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Dec 1, 2006 12:00 AM
Since my article in AMERICAN PRINTER’s December 2005
issue, “The Eight Secrets of Highly Successful
CEOs,” we’ve worked with a few dozen more
companies and several more of the largest financial institutions
lending to the graphic arts industry—all too often helping
them deal with companies that are struggling. But I’m happy
to say that in 2006, several of the financial institutions were
making substantial new commitments to the industry.
There was some more good news in 2006. Business conditions for printers showed some signs of improvement, and a number of printers reported there were reasons for optimism. Unfortunately, the great majority of printers didn’t have time to notice, because they were engaged in a day-to-day struggle. The most recent PIA “Ratio Studies” for the commercial and advertising printing sector reflect the results of 331 printers (see chart).
You’ll see the top performers are doing just fine—reporting 9.4 percent pretax profit and 14.2 percent EBITDA (pretax profit plus interest expense and depreciation). But the remaining 75 percent of firms reported a pretax break-even and only 3.5 percent in EBITDA. The top performers were generating four times the EBITDA of the lagging companies. Four times!
What’s separating the top performers from the rest? The divide is as wide as the Grand Canyon, and for anyone who has visited, you’ll know that while the Canyon is a few miles wide, it’s a 212-mile drive from the North Rim to the South Rim. It’s easy to see the other side, but it takes a lot of effort to get there. How do the top performing companies do it?
The past few years: a 20 percent disappearance rate More than five years have passed since 9/11, and seven years have passed since the end of the dotcom bubble, which marked the high water mark for commercial printing sales. Since then, commercial printing sales have declined more than 20 percent, and there is no reason to believe the continuing decline will be reversed.
Despite the slight improvement in 2006 sales, the industry’s challenges are largely unchanged, with overcapacity and murderous price competition remaining in virtually every market sector. More than 20 percent of commercial printers have disappeared over the past five years, but the disappearances aren’t fast enough to be helpful to those who are left.
The profit leaders’ three basics
Over the past few years, I’ve written about three things the top performers are doing. But in 2006, I’ve seen more printers paying everyday attention to the nuts and bolts of executing those good ideas, to ensure:
Managing with facts, not feelings
Good information on your company’s operations can’t make you smart. But having little or no information can make you blind. So the profit-leading CEOs pay attention to the facts of their businesses, to be sure they can draw the right conclusions and make the right judgments about improving sales and operations performance.
They know that a five percent or 10 percent sales shortfall can eliminate an entire month’s profits, and a 20 percent or 25 percent shortfall can cripple an entire year. So they’re determined not to be surprised. They might not be able to make added sales miraculously appear, but they need to have the chance to try before it’s too late.
They know the value of orders booked every day, the value of actual plant production, and the value of shipments and billing. Every day.
They know the value of quoting activity every day, and track it by week and month to determine whether there’s a trend that needs to be addressed. They don’t overreact to a bad day, because they know a few days of slow quoting don’t mean much. But they also know a full week’s lag in quoting does mean something!
In evaluating all of the information, they don’t over-react or under-react. They use “Hot Lists” and other information to reach informed conclusions, then they use their good judgment to decide what action to take.
No matter how efficient your operations might be, and no matter how well you manage your costs, if you don’t have enough sales, nothing else matters.
Top-performing CEOs know managing sales is their single biggest challenge. This year, we’ve seen the profit leaders taking action in three specific areas to improve sales results:
Getting results from the plant
The top performers know that the economics of printing are manufacturing economics. They refuse to believe just getting the work out on time without a screw-up is an achievement. They know a productivity improvement of just a few percent adds a few percent of extra capacity at no added cost. At 60 percent value-added, a five percent productivity improvement could yield three percent in added profits (assuming the extra capacity is sold). When profits are zero, adding three percent is a serious step.
The leading performers are paying close attention to their plant performance and are working every day to improve results. It isn’t a quick process, but they know that building effective processes takes time.
