Executive Of The Year: Insightful Leadership

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Multichannel News has named Insight Communications CEO Michael Willner the 2008 Executive of the Year. The award recognizes outstanding leadership and corporate management, demonstrated by success in the marketplace. This year, Willner and his team displayed consistent customer service, creative strategic thinking and the ability to grow in an increasingly competitive landscape. (For complete Executive of the Year coverage, click here.)

It wasn't too long ago that most people thought that Insight Communications' days were numbered.

After successfully completing in 2008 the breakup of a 50-50 partnership with Comcast — a relationship that began in 1999 with the former AT&T Broadband — Insight was left with about half of its former 1.4 million customers and many believed it was headed for the auction block.

Insight did conduct a brief auction in 2007, but shelved its plans for a sale in September of this year after the credit markets seized up, which effectively limited the number of players that could participate.

While that could have rattled lesser companies, it didn't seem to faze Insight or its management team, who responded by turning in some of the strongest growth numbers in company history.

In an economic and competitive climate that has seen its much-larger cable brethren struggle to minimize basic subscriber losses, Insight has maintained 13 straight quarters of basic-customer growth. And that growth has been off the charts — in 2006, basic customers were up 3.2%, rising to 5.4% in 2007; and through the first nine months of 2008, 4.2%. Insight appears to be on a path to crack 5% basic subscriber growth for an unprecedented second consecutive year in 2008. The only other major MSO that has shown basic customer growth over the past three years — Cablevision Systems — has averaged about 2% per year.

Miller Tabak media analyst David Joyce, who followed Insight stock when the company was public a few years ago, said Insight's mantra for years has been a focus on customer service and proactively rolling out new services.

“That's really what it boils down to — responsiveness to customer calls, appropriate marketing, solving problems on the first call,” Joyce said. “If there is a magic potion, that's it.”

While that alone would have qualified Insight chief executive officer Michael Willner and his team for Multichannel News' 2008 Executive of the Year, what makes the company's performance all the more surprising is that it was accomplished in the face of brutal competition. (Insight competes with established overbuilders WideOpenWest, Knology and Windstream, and local telephone company Cincinnati Bell, in addition to DirecTV, Dish Network, Verizon Communications and AT&T.). Along the way, the company has managed big gains in customer service and a commitment to innovation that rivals much bigger companies.

Not bad for a cable operator that was expected to have disappeared into the arms of a much-bigger entity by now.

Leichtman Research Group president and principal analyst Bruce Leichtman said that although Insight's results should be viewed in context — at 700,000 subscribers, it is smaller than some single divisions within larger MSOs — its success is proof of the benefits of focusing on specific markets.

“Everything starts with that focus,” Leichtman said. “When you're focused on a single market, you can have different strategies and tactics. It allows you to play the game a lot differently.”

A TEAM EFFORT



Willner, a longtime cable executive — he has 35 years in the business, 23 of them as the co-founder, CEO and vice chairman of Insight — said that Insight's current management team should be credited with the company's stellar performance.

“There is no 'Executive of the Year' here,” Willner said. “It's really been a team effort. I can be very expansive and say that we had to get all of the 2,000 employees of this company to sign on to this plan in order to make it work.

“There is a certain leadership group — [chief operating officer] Dinni [Jain], [executive vice president of operations] Chris Slattery, [executive vice president of central operations and chief technology officer] Hamid Heidary, and [executive vice president and chief financial officer] John Abbot, that really are the designers and executors of the plan. They look at the business differently than conventional cable operators do.”

That different approach has guided Insight over the past five years through a going-private transaction that brought a new majority investor on board (Carlyle Group), a split with 50-50 partner Comcast that cut its subscriber base in half, and the since-postponed auction.

Insight has been known as one of the more innovative operators in the cable industry pretty much since its inception in 1985. And Willner has been a high-profile executive — he has served two consecutive terms as the chairman of the National Cable & Telecommunications Association, this year he was elected chairman of The Cable Center's board of directors and he has regularly testified before Congress on industry issues. He also serves on the executive committee for CableLabs and on the board of directors of C-SPAN and the Walter Kaitz Foundation.

Willner also is no stranger to industry awards. He received the NCTA's highest honor, the Vanguard Award, in 2004. In 2005 he was inducted into the Broadcasting and Cable Hall of Fame.

ROOTS OF A STRATEGY



So when Willner says that Insight has no single Executive of the Year, he means it. But Insight's approach to the business and its subsequent success can be traced back about five years ago, when Willner himself planted the first seeds for the company's new strategy.

