Thursday, January 18, 2007
What Will 2007 Hold for Printing Shipments?
The recent bullish rise in industry shipments has changed the outlook in our different forecasting models for 2007 and 2008. Forecasting is sometimes viewed as guesswork or a black art, but there are numerous tools that forecasters use, and we use as many as we can find. Through the years, we have found that the use of statistical models helps to focus the discussion and immersion in anecdotal accounts are used to enrich prognostications.
Every day, we review forecasts, and sometimes we joke there are often more forecasts than there are real data. There is one aspect of forecasts that continually befuddles us: the “consensus forecast.” This means that someone has taken all of the forecasts that were available and averaged them together. If there were true consensus, the forecasts would not have to be gathered in the first place. And if forecasting was something important, why would one want to average a bunch of bad forecasts together hoping that something good would come of it. One can't make a good stew with tainted meat and rotting vegetables.
Forecasts that are statistical in nature use historical data to forecast the future. The data are just numbers that resulted from business activities at a particular point in time. The conditions of that time are probably different than what will be in the future. While all trends have historical roots, it is much too simplistic to just extend past trends into the future. There's something comforting about “predicting the past.” It ignores that marketplaces, in the long term, are dynamic. There is one benefit, however.
When in high positions, executives can find it difficult to distance themselves from the daily heat of the corporate battle. Some managers fall into a habit of assuming the last thing that they heard was correct and was the most important thing they will hear affecting their business.
For that reason, having a statistical forecast of trends that might be embedded in one's business or market ensures a sense of detachment required for good planning.
PrintForecast.com runs three different models on the industry shipments data series we maintain. One is a straight-line model. Another detects seasonal patterns. Yet another fits an exponential curve equation to a data series. They are nothing more than arithmetic exercises, no matter how sophisticated they seem.
By constantly reviewing the literature of the markets that feed communications demand, such as what is happening in direct marketing techniques, publishing, advertising, graphic design, photography, telecommunications, broadcasting, and other fields, one arrives at a general understanding of what is happening in our industry today, and what forces will impact it in the future. It's easy to let the hyperbole of technology and its marketing affect forecast decisions. Again, including a basic statistical forecast in the process helps one to better understand the issues.
Good forecasts require a combination of approaches, but someone, sometime, has to put a stake in the ground and proclaim what the forecast is.
Our forecast models for 2007 show three scenarios. For comparison, this past year's inflation-adjusted shipments will be about $91.4 billion. Model 1 estimates that shipments in 2007 will be $92.9B. Model 2 says $92.7B. Model 3 says $82.3B. We can say with great confidence that all of the models will be wrong. But that's the first step.
Models 1 and 2 have formulas that more heavily weigh the recent past than distant history, just like that executive who values the last thing that was heard in a casual hallway conversation. Model 3 has a longer term view, and in light of the past five years trend, and not the last five months, forecasts more pessimistically—about -11% less than the other two forecasts. The consensus of the models would be $88.6B, if one takes comfort in that. It almost sounds reasonable.
So what forecast should one use? $91.4B? $92.7B? $82.3B? $88.6B? All of them. A company needs to prepare itself for whatever the marketplace can hurl its way. Knowing that Model 3's forecast of an -11% decline in shipments is part of the mix should create a process of asking and answering hard questions.
We should also remember that not a single statistical forecast produced in 2000 would have projected a scenario of industry shipments decline as it actually occurred. Any planning exercise should include the possibility of a totally unlikely industry scenario. Sometimes that's called disaster planning. No, it's part of any thorough planning process, not just disasters.
What's the official PrintForecast.com forecast? $89 billion. Any resemblance to the consensus forecast is purely coincidental. It's actually where our dart landed.
Every day, we review forecasts, and sometimes we joke there are often more forecasts than there are real data. There is one aspect of forecasts that continually befuddles us: the “consensus forecast.” This means that someone has taken all of the forecasts that were available and averaged them together. If there were true consensus, the forecasts would not have to be gathered in the first place. And if forecasting was something important, why would one want to average a bunch of bad forecasts together hoping that something good would come of it. One can't make a good stew with tainted meat and rotting vegetables.
