Leveraging the Transformation of the Printing Industry

Transcription

1 Headquarters 97 Libbey Industrial Parkway Suite 300 Weymouth, MA Phone: Fax: On Demand Printing and Publishing Consulting Service May 2005 Leveraging the Transformation of the Printing Industry Table of Contents Europe 3 rd Floor, Sceptre House 7-9 Castle Street Luton, Bedfordshire, United Kingdom LU1 3AJ Phone: Fax: euro.info@capv.com The Future of Commercial Printing... 3 Common Success Requirements... 5 Tactical Best Practices...5 The Future of In-plant Providers...6 Tactical Best Practices for In-Plant Printers...7 Japan Hiroo Office Building Hiroo Shibuya-ku Tokyo Japan Phone: Fax: info@gsm.to As we emerge from what many have described as the worst economic period in memory for the printing industry, market data suggests that the industry is undergoing what InfoTrends/CAP Ventures believes is a fundamental business transformation. The Graphic Arts Industry is an intricate web of relationships. It includes service providers, customers, supplies, and providers of substitute and complementary products and services. During normal times, industries evolve slowly. The existing practices and preferences reinforce the status quo and inhibit the rate of change. While change continues, structural changes often take decades. During industry transformation, many related elements of the industry change simultaneously. Relative positions within an industry change radically. Typically one-half of the establishments in the eco-system disappear. After transformation the industry looks fundamentally different. Different does not mean better. After transformation, the industry may or may not be better, more profitable, or more attractive. This Material is prepared specifically for clients of InfoTrends/CAP Ventures. The opinions expressed represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies. We believe that the sources of information on which our material is based are reliable and we have applied our best professional judgment to the data obtained. Industry transformations are triggered usually by technological changes. A trigger enables a significantly different way of doing business that was not possible before. An example is Wal-Mart using advanced computing and software to increase efficiencies in the entire supply chain. The consolidated wholesale/retailer not only offers lower prices, but also moves into other adjacent markets, making it more of a one-stop shopping experience, offering everything from groceries to optical services. InfoTrends/CAP Ventures, May

2 White Paper On Demand Printing and Publishing Consulting Service InfoTrends/CAP Ventures believes digital technologies are the trigger for the Graphic Arts Industry. They not only enable new methods of manufacturing, but also change distribution channels and create new opportunities that are enabled by technology. Industry dynamics cause a transformation. While all industry participants can see what is occurring, few do. Most look at the landscape from a current, established perspective. Often existing players use the perspective and strategy that has led to current success and act as if evolutionary change were occurring. Often during transformation, industry leaders must be willing to pursue actions that undermine existing businesses and practices, but result in improving the role they will play in the transformed market. Thought leadership and market knowledge are critical to survive and thrive in a transformed industry. Industry transformations typically take a decade. In examining the last few years, we believe the Graphic Arts Industry entered a period of transformation at the end of the last century. The long established link between GDP growth and printing industry revenue was broken. Print revenue lagged overall economic performance. In part this was due to print facing new competition from view technology, including the Web and the proliferation of personal computers. Over the past few months we have seen additional indicators of industry transformation. We have seen a number of industry consolidations that have changed the existing landscape. Among the more notable were the Kodak purchase of NexPress and Scitex Digital Printing, as well as its pending purchase of Creo; the FedEx purchase of Kinko s; the R.R. Donnelley and Moore Wallace merger; and the Boise Cascade divestiture of its legacy business and purchase of OfficeMax/CopyMax. Many other examples exist among smaller print providers. For some time, InfoTrends/CAP Ventures has been claiming that the industry is reaching a tipping point. We believe that those who understand and will leverage the transformation of the industry get it and will likely succeed. Those who do not will likely exit the competitive landscape. InfoTrends/CAP Ventures recently took the measure of this transformation with extensive industry research. One study entitled The Changing Print-for-Pay Market: The Future of Commercial Printing provides the first detailed analysis of the transformation of the industry and is designed to provide the Graphic Arts Industry with strategy and market research to enable the transformation of the industry. Another study undertaken to gauge the transformation of the total Graphic Arts Industry focused on the Corporate In-Plant. This study examined the full range of corporate printing services, from Central Reproduction Departments to the mailroom that also performs production copying and printing. It reveals what is really transpiring in the world of corporate printing services, defines the various segments of the corporate printing services market, and offers insight into what is produced on-site versus off-site and why. Corporate In-Plant Services: The In-Plant Printing Opportunity probes the speed and nature of the migration to electronic distribution of internal and external corporate information at the expense of overall print volumes, as well as the impact of the proliferation of distributed multifunctional peripherals on print volumes in centralized corporate print services facilities. The study delineates the current penetration and volume of digital printing and the expected future share of both monochrome and color volumes. The research defines opportunities in the corporate in-plant market and portrays a vision of the in-plant shop of the future. InfoTrends/CAP Ventures is pleased to share the Best Practices sections from these reports with attendees at the On Demand Conference and Exposition. The complete studies are available immediately for purchase. To learn more about these studies or to make a purchase, please contact Alison Hipp at (781) or via at alison_hipp@capv.com. Page 2 InfoTrends/CAP Ventures, May 2005

