Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.

NAPL's Top Management Conference 2004

Hiring Key People May be a Challenge as the Economy Recovers

Naples, Florida was the venue for the National Association for Printing Leadership's annual Top Management Conference held February 25-29. The 247 in attendance heard several messages of how positioning a printing company to participate in the economic rebound will require innovation and forethought.

Keynoter Patrick Lencioni, book author, lecturer, and management consultant discussed the organizational development precepts forming the basis for his best seller, The Five Temptations of a CEO. Overcoming the temptation of invulnerability requires building trust. This can be accomplished by a CEO acknowledging his own weaknesses and mistakes and allowing direct reports to see his human side. Harmony must be overcome by establishing productive conflict. Differing opinions need to be drawn from the staff while encouraging passionate discussion about key issues. Lencioni suggested that the management team take "the Myers-Briggs personality profile test to help understand why people act and react the way they do."

CEO's should give up "certainty in favor of providing clarity." Clarity requires repetitive communication about the firm's core purpose, values, mission, strategy, and goals. The organization should then practice making decisions without complete information on less risky issues. And then set public deadlines for making key decisions.

The temptation of seeking popularity should be overcome by holding people accountable. CEOs should consistently clarify expectations upfront and then confront direct reports immediately about behavior and performance shortfalls. Lencioni stated, "The most effective accountability is posed by the team, rather than their boss." And finally the CEO must overcome the status quo by focusing on results. Both the CEO and organization should publicly commit to measurable results and then evaluate their success based on these results alone. Instead many heads of firms rationalize shortfalls by a series of uncontrollable environmental phenomena.

Andrew Paparozzi, NAPL's Vice President and Chief Economist, offered his State of the Industry. "While business is picking up, it is not enough to create any pricing relief," commented Paparozzi. The litmus test of a recovering economy is hiring plans. NAPL's printing business panel reports that over the next six months four firms expect to hire for every one company expecting to lay off. Over the last six months for every printer that hired there were two firms that laid employees off.

Most economists are masters of numbers. Mr. Paparozzi's interpretation of these numbers to provide a cogent action plan makes him the most highly regarded among economists following the printing industry. In that sense he concluded that management will be the endearing competitive advantage. He surmised, "The most significant change in the printing industry isn't digitization or any other technology. It's the broad range of management skills from marketing and financial analysis to strategic planning and human resource development that is now a prerequisite for enduring success."

In the critical trends panel discussion NAPL's Technical Consultant Howie Fenton reported that Adobe Acrobat version 6 is correcting many of the bad PDFs being sent to printers as "the printer standard, PDF/X-1a, is built into the preflight." The consistency of digital proofing devices is no longer in question for publications as many units are SWOP certified. Soon GRACoL certification will resolve these concerns for general commercial printers.

John Sweeney of Integrated Color Solutions discussed the seven enabling technologies facilitatiing, "print by the numbers." These are (1) standard color measurement, (2) CTP, (3) standard reference printing, such as TR-001, (4) ICC color management, (5) standardized color proofing, (6) closed loop color control, and (7) CIP4 JDF. He offered the case study of closed loop control on an M1000 web press running with Telecolor II. It is able to achieve density-measured salable copies with no operator intervention in less than 2,000 impressions.

For the second year NAPL invited the Document Management Industries Association (DMIA) to host a panel discussion on the marketing opportunity of working with print distributors, 900 of whom are members of DMIA. Last year the panel was comprised of print distributors. This year the panelists were printers who have successfully developed this supply chain specialty. Lloyd Tucker, Senior Vice President of DMIA, reported that surveys of their distributor members confirm that 47% are looking to increase their offering of general commercial printing services over the next two years.

Jim Laurain, General Manager of Royal Oak Michigan's Arbor Press, described how his firm has integrated the print distributor network among their direct sales efforts. It begins with a "Distributor Protection Policy" which states that the firm will not knowingly produce a job for one distributor that should belong to another distributor. There is a six month protection policy for identified accounts. Laurain emphasized repeatedly, "Be upfront and candid (with the distributor client) to build trust." While there is normally no manufacturer identification on the packaging to allow the ultimate client to cut out the distributor and come straight to the printer, occasionally the client will find out and call the printer directly. "As a courtesy, call the distributor and tell them that the client called us direct," remarked Laurain.

If an Arbor direct sales person inadvertently prospects a distributor's account, which happens two or three times a year, the sales person is pulled off the account quickly and professionally. Arbor feels that there are more than 600,000 accounts in their regional market so there are plenty of prospects to go around.

Roger Buck, National Sales Manager for Ward/Kraft with headquarters in Ft. Scott, Kansas, described his firm's marketing efforts, which are exclusively through third party distributors. He says, "The two biggest challenges (of working with distributors) are education and pricing structure." This is because Ward/Kraft offers numerous proprietary products that require systems selling. "Our prices are 15-40% over the low priced competitor. Our distributor clients want partners and they need education."

