to publishers’ strategic objectives in general, market/customers,partners, the development of online services, and the skills and capabilities needed. Alsoadditional questions were made via email to some informants to complement the interviewdata, particularly in order to tackle the amount of personnel and other resources related toonline service provision. The interviews were fully transcribed, resulting in a dataset of 219text pages. The data analysis was conducted in two phases. First the individual cases wereanalyzed thoroughly using the above-presented theoretical framework as a base for coding. Inthe second phase, a cross-case analysis was conducted to find recurrent themes and patternsacross cases.

In order to maximize the reliability (Kirk and Miller, 1986) of the study, a detailed enoughdescription of the research process should allow the reader to follow the researchers’reasoning. In terms of validity (Kirk and Miller, 1986) a chain of evidence (Yin, 2003) wasbuilt, using the Atlas TI program as a coding tool.

Results

Resources

Editorial skills and multi-channel journalism represented a key internal resource for allstudied publishers. The core of publishing companies’ operations was to produce valuablecontent that customers could not obtain elsewhere. This required understanding on e.g. whattypes of content is appropriate and of enough high quality. Many interviewees alsohighlighted the necessity of being able to produce content across a variety of channels and notfocusing only on print publishing:

“If we do not exist online, we do not exist for younger readers at all.” (Editor-in-chief)

However, a problematic issue was the limited internal resources for developing and updatingthe online services. In many cases, there were no technical resources at all and the editorialcontent-creation online was expected to be executed “on the side”. This had resulted inincreased workload and rigidity of online service provision: even minor changes in publishingsystems had been difficult to implement.

Taking the lack of internal resources into account, external know-how was increasinglyutilized in particular through partnerships with web service providers and through buildingnetworks with other media companies operating in same types of markets. Many of theinterviewees noted how even the publishers had started to ‘open themselves to the outerworld’, its opportunities and synergies; earlier, they typically relied only on internalresources.

“Through partnerships, we gain visibility also outside our circulation area.”(Editor-in-chief)

“Being online requires not only content… It is reasonable to buy technical know-how fromoutside the house.”(Editor-in-chief)

6

Regarding tangible resources, for publishers it was mostly about content produced by theeditorials. However, the interviewees pointed out how the role of external content generatedby users or advertisers was gaining more ground, and the online services were seen to supportnetworking with external stakeholders by nature. Another distinctive resource was thecustomer base and increasingly also the e-community of users/customers. Particularly forsome magazine publishers, the active community of online customers represented a focal andunique resource, allowing them to establish close relationships with their audience whileproviding access to a wealth of customer information and discussions. As one intervieweedescribed, “our online service practically equals with the community”.

The most salient intangible resources were newspaper and magazine brands. In addition, theavailable Internet technologies and online applications also represented an important resourcefor publishers’ operations. As noted earlier, these were typically accessed through technologypartnerships, at best leading to innovative website solutions combining in-house content withexternal knowledge.

Figure 2 summarizes the identified resources.

Figure 2. Online-related resources in publishing companies

Capabilities

Regarding market capabilities, both newspapers and magazines were considered as reliableauthorities in their own field. Respectively, their role was to provide spaces for customers tointeract in a ‘safe place’, and to bridge different people together. Across a variety of cases theinterviewees underlined the importance of such community-hosting capabilities; however,regarding online markets and hosting online communities, magazine publishers were ingeneral considered to have succeeded better in this task than newspapers. This may be related

HUMAN TANGIBLE INTANGIBLE

internal

external

Editorial skills,multi-channeljournalism

Partnerships,external know-how

Customer base,e-communities

Editorial content

Content by usersand advertisers

Brands

Technology,onlineapplications

7

to the fact that newspapers were targeted to a wider audience and perhaps lacked a ‘niche’type of interest that would support community formation.

Another focal aspect of market capabilities was being able to acquire and harness customerknowledge. One of the interviewees described the need to not only gain customer knowledge,but to take customers’ thinking into account in every situation:

“The key is the ability to live the readers’ everyday life.”(Internet producer)

Communicating with customers was important for the daily routines in terms of being able toprovide attractive content and thus meet customer needs, but it also manifested companies’ability to sense their market, i.e. second-order market capabilities:

“Via the online service we get a huge amount of information about what our target groupthinks and wants.” (Editor-in-chief)

At the same time, the publishers pointed out how they were lacking systematic means todeploy online customer knowledge. In other words, the internal processes of providing theonline services were not yet aligned with the knowledge residing in customers. Anotherproblematic issue with market capabilities was the publishers’ ability to provide appropriatecustomer applications, regarding consumer audience but business customers in particular. Forinstance, the interviewees described how they lack competence related to online advertisingand selling, while customers would expect publishers to take an expert role and be able tooffer also novel solutions.