Forecasts that are statistical in nature use historical data to forecast the future. The data are just numbers that resulted from business activities at a particular point in time. The conditions of that time are probably different than what will be in the future. While all trends have historical roots, it is much too simplistic to just extend past trends into the future. There's something comforting about “predicting the past.” It ignores that marketplaces, in the long term, are dynamic. There is one benefit, however.
When in high positions, executives can find it difficult to distance themselves from the daily heat of the corporate battle. Some managers fall into a habit of assuming the last thing that they heard was correct and was the most important thing they will hear affecting their business.
For that reason, having a statistical forecast of trends that might be embedded in one's business or market ensures a sense of detachment required for good planning.
PrintForecast.com runs three different models on the industry shipments data series we maintain. One is a straight-line model. Another detects seasonal patterns. Yet another fits an exponential curve equation to a data series. They are nothing more than arithmetic exercises, no matter how sophisticated they seem.
By constantly reviewing the literature of the markets that feed communications demand, such as what is happening in direct marketing techniques, publishing, advertising, graphic design, photography, telecommunications, broadcasting, and other fields, one arrives at a general understanding of what is happening in our industry today, and what forces will impact it in the future. It's easy to let the hyperbole of technology and its marketing affect forecast decisions. Again, including a basic statistical forecast in the process helps one to better understand the issues.
Good forecasts require a combination of approaches, but someone, sometime, has to put a stake in the ground and proclaim what the forecast is.
Our forecast models for 2007 show three scenarios. For comparison, this past year's inflation-adjusted shipments will be about $91.4 billion. Model 1 estimates that shipments in 2007 will be $92.9B. Model 2 says $92.7B. Model 3 says $82.3B. We can say with great confidence that all of the models will be wrong. But that's the first step.
Models 1 and 2 have formulas that more heavily weigh the recent past than distant history, just like that executive who values the last thing that was heard in a casual hallway conversation. Model 3 has a longer term view, and in light of the past five years trend, and not the last five months, forecasts more pessimistically—about -11% less than the other two forecasts. The consensus of the models would be $88.6B, if one takes comfort in that. It almost sounds reasonable.
So what forecast should one use? $91.4B? $92.7B? $82.3B? $88.6B? All of them. A company needs to prepare itself for whatever the marketplace can hurl its way. Knowing that Model 3's forecast of an -11% decline in shipments is part of the mix should create a process of asking and answering hard questions.
We should also remember that not a single statistical forecast produced in 2000 would have projected a scenario of industry shipments decline as it actually occurred. Any planning exercise should include the possibility of a totally unlikely industry scenario. Sometimes that's called disaster planning. No, it's part of any thorough planning process, not just disasters.
What's the official PrintForecast.com forecast? $89 billion. Any resemblance to the consensus forecast is purely coincidental. It's actually where our dart landed.
Thursday, January 11, 2007
Industry Consolidation: Not as Simple as it Looks
Cadmus was bought by Cenveo. Cenveo chased Banta, and then R.R. Donnelley outbid them. Donnelley then bought Von Hoffman. Cenveo is a product of mergers. Donnelley is becoming one as well. There's more to come. The fact that mergers and acquisitions exist in the printing business should not be a surprise: they have been going on for decades. The 1980s had their “greying of the industry” wave, as owners sold because their grown children had careers of their own, many deciding that printing was not for them. The 1990s had a growing stock market and Wall Street analysts who saw commercial printing as a growing business (remember how the Internet was stimulating print volume and that it would never end?), filled with inefficiencies, easy money, and a great opportunity for fees for managing whatever deals they could, even if they didn't make sense. Investment bankers don't make money on the stocks...they make on the fees for handling the deal, especially when the companies are public. When the deal is done, they're usually out of the picture.
If prior consolidations were primarily waves of generational or monetary exuberance, today's are generally defensive. There is a desire for synergystic retrenchment, as businesses combine, eliminate redundancies, cherry-pick equipment and personnel. These mergers do not contain an ingrained desire to create new markets or new opportunities or to ride new waves of demographic, economic, or technological change. They are a search for ways to adapt familiar tools to a confusing marketplace.
