Thursday, March 16, 2006

 

Waiting Around for Change? Sorry, It's Already Happened.

The 2004 edition of the Annual Survey of Manufactures was recently released by the Commerce Department, and our analysis revealed some thought-provoking trends. The PrintForecast elves adjusted the data for inflation and calculated the annualized rate of change for the commercial printing business sectors. The way the Commerce Department classifies businesses is very important.

More precisely, businesses are asked to choose the best description of their primary business, and the Commerce Department does little except to record the choice in their data base. The way to read the chart below is to say to yourself "businesses whose primary business is commercial screen printing reported that..."


The star of this data compilation is the “digital printing” category. Those businesses' volume increased in the 1997-2004 period by an average +28.3% per year. Commercial digital printing businesses went from a miniscule 0.6% share of the commercial printing shipments pie in 1997 and moved up to a 4.1% share by 2004, with more room to grow. The pace of growth has slowed, and was a robust +6.8% for 2004 compared to 2003. Remember, businesses may have reclassified themselves from offset to digital, so it's not likely that the increase is solely from digitally printed jobs. It must also be noted that “digital” can mean almost anything.

Ultimately, these data should serve as a catalyst for change within individual companies and eventually ripple through the industry as more companies implement new strategies. It's time for printers to redefine their businesses, rationalize their equipment bases, clean up their balance sheets, invest in capacity that will be marketable three and five years from now, and finally come to grips with the industry's decades-old paradox of printing everyone's marketing materials but often averse to using marketing strategies itself. (How can we say printers should be in the "marketing services" or "communications" businesses when so few use those strategies in their own businesses?) Proactive organizations stay ahead of their clients and worry little about their competitors.

The new media marketplace is real, with significant opportunities. There are many notable roles open for print and printing companies to successfully play in it. That is, if we really want to. These industry times certainly separate the elite companies from the average ones, the best managers from the mediocre ones. Everyone looks like a business genius in a growing market. But today, it helps to actually be one, and open to new ways of doing business, with strong skills of implementation.

Interestingly, the relative share of other commercial print categories had only minor changes. Commercial offset businesses were 56.6% of the shipments in 2004; they were 56.8% in 1997. Gravure was 4.2% in 2004, and 4.7% in 1997. These don't seem like consequential changes, but the change in dollars is dramatic (or do I mean “traumatic”?). The report shows commercial offset as losing -$10.2 billion in annual shipments comparing the two years of 1997 and 2004. The size of that decline is more than 3.5x the total amount of shipments reported by commercial digital printers so it's not just a simple transfer of volume from offset to digital. Business went elsewhere, to non-print media.

Comparing 1997 and 2004 book printing shipments, there has been a decrease of -$2.1 billion in annual volume. We know that some shifted over to digital printers, though the bulk of the “loss” has moved largely to non-U.S. print providers.Separately, and not in the chart above, trade binding and finishing is growing at the rate of about 1% per year. Prepress services, a victim of desktop publishing well before there was an Internet bubble, has lost $2.4 billion in annual shipments, a -6.8% per year decline. Many of those businesses redefined themselves as digital printers, or moved into services such as graphic design.

What's all this mean? The industry continues to change. None of the segments noted are keeping up with GDP growth except for digital printing businesses. As the commercial printing industry headed into 2005, there was some reason for optimism, as the intensity of the downturn seemed to subside and looked to be bottoming. As we know, the downturn restarted in late Spring 2005 and culminated in a December that was down -9% to 2004. None of this matters to growing companies who anticipated these changes and moved accordingly.

I worry that there are still executives who look at data such as these and deny that they exist or claim that they must be wrong and otherwise dismiss them. (Data are always more “acceptable” and unquestioned when they show positive growth; cognitive dissonance has no place in the board room, but we know it's there). Anecdotal support for the trends above are all around us, and need not be documented now. In the end, data are just data, the residue of past business decisions, often by long- departed managers. Those past actions have played out in a marketplace in unanticipated ways.

It's essential to look ahead with an understanding of how one's company can thrive in a variety of future scenarios, not just minor yearly incremental changes. The question is not how to survive, but truly thrive. Managers need solid market information that reflects the marketplace as it is. It's their job to change the marketplace. Without good data, how can one know what needs to be changed and whether or not their attempts to create change have been successful?

(originally published in PrintForecast Perspective #13, a free newsletter. Sign up at http://www.printforecast.com/signup.html)

Comments:
Data, data, data, this industry loves data. Recently I commented to someone about the problem of density variation in presses and how it was fundamentally caused by the lack of consistent ink feed into the press roller train. He replied, do you have data to show that. This is a common reply and it shows a problem. The problem is that conceptual and abstract thinking should not require data. A proper cause and effect description of a problem should hold up on its own. Yes one can test it later to confirm it but the general validity of a rational comment should not require data.

I think part of this problem is with how "science" is taught in graphic arts schools. It seems that they think that the scientific method means that one runs a test and then gets data to be analysed. This is not the way it is done. One might have data or results of how a process works but then some kind of explanation is required. A theory needs to be expressed. It is then the theory that gets tested to see if it is valid. Developing a testable theory is what is important and this required some critical thinking skills.

Again, recently I asked a grad student from a graphic arts school a relatively simple question. Why should density change when the water is increased on the press? The point of this question was to see how the student could think through the question with the intention of asking more questions to help lead him through the thinking process. Unfortunately, he seemed to panic and did not want to try this excercise.

What I think it shows is that lots of knowledge is pumped into people but the critical thinking skills to put all this interrelated information together has not been developed.

If a whole industry has been conditioned to look at data and not be able to see some very simple relationships that now exist, how can they have the skills to manage for the future. They will always be waiting for data, which will always come too late.

The data now tells them they should do something but it does not tell them what to do or what can be done.
 
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