“What I felt we needed as a company five years ago was that jolt of competitive experience to come in and redefine the way we looked at our business,” Willner said. That led to his hiring of Jain from NTL, who later hired former NTLers Slattery and Heidary to his team. But it was their experience battling satellite and telephone giants that Willner said has been the key to Insight's success.

“I have been in this business for 35 years,” Willner said. “Most of those years I have spent more time worrying about government regulation. Competition has become the primary driver of why we do things.”

But while one would be hard pressed to find any company, cable or otherwise, who does not think that competition is their prime motivation, Willner and his team have taken a different approach, based in part on Insight's size — 700,000 subscribers clustered in essentially three markets — their privately held structure and the groundwork they have laid over the past several years.

IN THE NEWS



Insight has been in the news over the past few years mainly because of transactions — it went private in a $720 million deal in 2005 that was funded in large part by Carlyle Group, which is now the company's largest investor. And in 2007, Comcast notified the company that it would dissolve its 50-50 Insight Midwest partnership — as part of the Philadelphia-based MSO's strategy to roll up its various interests in cable systems and companies.

Back in 2005, some people were disappointed that Insight was off the public rolls, although its stock never seemed to reflect the actual value of the company, one of the reasons it decided to go private. But that move has allowed Insight to manage its business and make decisions in ways that if it were public, would likely be unpopular. And in the current stock-market climate, that is even more of a blessing.

“We're not looking at our stock price every day because we don't have one,” Willner said. “That means that we are totally focused on the long-term strategic growth of the company. It is a luxury that being private is probably a good thing. We still report publicly — we have some securities that are quasi-public on the debt side. I would prefer not to be public today. This market is dumping the baby out with the bath water.”

Willner said that whether a company likes it or not, there is still a difference between managing a public and private company.

“There is a little bit of a different focus on the quarterly results being the report cards that got sent home every quarter,” Willner said. “You might stretch out a plan to minimize the immediate impact, if it was going to be negative to invest in something that you wanted to do quickly, if the market wasn't going to take to it very well. It was subtle; it wasn't overt. It's never a consideration anymore. I have half a dozen shareholders — one big one — that I have to explain these things to and they pretty much know the business inside out.”

When Comcast decided to sever the partnership, it didn't serve as a distraction for the company because it was such a long time in coming. Comcast had said as early as May 2005 that it had planned to dissolve the partnership, but didn't actually do it until almost three years later. So Insight was not exactly caught unawares by the transaction.

“The first thing we had to do was figure out who was getting what,” Willner said. “I had an appreciation for the fact that we had to determine which systems were going where at a fairly late stage. That's what we did. We came to an agreement in April of 2007 and we actually closed on Jan. 1, 2008.”

Willner said that he and Comcast had an amicable relationship and the reasons for the dissolution were more economic than anything else.

“They understandably believed that they weren't getting much credit for these types of investments in the pricing of their stock,” Willner said. “Brian [Roberts, Comcast chairman and CEO] told me very early on that this was not a long-term strategic investment for them, and they would be likely wanting to take their half and go.”

ROUGH PATCHES



While the past few years have been successful, Insight has been through its share of rough patches as well, posting yearly subscriber losses in the early part of the decade.

Willner said the turn in Insight's fortunes began about five years ago. That was when he let Jain, who had been with the company about a year, implement a strategy that would set the company on its ear.

“It wasn't something that you turned on a dime and all of a sudden it was working,” Willner said. “We're not the biggest company in the industry, but it takes time to turn the ship, and to instill a new culture in your workforce.”

Jain joined Insight from U.K. cable operator NTL in 2002 as chief financial officer. A year later he was named chief operating officer.

Although he had spent several years in the U.K. cable industry, Jain said that he was well aware of the U.S. business and had grown to admire some of the bigger MSOs like Cox Communications.

But Jain's re-introduction to the U.S. cable business after several years in Europe was jarring. Most troubling, he said, was his feeling that cable operators were lacking a competitive edge.

“By the time I came back to the U.S. in 2002, it was like the U.K. industry had lapped the U.S. industry times two, having operated in an incredibly nasty competitive situation with [Rupert] Murdoch with his BSkyB service and British Telecom,” Jain said. “We were created in this crucible of competition, which is very unforgiving. Any misstep and you would feel it the next day. It taught us a lot of things.”

NTL was one of the pioneers of the triple play of voice, video and high-speed data and competed directly against Murdoch's British Sky Broadcasting satellite-TV service and incumbent phone company British Telecom.