Big name consolidations are how the other half, or more accurately, the other five percent, live. The rest of the industry consolidates by the forces of the marketplace. Printing businesses go bankrupt; or, they close one business, and join another printer in a new venture; or, they close up shop and become print brokers. Trade typographers closed and became desktop publishing businesses or service bureaus or graphic design studios. This small business turmoil does not get much attention, but it is of greater volume and frequency than most realize. Department of Commerce data consistently show in the range of 3,000 print businesses closing and 2,000 print businesses opening every year for more than a decade. These are not “newbies” to the printing industry, these are signs of an industry that is always restructuring itself, under the radar. The bulk of these businesses are long-time industry workers and owners closing one business entity and starting another, cleaning up their financial and marketing sins, believing that a fresh start with a new partner or in a new place or with a new name, and better yet, a new strategy, will keep them in the printing game where all their experience resides.
We've often used the old phrase “things take twice as long and cost twice as much” when describing market adoption of new products to our clients. The same holds true for the synergies companies announce at the times of their deals. The fog of enthusiasm later becomes impatience.
As far as “big” consolidations go, Harvard professor Michael Porter offered an interesting observation years ago, based on his research. More than half of all acquired companies fail, and end up being divested or closed about five years later. Consolidation has risks, and they are beyond the normal risks one encounters in day-to-day business. Many of the mergers are financially successful after a short time, but do not have a strategic resilience to them. Getting things re-organized dominates strategic thought, not the marketplace. There is a point where all the rewards of balance sheet clean-up and reconfiguring are essentially complete. Then there's the next step: facing a changing marketplace with a winning long-term strategy. Sometimes that's two years or so into a merger before it gets properly addressed, and often the company gets sold again to someone else who can supply a strategic base when the financial gurus jobs are complete.
By consolidating, companies add significant transition risk to their businesses. These do not appear on their financial statements, but the results of the unmanaged risks do. An indecisiveness invades the business, especially among middle management who are unsure of their own jobs, but unsure of the strategies that guide their decisions. Is it the strategy of the acquiring company, do they follow the guiding principles of their prior company? Or is there a new strategy based on the assumed strengths of the new combination.
Indecision and lack of resolution often costs more than making bad decisions. Bad decisions are obvious, but their cures are just as obvious. Lack of clarity from top management, however, is corrosive, and only feeds informal political structures that do as they please until someone tells them otherwise. Fear of making bad decisions in front of new management only makes things worse.
There are other transition risks. These often materialize as undone work, customers ignored, new initiatives that are delayed, executives unavailable to direct their workers because they are tied up doing transitional "things." New budgets, new forecasts, and especially, new staffing plans take time away from running the business.
Transition also creates upheaval among the employees...many of them leave and go to competitors. This is good and important, from an industry vitality perspective, as many of them go to smaller companies. While it's hard to shift from working for an industry behemoth to a smaller company, these employees often do well there, bringing a level of experience that the smaller companies could not normally attract. Many times, they bring customers. Because management in merged companies cannot give their employees immediate straight answers about the viability of their jobs, they will start looking for employment elsewhere. Often, it's not that management doesn't want to give a straight yes or no answer about the jobs of their underlings...it's that there are no answers to give at that particular time. The managers themselves may not even be certain about their jobs.
Transition uncertainty also weighs on the customers. It's hard to have employees, concerned about their jobs, working with wary or confused customers.
How does one deal with this? Starting out with a vision for what that newly merged company looks like in a marketplace at least five years from now, and then directing the reorganization toward that end. If cuts are coming, better to make them swift and hard so that the new business gains a footing, even an uncertain one, early. There's nothing worse than a constant parade of "black Fridays" where people look in their check envelopes for the legendary pink slip. Providing timetables with goals reduces some of the anxiety that can undermine productive work. Admitting mistakes, or even admitting that there will be mistakes, certainly helps. Getting the focus off the company and onto the clients and the competition is essential. For that, speaking and acting with clarity and decisiveness is necessary. When your own company is in upheaval while navigating a changing marketplace, the presence or lack of management talent becomes evident. Is your business up to the task?
If prior consolidations were primarily waves of generational or monetary exuberance, today's are generally defensive. There is a desire for synergystic retrenchment, as businesses combine, eliminate redundancies, cherry-pick equipment and personnel. These mergers do not contain an ingrained desire to create new markets or new opportunities or to ride new waves of demographic, economic, or technological change. They are a search for ways to adapt familiar tools to a confusing marketplace.
