Textbook Case: McGraw-Hill Maps an Electronic Future

FOR The McGraw-Hill Companies, the road to the 21st century is paved with bytes as much as books.

Faced with the digital age, the century-old publisher has moved gradually but thoroughly into electronic media - bringing its stable of products including Business Week magazine, Standard & Poor's (S&P) stock and bond ratings, and its mainstay textbooks along with it.

''About 35 percent of what we do is electronic,'' says Joseph Dionne, the global company's chairman and chief executive officer. He estimates that in 10 years half of the company's products will be electronic.

Mr. Dionne, a former educator, has run the multibillion-dollar organization since 1983. During his tenure, the company has become more aggressive, reorganized, and firmed up its globalization goals.

''The challenge at McGraw-Hill has been to transform the company, retool it with new media, without losing any of the values,'' he says in an interview at DRI/McGraw-Hill, the company's financial forecasting and consulting unit in Lexington, Mass.

Much of the makeover began in 1985, he says, when McGraw-Hill went to its customers to see what it could be doing better. Soon it introduced electronic products relevant to its markets, explains Dionne, who joined the company in 1967.

Today, Business Week is available by computer on the America Online network. And 49 of the firm's other trade publications, such as Aviation Week & Space Technology, Byte, and Platt's Oilgram News, as well as S&P information, are available through electronic channels. The company also offers educational products on CD-ROM discs, and has a site on the Internet.

Dionne, a soft-spoken man, is well-versed on the exhaustive print and electronic products under his control. He does not see the latter as a threat to the company's print materials.

''The real threat,'' he says, ''is not to follow your customer's needs.'' If meeting those needs ''cannibalizes your own [products], better you should do it than someone else.''

But that has not generally been McGraw-Hill's experience, he explains. In at least a dozen cases, ''we've taken a print product and made it into an electronic product, and the sale of the print product went up.''

He attributes this to two factors. First, two products means two sources of revenue, giving the company more money to invest in the print product. Second, feedback from the electronic product has been used to improve its print counterpart.

Dionne points out that technology is not all that people are demanding. ''The fact of the matter is that our customers have asked us to invent as much in the way of print products in the last five years as we have in electronic,'' he says.

The company's dozens of periodicals and books, financial information, handful of television stations, and other products are organized into three groups - financial services, information and media services, and educational and professional publishing.

McGraw-Hill reaped almost $1.2 billion in sales in 1994 from the latter, which publishes textbooks for kindergarten through college. Total 1994 company revenues topped $2.7 billion. Net income was $203 million.

Analysts say the publisher has done well in 1995, thanks in part to major textbook adoptions by states. ''They are a very solid investment'' says Mary Ann Winter, a media specialist at New York's Brown Brothers Harriman & Co.

But next year will not be as big for adoptions, and although analysts expect McGraw-Hill to continue double-digit earnings growth, some say growth could slow in the short-term.

Next year should bring more innovations from the firm - many aimed at general-interest audiences. Says Dionne: ''1996 will be the year of the consumer market at the McGraw-Hill Companies.''

For Christmas 1996, McGraw-Hill plans to launch a CD-ROM product that will help parents reinforce at home subjects that are taught in schools, Dionne says. The company recently announced that these products will come from its new home-interactive division. It is also working with a major on-line service to bring financial planning into the home.

And beyond 1996? ''I think we're going to be a global provider of information,'' Dionne says. McGraw-Hill has made a conscious decision to focus on providing content rather than being a distribution network for such information, he says.

Currently the company does big business selling textbooks abroad, and it has S&P offices around the world. Its activities overseas account for 20 percent of its revenues. That percentage will increase soon, Dionne predicts.

''We're growing a lot faster overseas than we are domestically,'' he notes, ''even though our domestic markets are attractive, the overseas markets are even more so.''