3 On Demand Printing and Publishing Consulting Service White Paper The Future of Commercial Printing Commercial printers face a number of challenges related to the transformation of the printing industry. Typically during an industry transformation about half the establishments exit the business. We are only a few years into what is likely a ten year transformation period. The remaining 50% includes some new entrants, so the odds for any given print provider are somewhat under 50%. The demand for paper and print will be typical of a mature market. Any growth in demand will likely be offset by price reductions. Lower costs are possible by improved productivity and will be passed along to the buyer because the business will remain competitive. Competition will increase geographically and due to convergence of applications. The main impact of convergence is movement of applications and focus. Successful commercial printers will print more packaging, signs, forms, transaction documents, direct mail, etc. Many commercial printers will offer a broader range of services and solutions far beyond ink or toner on paper. InfoTrends/CAP Ventures has worked with numerous companies on growth strategies and has found that risk is involved in all attempts to grow a business. Nevertheless, the greatest risk for most commercial printers would be to do nothing in a business that is rapidly changing. We will discuss opportunities and best practices in relationship to this grid. Figure 1: Strategies for Business Growth Market Existing New Difficult Easiest Most Difficult More Difficult Existing New Product Typically the easiest and lowest risk strategy is to leverage existing products in existing markets. For years this approach has worked for most commercial printers. The key strategies involve leveraging existing good will and brand strength, refining existing sales and marketing strategies, and upgrading existing products and capabilities. In the case of commercial printers, this has meant providing better service, better quality, and higher value (i.e. lower prices). For some commercial printers a commoditization, consolidation play will work. Revenue growth can be accomplished through acquisitions and mergers. The additional revenue, if invested in efficiency, would allow the commercial printer to offer a better value and gain market share. For instance, working three shifts, seven days a week enables faster turnaround time and should result in higher equipment utilization rates that would allow the printer to have lower operating costs and lower prices. Increased revenues and higher margins enable this printer to fund acquisitions and make investments in equipment and solutions that provide sustainable competitive advantages. In our use of the grid, we believe the next easiest quadrant is to bring existing products to new markets. For commercial printers, expanding the geographic territory they serve or addressing the needs of a complementary vertical market would be typical strategies. The printer would have to leverage the good InfoTrends/CAP Ventures, May Page 3

4 White Paper On Demand Printing and Publishing Consulting Service will and existing brand strength, and market this effectively to new clients. In some cases they would have to upgrade or alter the product to meet the requirements of the new market. A printer could pursue this strategy by making investments in expansion or through mergers and acquisitions. It can also be accomplished by partnerships. A network of print providers can address the local requirements of any set of print customers. The printer could own the assets themselves (i.e. FedEx Kinko s), link them with a common infrastructure (Sir Speedy), or be in a group that enables distributed work (International Printers Network, The goal is to increase revenue to fund investments and higher utilization of equipment, and to gain share. These first two strategies place most of the management focus on super efficiency, which enables lower prices to gain market share. New products and services would receive less funding. Investment levels would be high so that the printer enjoys the productivity advantages of new technology. A printer pursuing one of these strategies should leverage other sales channels such as print brokers, creative agencies, and even auction sites. The focus of the business will remain manufacturing. These two approaches would suggest a more mainstream adoption of technology. The next quadrant in terms of difficulty is to introduce new products to existing markets. A common element is that the printer would have to leverage good will and brand strength with existing customers. The right to play is a key enabler. This approach requires more focus on developing new sales and marketing strategies and the ability to bring new products to market. Much of the discussion of value-added services falls into this quadrant. If pursuing this strategy, the printer would closely examine the opportunities for value-added services with the existing customer base. Market knowledge should provide direction and will minimize risk. The printer will have to create new products and services. This requires a level of creativity on the marketing and production side. Growth comes from a greater share of customer spending. A simple example would be a commercial printer adding mailing services. Leveraging industry convergence falls into this quadrant. A commercial printer providing wide-format output, offering forms management, or entering the packaging market would all typify this strategy. If the new product or service is not targeted at existing markets, it falls into the upper right quadrant that is discussed below. While super efficiency will be required, growth will be driven by higher margin, newer products and services due in part to less competition. A passion for innovation and the willingness to be an early adopter of technology will facilitate success in pursuing this strategy. The highest risk, and often the greatest return, is pursuing a strategy of offering new products and services to new markets. This strategy not only requires the ability to develop a new product or service, but the printer would also have to create brand awareness. It requires competency in marketing and new product/service development, which most printers lack. Success is contingent upon meeting the often unrecognized needs of the market. In pursuing this strategy it helps to be an early adopter of technology and to have good sales and marketing skills. Pricing and margins can be higher as competition is lower. Lower efficiency is offset by unique value. This strategy for growth requires more visionary leadership and an understanding of how to leverage new technology for profit. Higher margins and revenue growth fund the business and generate profits. Finding a commercial printer with good marketing skills is rare. For most commercial printers, marketing equates to placing an ad in the yellow pages and printing a calendar. Fewer still are good at strategic planning. The key to success is to have a strategy and a plan to implement it. During a period of industry transformation, access to capital to invest in new technology is critical for success. Commercial printers must have enough size (revenue) to generate capital to make required investments. Page 4 InfoTrends/CAP Ventures, May 2005

