Thursday, March 16, 2006


Growth & Change: Ready or Not, They Happen Anyway

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 above 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.S

eparately, 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?

Annual Survey of Manufactures

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