“The company I was part of was different, it had ties to the cellular industry right from the start,” Jain said. “NTL approached the world differently — if you don't grow, you die.”

NTL took that growth strategy to the extreme, making a huge string of acquisitions at high prices that eventually forced it into Chapter 11 bankruptcy protection in 2002. NTL emerged from bankruptcy in 2003 with new owners and lower debt. In 2005 it acquired Virgin Mobile, the fifth largest wireless operator in the U.K. for about $1.4 billion, changed its name to Virgin Media and became the first cable operator in Europe to offer the quad-play of voice, video, high-speed data and wireless telephony.

Jain said that although NTL's aggressive growth led to its Chapter 11 filing, that was due more to its acquisition strategy. The fundamentals of customer focus and management structure remained intact and helped the company become successful today.

“After 17 successive acquisitions and a leverage ratio of 14 times [cash flow], eventually you will go bankrupt,” Jain said.

But Jain said that he discovered early that in order for Insight to survive and grow, big changes had to be made. One of the biggest was removing decision-making functions from the field and centralizing them at the home office.

Jain said Insight had fallen into the same trap that a lot of other companies do — setting cash-flow targets for field divisions and working backward. While that may be one way for a company to meet its goals, Jain said that it discourages growth and risk-taking.

“If I'm a district leader and I'm told to hit a 13% [operating cash-flow] growth rate and I'm not told specifically what I should do strategically, I could get to that 13% in lots of different ways,” Jain said. “I could hack my expenses, I could raise my rates to the nines, or I could grow my way into strong OCF. But here's the rub: growth is expensive. On my way to growing toward 13%, I actually have to have a couple of bad quarters, probably.”

Jain said that the decision was made to take the budgeting process — and those cash-flow targets — out of the hands of the field and replace them with other goals.

“OCF growth is just the bottom line and you can't manage to the bottom line,” Jain said. “We recognize that our business is actually very simple — it's the business of connects and disconnects and some residual expenses that you need to maintain the machine of connecting and disconnecting. Connecting comes from direct mail, door-to-door selling, certain media programs you have, certain stuff you do in the call centers to maximize customers that are calling you for information.”

BY COMMITTEE



Willner agreed, adding that strategic decisions are made by a steering committee consisting of himself, Jain, Abbot, Slattery, Heidary, senior vice president of government relations Keith Hall and senior vice president of field operations Gregg Graff.

The steering committee meets once a week via telephone and once a month in person in Louisville, Insight's largest market and the seat of its operations, for a few days.

Accountability is a big issue at Insight, Willner said, adding that while metrics and targets may differ, each executive is expected to meet them.

“This is not an easy place to work,” Willner said. “But the big difference is we have very clear-cut accountability. You know what you are responsible for and you are accountable for it. As long as it's clear, I don't think anybody can claim it's unfair.”

Also key to the management strategy is the input of each executive. Each member of the steering committee gets his two cents in, regardless of whether it is aligned with their job title. So Abbot, the finance guru, gets as much say in operational matters as Slattery does on financial ones.

That, says Abbot, gives each meeting a unique perspective.

“What that means is that I can be involved very much in everything that's going on and have to be if we are going to take that kind of approach, which plays not just to my strengths, certainly my functional areas, but also plays to my interests,” he said.

Abbot spent six years as a naval officer before a stint on Wall Street (at Morgan Stanley); he joined Insight in 2004. He likens his role at Insight to his years in the Navy.

“I tell people this job is really been more like my experience as an officer in the Navy because it's more of a leadership management opportunity than my life as a banker,” Abbot said. “Linking operations with dollars and cents is much more of what we do.”

Abbot said that the steering committee also regularly assimilates information from each field division, using that input to identify trends and pass on any tidbits or methods that may translate to another area. But the biggest focus is letting the field do what it does best, running local operations.

“We don't have them trying to find out what the competition is doing in their market,” Abbot said. “And we have people who are more expert at those types of things to go figure that out.”

Although the steering committee gets input from managers in the field, the final decisions are made at the corporate level. The field managers, Willner said, are the executors of that strategy.

“The field people are not measured on cash flow, because they don't have the ability to control 80% of it,” Willner said. “Why have them spend all of their time attempting to manage 20% of the impact on the scoreboard, which is cash flow. But you can measure them on customer growth, churn, call statistics and compare how you're doing with other districts. If you do all of those other things, the cash flow will come.”

And so far it has.