5 On Demand Printing and Publishing Consulting Service White Paper Common Success Requirements We believe the following are absolute requirements for success in the future: Deploy a full range of robust customer facing tools. This drives down costs and makes it easier to do business with you. The Internet changes everything. One example of the benefits of implementing new customer facing technology is ATMs at banks. Face-to-face business became face-to-interface, and it changed the nature of banking. Customers had access to their cash whenever and wherever they wanted. The ATM placed consumers firmly on the path of demanding ever more convenience and self-service that has evolved into online banking. The banks saved money and the consumers gained a number of benefits. The same logic applies here; if you don t have these tools in a few years, you will not be in business. Invest in new technology, services, and solutions. When technology changes rapidly, the benefits provide competitive advantages. A new digital production color printer has much lower running costs and provides higher quality and more output (speed) than previous generational products. Having the capital to remain at least current is critical to success. Size matters. It will be very difficult to generate enough capital to compete if you do not have at least $1,000,000 in annual revenue. The print providers most at risk are the smaller ones who will not be able to invest in the requirements demanded by a transformed industry. A passion for super efficiency. Most commercial printers have a passion for customer service and quality. A passion for super efficiency related to implementation of CIM (Computer Integrated Manufacturing) is a requirement for success. Leveraging JDF and UP3i, integrating workflows with ERP/MIS systems, and always driving out costs and time are requirements too few printers understand. Lights out production should be a goal of all printers. Market knowledge. During industry transformation, all participants can see what is happening, but few do. Most are tied to existing practices and are often so busy running a business that they are unable to plan and implement for the future. All strategies for continued success are reliant upon market knowledge and data. Most commercial printers think being in an association or a peer group covers this, but it requires more, including innovative approaches. Other requirements are tied to specific strategies. Not all printers need to offer value-added services or improve sales and marketing. Successful printers will have a vision, and align the strategies and tactics required to achieve it. Tactical Best Practices While getting it right strategically is critical, we have identified a number of more tactical best practices that should be implemented: A focus on client satisfaction is critical. Growth is not possible if a commercial printer is losing clients. Client retention is based on making your clients successful. Commercial printers should implement robust customer feedback and client retention programs. They should publish the results internally and externally and fight to save every account. Commercial printers must continue to offer differentiated services from what is available within the enterprise. This means making it easy to do business with you and having clearly differentiated offerings that include a wide range of finishing and bindery services, substrate support, and expertise that is far in excess of what is available in the workgroup and the in-plant copy/print centers. Commercial printers should invest in MIS/ERP systems that are integrated with production systems. You cannot improve what you cannot measure, and real time data will be increasingly required by customers. InfoTrends/CAP Ventures, May Page 5

