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December Cover Story: Will you survive in 2005?

Dec 1, 2004 12:00 AM


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Managing sales is the single biggest challenge

On September 11, 2001, I was moderating a panel discussion at the Print show in Chicago. It was called "Survivor: Who’ll be around to attend Print 05?"

Even before the catastrophe of 9/11, our industry was showing the effects of unrelenting competitive pressures, which have only gotten worse. Since 2001, about three-quarters of the firms reporting their results have disclosed they’re earning little or nothing—and definitely not enough to stay in the game for the long term. But the results are even worse than reported, because the firms in real trouble (or just embarrassed by their performance) aren’t reporting their results at all.

It’s hard to imagine a more difficult competitive environment, or a period of greater structural change. Many printers are feeling squeezed by market pressures that dictate low prices even as they must install expensive digital workflows. They’re lowering the value-added content of every job and passing along 110 percent of the savings to their customers.

The seven glacial forces
At Print 01, we discussed seven glacial forces that were driving the changes in commercial printing. Most will still sound familiar:

  1. Substantial underutilized capacity that’s not likely to disappear.
  2. Murderous price competition as companies scramble for enough business to keep their plants busy.
  3. Increasingly unpredictable sales volume: Sales have always been variable, but they’ve never been so unpredictable from month to month. This leaves most companies with a few problem sales months that can ruin the whole year.
  4. Rapid technological change, creating continuing requirements to invest.
  5. Increasing capital requirements stemming from increasingly expensive equipment.
  6. Increasingly difficult customer behavior. Customers are systematically beating up printers while demanding higher levels of service and a broader range of services.
  7. Ownership issues arise as owners are confronted with the need to continue an endless round of investments without being able to earn satisfactory financial returns. We’ve re-examined this list every year since Print 01. The same forces are driving our industry today and will drive it for the foreseeable future.

Will consolidation continue?
During the late 1990s, mergers were on everyone’s mind. And then the merger activity seemed to stop, as some consolidators took a breath and many others quietly disappeared, leaving a fair amount of financial debris in their wake. For a few years, mergers were a high-visibility financial game, with ownership passing to a few aggressive consolidators but not much changing inside the companies themselves. Very little happened to change the companies’ operations, and customers derived little or no value from the change in ownership.

Now it’s much quieter on the merger front—at least in the trade press. But industry consolidation has continued, albeit in a different manner. Ordinary companies now perceive mergers as a practical tool they can use in building their value and reducing their business risks. Now, most mergers are being done for strategic reasons within the same local or regional markets—and the companies’ operations complement each other. One national consolidator is still doing selective deals, but most are being done because it makes sense for the participants to physically combine their operations.

Survivors and casualties
Following my 2001 presentation, I studied the differences between top-performing companies and the rest. As I reviewed our firm’s work with 161 profit-leading companies (culled from the 523 we’ve worked with over the past 17 years), several things became apparent: The profit leading CEOs don’t possess any secrets. They’re relentless about doing a few crucial things every day, which add up to significantly different results—a difference that will determine who will survive until Print 05 and beyond.

Until recently, just getting by was good enough for many printing firms. These companies were run largely to provide long-term jobs for the owners. But today’s printers face steep equipment costs—automated press equipment and digital workflows don’t come cheap—and there’s much less room for error.

For almost two decades, the number of graphic arts companies remained steady. But over the past few years, industry data indicates the number of business units has shrunk by more than 15 percent.

Most pundits predict this trend will continue. Why? Because more than 75 percent of all companies don’t generate consistently high sales volumes. This has disastrous effects on profitability. Unless firms can earn sufficient returns—more than 12 percent EBITDA—they’ll have increasing difficulties over the long term.

The more successful companies are simply better operators
The survivors don’t have any secret weapons. They know that printing is an in-your-face struggle every day. What sets them apart is their relentless focus on doing what’s important every day. They identify three key things:

  1. Having enough sales.
  2. Producing work efficiently, cost-effectively and quickly.
  3. Finding new ways to add value for customers.

The top-performers’ results are easy to see. First, their capacity utilization is higher than the struggling firms. Simply put, they’re selling more. They understand that printing economics are manufacturing economics, so they strive to keep their plants busy—especially by reducing the frequency and severity of problem sales months.

Second, they know that small differences in productivity and throughput make a big difference in profits. So they really manage their manufacturing. This requires new equipment, but they can justify it by keeping the equipment busy and running it efficiently. It also requires setting meaningful performance standards and insisting that those standards are met.

They know that they have to work on increasing throughput—reducing the time it takes to get jobs in and out. They accomplish this by continually refining their processes—particularly in order entry and order processing.

Third, they’re relentless in getting their costs aligned with likely levels of sales. They’ve given up keeping extra people just in case a miracle happens. Their staffs are built around the people they need consistently, and only the people they need. If they get busy and have to work overtime, well, that’s a problem they’ll gladly deal with.

These three steps might sound like scutwork, but that’s what sets apart the firms that will be around for Print 05 and beyond.

We often send clients who aren’t happy with their results to visit other clients who are enjoying better results. Most return unhappy, because they’re looking for a magic wand. They’re disappointed to learn that the profit leaders don’t have great flashes of insight. The top performers’ success depends on their commitment to doing all the little things that make a big difference in results, and their relentlessness in pursuing those tasks.

Successful firms understand that they must set themselves apart by offering superior results&8212;adding value in ways that have little to do with equipment or technology. So they do a better job for their clients. They’re smarter, more creative, more responsive, more reliable, and they’re easy to do business with. They make their clients feel that it’s smart to do business with them.