“Our business customers would need practical guidance, consulting, about how each of themshould implement their advertisement solutions.”(Editor-in-chief)

Typically, most publishers relied on simple banner advertisements. Only the largestpublishing companies – which were not involved in this study – were seen to have succeededin selling online services. This was recognized as an important field of capabilitydevelopment, as the online advertising markets are growing notably. All in all, the studiedcompanies yet considered market capabilities as their relative strength.

In contrast, across all cases the publishers’ technology capabilities were perceived asrelatively weak. This is related to the nature of their operational work, where providingcontent is a key area and technology only provides the necessary facilities.

Respectively, the strongest capability area was matching channel and content, which is alsoidentified as a novel dimension of technology capabilities. Due to their relatively long historyin providing online news and content, the studied publishers had been able to develop theirrelated operational competences.

At the same time the publishers felt incapable of evaluating the available technologicalsolutions, selecting appropriate technologies, and modifying them. This was in issue ofinternal coordination and collaboration capability: as one of the interviewees illustrated, thecorporation posed a lot of technological know-how but it was difficult to repatriate in thelocal units. Taking their limited resources and capabilities into account, in many cases the

8

company representatives underlined how important it would be to have internal ‘champions’or key persons who would be able to speak both technical and journalistic language andoperate in that interface. In cases where such persons were available, the operational tools hadbeen better aligned to match the unit’s needs and also novel online solutions had beensuccessfully implemented.

“It is not about lack of ideas or visions… but if we then try to define which kind of onlinetools and applications we would like to have, we cannot say.”(Development manager)

Secondly, enhanced online service development in terms of project management facilities andR&D was called for. The studied publishers were largely in the stage of learning: as oneinterviewee noted, they have not had tradition of doing systematic development work butR&D has rather operated “on the corridor level”. However, a lot of effort had been put torestructuring the organization to better serve the provision of online services.

“We have systematically started to lead the online operations.” (Development manager)

“At least now we have an own unit to do online business, finally.” (Editor-in-chief)

Figure 3 summarizes the identified capabilities.

Figure 3. Online-related capabilities in publishing companies

Online strategy objectives

Regarding online strategy objectives in the long run, all the studied publishers emphasized thegrowth objective (amount of online customers, both readers and advertisers) and making theonline services profitable. Naturally these were also the most important objectives. In theshort run, publishers aimed at using their online services as a vehicle to support the print

MARKET CAPABILITIES TECHNOLOGYCAPABILITIES

Dynamic,2nd order

Static/1storder,operational Customer knowledge

Customer applications

Customer communication

Communityhosting

Channel & content

Project management

R&D collaboration

Restructuring

Market sensing

9

product (amount of subscriptions), while also gaining more visibility for the well-establishedbrand:

"For the newspapers the role of the Internet is increasing all the time, it’s creating andstrengthening our brand." (Development manager)

In addition, the nature of the online services allowed publishers to ‘hear the voice ofcustomers’ and establish a closer relationship with their target audience. However, there wereonly a few cases explicitly identifying it as a strategic objective, and it still carriescontradictory elements. It seemed that all magazine publishers highlighted the importance ofgetting closer to customers’ thinking and nurturing customer relationships online, whilenewspaper publishers were rather uncertain about how online services would eventuallysupport this objective in comparison to the long tradition of print publishing. In other words,they approached the provision of online services as rather taking them further off from theircustomers, and were searching for means to get closer to the audience.

“How people use the Net… We can never establish such a close relationship there, as ourprint newspaper does.” (Development manager)

“The first role is to support the print. That’s where our money comes from. From the net, weget coins. The second role is to make our coins bigger, to get some earning logic to the onlineservice.” (Managing editor)

There were also cases characterized by a hope that online services would turn profitable, butno specific online strategy development work had yet been conducted. This could be seen as aclassical ‘hen-egg’ dilemma: resources would be allocated to online strategy work only afteronline operations would pay off, but turning them more profitable through online servicedevelopment was practically impossible because of the limited resources.

