How Houghton Mifflin Harcourt Plans to Cut Product Development Costs

Associate Editor

Houghton Mifflin Harcourt, the Boston-based publisher, education content-provider and technology company, recently announced plans to reduce its spending on content development by 20 percent over the next three years, in a move that puts it closer to a “software development” model of curriculum creation than a traditional K-12 publisher.

The change means that HMH will develop content using a so-called “continuous delivery model” for print and digital instructional materials. That contrasts with the way the company has done business in the past: making a large investment in creating curriculum and content up to two years before a major adoption, then selling into the market.

“We would build all the features, all the content that our customer research suggested would be successful. And we’d launch that program into the market,” said HMH CFO Joe Abbott in an Oct. 17 Investor Day presentation before third-quarter earnings results for HMH. “Then a few years later we would update the copyright of those materials to lengthen their commercial life in the market—and we’d have to invest more to do that.”

Abbott used the analogy of how a high-budget summer film is created to underscore parallels in the process. Producing the movie requires a major upfront investment, with the hope that the costs will be recouped over many years if the film is successful. Similarly, the old system resulted in a significant lag between incurring the cost of producing a curriculum, and realizing revenues from it.

Under HMH’s new approach, the goal is for the company to improve and release new programs—as well as new content, features, and functionality—on an ongoing basis. HMH will budget for this type of product development at about the same level year after year, instead of having costs that spike in one year and are non-existent in the next.

“The marketplace is moving towards more digital content, and it’s a more competitive marketplace,” said Trace Urdan, managing director at Tyton Partners, an investment bank and strategy consulting firm. The changes unveiled a few weeks ago are “about trying to…align their processes much more closely to their digital competitors.”

Reducing Workforce, Changing Product Dev

At the same event that the company announced this product development shift, HMH also shared its intention to reduce its workforce by 8 percent by the end of 2019.

Asked how the reduction in force aligns with changes in product development, CEO Jack Lynch explained one way the company plans to make adjustments. “We use a lot of outside suppliers to flex our capacity to build these programs within, let’s say, 24 months,” he said. In fact, about 50 percent of the company’s “full-time equivalent” employees are suppliers who have been used to build programs.

“You can imagine that when you have hundreds—in some cases thousands—of suppliers working on a particular program, the vendor management and project management required to do that is extraordinary,” he said.

The company will look at eliminating or reducing the number of people required to manage outside suppliers, while “insourcing” or hiring for continuous delivery, he said. “All the work we do with learning architecture, digital rendering, creation of the program, the learning objects, all the meta-tagging is all insourced,” he said. Lynch anticipates “actually adding staff, along with engineers and learning scientists and data scientists, to execute this strategy” while at the same time eliminating or reducing certain positions.

Abbott explained that HMH plans to take “major steps in retooling our content development factory, bringing our developers closer to the work, redesigning processes to reuse content more frequently and more efficiently, and reorienting our planning and budgeting to apply a fixed capacity of content development spend that is prioritized according to the highest return opportunities,” he said.

Meaning for Teachers, Students

The educators and students using HMH content will receive ongoing improvements in those programs, as the company measures what is resonating with users, and what may not be, company officials said.

“One driver of this evolution is the student-to-device ratio in today’s classrooms—from nearly eight students to every device eight years ago to just two students per device last year,” Abbott said in the presentation.

“As a result, our software is getting much more use in the classroom and at home by both teachers and students,” he said. “And our customers expect, just as they do with consumer technologies, that a hosted digital application will improve over time,” from a user experience perspective, but also “in terms of keeping up with fresher and more current content.”

Under the new approach, core content will be developed and released on an ongoing basis. It will be evaluated by tracking multiple metrics, including performance data from actual lessons and student-facing questions, as well as usage data and feedback from educators.

HMH’s goal is to adjust and make changes to improve our programs and invest in the things that provide the most value to users, the company said.

The investor day recording can be found here.

Maggie Campbell contributed to this story.

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