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Where's it all headed? Part 1

Dec 1, 2002 12:00 AM


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Sponsored by Paperloop

"Relevant-informative-accurate." That's how readers have been describing Converting Management magazine's three-part series on business management. In fact, reader response has been so great, we've added this fourth part to the series to look at what's ahead for printing and converting businesses. Focusing on non-technological trends, this advertising supplement, sponsored by Paperloop.com, is brought to you by American Printer and PFFC (paper, film & foil converter) magazines.
In this issue, author Dick Gorelick deals with long-term management issues and the changing buyer-seller relationship. In the midst of the economic downturn, he examines troubled companies, teetering companies, and prospering companies, offering ten emerging business trends that are applicable to organizations of all sizes in all regions. As always, we welcome your feedback. Contact American Printer at APeditor@primediabusiness.com. Contact PFFC at PFFCeditor@primediabusiness.com

About the author
Dick Gorelick is president of Graphic Arts Sales Foundation (GASF), a West Chester, PA-based graphic-arts training organization. He is also president and founder of Gorelick and Associates, Inc., a consulting and research firm working exclusively in the graphic-arts industry.
Gorelick has spent 40 years in the printing and publishing business and has successfully founded four companies. A nationally known speaker and author in the areas of sales, marketing, strategy, business planning, industry trends, and futures, he writes a monthly management column for american printer.
Gorelick is a graduate of the University of Missouri. He was the recipient of the first annual award for graphic-arts marketing excellence, sponsored by PIA, Harris Corp. and GAM. He has held a variety of sales and marketing executive positions with Eastman Kodak Co., Hallmark Cards and CBS.
This is the fourth magazine supplement sponsored by PaperLoop this year. All have dealt with important strategic challenges facing most businesses in 2002:

  • Building a Customer-Focused Management Team

  • Competitive Differentiation

  • The Changing Role of the Sales Representative

Relatively unheralded, fundamental changes in buyer-seller relationships have been at least as pervasive, swift, and important as changes in technology. Since the start of that process about ten or twelve years ago, there has been one major downturn in economic growth.
That downturn became manifest in the fourth calendar quarter of 2000 and, it can reasonably be argued, continues to this day. The tendency is to point at this soft economy as the chief culprit behind all the changes and difficulties experienced by the business community during the past two years or so. Unfortunately for many companies continuing to struggle, the evidence suggests otherwise. A rising tide (or substantial improvement in the general economy) may not lift all boats.
Survival and prosperity in the months and years to come will depend upon an understanding of the changes facing our respective organizations and our ability and willingness to adapt to these changes.
Mark Twain was eloquent in explaining this challenge:
"I'm in favor of progress. It's change I object to."
Ours is not the first industry to experience intense price competition, shrinking vendor lists, and cash flow challenges. Commoditization--the marketplace's perception that good product expeditiously delivered at a competitive price is available from many resources--has been a fact of life in other industries for decades. Not successfully addressed, the inevitable consequence is intense price competition. The perceived value to the consumer shifts outside of the product into ideas for more effective use of the product or into the purchase transaction itself.
Corporate survival and prosperity require a changed paradigm. The company with the superior product doesn't always win. The general economy has been soft for about two years. Many executives attribute their problems and challenges to these economic conditions. In fact, most primary business challenges are simply exacerbated by the economy. The fundamental challenges will remain even if general economic conditions swiftly and dramatically improve.

