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Commentary & Analysis

A Healthy Franchise Network = Healthy Growth

With a little smartsourcing on the side By Barb Pellow November 8,

By WhatTheyThink Staff
Published: November 8, 2006

With a little smartsourcing on the side By Barb Pellow November 8, 2006 -- Franchising remains a significant business model in most industries. As the statistics in the April 2006 "Quick Printing Magazine" Franchise Review indicated, while the number of franchised print shops industry-wide continues a gradual decline, sales per shop in most print franchise systems continue to grow. A recent across-the-board Gallup Poll of US franchisees found that more than 94 percent consider themselves successful and more than 75 percent would buy their franchise again. In our industry, the missing component in the business case analysis for digital printing has been the infrastructure investment required by small commercial and quick printers to support successful implementation of a document services model. Depending upon the print service provider's target market and application mix, the infrastructure investment can be substantially greater than the original investment for digital printing equipment. In a report titled "Study of Small Commercial and Quick Printers," released in October 2006 by PRIMIR, the researchers pointed out that quick print franchisees have the ability to leverage corporate franchisor infrastructure investments to participate in growth market opportunities, while many independents find it difficult to invest the time and dollars required to research, develop and deploy new solutions enabled by investments in digital technologies. And an important part of that infrastructure investment involves the Internet. According to the PRIMIR study, "Quick printers overwhelmingly anticipate the Internet to become more important as a source of business over the next five years, growing to an average of 21 percent of their business." The study also concluded, "As the speed of doing business in today's digital world continues to accelerate, and technology becomes more complex, it will become increasingly difficult for smaller independent printers to keep up. Franchisees and national brands have the advantage of being able to amortize investments in research and development across a large number of centers, and those locations can take advantage of the knowledge and expertise of the parent organization with less expenditure of time and money." Andrew Hrywnak, President of Toronto based Print Three, clearly understands the value that the franchisor needs to bring to the franchisee. Print Three is one of Canada's largest printing networks. Its sixty-plus Smart Document Centres are equipped with up-to-date digital print and procurement technology that is easily accessible by major corporations. While each of the Smart Document Centres are owner-operated, they are backed with the infrastructure of the Print Three franchise network. When Hrywnak took over as President of the Print Three network in 2005, he also looked closely at the critical trends in the printing industry in Canada. From a statistical perspective, according to Industry Canada, - Canada's commercial printing industry is the fourth largest manufacturing employer with more than 84 000 employees working in 5,834 establishments. - The Canadian printing industry is the second largest online seller in Canada (in terms of business-to-business and business-to-consumer), surpassed only by the transportation equipment manufacturing sector. - The printing industry ranks third with 13.2 percent of its companies selling over the internet, surpassed only by electrical equipment, appliance and component manufacturing at 17.7 percent and textile product mills at 17.2 percent. Hrywnak said, "We need to stay on the leading edge of technology, bringing value to customers as opposed to product. That was what was required make us different from the rest of the printers in Canada. It is both a challenge and an opportunity." The Print Three team also realized that its biggest opportunity was in providing off-site contracted print services. This is defined as document services provided under contract at a service provider's facility which is not located at a customer site. According to the InfoTrends Document Outsourcing Forecast, contracted printing services represent the largest revenue opportunity in the Canadian market. It is experiencing a CAGR of 3.8 percent, rising from CDN$3.6 billion in 2004 to more than CDN$4.3 billion in 2009. Contracted printing is experiencing a growth because off-site services continue to offer compelling cost structures compared to their on-site counterparts. Print Three has worked to establish an infrastructure where franchisees can collaborate to collectively address this growth opportunity. The view at Print Three is that the combined organization can be a "smartsourcing" partner. Smartsourcing is different that outsourcing. In an August 2006 Forbes magazine article, Tom Koulopoulos, founder and CEO of the Delphi Group, discussed the differences between outsourcing and smartsourcing. His specific view was that outsourcing is "lift and shift," meaning an existing process is lifted from its current organization and shifted to a third party. The third party typically