Tim Armstrong trumpets AOL successes, urges ‘kaizen’ spiritual-business approach on employees in New Year’s Eve missive

Tim Armstrong at the TechCrunch Disrupt event this spring. (Via TechCrunch Disrupt)
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AOL chief executive Tim Armstrong closed out 2011 with a 2,000-word motivational memo emailed to his several thousand staffers around 7 p.m. on New Year's Eve.

One feature that was probably enough to put a damper on more than a few New Year's Eve plans was his emphasis on "kaizen," the principal of "continual improvement" that proliferated in postwar Japan (and of which Toyota is the leading example in business). "In 2012, we must be a culture centered on the principle of kaizen, the practice of constant improvement—and that applies to all of our products as well as all of our corporate services," Armstrong wrote.

In his letter, Armstrong rattled off what he called "an impressive list of concrete items" achieved by the company in the past 24 months (advertising gains, redesigns and partnerships, streamlining, etc.) while emphasizing the need "to create" and "build" in 2012: New products, new technology and, of course, profitability, he wrote.

The memo noted the rapid expansion of the now 50-section Huffington Post, which AOL acquired for $315 million back in March, as well as the Gremlin-like multiplication of Patch sites, whose numbers have grown from 30 just two years ago to more than 850 today. Patch, a nationwide network of hyperlocal news hubs, "added over 10 million unique consumers, and increased to over 5,000 new customers," wrote Armstrong. (He obviously didn't mention a recent Business Insider report claiming Patch was set to lose $100 million in 2011.)

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Armstrong also discussed the company's "talent culture," which has suffered from something of a mini-exodus lately.

"A lesson for 2012 will be the need to shift our talent culture from one where talent changes result from brand changes to one where talent is a corporate asset that we grow within our streamlined stable of brands," he wrote. "I would expect us to continue to be a very attractive place for the world’s best talent and a place that our current talent will see opportunities for growth and exciting challenges."

You can read Armstrong's full memo below:

AOLers –

I hope you all have a great New Year’s and are spending this time with family and friends. As we close 2011, I wanted to share some reflections on the year and look forward to some important themes for 2012. In 2011 we accomplished a great deal as a team and we set the company up for long-term growth in key segments of the Internet’s future. We are leaving the year a healthier and more disciplined company – and a company poised for continued improvements in 2012.

Looking Back - 2011:

During 2011, AOL touched over 250 million global consumers, millions of customers, tens of thousands of publishers, and a growing list of important partners. Our transformation has been substantial and we continued to invest in our bold strategy throughout the year. From a tangled set of brands, products, regions, and technology platforms two years ago, we now have a company that contains powerful brands, powerful products, and a simplified technology foundation that will allow us to scale in key markets.

In the last 24 months we have completed an impressive list of concrete items that form the foundation for our work in 2012:

- AOL grew OIBDA sequentially for the first time in 3 years in Q3 2011

- AOL grew total Advertising year-over-year for the 2nd consecutive quarter in Q3 2011

- AOL grew Global Display advertising year-over-year for the 3rd consecutive quarter in Q3 2011

- AOL grew Third Network Revenue year-over-year for the 2nd consecutive quarter, and sequentially for the 5th quarter in a row in Q3 2011

- Search revenue declines were the lowest in almost 2 years in Q3 2011

- We implemented the new search product in 2011 as part of our significant 5 year extension to our Google search partnership

- Subscription declines continued to moderate and the core subscription business is now leveraged into selling broader subscription services

- Video viewers, views, and revenue all grew at over 100% Y/Y during Q3

- Huffington Post expanded from 27 sections to over 50, opened two new countries, and increased video insertion rates to over 70%

- Patch expanded from 30 towns to over 850, added over 10 million unique consumers, and increased to over 5,000 new customers

- Mobile pageviews doubled during 2011 and mobile advertising was integrated into AOL’s core advertising system

- We launched major redesigns, partnerships, and new products across all of AOL’s endemic content brands, including Engadget, TechCrunch, Moviefone, Mapquest, the AOL Homepage, and AOL Mail

- AOL re-entered the International marketplace as we had planned to do after the successful International restructuring of 2010

- We announced major partnerships (Examples: The Sporting News, Move.com, Everyday Health, Cambio, Yahoo/MSN, Vivaki, Le Monde, El Pais, and a number of branded entertainment deals)

- We simplified over 30 advertising and content platforms to 5

- We restructured our advertising systems, sales structure, go-to-market strategy, and integrated video, local, and mobile into the core advertising business

- AOL Technology Operations fundamentally rebuilt AOL’s core serving, data-center, and platform infrastructure, and it launched the first “lights-out” data center in 2011

- We repurchased close to 10% of the company’s outstanding shares at attractive valuation levels during Q3 and Q4

- We restructured the company from 10,000 employees and contractors to approximately 5,000 employees, while recruiting approximately 2,500 new team members

- We exited approximately $250M of unprofitable revenue and sold non-core assets

- We removed over $500M in expenses

- Having begun 2010 with ~$100 million cash and acquired significant assets for the company since then, we are ending 2011 with ~$400 million in cash

The corporate groups, which work to support our business units, also had a series of important accomplishments during the year. We were able to streamline operations and costs throughout the company. AOL continues to get more and more nimble – we are doing more with less.

