Continuing coverage of the quick print market is particularly relevant during our coverage of On Demand. With a broad range of new products and services being announced at the show, it is a good opportunity for quick and commercial printers to take the time to re-evaluate their business strategies and their portfolio of offerings to assure that they are meeting customer needs in the most proactive manner possible. The printing industry has been hard hit during a particularly difficult economic period, but as Dr. Joe Webb advised readers recently, “Navigate the economy -- don't fear it, don't blame it. Act! There are some companies doing quite well right now because they know this instinctively, and look at these situations as opportunities.”

WhatTheyThink is pleased to bring you an in-depth discussion with Mike Witte, President & CEO of AlphaGraphics. In this thought-provoking piece, Witte shares his views about why AlphaGraphics is well positioned for continued success, and emphasizes the importance of disciplined strategic, financial and operation planning – and relentless execution against those plans.

WTT: Mike, thanks for taking the time to speak with us at WhatTheyThink.com. AlphaGraphics has traditionally kept a relatively low PR profile. Can you bring us up to date on your latest developments?

MW: Up front, let me say that the low PR profile has been a conscious decision. The vast majority of our customers never see industry or “trade” press. We talk to our customers, not our competitors, as a rule. I don’t need to see my name or picture in a trade magazine.

I like to think about AlphaGraphics’ evolution as a process of continuing to execute on a strategic plan that we have been updating over the last several years, rather than a list of discrete new developments. One of the strong biases we have as a network – and our network now consists of 285 stores -- is in the area of planning; the way in which we drive revenues. The level of success within the network has much to do with planning.

As I tell my franchises: The good news is, we do formal and strategic planning and involve them intensely in the process. The bad news is we insist that we and our franchisees execute on those plans! This is important to the overall AlphaGraphics brand and what customers can expect from us as a brand.

WTT: What type of involvement does this entail, then, on the part of the franchisee and yourselves as the franchisor?

MW: First, we involve our franchisees heavily in defining the support we provide to them. We are also very serious about requiring that all of our stores do a quality job of strategic planning. From the franchisor level, we support the planning process at the store level in terms of statistical support, benchmarking around which to develop their plans, seminars in the field, etc. We think that strategic planning is just good business, and is a competitive advantage, particularly in this industry, but also for small businesses generally. If you have a good vision for your business, a strong operational plan, and a detailed financial plan that defines what you are going to achieve in the various profits centers -- and you have someone like us to hold your feet to the fire and make sure you follow up on these plans – it is an enormous advantage to a quick print operation. This is fundamental to how we run our network.

WTT: From a financial perspective, then, what do you require from the stores?

MW: When I came on board, few stores in the network had any kind of organized overall business plan and less than 50% of the stores had any kind of accurate and timely financial statement. Today, in any given month about 95% of our franchisees have formal, current financial statements and an up-to-date business plan in place. These financial statements are produced in a format that is comparable to the rest of the network. In return, we work with franchisees on a monthly basis to assure that they thoroughly understand where their business is financially and what they need to do to correct any issues. It may sound pretty boring, but I can tell you that outside of our network, few quick printers do this in a structured and formalized manner. As a small business person, you have to have a plan, and you have to be able to measure results. Nothing else makes sense unless those two things are in place. And then we work from there.

WTT: How about from the perspective of an operational plan?

MW: Having laid the financial foundation, what really sets us apart and helps drive our success with the corporate client base is the fact that we have very strong system standards. These are standards that we publish and enforce as a network -- 365 days per year. Our operational standards are reviewed and approved by a franchisee committee, and they relate to everything from hardware and software, to digital printing capacity to offset printing. The standards cover staffing levels in stores, and the marketing effort that is required. There are clear expectations on the part of both franchisor and franchisee that these standards will be adhered to.

The value of the brand is a direct function of the consistency of the network. Whether you are a customer doing business with us in more than one location, or you are one of our franchisees who needs to entrust one of your customers to another location, it is absolutely critical to maintain a predictable level of consistency in system standards within the network. A great deal of our time is spent making sure franchisees understand the standards, and that they are strong enough financially to make the investments over time required to stay current with an evolving market.

Day to day, what keeps a corporate customer coming back is the predictability of your service. We think our job as franchisor is to evolve strong operating systems that cover every aspect of our interaction with customers, from sales to taking the order to processing the order to following up on quality. We are maniacs about having our stores adhere to the operating system standards.