Is Pain Inevitable?
Absolutely not. Those who have for years trumpeted the inevitable demise of medium-size companies in any industry have been proved wrong by both logic and recent experience. Success is not determined by company size, age, or any other demographic factor. Instead, success is primarily determined by an organizational ability to understand marketplace needs and to profitably satisfy those needs. Experience has shown, and common sense suggests, that stupidity, inertia, and genius reside in companies of all sizes, regions, and specialties in about equal proportions.
Many companies have gone beyond prudence and caution in this soft economy, lowering risk to the point at which they are operating in a reactive mode. Planning has devolved into little more than a forecast or projection. Events and customer demand determine most aspects of the business. Investment in research is minimal; efforts are made to react to customer wants but few efforts are made to determine customer needs. Some organizations have been prompted by the current economic conditions to reevaluate their respective core businesses. A conspicuous example: IBM.
Commoditization threatened this corporation when the marketplace came to believe that products of Dell, Compaq, Gateway, and other hardware manufacturers enjoyed the same product integrity as IBM products. The company re-defined its business and today is the largest consulting firm in the world.
The model of a product (and corporate) life cycle (stages of birth, growth, maturity, and death) is not inevitable. Opportunities to diversify and to sell existing products to new markets are always present.
SITUATION ANALYSIS At the risk of over-simplifying the situation, let's review three general categories of organizations at the end of 2002, the second full year of a soft economy.
Troubled Companies | Our research indicates that about 60% of companies are operating at breakeven or losing money. Most of these companies share some prominent characteristics and attributes. There is a tendency to view the economy, competition, and disloyal customers as their problem. They also look outward, not inward, as the solution, and believe that improvement in the general economy is the best hope for a return to prosperity.
Troubled companies tend to be sales-driven. While paying attention to reduction in overhead, they believe that sales improvement from existing products and services is the only route to prosperity. There tends to be a preoccupation with competition. There is almost a sense of vindication upon determining that "everybody's having a poor sales month."
Troubled companies frequently became marginal because of a loss of sales at a relatively small number of large accounts. In the vernacular, there were too many eggs in too few baskets. More often than not, the loss of sales, or even of accounts themselves, were not preventable. Mergers, relocations, acquisitions, bankruptcies, changes in product line, or some other circumstances occurred. The supplier's account portfolio was not balanced. Perhaps most troubling, troubled companies have a tendency to believe that a sluggish general economy and changes in buying motives are aberrations and that passage of time will inevitably result in a cyclical return to "normal." To the extent that permanent change is recognized and accepted, it is related to technology. "Insanity" has been defined as repeated unproductive behavior with anticipation of different results.
Insanity may be too strong a word to explain rationalization for inaction, but the fact remains that companies that do little more than position themselves to be rescued by external forces are not finding that de facto strategy very productive.
Teetering Companies | About 15% of companies are described as "teetering," operating at breakeven and capable of moving into either the "troubled" or "prospering" category. Many steps have been taken during the previous year or two in response to changing conditions but more needs to be done.
Typically, teetering companies have concentrated upon reduction of overhead. There is a good core of accounts and costs are carefully tracked. Little is patently wrong. Management moves quickly to bring staffing and other expenses into line with demand. However, this is not always followed by attention to staff productivity following a round of overhead reduction.
Research indicates that companies consistently operating at or near breakeven believe they have not differentiated their respective companies or developed a meaningful strategy, but ironically, this position is not shared by many customers who do indeed view the company as credibly differentiated. Preoccupation with overhead reduction frequently precludes these companies from investing in research that may help clarify a company's position in the eyes of its customers.
Prospering Companies | Fortunes have been made during difficult economic times, but one is hard-pressed to learn this at the time. Research indicates that about 25% of companies have been doing extremely well during the past two years in terms of profitability. However, this is seldom recognized. The reason: There is a natural tendency of profitable, successful organizations to "play it close to the vest" during a period in which the majority of companies within an industry are struggling to earn a monthly profit. Profitable firms do not wish to invite public scrutiny when most other firms are struggling.
Prospering companies share several characteristics. In the same way that individuals with diversified investment portfolios limited their losses when the stock market decreased sharply, companies with a diversified account portfolio were best able to weather the business downturn. That portfolio was often characterized by lack of dominance of one or more customers as a percent of overall company sales. There is a high level of mutual importance and trust between customers and supplier.
The mix of products and services is undergoing constant refinement at financially successful companies. This has less to do with adoption of new equipment and technology than with responsiveness to the special needs of individual accounts. Capabilities are defined by the answer to the question, "What does the customer need?" not by the answer to the question, "What do we do best?"
Prospering companies understand how they are perceived by customers and the value they provide to accounts. They understand the need to sell customers, not simply jobs. Prospering companies strike a balance between "the important" and "the urgent," between strategy and tactics, between long-term development of customers, staff members, and suppliers, on the one hand, and the efficient, expeditious processing of today's orders, on the other hand.
There is an organizational understanding of the critical need to establish, maintain and leverage, competitive differentiation.
This situation analysis, admittedly "broad brush," is not intended as a thorough, detailed study of every significant practice of every aspect of the polarization that is occurring in this large industry. Instead, it is intended as context for a discussion of incipient trends and business practices that are likely to blossom during the next decade. Most of these changes have little to do with technology and reflect fundamental changes in the manner in which the United States conducts business. Basic business paradigms are changing.
Bigger is no longer necessarily better. Nothing is forever: The l990s demonstrated that the major cause of failure was success. There is, in fact, no magic bullet, no sure-fire route to success and prosperity. There are no formulas. There are only principles to be applied to the unique culture, value system, history, and customer needs of individual organizations. Consultants who promise secrets to success are charlatans, especially in a business environment in which competitive differentiation, rather than industry homogeneity, is a paramount issue. This article discusses ten areas of non-technological change affecting virtually every individual company and every business market. These are not daring, "out on a limb" forecasts.
These are strategic trends and issues that have emerged, albeit in an embryonic stage, during the past couple of years. Prospering companies have embraced these trends, issues, and principles. This list is not intended as comprehensive or definitive. Limited space prevents an exhaustive discussion of each item. In some cases, each item is worthy of a book-length discourse. The purpose of this article is to provoke thought and reflection on the part of owners and senior managers dedicated to charting a course for their respective companies while, at the same time, generating the profits and building the structure to prosper in today's difficult, changing business environment.
The ten trends described below are applicable to organizations of all sizes, in every geographic region, and in virtually every industry. As always, there are exceptions-but beware of ignoring these principles because of the all-too-common rationalization that "we're different." Even the most unique organizations are subject to the same business climate, legal restrictions, basic buyer needs, and gravity on planet Earth. These trends and issues are discussed in no particular order of importance. It is important to note that many of them are interrelated, part of a mosaic. A company is likely to find it difficult, if not impossible, to select one or two items for adoption out of context with all the other factors.