The technology infrastructure got many needed upgrades and new capacity built on cloud computing infrastructure. Our M&A team was able to do fantastic deals for the company, including the Huffington Post deal. Business Development was able to set up large partnerships with device, wireless, and important content partners. The finance team was successful in driving our rigorous company planning process and an improved forecasting system. The HR team consolidated the recruiting process, the review process, and the level of transparency we have on our team leaders and performance. Our legal team continues to counsel and guide us through our transformation and the re-entry into new markets. Our brand marketing continued to re-invent how AOL is perceived, as well as started the process of building a house of brands that have global appeal and consumers love.

We also learned a number of important lessons during the year. The first lesson was around maintaining and accelerating a culture of high expectations. “Beat the Internet” has been an important theme in the turn-around of AOL. In 2010, we had a very strong year of organically improving our experiences. In 2011, we spent needed time on integrations and transforming our brand portfolio. In 2012, we will be back to maniacal improvements of our consumer experiences and a host of important product launches. In 2012, we must be a culture centered on the principle of Kaizen, the practice of constant improvement – and that applies to all of our products as well as all of our corporate services.

The second lesson is centered on a more ruthless consistency of only operating within our strategy and giving our teams the ability to work on important projects that will accelerate our transformation. With the Top Box priorities we launched in 2011, the company was able to move key growth initiatives and say no to the projects that were not important to the long-term success of AOL. In 2012, we need to be even more disciplined, and we have room for improvement on this front.

The third lesson is the need for a deeper injection of a consistent technology thread in our product development. We need a more technology-centered differentiation in all of our products. We have to avoid building products that are just incrementally getting better or trapped in the cycle of only building features for other platforms – we are not a feature company. We have to solve real human problems with our products and technology.

A lesson for 2012 will be the need to shift our talent culture from one where talent changes result from brand changes to one where talent is a corporate asset that we grow within our streamlined stable of brands. I would expect us to continue to be a very attractive place for the world’s best talent and a place that our current talent will see opportunities for growth and exciting challenges.

Ending 2011, we believe our stock price does not reflect what our team achieved during the year. In our opinion, the company remains undervalued, and we will eliminate the value gap by improving our operating results through the disciplined execution of our long-term strategy. Execution is the most important driver of our valuation growth, and we’re going to have another big year of improvements in 2012. We reinforced this view by executing the stock buy-back program.

Looking Forward – 2012:

We enter 2012 for the first time in many years with one agenda item – to create. The word “create” defines everything we are trying to accomplish as a 21st century digital media company. We are creating world-class experiences and delivering high-value content that is rooted in the innovative spirit that defines our industry and AOL.

There are some specific areas that we would like to see created and built during 2012. We want products to be created and built with a technology-centric model that is differentiated and leverages our investment in content and operational scale. We have great examples our of engineering teams’ game-changing products at AOL, but 2012 is the year we move from examples to an always-on technology process for products – including the internal tools we use as a company.

As part of the focus on technology and building, we have scheduled a weekly engineering meeting with the executives where our engineers will have an open platform to show product work and ideas. Alex Gounares and I have been planning the session, and we have made it part of our executive session every Monday. We expect the engineering teams and operations teams to press the company on innovating all areas of our business.

We will also be adding a deeper process around talent recruitment and talent management internally. Creating great Internet experiences for our customers starts with being a place where our people can thrive at work, where they know how their efforts contribute directly to the company's important purpose in the world; where they can learn and grow in their careers; where they are paid for performance and have opportunities to build wealth; and where the environment supports high performance at a sustainable pace. I've been working closely with Chief People Officer, John Reid-Dodick, to review our people strategy to ensure we are competitive in these dimensions and that we are innovating to create opportunities for our people to learn and grow in ways that lead our industry.

We will also be going deeper into our purpose and mission as a company in 2012. We are building the first branded media and technology company of this century – a mission we started in 2009 and we must drive that mission forward in 2012. To create a more meaningful purpose behind our mission we must measurably improve consumers’ lives. We need to be the brands that people rely on to make themselves smarter, wiser, healthier, sexier, faster, funnier, more connected, more interesting – and more fulfilled. As much as the digital age has disrupted many aspects of life and work, the basic tenants of what people care about endure. Our purpose will move further into touching all aspects of human lives in more human ways – online and offline. The Internet has been built by discrete segments of people and there is a big opportunity to expand the design, content, and services to some of the most meaningful groups of consumers in the world.

We also want to continue to create a more profitable company in 2012. Growing healthy profits while we re-create a powerful Internet asset in AOL is our goal and it has to be the foundation of our mission and purpose. Being a very healthy company will allow us to provide more and more powerful services to our global audience.

As a reminder, here are the 2012 company goals we’re focused on:

- Unique Visitor Growth

- Revenue Growth

- Adjusted OIBDA

- Free Cash Flow

- Consumer Net Promoter Score

- Advertiser Net Promoter Score

- Employee Pulse Survey Index

In closing out 2011, I want to thank all of you for your effort and contribution, and for the passion you bring to work every day. We have a company that is poised for growth and the external world hasn’t seen or recognized our hard work yet – they will take note during 2012.

For 2012, let’s create. We’re set up and organized to have a great year. Our mandate is to create awesome products, sell those products, and have fun transforming one of the best brands in the world. Let’s go get it done – GO AOL - TA