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Bloomberg Terminal Scandal

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Page 1: Bloomberg Terminal Scandal

Media Management Case StudyMEJOS3Katrin Ehnert

Olga JavitsJaana Pasonen

2013 Scandal and Consequences

Page 2: Bloomberg Terminal Scandal

1. The Bloomberg Company

2. Investigation of the Crisis

3. Organization configuration

4. Analysis results - 4 levels of management & markets

5. Conclusions

Presentation Structure

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Part 1 The Company and Its Business

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• Bloomberg Terminal (“The Bloomberg”) is a core business and money-generating product

The Company and Its Business

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1. Bloomberg’s media products and their role in the company business

2. Bloomberg News:

“News that move markets”. Finance information 24/7 Employs more than 13 000

people in 185 locations globally Services 174 countries 5000 original articles daily

Source: Bloomberg.com

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• Bloomberg is a growing company • Operating profits 

2006 – annual revenue $1.5 billion 2011 - annual revenue $7 billion2013 – about $8 billion annually315,000 terminals sold worldwide (by the end of 2012)

• 85 % from terminal sales• Terminal subscription $20000 per

year

Bloomberg’s Performance on Market Competition

Source: Gustin (2013) TIME Business & Money

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• Michael Bloomberg, MBA in Harvard University

• 1981 - Innovative Market Systems (IMS)

• 1986 - Bloomberg LP• 1988 - 5,000th terminal installed, a

financial data industry leader • 1990 - Bloomberg Business News

with a six-person team, based in New York, editor-in-chief Matthew Winkler

• 2010 - 20th anniversary, 146 bureaus in 72 countries, > 2,300 journalists and multimedia professionals

Milestones in History

Sources: Funding Universe (1998), Business Insider (2013)

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Part 2Investigation of the Crisis

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• Data breach scandal at Bloomberg L.P.'s news division:

Bloomberg reporters had extended access to data about individual customers' terminal usage

• Publicly revealed by the New York Post on May 10, 2013

The Crisis' Triggers

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• Viewed customer information included:

what functions they

used on the Terminals who was logging in

and at what time what they asked the

help desk for

Source: Horowitz, 2013

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Bloomberg's culture

Journalists considered to be representatives of the Terminals  

Michael Bloomberg in 1997: “Most news organizations never connect reporters and commerce. At Bloomberg, they're as close to seamless as it can get” (as cited by Geller, Huffington Post, 2013)

 Bloomberg's goal

To be the most influential news service in the world Innovative ways to recognize customer needs, wants and trends

quickly

Reasons for the Crisis' Emergence

Source: Geller, Huffington Post, 2013

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• Impacts on Bloomberg's business environment and partnerships Breach of trust with customers Several investigations against Bloomberg regarding possible misuse of other

customer Terminal's confidential data No significant Terminal subscription fallout:

“[The Terminals] are prized as windows to information that can help brokers keep or lose fortunes” (Geller, 2013) Company's transparency, reputation and business culture came into question

• Reactions by Bloomberg's management Public apologies Immediate restriction of reporter's access to the confidential data Initiation of 2 independent reviews on internal standards

Major Consequences of the Crisis

Source: Gustin, TIME, 2013; Bloomberg.com, 2013a

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Several improvements according to the reviews' recommendations:

New positions at governance level: chief risk and compliance officer

Ongoing periodic independent reviews on internal compliance controls

No extended access for Bloomberg reporters Enhanced training programme for employees New positions at editorial level: Independent Senior Editor

and Standards Editor

Current Status of the Case

Source: Bloomberg.com, 2013a; Bloomberg.com, 2013b

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Part 3Organization Configuration

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• Bloomberg strives to have a flat organizational design with few levels of hierarchy: 

• No private offices or enclosed meeting rooms• All employees sit in long rows of identical, terminal-laden desks,

including the Editor-In-Chief• Employees do not stay in any one position for too long and do not

have official titles.• Managers are constantly rotated between different departments• Employees are evaluated entirely on their performance. This

allows for them to move vertically, horizontally, and diagonally throughout the firm

Bloomberg’s Organizational Structure

Sources: Bothra et al., 2008, Round Table, 2008,

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Organization Configuration

1980 1990 2000 2013

•Michael Bloomberg's role

•Entrepreneurial organization

•Years of rapid growth and expansion

•New divisions and products

•Moving towardsmore innovative organization

•Over 15 000 employees

•Michael Bloomberg no longer active in the company

•No single type of organization configurationSource: Mintzberg et al., 1998

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• Bloomberg's strategic apex and middle line work innovatively, avoids bureaucracy and hierarchies

• Sales division, Speed desk at Bloomberg News - Machine organization

• Independent divisions for products, independent goals and processes - elements of diversified organization

• The Bloomberg LP is more of a LEGO than a jigsaw-puzzle configuration.