WTT: Do you use any external standards as part of this process?

MW: We are the only franchisor in the world whose franchise support systems in headquarters are ISO 9002 certified. Our operating systems are ISO 9002 compliant, and nearly 100% of our stores -- domestically and internationally – are ISO 9002 certified. It took us five years to get this done, and it was not a trivial process. And as you are aware, ISO 9002 certification is not a one-shot deal; it is an ongoing process. It means driving quality management deep into your organization and being audited by outside auditors. We maintain a staff of internal auditors as well.

The point of all of this is to create a customer experience that is consistent within and across stores – that’s what the corporate customer wants.

WTT: As part of the ISO 9002 and quality thrust, I am sure you must also have to deal with the issue of digital competency.

MW: As an organization, we recognize that quality is not only defined by the product, but customers today are also seeking digital competency from their suppliers. In our industry, digital competency has been a huge problem. Virtually all of our files now come in digitally. The customer believes that the file is perfect and is going to run, but we all know that up to 85% of files fail due to problems of one sort or another. When the locus of digital competency in a print operation resides among a very few individuals, it creates a huge process bottleneck.

At AlphaGraphics, we embarked on an effort to write digital curricula for every position in our stores and a standard that says that everyone with material customer contact – the key operator, owner, sales person, etc, -- must pass minimum standards testing related to their ability to accept, troubleshoot and output digital files. The point is, you have to eliminate the bottleneck that is caused by people’s lack of comfort in dealing with these issues. Our process means that the digital competency is distributed throughout the organization.

WTT: What about e-commerce?

MW: Our overall philosophy here has been that the failure that occurred in this industry in the dot-com frenzy of a couple years ago had nothing to do with who could write the slickest software. The failure had to do with not having in place a network with consistency in equipment, operating systems and quality management systems that could fulfill customer orders on a multi-location basis, whether they come in physically or through e-commerce. What was built back then were primarily layered front ends with no back-end fulfillment process.

Our goal has been to build the best fulfillment system in the world. This benefits every store and every customer. Building e-commerce capability on top of that fulfillment infrastructure then makes sense for the customer. We have built thousands of ordering sites for individual customers. These are very simple -- not flashy -- and do exactly what the customer wants them to do. They allow the customer to reorder frequently ordered items from a company they are already doing business with.

On top of that, we have built more elaborate ordering capability for larger customers and corporate accounts. Today, AlphaGraphics stands as a great success story for a full service print network in terms of being able to provide consistency as well as relatively sophisticated e-commerce services.

WTT: AlphaGraphics has consistently demonstrated among the highest per-store revenue numbers in the industry. What do you attribute that to?

MW: The reason our volumes are so high and corporate customers are virtually 100% of our business has to do with the entire philosophy of our brand from Day One -- full service. The business customer is willing to pay for service. I don’t care who you talk to or what survey you use, customers in the business community want full service; they want someone to manage projects for them. They have been downsized and right sized; they increasingly employ remote and virtual workers who have never met the marketing department and just need to get the job out.

Part of our operational standard is the ability to project manage with a high element of service. All the surveys I’ve seen – and we do quite a few ourselves -- show that price is number four or five among things these customers value in a printer. They want their jobs done right, on time, and with a high level of project management and service involved. These values always rank above price. From an operational perspective, that means that our stores have to manage a wide variety of profit centers – everything ranging from full service graphic design on the Mac and PC, to digital and offset printing, bindery, mailing services and large format printing. Across all of this, they have to be able to control quality and deliverability as part of the project management process for the business customer.

This is a high-break-even business that requires better franchisees, employees, training systems, and operating systems from us. So our stores better be higher volume than our competitors!

And we are also structured to support our franchisees in achieving these goals. I employ more support people in the field -- in sales and marketing and operations -- than the rest of the industry combined. Since we moved from Tucson to Salt Lake City, we have built a new corporate training facility. We have a larger technology and training staff than the rest of the industry combined. All of this reflects our philosophy about what the customer wants.

The bottom line is, we are structured so that our franchisees are able to support their lifestyle needs yet still have cash to reinvest in the business. What’s made us successful is sticking to that strategy over time, and our franchisees have been very supportive.

See part two tomorrow!