Monkey business

It’s
a jungle out there, and the ITV Digital monkey suffered due to mismanagement
and intense competition. But could HR have saved the day? Nic Paton reports on
the short but eventful life of ITV’s ‘bastard child’

When it comes to writing the history of TV, ITV Digital’s knitted monkey
will probably be listed somewhere between the Betamax video format and the
ill-fated ‘Squarial’. What began as a bold attempt to persuade the British
public to switch their allegiance from traditional analogue television to digital
terrestrial TV ended in acrimony this May with the loss of 1,700 jobs, as huge
debts plunged ITV Digital into administration.

While, as we shall see, there were many reasons for the collapse,
commentators point the main finger of blame at a series of executive and
management misjudgements, some of which can be laid squarely at the feet of HR.

It was all so different in October 1998 when the then ONdigital was unveiled
at a glamorous party at London’s Crystal Palace. The launch was the culmination
of a vision set in motion in 1995 by Virginia Bottomley, media minister in the
last Conservative government, to turn Britain into a digitalised nation through
special set-top boxes.

At first, the operation was backed by BSkyB, Carlton, Granada and the BBC.
But when BSkyB was forced out by the European competition authorities, it
rapidly turned into a dangerous rival.

And ONdigital immediately ran into problems of its own making.

In November 1998, the chief executive Stephen Grabiner was forced to admit
that supply problems with the set-top boxes meant the company would miss out on
the crucial Christmas sales period. Eight months later Grabiner spectacularly
resigned, suing ITV in a high-profile court case, and was replaced by Stuart
Prebble, who later became chief executive of ITV.

ONdigital’s woes were compounded by the fact the signal – described later by
Carlton chairman Michael Green as "softer than an electric razor" –
was so weak it would go fuzzy at crucial times. Even when the signal could be
picked up, the technology would often freeze or not work at all. And instead of
attracting customers by putting on first runs of Coronation Street, the channel
relied on low-budget, in-house fare such as The Carlton Food Network and
Granada Breeze.

Then in June 2000, Carlton and Granada switched tack, splashing out £315m on
a three-year deal with the Football League for the rights to the Nationwide
League and Worthington Cup matches.

Even at the time this ‘deal’ looked expensive (BSkyB paid £125m for the
rights in 1995), and it would prove a financial millstone and soon became the
butt of embarrassing analogies, such as the calculation that it would have been
cheaper to take each viewer to matches by taxi, pay for their tickets and put
them up in a hotel.

By April 2001, a rebranding exercise to create ITV Digital was ongoing and
the channel was expensively relaunched last summer with the knitted monkey
fronting the campaign. But it was all to no avail and, with revenues and
audience figures collapsing, ITV Digital went into administration in May 2002,
losing its shareholders more than £1bn.

BSkyB’s Rupert Murdoch eventually agreed a £95m four-year rescue package to
broadcast Nationwide League football matches – a move seen by many as the final
nail in the coffin for ITV Digital. And ITV and the Football League found
themselves in the High Court late last month, battling over the £178.5m the
league says it is still owed by ITV Digital.

While it would be unfair to lay the technological failings at the feet of
HR, the HR team, led by director Malcolm Swatton, does have to take at least
some responsibility for what commentators argue was a catastrophic series of
executive and management misjudgements.

So how did it all go so wrong?

Merger most horrid

As ITV Digital’s troubles deepened in June 2001, Granada chairman Charles
Allen wrote to Prime Minister Tony Blair warning him the channel would collapse
unless the Government intervened. He urged the relaxation of media ownership
rules to allow Granada and Carlton to merge, to provide greater economies of
scale.

This inability of the two parent companies to merge was at the heart of ITV
Digital’s problems, argues John Smyth chairman of Smyth Dorward Lambert, a
consultancy that specialises in bringing about people-centred change within
organisations, particularly during mergers and acquisitions.

"The words ‘bastard child’ come to mind," says Smyth. "ITV
Digital appeared to be this poor thing in the middle that never knew where it
was going.

"An organisation like that is constantly looking over its shoulder to
its parents. In such situations, it is easy to have an unclear, inconsistent
vision – something that unsettles everybody," he adds.

Neither Granada nor Carlton had any experience of running a digital channel
and neither was prepared to make it a core part of their operation.

"You get the feeling they negotiated as they went along rather than
before setting it up," says Smyth.

Any joint venture needs someone capable of asking the tough questions, of having
the confidence to be a challenging voice within the process. And while that
person does not necessarily need to come from HR, in a people-centred industry,
perhaps it should have.

"It is hard for the HR person to come across as a commercial adviser,
but they need to say, ‘let’s remember what the genetic code we are putting in
place here is’. It’s not just a transfer from the two parent
organisations," says Smyth.

While a merger of the two businesses may have helped to bring through
greater economies of scale, cost reductions and, possibly, a more streamlined
business model, it is unlikely this would have have been enough, he believes.
"The leadership has to say ‘this is not just a merger, we are going to
completely change the whole show’. Otherwise you simply get a bodge, something
in the middle. And the cultural impact of any merger normally takes five to 10
years to work through anyway," says Smyth.

Ironically, in May, the Government published its Communications Bill, which
cleared the way for a merger between Carlton and Granada.