Managing sales is the single biggest challenge
Successful companies understand that in a world of highly fixed costs, they can’t have highly variable sales. Will sales vary? Of course. But the profitable companies do everything they can to reduce the size of monthly sales variations.

They treat salespeople like employees with real jobs to perform—and not like free-agents working for themselves. Some printers might find this hard to believe, but the top performers develop a solid partnership with their sales forces and continue to work together in selling the right services to the right customers. They focus their selling efforts in the right direction, and support salespeople as crucial team members. They work with salespeople to establish meaningful performance goals and resolutely hold them accountable for results—just as if they’re real employees!

They pay attention to prospects and their allocation—refusing to let salespeople cling to prospects they’ve called once in four years. They treat customers and prospects as important corporate assets, instead of the personal property of the salespeople. (What a concept!) They also focus on developing a meaningful share of major customers’ business, because they understand that unless you’re important to a customer, you’ll always be in danger from an economic downturn or a reduction in the number of suppliers.

Getting better manufacturing results
The top performers know that equipment doesn’t produce manufacturing results. After all, anyone can buy equipment. It’s how you use it and how much you use it that makes the real difference.

They also know that people will perform to the standards of their leaders. No standards, no performance. It’s that simple. The profit leaders are really managing the plant by setting worthy goals and seeing to it that they’re met. They create a production plan with higher productivity standards. They’re seeking faster throughput in everything by simplifying and standardizing their processes, so normal rush things don’t require special intervention. And they won’t compromise on keeping their delivery promises or meeting their quality standards. Those standards are simply non-negotiable.

Then, they evaluate results and do something to improve them. Above all, they routinely hold people accountable and don’t permit their own inaction to become part of the problem.

The top-performing CEOs have good information. They know what’s going on in their businesses, even though many of them don’t have an elaborate management information system. They watch a few key performance indicators very carefully, and they act as soon as they need to. They might not like the facts, but they deal with the situation. They continually struggle to align their costs and sales, because they never forget what happens to costs when sales go down. (Not much!) So, they’ve given up the outdated notion that they can keep a few people around just in case they get busier.

Above all, they pay attention and do something as soon as they need to—even if it isn’t much fun.

It will never be a kinder, gentler world
Who’ll be around for Print 05 and beyond? The firms that realize surviving isn’t enough. They know they’ve got to be profit leaders, and they’re doing whatever is necessary to get there. They’re good operators who are relentless in dealing with difficult or ugly things every day. At the same time, they recognize that there’s more to being competitive than simply having low prices. They work on being important to their major customers and never stop finding new ways to add value for all of their clients.

It’s worth repeating: The top-performing companies don’t have any earth-shaking secrets. They just do the right things relentlessly. The rest of the companies—the ones earning little or nothing—have built their plan for survival around prayers for an improving economy. Will they be around for Print 05? Maybe. But beyond that, who can say?


Bob Rosen is president of R.H. Rosen Associates (Pittstown, NJ) a consulting firm that specializes solely in the graphic arts. Contact him at RRosen@RHRosen.com.


Nine things Rosen knows
Bob Rosen’s book, "The Graphic Arts CEO," presents nine lessons Rosen learned from working with more than 160 profit-leading companies:

  1. It’s a tough world out there. You’re either busy or you’re dead. It’s that simple. People must abandon their old dreams of making up for too little sales volume by selling a lot of work for less.
  2. The market sets the price. If you’re doing a good job, you’ll get the last chance to say "yes" to a piece of business. If you’re doing something unusual, then maybe you do a little better. But the market sets the price, and you can’t build a business around a prayer for higher prices.
  3. The economics of printing are manufacturing economics. You’ve got to manage all sides of the economic equation: (a) enough business, (b) produced efficiently in a (c) cost-effective environment. It sounds simple, but the economics are unforgiving.
  4. You’ve got to give clients reasons to do business with you that go beyond equipment and technology: You’ve got to be smarter, faster and more responsive, and you’ve got to offer things that are difficult or impossible to get from competitors. Customers must feel that it’s smart to do business with you.
  5. Managing sales is the single biggest challenge. Everything else is just details—important details to be sure, but details, nonetheless. Have specific plans for salespeople to develop and manage key accounts, and treat those accounts as major corporate assets.
  6. It’s crucial to be the dominant supplier. Mutual dependency is the objective. It makes a profitable relationship possible and provides the best protection in an economic downturn. Being a useful supplier isn’t enough: Unless you’re important to your customers, you’ll always be at risk.
  7. Size does matter—and not just in account size. Size provides intensity of plant utilization, which is the central requirement for profitability. Putting it another way: Bigger might not always be better, but more business is always better than less!
  8. Manufacturing results don’t come from equipment. You have to have up-to-date equipment, but equipment isn’t the answer; anyone can buy it. Unless you set worthy goals and hold people accountable for performing at that level, your investments will be wasted.
  9. Consolidation requires more than changing the names on the stock certificates. Merged companies must change the way they do business. It has to be more than buying equipment and paper more cheaply or changing reporting and controls. Successful consolidation means fundamentally changing costs, adding sales and improving performance for customers.


What every CEO should know
"The Graphic Arts CEO" book/CD package reveals the secrets of profit-leading CEOs. "Set the right priorities," advises author Bob Rosen. "Commit to a plan of action and then execute the plan relentlessly."

The 350-page book features specific examples from Rosen’s work with more than 160 graphic arts profit leaders. The CD offers customizable forms and financial models. "The Graphic Arts CEO" costs $159; to order, contact the author at RRosen@RHRosen.com.