Obsessive Focus On …? (posted for Scuttlebutt but too interesting to leave off the front page)

Filed Under Brand Management, Business Management, Lean Business

Over the last few months a number or rumors have circulated concerning possible M&A activity concerning market leaders in packaging graphics services, Southern Graphic Systems and Schawk, inc.  Among these have been reports that Southern’s CEO has declared an intent to sell Southern to Schawk, in multiple mixed forums.

Southern has struggled to meet its EBITA targets and is reported to currently be $4 million short of target.  In an effort to improve this condition numerous layoffs and other forms of contraction have been reported in recent months.  Among these have been the laying off of a number of key sales people, the closing of plants and the elimination of all but one member of its original Lean Business Solutions group, which provided graphics process improvements for prospects and customers and facilitated numerous new account acquisitions.

According to a recent letter from southern’s CEO “We met our commitment to our stake-holders in Q1 but experienced negative organic growth in Q2. The shrinking of our core business had a material impact on our margins. I want to ask everyone especially our commercial group to renew our commitments to organic growth”.

M&A has been a significant factor in business growth for both of these companies, as well as for a number of other companies competing in this space.  As acquisitions have taken place little has apparently been done to consolidate plant, integrate cultures or establish equipment and work method standards that would improve operations in terms of product quality, efficiency and margins.

To be sure, such efficiency measures are significantly more difficult than what is required to acquire another company and the fiscal rewards to management isn’t anywhere near as lucrative.  Although such incentives have driven consolidation in many other sectors of the graphic arts industry, operational efficiency continues to be overlooked, or at least, is given less attention. 

The current acquisitions favored incentive systems carry with them serious consequences that, left unchecked, could constitute a notable risk to companies who maintain such a focus.  Customers in all sectors continue to escalate implementation of purchasing practices that render graphics services as a commodity.  As a result, margins for many who compete in these sectors are shrinking as pricing pressures mount.

Beyond this, companies that favor acquisition strategies over improvements to operations are creating a market gap relative to customer relations and competitiveness that provides incentive for competitors who make operational improvement a top priority.  In the packaging sector the incentive to fill this market gap will, in time, be seen as very strong.

Given the $2.1 trillion annual revenues in the consumer packaged goods (CPG) industry and the percentage of annual revenues these companies spend on packaging graphics, the financial potential in the packaging sector is staggering.  Add to this that electronic forms of publishing are at least decades away from displacing print and it’s easy to see that even a fraction of a percent of market share in packaging is compellingly attractive. 

There’s real gold in focusing of graphics process improvement, both for service provider operations and as a service to CPG customers.  Expediting time to market, lowering costs and increasing quality are vital to service providers and CPGs alike and the service provider who focuses on such objectives are able to kill two birds (increased margins and competitive advantage) with a single stone.  Neglecting process efficiency, on the other hand, can result in two stones that are equally capable of killing the service provider who places more focus on M&A strategies than on improvement.

Virtually all service providers assert that they are focused on customer satisfaction and some even assert that this focus is an obsession.  This looks good when displayed on a placard in corporate and plant lobbies and sounds good when making new business pitches, but rarely is backed up with boardroom or HR incentives that truly reward customer service over new business and M&A acquisitions.

Many would agree that CPG companies, as well as customers for other segments of the graphics industry are principally focused optimizing the value they receive in terms of their criteria for quality, turnaround time and cost.  Process performance improvement, when correctly addressed, improves all three criteria.  M&A activities, however, address none of these customer value criteria, at least not in a positive way.  

The histories of a number of companies merging with or acquiring other companies typically encounter problems attributable to variance in equipment, work methods and business cultures between the entities involved that frequently compromise the quality, turnaround time and cost provided to customers.

Boardroom and HR incentive systems need to recognize what they are “incentiveizing” and address the fact that if customer needs are not a first priority foundation for the service provider, the service provider will ultimately find themselves in last place in the market - or worse.

Mercurius Wotan

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Organizational structure and implementation of technology

Filed Under Brand Management, Business Management, Lean Business, Publishing Processes

Organizational Structure

We have been implementing technology at our company at a fast and furious pace. This is in large part due to several well educated points of view. In order to become and remain a modern publishing company, we need a modern publishing platform. There will be numerous internal efficiencies to be gained which will allow head count reductions and thus operational cost control. Integrating disparate platforms will create automation capabilities which we can leverage into our processes in order to reduce cycle time, eliminate error through re-keying of data, and reduce costs through effective internal processes and supply chain management. All of these points of view are true in my opinion and it’s part of my job to figure out how to achieve these goals quickly, while controlling costs.