Leadership own goal

BSkyB chief executive Tony Ball memorably said of his counterparts at ITV
Digital that they were unable to run a bath, let alone a TV company. And in an
interview in The Daily Telegraph, Carlton’s Green admitted management mistakes.

"Is it a mess? Yes. Would I do it again? Yes. Would I do it
differently? Of course. Did we make mistakes? Definitely," he said, before
shifting a large part of the blame on to the failing technology.

But according to John Clarke, media analyst at stockbroker Brewin Dolphin
Securities, a series of executive mistakes – from over-confidence about the
technology to naivety in paying so much for the football rights – were more the
root cause.

"These were all failures of the executive," he says. "They
also attempted to target BSkyB customers, when they should have targeted the
lower spending customer. Executive errors compounded strategic mistakes."

Executives were over-confident about the take-up of digital television,
believing the Government’s support would help the organisation to ride out any
initial teething problems, he adds. "Essentially, they did not have much
to offer," explains Clarke.

Carlton and Granada mistimed their entry into the market and, crucially,
were inconsistent in implementing their strategy. The departure of Grabiner,
the change of tack to focus on football, the expensive rebranding – these were
all signs the leadership was failing, argues interim HR executive Louise
Marron.

Marron, who works closely with HR consultancy Courtenay, was a consultant
for e-peopleserve, the outsourcing joint venture between BT and Accenture that
recently took over some of Cable & Wireless’ HR function. She specialises
in organisational redesign.

"For those who were not interested in football, there was effectively
nothing on offer," she says. "They had not worked out where they sat
in the marketplace relative to BSkyB. It’s been a case of poor service, process
and administration."

Carlton and Granada also made the mistake of resourcing the business too
heavily in expectation of profit rather than building it incrementally on the
back of profit, she believes.

"They had huge upfront costs and did not seem to think about how to
recoup them, even in the long term. The amount they invested in the Football
League was phenomenal," she says.

Changing the name created brand confusion, smacked of panic and would not
have helped morale, she adds.

Good leadership, when two parent companies are running something such as ITV
Digital, involves having leaders who can strike out and make a go of the
venture in its own right, argues Smyth. "HR should be the catalyst
defining the requirements for the original leaders. When you compete with a
culture like BSkyB’s you do not necessarily want to emulate it but you need to
understand your enemy," he says.

Distinct lack of skills

ITVDigital’s inexperience in the sector – particularly when up against as
strong a competitor as BSkyB – showed itself in the way it underestimated the
skills needed to be a significant player in this market.

"From people I have spoken to within the company, they went with their
offer without having their staff fully trained. People were still being trained
the night before they opened," says Marron.

The management team not only failed to put the right skills in place, they
failed to follow one of the basic maxims of a people-centred business – work
back from your customer – contends Professor David Norburn, director of
Imperial College Management School and an expert on mergers, acquisitions and
joint ventures.

"They got excited by the technology, but did not think about what
customers would think, which was, ‘how much is it going to cost me to watch
this particular game?’," he says.

"They forgot the customer has a choice," he adds. "It was a
supply-side failure. They were too sales focused and not enough marketing
focused. It was a technology-driven deal. It is up to HR to orchestrate the
menu of skills, put them in place and take things forward."

With an exciting new technology to play with, it is perhaps not surprising
management became blinded to the basics. The ITV Digital saga was a classic
example of a business being too concerned with the short-term and, critically,
seemingly not interested in its people management, argues Alan Hooper, director
of the centre for leadership studies at the University of Exeter.

"This is particularly important when you have a merger or partnership.
The critical thing is whether the two cultures really fit together.

"The lesson for HR is that the most successful companies are the ones
that focus on the people," he says.

The key players

Charles Allen, chairman of Granada

Allen and Carlton chief executive
Gerry Murphy had a very public spat when Allen sent a letter to Tony Blair
calling for a relaxation of media ownership rules to allow Carlton and Granada
to merge, which was subsequently leaked to the press.

Murphy, in turn, accused Allen of "hysterical
scaremongering".

Allen is still considered a rising star in the media world,
despite the ITV Digital debacle. Once Granada and Carlton merge, he will be one
of the most powerful people in commercial television.

A former executive at Grand Metropolitan, he followed his
mentor Gerry Robinson to Granada in 1991, becoming chief executive of Granada
television the following year.

Michael Green, chairman Carlton
Communications

One of the driving forces behind ITV
Digital, Green described himself as being "seriously upset" by its
collapse and describing the fiasco as the worst period of his business career.

Probably the next most powerful man in commercial television
after Charles Allen, Green is renowned for his fiery temper, but is widely
respected for the way he built up Carlton from scratch.

He first made an impact in 1985 when he made an audacious bid
to snatch Thames TV’s television licence. This was blocked, but Green finally
succeeded in 1991 and Carlton was born.

Stuart Prebble, former chief
executive of ITV Digital

A former World in Action journalist,
Prebble was appointed to head ONdigital after the departure of original chief
executive Steve Grabiner in July 1999. Within a year he had been promoted to
chief executive of ITV and oversaw the rebranding exercise to ITV Digital.

Prebble resigned following the company’s collapse and is
considered by some commentators to have been made a scapegoat. He is widely
believed to have been too much in thrall to Carlton and Granada and unable to
carve out enough of an independent leadership role for himself or the business.

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