Finally, figure 4 summarizes the identified online strategy objectives along a timeline (t) anddemonstrates their relative weight in the studied publishing companies.

Figure 4. Online strategy objectives

Having presented the results of the empirical study, the next sections will summarize the keyfindings and suggest some practical implications and future research directions.

GROWTH,ATTRACTING MOREONLINE CUSTOMERS

BRAND SUPPORTAND VISIBILITYmore subscriptions

BEING CLOSERTO CUSTOMERS

LONG-TERMPROFITABLEONLINESERVICES

t

10

Discussion

The aim of this study was to identify publishers’ online strategies, and to explore the linkagebetween strategic objectives and the available resources and capabilities. Based on the currentstudy, it seems that there is asymmetry, i.e. mismatch between online strategy objectives andthe available means. This implies that the systematic development of online strategies shouldbe paid more attention to, instead of trying to target too wide a set of objectives with theprovision of online services.

Figure 5 summarizes the findings of the study. With their existing resources and capabilities,publishers seem to get support to their strategic objectives regarding brand support and beingcloser to customers. However, considering the long-term strategic objectives, the availableresources and capabilities remain a pea shooter with which it is impossible to shoot ‘theprofitability bear’; instead, new capability areas are required in order to set up novel types ofonline applications and also target new customer groups with them.

Figure 5. Results of the study

Based on the results, it seems that there are certain market and technology capabilitydimensions that are of specific relevance for operating in online service markets. Theseinclude community hosting capabilities, meeting customer needs with online applications, andthe related channel & content capabilities which illustrate the match between technology andcontent. Online services provide publishers direct and on-going channels for maintainingcustomer relationships and gaining customer knowledge, while allowing increased feedbackand pools of content generated by both consumers and advertisers.

Editorial skills and content,multi-channel journalism

Brands

BRAND SUPPORT,VISIBILITY

Partnerships, externalcontent, onlineapplications

BEING CLOSER TOCUSTOMERS

GROWTH,ATTRACTING MORECUSTOMERS

LONG-TERMPROFITABILITY OFONLINE SERVICES

Customer knowledge

Customer applications

Customer communication

Community hosting

Channel & content

Project management

R&D collaboration

Restructuring

Market sensing

operational capabilities

dynamic capabilities

11

From managerial point of view, this study carries several implications. As many publishingcompanies have faced severe problems in turning online news and content profitable, theyshould opt for experimenting online and developing market-related capabilities that areneeded to serve both advertisers and consumers. In order to achieve the strategic objectives,more emphasis should thus be given on developing new capabilities instead of focusing on thetraditionally strong capability areas. The results indicate that publishers need to 1) developorganizational structures by resourcing in independent online units, 2) develop their R & Dand project management skills, 3) establish partnerships in order to develop theircollaboration capabilities 4) target also new customer groups online, and 5) develop theircommunity-hosting capabilities by providing customers spaces for interaction.

According to Grant (2002), strategy should be a manifestation of firm’s resources andcapabilities. However, without systematic development effort, online strategy objectives mayfall into their invidiousness. It would be valuable to initiate the strategy development processby mapping the resources and capabilities available vs. the resources and capabilities needed.

Conclusions

The contribution of the study was twofold. Firstly, it added to the literature of mediamanagement by explicating publishing companies’ online strategies and providing acategorization of their strategic objectives and means to reach the objectives. Secondly, byrevealing certain mismatches between strategic objectives and resources and capabilities, itgave practical insight on how to better align the publishing organizations for online servicesand operations.

An obvious limitation of this study is that it investigated six cases operating in the same typeof markets in Finland. Future research endeavors should be conducted to further test andvalidate the identified capability dimensions within the industry, e.g. to gain a detailedunderstanding about the content and nature of community-hosting capabilities that are neededfor breeding customer interactions. Taking the changing media landscape and advances insocial-media types of online services into account, such capabilities are of specific relevancealso for future media business.

References

Abernathy, W.J. and Clark, K.B., 1985. Innovation: Mapping the winds of creativedestruction. Research Policy, Vol. 14, pp 3-22.