• multiple configurations depending on division, department and time.

A Jigsaw puzzle or a Lego organization?

Despite an innovative culture and complex organizational structure , Bloomberg has a very clear strategy and all its parts work collectively to achieve the company's goals.

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New Energy Finance

Daniel L. DoctoroffCEO & President

Executive CommitteeCOO, Head of Financial Products & Services, Editor-In-

Chief

R&D News & Media Financial Products & Services

Law

Govern-ment

Professional ServiceNews

Sports

EnterpriceSolutions

Web &MobileMagazines

BusinessWeek

Television & Radio

Terminal

Markets/ Pursuits

Peter Grauer Chairman of the Board

Source: Bloomberg.com, 2013

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Part 4 Analysis Results

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Corporate Management and the Political Market

Main role of corporate management is to legitimate and secure the role possibilities of the enterprise, effects influence mainly the political market

Immediate reactions to the crisis were necessary:• Investigations from U.S. Federal Reserve & Treasury Department• Critique from European Central Bank and other big clients

To reassure and to regain the trust of partners and influencers in the political market, the extensive actions were necessary

-> When crisis' effects on the popular market might result in declining revenues, poor management on the corporate level after the crisis could lead to legislative and normative restrictions

-> In worst case scenario might result in bankruptcy

Source: Alm & Lowe, 2001, Gustin, TIME, 2013

Page 21: Bloomberg Terminal Scandal

Actions taken on Corporate Management level

• Immediate damage control PR: Public apologies in public and in person• Independent reviews • Results and recommendation published• Enhancing the company's governance framework (Risk and compliance

responsible)• Approval for continuous periodic reviews

The Crisis' impact on Political Market

The actions taken were considered sufficient, no significant penalties or further conflicts occurred

Source: Bloomberg, 2013a

Page 22: Bloomberg Terminal Scandal

• Internal implications: Decisions /actions are aligned to support Bloomberg's core business: Selling

more Terminals

Reporter's access possibilities as intended strategic approach from the beginning

• “The concept of reporters working hand-in-hand with the sales team served as a centerpiece to Mr. Bloomberg’s vision” (Chozick, New York Times, 2013) Need for internal process innovation to regain customers' trust New CEO and 100-day-strategy at Bloomberg Media Group

Strategic Management and the Open Market

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External implications:

Second strategic focus at Bloomberg: Innovative technology for its Terminals' systems

Increased pressures from competitors (Thomson Reuters, Dow Jones) with new Terminal replacement strategies

Dependence of open market on popular market highlighted

Source: Alm & Lowe, 2001

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Bloomberg's revealed strategic objectives: Strategic decisions set a direction Clear plan of actions to hold leading position No real strategic turnover at Bloomberg after crisis Weaknesses regarding approaches to Terminal

sales and high investments in the media division Bloomberg needs to find a clear direction in

innovation

Source: Mintzberg et al., 1998

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Two aspects of product and business management The Terminal - main product All the media products: Magazines, TV,

radio, Mobile etc. Two approaches to Popular market:

Terminal subscribers - main target group, most of the profit

All the subscribers and consumers of the Bloomberg media products

Business Management and the Popular Market

Source: Alm & Lowe, 2001

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The public apologies and other damage control actions were needed to regain trust of Terminal subscribers to convince the readers, viewers and listeners of the produced

content and its reliability.