6 White Paper On Demand Printing and Publishing Consulting Service Commercial printers should lead in the adoption of production digital color. Not participating in this opportunity simply makes no sense, especially in light of the adoption of UCPs (Universal Copier/Printers). Budget more money on marketing and market knowledge. The movement from manufacturing to service focus during a period of industry transformation requires this. The best value-added strategy is to help clients move from black & white to color output. Document owners and print buyers consistently tell us that about 40% of what they print in black & white would benefit from the use of color. Moving more work to full color provides higher margins. The Future of In-plant Providers Many in-plants struggle with strategic relevance. By definition, the primary focus of where they work is anything but printed output. The management of in-plant shops is generally isolated from overall organizational power and provides limited opportunities for advancement. While moving from the mail room or the copy room to senior management is often seen in fictional accounts, it is not generally seen in practice. The skill set and expertise required to manage the in-plant shop is different from what the overall business often requires. Without a voice in senior management, and generally without an advocate in senior management, the organization doesn t really understand the printing environment; the in-plant is an underappreciated island of expertise. It is an island under attack. It is under attack from within by those who favor strategic focus and outsourcing anything that is not core to the business. Is it under attack from FM/Outsourcing providers who often have access to senior staff and can question the efficiency of the existing in-plant facility. It is under attack from other print service providers. This is especially true in a tight print market where business of any kind is eagerly fought for. Given these trends, the relative strength of this segment is somewhat of a surprise. We believe it has benefited from having domain expertise that extends far beyond copying to more complex printing and related services. It is related to convenience, cost savings, and control. As the pace of business continues to quicken and technological change continues to impact all facets of corporate activities, InfoTrends/CAP Ventures has identified an overriding need for super-efficiency. Super-efficient organizations will utilize new technology and open standards to ensure that: Internal processes function with rare interruptions and few errors Little data is re-keyed Units and functional areas collaborate The organization is fast and cost effective The organization interacts with its stakeholders by sharing processes across the supply chain The organization provides its customers and stakeholders integrated end-to-end solutions Procurement processes are coordinated with suppliers and the suppliers order fulfillment processes Common data repositories eliminate duplication of effort, time, and cost while providing higher levels of service The Web is used as a common business tool Page 6 InfoTrends/CAP Ventures, May 2005

7 On Demand Printing and Publishing Consulting Service White Paper While no single tool or software package will transform an in-plant print provider into a super-efficient organization, achieving super efficiency will allow an in-plant facility to exhibit and clearly claim relevancy. It will provide the in-plant with cost benefits and act as a market differentiator. Achieving super efficiency should be the top priority of any in-plant facility. Failure to achieve this puts the organization at high risk of evolutionary extinction. The most successful in-plants and those who are most likely to succeed are early adopters of new technology. They are willing to evaluate new technology and implement it to the benefit of the clients they serve. The least successful in-plants are those who are technological laggards. Current in-plant management should aggregate as many functions as possible to leverage overall initiatives and domain expertise. Some specific best practices are: Aggregate all print (data center, print, and copy) under one organizational structure Aggregate overall print/copy strategy so that while distributed staff may still work for a department, equipment and procedures leverage overall investments Aggregate print and mail; mail should involve both internal and external mail The In-plant Print Shop should be responsible for distributed copiers/printers, as they can leverage purchases and best deploy an effective overall strategy The In-plant Print Shop should be responsible or play a role in all paper purchases, even for those jobs that are sent outside, to best leverage price and to implement corporate standards The In-plant Print Shop should be responsible for all print subcontracting, as this again leverages domain expertise and purchasing power The above actions create a print Czar that has more overall responsibility and can be evaluated more critically in terms of overall success. The aggregation of activities provides a level of strategic relevance that is lacking when the organizational structure is distributed. Of course, this entire function could be outsourced. Most current FM providers don t understand graphic arts and most commercial printers don t understand corporate print production. The opportunity exists regardless of who embraces it. Tactical Best Practices for In-Plant Printers While getting it right organizationally is important, we have identified a number of more tactical best practices that should be implemented: Successful in-plants sell and market services to achieve awareness and to better serve their parent organization. Satisfaction is irrelevant if you don t have basic awareness. Operate as a full cost recovery or profit center. In-plant facilities should offer a wide range of finishing and bindery services, beyond what is available in the workgroup. These services help differentiate an in-plant and provide a higher level of functionality to users. Whenever possible, the in-plant should implement online or near-line bindery equipment to assure efficiency. In-plant shops should deploy robust MIS systems so they can measure effectiveness and offer productive services. InfoTrends/CAP Ventures, May Page 7

8 White Paper On Demand Printing and Publishing Consulting Service In-plant shops should lead the adoption of online job submission tools. This will effectively leverage existing organizational investments in infrastructure. It will save the organization time and money, and increase satisfaction. More in-plant shops should invest in wide-format devices. We have found that wide-format devices complement narrow-format color devices and meet the needs of an increasing market opportunity. In-plant shops should lead the adoption of production digital color. Just as the DocuTech changed the competitive landscape for production of black & white documents, evolving digital production color equipment can provide the same benefits as the DocuTech has. Easy-to-use, high-quality color is seeing the largest amount of technological change. Those who don t implement this will not thrive in the future. In-plant shops should insource whenever possible; it provides additional sources of revenue that fund investments. In-plant shops should conduct ongoing customer satisfaction surveys. They should publish the results and act quickly to address any expressed concerns. Charlie Corr, Julianne Mehegan Page 8 InfoTrends/CAP Ventures, May 2005