Mondays with Dr. Joe Webb October 9, 2006 - Dr. Joe at Graph Expo - Economic Roundup - Printing's Strong August - Keys to Print Business Success? Dr. Joe at Graph Expo MAN Roland is graciously sponsoring yet another event with yours truly for the fourth year in a row. I'll give a brief economic roundup, and then I'll head into “Renewing the Print Industry, Revisited,” where I'll update and extend the discussion about repositioning print, printing companies, and will discuss print as “offline media.” Hope to see you there. The event is scheduled for Tuesday, October 17 th , at 8 AM, and will be held in Room S106B, McCormick Place. Click here to register. Economic Roundup The economy is still moving sideways, with the Institute for Supply Management’s Manufacturing Index at 52.9, down from August’s 54.5. Several of the components of the Index dropped below 50, indicating contraction. The inflation indicator cooled off considerably, from 73 to 61, which is still high. Employment turned negative. ISM’s Non-manufacturing Index dropped as well, and is also at 52.9, which is odd because it has been consistently higher than manufacturing. Non-manufacturing employment is still in positive territory and actually improved. The inflation indicator dropped more than the manufacturing one, and is now at a level consistent with the other parts of their index. Back to top Printing’s Strong August Printing had a strong August, with current dollar shipments up +3.9% compared to August 2005. On a current dollar basis, shipments have turned positive for the year at +0.1%. August shipments, still below those for the years 2003 and 2004, were +$297 million higher than August 2005. July’s 2006 shipments were revised down by -$22 million. We have had four positive months in a row on a current dollar basis, averaging +$245 million per month, or +3.2% higher than last year. Things look different on an inflation-adjusted basis, but August was a positive comparison, up +$8 million, which is statistically small. For the last four months, inflation-adjusted sales are down -$57 million, which is essentially flat with last year. Back to top Keys to Print Business Success? It is very clear: research has told us what successful printing companies do: • carve out a business niche where they gain a distinct advantage over competition; • keep up to date with new equipment; • gear their entire company to support the niche they selected and developed; • and, finally, they recognize the need for motivation and development of personnel. Few executives in the industry would disagree with any of these items, as identified by the authoritative multinational consulting firm McKinsey. But this is a trick: that was the advice from 1976, thirty years ago, in the report “A New Look at Management and Profits in the Printing Industry.” This advice guided much of the industry’s thinking for decades, even those who were not aware of the report, and it's full of holes. McKinsey interviewed 65 printers, combined it with data gathered by Harris executives (the company sponsoring the project) at PIA meetings held in the spring of 1976 in Boca Raton; Maui; and Kansas City, MO. In essence, this meant that those who could afford to get away from their plants were interviewed. And even worse, it asked successful people why they were successful; it didn't empirically evaluate their businesses, or the effectiveness of their actions, or whether or not their words matched their deeds. It did not determine if unsuccessful printers attempted the “successful” behaviors and failed, if implementation skills were the real differentiator, or perhaps something else that was unstudied. The McKinsey study didn't makes sense then and doesn't now. This is why. Carving out a business niche requires a deep sense of marketing, because it requires thinking beyond the physical product to the complete workflow of services. Back in 1976, they were referring to hard production of physical goods as the way to define the niche, and directing production investments specific to that niche. It's different now; production of hard goods only opens one to worldwide competition from others who also produce those goods. Gearing an entire company to support the desired niche is a matter of good management; it’s not even worthy of a separate callout. Managers always want their whole business moving in the same direction, niche or not; resources are too scarce to do otherwise. But what is a niche? I have seen many printers whose only niche is the ability to produce print at lower costs than competitors without focusing on niches, and they do well. Why? Because niches are not all they're cracked up to be. Strangely, no one writes about how targeting a niche raises the risks of ruining a business because you limit your potential marketplace. Just ask printers who specialized in black & white printing, annual reports, books, newsletters, color separators, or other categories that have suffered because of offshore competition or displacement by the Internet or other technologies. That extra risk of a niche strategy has an extra reward, though, when it works out; finding worthwhile niches is an important part of strategic planning. But if the niche dies, your business dies, too, and you have to establish another niche. Niche-focused businesses require a vigilance and willingness to defend the niche, and a nimbleness to shift to a new one when necessary, or abandon it when the rewards are greater elsewhere. The managerial skills required to do so are usually underestimated. A more general business strategy has less risk, and also less reward. But they are both viable business strategies for those who choose one or the other. (There are other strategies where niches are used as stepping stones to build a broader business base, but we’ll leave that aside for now.) Keeping up to date with new equipment was easier in 1976, because at that time, printers bought presses; and there was a thriving trade service industry capable of almost any support task imaginable. Today there is no structure of such size, and the equipment choices printers must make are inherently more difficult. Now, it's not just presses; it's software, it's communications, it's digital printing, none of which are simple. Most of all, the recommendation to keep up with new equipment ignored the fact that print fits what economists call a “pure competition market” very well. One of the characteristics of a pure competition market is that the same production technologies are available to everyone. They certainly have been, but today, they're also available to our customers and to other competitive industries (such as office superstores). This advice wasn't good then, and it's definitely not good now. It's what you do with the equipment that matters, especially how it is managed, and how it is a springboard to do profitable things. Newness of equipment has little to do with it. Motivation and development of personnel is always essential, but it's often the owners and top managers who need them more than the employees. The advice from 1976 is dispensed from a business culture that viewed managers as elites. That's understandable; at that time, Peter Drucker was very popular, and it was easy to (mis)interpret his writings in that way (in contrast, just a few years later Tom Peters would advance the view of managers as cheerleaders and coaches). Today, we've gone from elites to superstars, and management in general has not improved. In most print businesses, owners were never really elites inside the plant (but they enjoyed acting like they were when outside of it). I've known lots of owners who were active in sales or in managing production. It's no accident that the work ethic of many small and mid-size shop owners would be infectiously motivating to their employees. Compensation programs are still misapplied as motivators today, especially in sales. No one doubts the need for a motivated workforce, and the more research I have seen over the years, the greater the importance employee selection seems to be in ensuring that. After that, the need for a well-run workplace is pretty obvious. Ultimately, most business recommendations from reports like the one from McKinsey and most business books are too trite to be truly useful. It is rarely acknowledged that there are many paths to profitability in a dynamic environment. Strategy has to fit the targeted marketplace, however determined, and it must suit the capabilities and aspirations of the company implementing it. In a future column, I'll make my own McKinsey-like recommendations. Perhaps, in 2036, some smart aleck like yours truly will discover this column and discuss how I got it all wrong thirty years prior. That person may even be reading this today. Back to top New White Paper I recently wrote a white paper discussing the current state of the industry and its need to restructure its equipment base. The paper was commissioned by Presstek. It can be downloaded by clicking here. This Column Will Return on October 30 We're taking a planned break to make room for WhatTheyThink's extensive Graph Expo 2006 coverage. In the meantime, be sure to check my blog where I post links and commentary two to three times a week. Every week, executives who subscribe to my private podcast, PrintForecast Contrarian View get commentary about industry events and trends that can't be found elsewhere. You can get more information at my e-store. The free PrintForecast Perspective newsletter will still be published on Thursdays. I look forward to meeting many readers of this column at Graph Expo. Please stop by and say hello, especially at the Tuesday morning presentation, sponsored by MAN Roland. For those who can't attend the event, plans are in the works to make slides and audio available for download.