Amit, R. and Schoemaker, P.J.H. 1993. Strategic assets and organizational rent. StrategicManagement Journal, Vol. 14 No 1, pp 33-46.

Barney, J.B. 1991. Firm Resources and Sustained Competitive Advantage. Journal ofManagement, Vol. 17 No 1, pp 99-120.

Besanko, D., Dranove, D. and Shanley, M. 2000. Economics of Strategy. 2nd edition. JohnWiley and Sons, New York.

12

Bowman, E.H. and Hurry, D. 1993. Strategy through the options lens: An integrated view ofresource investments and incremental-choice process. Academy of ManagementReview, Vol. 18, No 4, pp 760-82.

Chan-Olmsted, S.M. 2006. Issues in strategic management. In Albarran, A. B., Chan-Olmsted, S. M. and Wirth, M. O. (Eds) Handbook of Media Management andEconomics, Lawrence Erlbaum Associates, Mahwah, New Jersey, 161-180.

Dannels, E. 2002. The dynamics of product innovation and firm competences. StrategicManagement Journal, Vol. 23, No 12, pp 1095-1121.

Danneels, E. 2008. Organizational antecedents of second-order competences. StrategicManagement Journal, Vol. 29, No 5, pp 519-543.

Doyle, G. 2002. Understanding Media Economics. Sage Publications, London.Eisenhardt, K.M. and Graebner, M.E. 2007. Theory building from cases: opportunities and

challenges. Academy of Management Journal, Vol. 50, No 1, pp 25-32.Ellonen, HK. 2007. Exploring the strategic impact of technological change – Studies on the

role of the Internet in magazine publishing. Acta Universitatis Lappeenrantaensis 261.Ellonen, HK. and Kuivalainen, O. 2007. Magazine publishers and their online strategies:

Review and implications for research and online strategy formulation. InternationalJournal of Technology Marketing, Vol. 2 No 1, pp 81-100.

Grant, R.M. 2002. Contemporary strategy analysis: concepts, techniques, applications.Blackwell, Massachusetts.

Hawawini, G., Subramanian, V. and Verdin, P. 2003. Is performance driven by industry- orfirm-specific factors? A new look at the evidence. Strategic Management Journal Vol.24, pp 1-16.

Helfat, C.E. and Peteraf, M.A. 2003. The dynamic resource-based view: capability lifecycles.Strategic Management Journal, Vol. 24, pp 997-1010.

Kirk, J. and Miller, M.L. 1986. Reliability and Validity in Qualitative Research, SagePublications, Newbury Park.

Küng, L. 2004. What makes media firms tick? Exploring the hidden drivers of firmperformance. In Picard, R. G. (ed). Strategic Responses to Media Market Changes.JIBS Research Reports Series No. 2004-2.

McGahan, A.M. and Porter, M.E. 1997. How much does industry matter, really? StrategicManagement Journal Vol. 18, pp 15-30.

Patton, M.Q. 2002. Qualitative Research and Evaluation Methods, Sage Publications,Thousand Oaks.

Peteraf, M. A. 1993. The cornerstones of competitive advantage: a resource-basedperspective. Strategic Management Journal Vol. 14 No 3, 179-191.

Rumelt, R.P. 1991. How much does industry matter? Strategic Management Journal Vol. 12,pp167-185.

Shank, G.D. 2006. Qualitative Research. A Personal Skills Approach, 2nd edition. PearsonEducation, Upper Saddle River, New Jersey.

Shaver, D. and Shaver, M.A. 2006. Directions for media management research in the 21stcentury. In Albarran, A. B., Chan-Olmsted, S. M. and Wirth, M. O. (Eds) Handbookof Media Management and Economics, Lawrence Erlbaum Associates, Mahwah, NewJersey, 639-654.

Teece, D.J, Pisano, G., Shuen, A., 1997. Dynamic capabilities and strate-gic management.Strategic Management Journal, Vol. 18, pp 509-533.

Yin, R. 2003. Case Study Research. Design and Methods, 3rd Edition. Sage Publications,Thousand Oaks.

13

Valanto, V., Ellonen, H. Kosonen, M. Are publishers ready for tomorrow? Publishers’capabilities and online innovation. International Journal of Innovation Management,forthcoming.

Wernerfelt, B. 1984. A resource-based view of the firm. Strategic Management Journal Vol. 5No 2, pp 171-180.