Since 2004 Insight has grown revenue a collective 40% from $1 billion to $1.4 billion and Operating Income Before Depreciation and Amortization (OIBDA) by 32% from $432 million to $572.4 million.

Jain will be the first to admit that it took a while for the new strategy to work.

“In 2004, I would say I made the mistake of believing that because something sounds so obviously good, that it was easy to implement,” Jain said. “In 2003, we lost about 1.2% of our customer base. In 2004 after launching this new way of working, we lost 1.6%. Things got worse. But change takes time.”

TURNING A CORNER



Things started to turn the corner in 2005, when Insight's basic subscribers rose a total of 2%, mostly in the back half of the year. In 2006, basic customer growth doubled to 4%.

“That's when we really knew,” Jain said.

Not that the new plan was immediately welcomed with open arms by employees. Jain admitted that there was some resistance early on.

“Oh my God, yes,” Jain said, adding that some field managers opted to leave the company, which he supported.

“We lost half of our incumbent management at those levels, the district vice presidents and the management beneath them,” Jain said after the first year of the plan's implementation. “Unlike some companies that go through routine purges, we had no intention of doing that. I told them very clearly how we were going to run the company, and then I told them again and again. And then after a year, we started holding them accountable. Some made their own choice to leave. We parted company with a number of people that left with my full respect.”

MARKETING SPEND



Jain added that Insight was taking flack from investors and the investment community because it was dramatically ramping up its marketing spend — marketing expense grew from 1.5% of revenue in 2005 to 4% to 5% of revenue in 2006.

But the financial numbers proved the company right again, despite having to absorb 3.5 to 4 points of margin pain because of the increased expense, operating cash flow growth was about 11% in 2006.

Jain said the investment was necessary to continue to differentiate Insight from its competition. And within Insight's relatively small territory – it spans three states (Ohio, Indiana and Kentucky) but the bulk of its customers are in Columbus, Ohio and Louisville, Ky. — competition comes in spades.

In addition to the traditional competition from satellite giants DirecTVand Dish Network and telcos Verizon Communications and AT&T, Insight also faces strong opposition from overbuilders WideOpenWest and Knology (in Columbus and Louisville, respectively) and from ultra-competitive CLEC Cincinnati Bell, which also considers the Louisville market one of its strongholds.

Willner shrugged off the amount of competition, saying every cable operator is in a fight for customers with someone.

“We have our share of overbuilds,” Willner said. “The reality is, with two satellite competitors in our video business, no cable company is either competitive or not competitive anymore. It's either they have two competitors or three competitors or four competitors. The difference between zero and one competitor is much, much bigger than one and three, because you're still competitive. All of our lines of business have competition.”

Joyce said that the range of competition has meant that Insight has had to prepare a range of different responses, without straying from the ultimate goal.

“The sense is that they have stuck to their local knitting, but are still forward-thinking on the products they are providing,” Joyce said.

Competition is nothing new to Insight. Back in the late-1990s, Insight had to bear the brunt from one of the first telco video onslaughts: Ameritech New Media's hybrid fiber and coaxial overbuild in Columbus, Ohio. Ameritech flooded the market with promotions and slashed prices — at one point it was offering a 65-channel video package for about $20 per month — and kept up the pressure until it was purchased by SBC Communications in 2000. SBC pulled the plug on ANM and the Columbus systems, as well as others in Chicago, Detroit and Cleveland, were sold to WideOpenWest in 2001.

It took years for Insight to recover. But Jain said the company kept its head and focused on providing good customer service and compelling products.

And that too has paid off. Jain said that when he took over as CFO in 2003, Columbus had about 89,000 subscribers. By the time he was named COO in 2006, it was down to 82,000 customers. But last year, Columbus has about 106,000 customers. In 2005, customer growth in that market was 4%, rising to almost 8% in 2006 and between 6% and 7% in 2007.

“This was a juggernaut of growth, but that came from a need to do it, not just a desire to do it, because of the competition from WOW,” Jain said. “Our strategy vs. WOW was to not let them beat us on service and to offer a better product. That formula works.”

Willner said that while the plan he helped hatch in 2003 has provided Insight with some of the most robust customer growth in the industry, he has even bigger goals.

“What we are trying to do now is to break out of the containment of customer-satisfaction levels that are among the best in the cable industry and become one of the best in all industries,” Willner said. “We have a long way to go; we have some great challenges in front of us, to be Amazon.com, Federal Express or UPS. I'm very proud of what we have done up until now. We were OK but not great in customer service, even when we were graded on the cable curve. Now I think we're pretty good. We're not great.”

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