First priority was to minimize the terminal subscription fallout, however... Customers consider Terminal use vital for their business Customers locked in long term contracts Barriers of exit, excellence of the product

No big changes needed, once "the dust settles", main product remains the same

Source: Geller, Huffington Post, 2013

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• Media products facing heavy competition, losing credibility might be fatal

• BusinessWeek - Forbes, Fortune• CNBC and Fox Business winning Bloomberg TV• Financial Newspapers - Wall Street Journal, Financial Times

• The unique strategy of Bloomberg effects the business management and the popular market:

The main focus at Bloomberg is to sell the Terminals, and as long as the Terminal subscriptions are not declining, the effect on the media product level might stay small, the audience of media products are a secondary target group

Crisis Impact on the Popular Market

Source: Porter, 2004

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• Main impacts on the internal level: New positions created, e.g. Chief Risk and Compliance Officer Rotations:

previously Special Adviser to the CEO, Editor-at-Large at Bloomberg News Clark Hoyt Independent Senior Editor

previously Executive Editor for Bloomberg News in Europe, the Middle East and Africa Tim Quinson Standards Editor

Relations between journalists and commercial departments changed Managerial skills exercised: communicational organizational

• Why changes have been made?

Operational Management and the Professional Market

Source: Bloomberg press release (2013), Lowe (2013)

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• Lost access to the client private data = lost influence on the professional market

• New strategy of making news?

Impacts on Professional Market

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Conclusions

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No “real” crisis for Bloomberg in the short-term

Reasons:1. Core business is Terminal sales: uniqueness of the Terminal service 2. Fast and active response to the crisis by Bloomberg's management3. Barriers of exit for the Terminal's customers Long-term impact:

– Loss of time advantage in news gathering ↔ Competitive advantage – Questionable “final” cut of connections between reporters and sales department

Source: Mintzberg et al., 1998

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• Alm, Ari, & Lowe, Gregory F. (2001). Managing Transformation in the Public Polymedia Enterprise: Amalgamation and Synergy in Finnish Public Broadcasting. Journal of Broadcasting & Electronic Media, 45(3), pp.367-390.

• Bloomberg.com (2013a, August 21). Bloomberg Releases Report Following Client Data Review. Press release. Retrieved October 20, 2013, from http://www.bloomberg.com/now/press-releases/bloomberg-releases-report-following-client-data-review/

• Bloomberg.com. (2013c). Bloomberg Facts. Retrieved November 9, 2013, from http://www.bloomberg.com/now/bloomberg-facts/

• Bothra, Aditya, Gandhi, Vishal, Profeta, Mike, Rewari, Rajeev, Tripathi, Shankar (2008, February 22). Organizational Analysis: Bloomberg LP. The Round Table. Retrieved November 2, 2013, from http://roundtable.typepad.com/round_table_blog/2008/02/organizational.html

• Geller, Adam (2013, May 16). In Bloomberg Uproar, Ethics Flags For New Media. Huffington Post. Retrieved. October, 18, 2013, from http://www.huffingtonpost.com/2013/05/16/in-bloomberg-uproar-ethi_n_3284025.html

• Gustin, Sam (2013, May 14). What Bloomberg’s Snooping Scandal Says About Wall Street’s Culture. TIME Business & Money. Retrieved October 20, 2013, from http://business.time.com/2013/05/14/what-bloombergs-snooping-scandal-says-about-wall-streets-culture/

Sources:

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• Funding Universe (1998). Bloomberg L.P. History. From: International Directory of Company Histories, Vol. 21. St. James Press. Retrieved November 2, 2013, from http://www.fundinguniverse.com/company-histories/bloomberg-lp-history/

• Horowitz, Alana (2013, May 11). Bloomberg Terminal Spying Targeted Ben Bernanke, Tim Geithner: CNBC. Fox News (vía Huffington Post). Watched September, 20, 2013 at http://www.huffingtonpost.com/2013/05/11/bloomberg-terminal-spying-bernanke-geithner_n_3260559.html

• Lowe, Gregory F. (2013). Lecture on Strategic Management and the Open Market, University of Tampere. • Lowe, Gregory F. (2013) Lecture on Corporate Management and Political Market, University of Tampere.• Lowe, Gregory F. (2013). Lecture on Operational Management and Professional Market, University of

Tampere.

• Mintzberg, Henry (1989) Mintzberg on Management: Inside Our Strange World of Organizations. NY: Hungry Minds Inc.

• Porter, Michael (2004) Competitive Advantage. NY: Free Press.

Sources: