This is the first in a series of articles that will examine the role that business strategy plays in improving the financial performance of commercial printing companies. This article discusses why strategy is necessary to achieve superior long-term financial performance. The second article will analyze the basic economic forces that establish the ground rules of competition in the printing industry and govern the average profitability of the industry. Our final article will provide printers with a framework for crafting profit-enhancing business strategies.

At the beginning of the twenty-first century, printers in the United States face a daunting array of challenges. The U.S. commercial printing industry is now clearly a mature industry. For the next several years, commercial printing sales will grow at a slower rate than the overall U.S. economy, according to industry studies conducted or sponsored by Printing Industries of America and the National Association for Printing Leadership. Despite the recent efforts by a few companies to consolidate the printing industry, it remains highly fragmented. At least in part because of this fragmentation, the industry suffers from chronic overcapacity, and competition within the industry is as intense as ever. Rapid technological improvements in equipment demand larger and more frequent capital investments. And, if all this were not enough, new methods of visual communication are challenging the primacy of commercially printed materials for many applications.

These challenges have combined with other economic forces to keep printing industry profits under constant pressure. According to PIA’s annual ratio studies, profit margins of U.S. commercial printing companies averaged 3.0-3.4% of sales throughout much of the 1990’s. Even this low rate of average profitability does not tell the whole story. The U.S. printing industry is sharply divided, with a small minority of firms producing reasonably strong rates of revenue growth and profitability, while the large majority of printing companies struggle with very slow growth and little or no profits. Looking to the future, it is virtually certain that the forces pressuring industry profitability will become more, rather than less, powerful.