Service is everything

Font Size

Print

Feedback

Email

Discuss

: In 1992 Hartmut Ostrowski, head of a little-known services division at Bertelsmann, did a deal with Lufthansa to take charge of some of the airline’s back-office functions. He signed the contract without asking his bosses’ permission. Some months later Bertelsmann’s chief executive, Mark Woessner, asked about the deal. Mr Ostrowski explained, only to be scolded and reminded that Bertelsmann was in media, not services—and certainly did not serve airlines. “Then I told him how much money Arvato made,” says Mr Ostrowski, “and he said ‘Carry on, but don’t say much to anyone about it.’”

Mr Ostrowski took over as chairman and chief executive of Bertelsmann on January 1st, and the firm is now shouting as loudly as it can about Arvato. Its services unit may cut a drab figure next to its glamorous television, music and publishing units, but it is growing quickly. It employs half of Bertelsmann’s workers and is its second-biggest division after television. The signs are that Mr Ostrowski will continue to shift the firm’s centre of gravity towards services. Last week Bertelsmann said it was examining strategic options for Direct Group—which operates book, music and DVD clubs and bookstores—and may sell it. Many people also expect the firm to sell out of Sony BMG, its recorded-music joint venture with the Japanese giant.

Reinhard Mohn, who resurrected the firm after the second world war, started the book-club business in 1950, and until recently no one thought it possible that Bertelsmann would part with it. The Mohn family, which owns a large stake in Bertelsmann, exercises considerable sway over strategy. In 2002 the firm’s board ousted the chief executive at the time, Thomas Middelhoff. His dealmaking was straining the company’s finances and the family disagreed with his plan for a stockmarket listing. Mr Middelhoff’s successor, Gunter Thielen, was close to the family and pursued a conservative strategy. In 2006 the firm bought out an outside shareholding of 25% in the company for euro 4.5 billion ($5.8 bn), giving the family greater control.