Commentary & Analysis
FREE: Fear and Hope at Graph Expo
Commentary by Steve Aranoff &
By WhatTheyThink Staff
Published: November 2, 2004
Commentary by Steve Aranoff & Robert FitzPatrick, The EAGLE November 2, 2004 -- Strategic planning and business management are expected to be rational processes based on objective facts. For the printing industry, faced with competition from new media and a technology revolution that challenges its installed base of equipment, the need for a judicious, analytical perspective would seem to be of paramount importance. Yet, Graph Expo revealed that graphic arts executives are as likely to color facts and data with the emotions of hope and fear as voters facing the presidential election. The hope-based orientation revealed itself at Graph Expo during Dr. Joe Webb's presentation, "Revolutionizing the Printing Industry" sponsored by WhatTheyThink.com and Man Roland. Dr. Webb's slide show detailed the realities of an industry in an advanced stage of maturity. The thrust of the presentation, indicated in the title, dealt with long term fundamental trends, not short-term fluctuations. Yet responses and reactions quickly fell into the ever-present discussion of "optimism" versus "doom and gloom." Few people showed eagerness to grapple with the fundamentals of maturity and how to take advantage of opportunities the epoch offers. In deed the data and the analysis that was presented can serve as a useful test to managers as to whether they are facing facts head-on or viscerally resisting reality. Consider some of the basic points: Printing Shipments are finally increasing as are profits but in real dollars, shipments are down 15% from where they were almost 10 years ago. Profits are down 50% from the same time period. Employment in offset printing business is down 15% from where it was 10 years ago. Younger consumers prefer digital media to printing. A generational divide exists in which those under 35 years old are eschewing printing. Printing is being subjected to the conventional test of "hard goods" with tangible, easily measured costs. This gives its "virtual" media competitors an automatic advantage with sharp-penciled print buyers. As a manufacturing industry, printing has fallen behind in productivity measurements, characterized by Dr. Webb as going from "star" to "laggard." Printing is facing a "cracking foundation" in which fundamental trends that challenge the traditional modes of the business are intensifying Do these facts represent a pessimistic view or just a rational, factual documentation of conditions and verifiable trends? Is it helpful and empowering to examine these figures closely or is it disheartening and distracting? As attendee responses to Dr. Webb's presentation reveal they are both. Managers that are ignorant of these data would surely be living in a fool's paradise, and would pose a danger to anyone that would follow his/hear lead. Yet, what human being is not negatively affected by personnel layoffs, shrinking sales volume, reduced profits, downward pricing, and intense and continuous pressure? Joe Webb's presentation advocated a litany of conventional measures to boost productivity, a well-accepted remedy for profitability in the face of reduced volume. These included better capacity utilization, a marketable product mix, computer investments, improved inventory management and maintaining low administrative costs, among others. These are rational and necessary and as prescriptions for survival are virtually unquestioned. Nevertheless, as Dr. Webb noted, they are seldom followed. Is the lack of implementation or the sluggishness of response to the dramatic challenges the result of emotion overruling reason? The answer may lie in the fact that while conditions in a mature industry clearly require aggressive and innovative responses of the types listed by Dr. Webb, the remedies that are indicated will never be enthusiastically endorsed by anyone who actually has to carry them out. This is the human factor that may be impermeable to data, warnings or podium pronouncements. A review of the business factors that Dr. Webb listed in the sections called Get the ____ out of here! offer some insight. The blank space in that admonition is not an epithet. Rather it is what some might consider draconian measures that are clearly required but which few business leaders would embrace. They include: Getting "Fixed costs" out. Fixed costs often mean jobs or long-term relationships. If there were any doubt that jobs are to be aggressively reduced, the list specifically included getting "employees" out and, if that was not clear enough it added "insulated employees." As has been well documented, the most insulated employees may be the very managers charged with "getting other employees out." Another version of this same mandate on the list was to get the "entrenched bureaucracy" out. Few managers will take on this task excitedly. The "entrenched bureaucracy" translates to long time friends, family members and business colleagues. Other terms such as "inefficiencies" and "underutilized equipment" also ultimately translate to downsizing in one form or another. Not on the list are measures to "grow" out of the crisis. It is recognized that while such a strategy might feel better, it is impractical for many. Growth in mature markets comes at the expense of other players, or expanding product lines. All competitors will also be seeking to take each other's business, making the success of such a "growth" strategy unlikely, unless a major competitor is run out of the business through the competitive environment. And new products are equally unlikely because bringing them on adds initially to cost at a time when costs must be reduced – thus further increasing the need for draconian measures to reduce other costs to survive. The unpalatable and difficult measures needed to succeed in this mature market may account for why they are often viewed as "doom and gloom." This characterization does not negate their validity but does confirm that is impractical to expect rapid or enthusiastic acceptance. Some rare few companies will take on the challenge, make the cuts, enact new measures and take strong measures to change company culture. They adopt new ways and embrace change. But what of the others? Is there an alternative path for them? Actually, there is. In practice, many companies will avoid downsizing as long as possible. They will allow equity to dwindle in order to maintain full employment. Some will inject capital to their declining businesses in order to prop them up for extended periods. Others will take no new measures at all, but will eventually allow their companies to be acquired by larger competitors. To take this path, they will have to get over the realization that their company’s net value is nothing near what they may have thought it was. And others will effect cuts grudgingly and gradually and hope they can milk the company to a natural end without ever having taken any proactive plan aimed at long term survival. Finally, some, perhaps the majority, will ignore all the data and admonitions offered by Dr. Webb and others. They will cling to old ways as long as possible. They will protect jobs, maintain underutilized equipment, and make no effort to change the company's products and services, structure or culture. The patterns of "we've always done it this way" and "not invented here" which were in Dr. Webb's list to "get the ___out" will be blithely maintained. These companies will continue in operation longer than Dr. Webb and THE EAGLE probably would have predicted. Inertia always contributes to longer periods for both decline and for initial growth. But it is their ignoring the last item on Dr. Webb's “to-do list" that will likely determine the time and the manner these companies come to their end. That item is: Don’t let banks run the business.