They’re doing three things:
Improvements at the nuts-and-bolts level
During 2006, I’ve been impressed with how CEOs have begun to pay attention to two nuts-and-bolts items: training and maintenance.
At last, they’ve stopped complaining that there are no qualified employees. They’ve begun to identify and train their promising newcomers: helpers on bindery equipment who show promise; and second pressmen who are being trained to do makereadies and evaluate printed product as it’s produced, instead of just doing what they’re told in helping the lead pressman. To be sure there’s no slippage, the lead press and bindery people are being held accountable for doing the training.
So, too, many operations get out of the habit of doing a decent amount of regular maintenance beyond lubrication and cleaning out air lines. The machines still run, but somehow it’s more difficult to hold register or ink density.
The top-performing CEOs have seen that mechanical shortcomings or unresolved maintenance issues just provide an excuse for quality problems and ensure productivity compromises every day. No matter how busy their presses might be, maintenance always is performed, and there’s a priority list for improvements that need to be made so that whenever there’s downtime, everyone knows what should be worked on first.
These CEOs have decided it’s time to stop being held hostage to their own inaction. So should you.
The Holy Grail: not competing solely on price
Yes, pricing is an important competitive tool, and many printers aren’t flexible enough. But the winning CEOs know that they have to offer something beyond low prices to compete for business.
The best CEOs understand that they must set themselves apart by offering superior results—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, responsive and reliable, and they’re easy to do business with. They make their clients feel that it’s smart to do business with them, and they work hard to prove to new prospects that there are real benefits to starting a new relationship.
What to expect in 2007
2007 will look a lot like 2006. Not much better, and not much worse. A few companies will flourish, and many more will struggle. More companies will disappear, but not enough to make a difference to the competitive situation.
And the struggling companies will look across the great divide and ask themselves, “How did those other guys get way over there?”
A new complexity, a new threat
In 2006, we saw something new in the equation. Printers increasingly are facing the need to reinvest in equipment—not because their presses are worn out from overuse, but because newer equipment offers so much more productivity than the older equipment. But that new equipment just adds more production capacity.
Prepress workflows that seemed so productive a few years ago now are almost obsolete, and many front ends from the 1990s no longer are being supported. Just when printers thought they had survived investing in the last great wave of digital workflow improvements, they’re facing another golden opportunity to reinvest.
Beyond conventional presses and prepress workflows, many printers recognize they need to develop digital printing, online order processing and possibly some fulfillment capabilities. They’re not very expensive when compared to 40-inch presses, but they do require time, thought and some financial commitments—when time and money are in short supply. Printers who are just getting by aren’t investing in new capabilities. Many are seeing some of their salespeople leave to join firms that are keeping up in investing. Those firms are generating some buzz with their new capabilities—perhaps a Web-based ordering and fulfillment system, or variable-data digital printing that enables them to produce highly targeted short-run marketing pieces. With an unbroken string of small or nonexistent profits, what are those lagging printers to do? New capabilities don’t sell themselves, and “If you build it, they will come” only works in the movies. However, falling behind does guarantee there will be some erosion of your competitive position—with your customers and with your salesforce.
That’s why I believe printers must earn meaningful profits—or more precisely, EBITDA (earnings before interest, tax, depreciation and amortization)—if they want to survive. I believe that over the long term, 10 percent EBITDA is a requirement to maintain competitiveness, and 12 percent is necessary if firms are to make the most of their opportunities rather than merely holding on for dear life.
If you’d like to have a copy of the “Hot List” many profit leaders are using to monitor how things are going, e-mail me: RRosen@RHRosen.com. I’ll also send you copies of the discussion outlines many CEOs are using to have conversations with their managers on sales, manufacturing, customer service/production and financial operations.
Back by popular demand
Excellent, great, well-timed and helpful. Those are just a few of the adjectives readers have used to describe Bob Rosen’s previous AMERICAN PRINTER features.
Rosen will return in March with an article detailing the steps companies are taking to:
Bob Rosen is president of R.H. Rosen Associates, Inc., a consulting firm that specializes in the graphic arts industry. He can be reached at email@example.com.