Big name consolidations are how the other half, or more accurately, the other five percent, live. The rest of the industry consolidates by the forces of the marketplace. Printing businesses go bankrupt; or, they close one business, and join another printer in a new venture; or, they close up shop and become print brokers. Trade typographers closed and became desktop publishing businesses or service bureaus or graphic design studios. This small business turmoil does not get much attention, but it is of greater volume and frequency than most realize. Department of Commerce data consistently show in the range of 3,000 print businesses closing and 2,000 print businesses opening every year for more than a decade. These are not “newbies” to the printing industry, these are signs of an industry that is always restructuring itself, under the radar. The bulk of these businesses are long-time industry workers and owners closing one business entity and starting another, cleaning up their financial and marketing sins, believing that a fresh start with a new partner or in a new place or with a new name, and better yet, a new strategy, will keep them in the printing game where all their experience resides.
We've often used the old phrase “things take twice as long and cost twice as much” when describing market adoption of new products to our clients. The same holds true for the synergies companies announce at the times of their deals. The fog of enthusiasm later becomes impatience.
As far as “big” consolidations go, Harvard professor Michael Porter offered an interesting observation years ago, based on his research. More than half of all acquired companies fail, and end up being divested or closed about five years later. Consolidation has risks, and they are beyond the normal risks one encounters in day-to-day business. Many of the mergers are financially successful after a short time, but do not have a strategic resilience to them. Getting things re-organized dominates strategic thought, not the marketplace. There is a point where all the rewards of balance sheet clean-up and reconfiguring are essentially complete. Then there's the next step: facing a changing marketplace with a winning long-term strategy. Sometimes that's two years or so into a merger before it gets properly addressed, and often the company gets sold again to someone else who can supply a strategic base when the financial gurus jobs are complete.
By consolidating, companies add significant transition risk to their businesses. These do not appear on their financial statements, but the results of the unmanaged risks do. An indecisiveness invades the business, especially among middle management who are unsure of their own jobs, but unsure of the strategies that guide their decisions. Is it the strategy of the acquiring company, do they follow the guiding principles of their prior company? Or is there a new strategy based on the assumed strengths of the new combination.
Indecision and lack of resolution often costs more than making bad decisions. Bad decisions are obvious, but their cures are just as obvious. Lack of clarity from top management, however, is corrosive, and only feeds informal political structures that do as they please until someone tells them otherwise. Fear of making bad decisions in front of new management only makes things worse.
There are other transition risks. These often materialize as undone work, customers ignored, new initiatives that are delayed, executives unavailable to direct their workers because they are tied up doing transitional "things." New budgets, new forecasts, and especially, new staffing plans take time away from running the business.
Transition also creates upheaval among the employees...many of them leave and go to competitors. This is good and important, from an industry vitality perspective, as many of them go to smaller companies. While it's hard to shift from working for an industry behemoth to a smaller company, these employees often do well there, bringing a level of experience that the smaller companies could not normally attract. Many times, they bring customers. Because management in merged companies cannot give their employees immediate straight answers about the viability of their jobs, they will start looking for employment elsewhere. Often, it's not that management doesn't want to give a straight yes or no answer about the jobs of their underlings...it's that there are no answers to give at that particular time. The managers themselves may not even be certain about their jobs.
Transition uncertainty also weighs on the customers. It's hard to have employees, concerned about their jobs, working with wary or confused customers.
How does one deal with this? Starting out with a vision for what that newly merged company looks like in a marketplace at least five years from now, and then directing the reorganization toward that end. If cuts are coming, better to make them swift and hard so that the new business gains a footing, even an uncertain one, early. There's nothing worse than a constant parade of "black Fridays" where people look in their check envelopes for the legendary pink slip. Providing timetables with goals reduces some of the anxiety that can undermine productive work. Admitting mistakes, or even admitting that there will be mistakes, certainly helps. Getting the focus off the company and onto the clients and the competition is essential. For that, speaking and acting with clarity and decisiveness is necessary. When your own company is in upheaval while navigating a changing marketplace, the presence or lack of management talent becomes evident. Is your business up to the task?