Our organization is made up of nearly 80 individual businesses or brands, which are grouped together based on the markets they serve. I manage a centralized group of services allocated to the businesses we support. Our employee population is nearly 200 people. These services include print production management, prepress, art direction and creative services, distribution and mail, web operations and production, eNewsletter deployment, order entry, print and paper procurement and so on.

Prior to our re-organization, these people were in large part, serving the individual brands in some form or another for some time. Some were associated to particular brands, others were associated to numerous ones. Some were geographically strategically located, others worked remotely, and NONE of them did the same things the same way, with the same tools. Our company began to realize that they were not in control of their labor cost base (the single biggest expense) and had no method by which to evaluate the fair and equitable distribution of costs and the talent we employed. We were in need of a method by which to audit the talent pool and determine a path toward re-structure and optimization. Following is a description of what we did.

The first step was to attempt to identify all support personnel by job descriptions, categorizations in our HR systems, associations to brands and managers and allocated costs and FTE’s. As we began to do that, we realized that everything was all over the map. There was no consistency to structure and we were having trouble identifying everyone that we felt we needed to. After several attempts to do this, we began to realize that we needed to categorize roles in order to identify what and who was in scope, and to create bucket’s of known costs. Our exercise is specific to our organization, but can be adapted to various structures. We began at a high level with two simple buckets; Brand Development and Brand Support.

As we performed analysis of personnel associated to each brand, we categorized them in either of these two areas. Those that actually created the editorial message, sold that message, created content and participated in the market which those brands supported were categorized as Brand Developers. Examples of these are Publishers, Managing Editors, Editors in Chief, Sales and Marketing staff etc. Those that provided services in support of the brands, more of a generic nature that weren’t particularly necessarily associated to the brand itself or it’s marketplace were categorized as Brand Support. Examples of these are production managers, order entry staff, art directors, paginators, prepress operators, purchasing agents etc.

As we moved forward with this exercise, we began to realize there was actually a 3rd category, Market Brand Support. These are individuals that need knowledge of the brand and it’s marketplace in order to perform their duties, but that provided reasonably generic services. Examples of these are Copy Editors, Web Managers and Client Service Representatives.

Once we had these categorizations and understood them completely, we embarked upon the exercise of attaching everyone who’s job role was deemed to be in scope of the project to one of the three. We then created a schedule through which we identified the labor costs and fringe in each of the three.

We then focused our attention specifically on the Brand Support bucket and began to re-organize the roles within, creating centralized departments and groups of people with like responsibilities. We put all of the art directors in one market group into one department and nominated a working manager from within that group. We did the same for the 6 or 7 main roles that we had identified through normalization of job descriptions (with lots of assumptions). This then gave us a sense of organizational structure and identification of costs. The premise of this reorganization was to leverage control on best practices and execution of job responsibilities, to aggregate optimized labor against the work at hand and identify all “administrative” functions that the incumbents were performing that significantly detracted from leveraging their expertise and skills in direct support of revenue. It also created an environment supportive of promotion and managerial responsibility and created a structure that could be managed.

As we began to pull of this together, we were also identifying the electronic software systems that each group used and how. We quickly got to a total count of 80 core systems used in one capacity or another by roles attached to the Brand Support bucket alone. These ranged from databases, to graphics applications to workflow governance and content management systems. This quickly led us to the premise that many of these systems were duplicated and could be either eliminated or standardized into a smaller group, and many of these should be exchanging information electronically, which they were not. It also let to the premise that a completely integrated platform of technology would become a launching pad for optimized processes and cost reductions. At the same time, we were in the process of analyzing what technologies would be necessary to implement in order to create a modern publishing platform to support revenue generation and support.

As these two technology initiatives converged, and we reviewed them in context with our organizational re-structure, it became abundantly clear which technologies should be eliminated and replaced or upgraded, which technologies needed to “talk” to one another, and what were the missing pieces required to complete the end to end solution we were looking for. Additionally, it became very clear how to go about the process of the change management required in order achieve all of our goals. Once we had identified the entire solution, we leveraged a small but specialized team of subject matter experts to train our centralized Brand Support teams in the overall schema of our program and in the specifics of the use of the platform. This way we gained consistent adoption of the capabilities, support for the organization through cross training and support, and developed best practices for the use of technology. The result was that we were able to convert nearly 500 users of Adobe software in 6 different locations supporting 80 brands in just under 1 year. That progress continues, as we roll out wave after wave of new and refined technology to the brands. We’ve developed a consistent approach, leveraging our ubiquitous involvement and support, and we’ve actually been able to accelerate our implementation program as the processes are clearly established.

Standardized roles, categorized job functions, known responsibilities and organizational structure not only provided a roadmap through which we could implement technology quickly, but also control our labor costs as we did so.

John Blanchard 

VP Manufacturing,

Reed Business Information

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