achieves economies of scale through shared services and the benefits to the customer are reduced costs and a transfer of risk to the third party. Alternatively, smartsourcing is about using partners who can help a company focus on its core, balance risk and opportunity, increase innovation in business processes, and put in place an attitude that can optimize all of these factors. At Print Three, through strong infrastructure and the extensive franchise network, its objective is to be the best "smartsourcing" partner in the industry. The Infrastructure Print Three focuses on multiple options for smartsourcing document management requirements. It can provide smartsourcing on-site, off-site and/or online. Smart Document Management Centres can be set up on site at the customer's location. This involves no capital outlay for the customer for either staff or equipment. Hrywnak said, "The customer can deal with an experienced print service provider versus manufacturers of equipment, and customers will not be asked to sign equipment leases. Our focus is getting printed materials done right." Print Three's primary focus, however, is off-site contracted print services. With sixty wholly Canadian-owned Smart Document Centres across the country, Print Three is equipped to deliver documentation on demand. These Centres are strategically positioned regionally and nationally. They are equipped with document production and finishing solutions to ensure customers' document production needs are met. Hrywnak's intent is to expand the physical number of locations and extend into both eastern and western Canada. The target is to add four to five additional locations annually. The optimum number of sites with the right geographic reach in Canada is about 100. Hrywnak also sees opportunity to partner with cross border firms. As Fortune 500 firms extend global reach, Print Three also needs to have business alliances in place to meet document production and distribution needs. The Internet changes everything and Smart Document Service online was a response to changing customer needs. Print Three has designed three unique online offerings that seamlessly integrate with customers' web sites and bring the power of the document print production centers to the desktop, DocuKeeper, DocuKeeper Pro and ePower Online. DocuKeeper is a web-based print storage and order system. It lets users save, store, and retrieve frequently printed materials and reorder them directly from Print Three. Customers browse their DocuKeeper web-based files, click on the items they want to reorder, and go through the system's reordering process. Users are provided with a customer branded web site. This means seamless integration with the corporate intranet or portal. DocuKeeper Pro adds extra document management features to its Basic Docukeeper version. And Print Three's premier offering, ePower Online, is targeted at managing an organization's marketing assets and marketing support materials with a heavy emphasis on brand management. Implementation by a Franchisee Franchisee Steve Dugal manages the York Mills Centre Print Three franchise. When asked what his growth rate was in 2005, his response was 60 percent. While the growth was off of a relatively small base, the number is still staggering. One of the key successes Steve has had is with Sandals resorts. With the help of the Print Three Internet infrastructure, Steve is providing sales and marketing materials to a network of travel agents to help promote a Caribbean experience. Travel agents can log onto a web site to order and customize materials for their particular customer base. It's a service that could have been challenging for an independent small commercial printer to provide. A Vision, a Strategy and Words of Wisdom for New Network Partners The Print Three network is growing at between 5 and 7 percent annually with a target to drive that up to in excess of 10 percent. Several franchisees are growing at high double digits. Hyrwnak said, "I am excited about our industry. There is a revitalization driven by digital technology. What's happening now is waves of young people are coming into the printing industry, and they are not afraid of computers and digital solutions. We are also seeing our some of more experienced leaders adapt to the changing technology with growth in the double digits." The strategy being implemented at the Print Three franchise network is focused on an annuity contract print business model. According to Hyrwnak, "Print Three is not a corner copy shop. The real power of our franchise network is the ability to operate as an entity to meet complex customer needs. As we work together, we can satisfy the diverse needs clients have for contracted print solutions. We can be the smartsourcing partner for the $ 4 billion contracted print opportunity in Canada." As Print Three attracts new franchise members, they come in with a clear vision, strategy and commitment to be the smartsourcing partner who can help customers focus on their core business, balance risk and opportunity, increase innovation in business processes, and put in place an attitude that can optimize all of these factors. Barb Pellow is Managing Partner of Pellow and Partners, LLC. She can be reached at Pellow barb@pellowandpartners.com



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