Ward/Kraft's free education is provided in one of three fashions: (1) on site, (2) via the Internet, and (3) airport seminars. Their Document Solutions University (DSU) is held quarterly from Sunday through Wednesday at corporate headquarters. The firm conducts over a hundred hours of webinars a month. Called "W/K Live", these sessions are held by appointment for one-on-one sessions or one-on-many including an 8:15 a.m. daily session: "Networking on how to sell." The webinars is a most cost effective way to do joint selling to the distributor's client for a particular upcoming project. They spend over $3,000 a month with Webex for these webinars.

Every Tuesday and Thursday the Ward/Kraft company plane takes presenters to three different cities to put on their two hour seminars at airport locations. That's six cities every week!

Buck concluded by saying that there may be an excellent chance that the general commercial printers in the audience might well want to sell some of Ward/Kraft's patented products as well.

A couple of printers in the audience clearly have had bad experiences with print "brokers" in the past and wanted advice on avoiding a recurrence. Laurain suggested becoming a member of DMIA. "Market to their distributor members and through their DMIA Trade Marts." Buck suggested, where appropriate, to have disciplined credit clearance policies and progressive payment policies.

Press manufacturers and an investment banker comprised a panel discussing "Financing Capital Investments." Stephan Carter, Komori USA's President, stated "the current situation shows fewer financing sources, more desperate competitors, diminished fixed asset values, and difficulty in upgrading platforms." This is because debt often exceeds equipment residual value and faster upgrade cycles require focus on equity. Each supplier highlighted the services they provide in helping their clients prepare the necessary documentation and justification to be presented to either third party leasers or financial institutions.

Niels Winther, President of Heidelberg USA, showed two examples of the impact of equity on future ability to re-invest. In the preferred "healthy model" for financing a new press there was a 15% down payment, a seven-year term period with no grace period for beginning quarterly payments. The result is that the printer begins building collateral in less than 40 months and could then re-invest if he wished. In the other instance there was no down payment, a one-year grace period before payments were made (with interest capitalized into principal), and a ten-year term. In this later example it takes 8 years before the printer can reinvest without a shortfall.

Eric Belcher, MAN Roland's COO of Sheetfed Operations, continued to emphasize his firm's mantra originally expressed in July 2002. And that is MAN Roland will no longer participate in creative financing. Often referred to as manufacturer's recourse financing. This normally results in propping up a printer who could not qualify for financing from any other legitimate source. Invariably such printers will discount their work well below market values simply to keep their doors open. All printers competing in this regional market would suffer from this slash-and-burn price discounting.

An audience member asked if the other manufacturers were still offering, "recourse financing." All were except MAN Roland. One manufacturer justified the policy by saying that a $3 million printer has the same right as a $30 million printer to stay in business through a difficult economic period. Mr. Belcher again disagreed with his competitor by stating that a $3 million sheetfed printer cannot, for example, justify the installation of a 40" process color press.

NAPL Blue Books, which show the costing studies on most new presses, indicates that 40" sheetfed process color presses list for $1.5-2.0 million depending upon number of units and accoutrements. Scheduling turn around demands coupled with mature market level pricing indicates that this press normally operates on at least two shifts to be cost competitive. At $275 hourly rate and 75% utilization on two shifts would show the press value-added revenue to approach $800,000 a year. Assuming a conventional mix of electronic prepress and post press value add along with #3 grade stock would put the total sales attributed to this press to be about 2.5 times the press value add or total sales of about $2.0 million. This is two-thirds more than he now has.

Considering that this $3 million printer needs to add 67% new volume to his operation ASAP, Mr. Belcher's point seems to be well taken. Even this printer will probably not win more than one out of three jobs he bids even though he is the cheapest price. This means that he will be directly discounting $15 million of printing ($3+$2 million times 3 =). The indirect ripple effect on price discounting in that regional market is typically 2-3 times the direct effect. This means that $30-40 million of printing in that regional market is experiencing artificial pricing quicksand.

Printers have traditionally expressed a good deal of loyalty to their suppliers, and particularly their press manufacturer. This loyalty cannot help but be tarnished if this manufacturer continues to prop up unqualified competitors. MAN Roland is to be applauded for their realistic position on this difficult issue. But they can't do it alone! Healthy printers in every market need to have candid conversations with their key suppliers about this distructive and worn out policy on creative financing.

The Top Management Conference invites excellent keynote speakers and industry practitioners participating on thought-provoking panel discussions. But the key benefit is often gleaning an idea from one of the Management Plus Award winners or other fellow attendees.

Article prepared by C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, Pennsylvania. For additional information please call 717-263-5768, fax 717-263-8945, or e-mail to clint@clintbolte.com.