Sizing Up the Digital Economy

After many years of hype, anxiety, and promise, printing companies are starting to reap tangible benefits from the digital economy. By investing in technology and devices that digitize the production process, printers are cultivating new revenue streams and uncovering dramatic cost reductions through improved production efficiencies.

While there is not a separate, measurable digital segment of the economy, there are real and significant business opportunities—along with some lingering threats, to be sure—induced by technological innovation of the digital variety.

Nearly every segment of the printing industry has been touched, for better or worse, by the revolutions attributable to digital technology, computers, and the Internet. On the plus side, many printing companies have harvested a new crop of profitable services that include digital printing, digital asset management, design services, digital file transfer, and Internet development. Printers also have improved the customer transaction process by using systems that allow on-line ordering and job tracking.

But as we move into the next phase of the digital revolution, printers express much confusion as to where to invest capital.

"Many printers invested in digital tools, such as digital presses and digital asset management, that weren't ready for prime time and failed to achieve their desired results. So now that those tools are technologically sound and delivering on their promise, a lot of companies are hesitant to invest today because of the slow economy," reports Mark Tennant, vice president and national sales manager for Anderson Lithograph, Los Angeles, a high-end, 390-employee unit of Mail-Well, Inc. that produces annual reports and collateral materials.

At the present, the long-term effect of electronic media products on print demand is not yet known. Anecdotal evidence shows that the printing industry has experienced both increases and declines in demand as a result of the Internet.

In fact, a recent survey conducted by the Printing Industries of America (PIA), Alexandria, Va., may signal that the Internet is starting to siphon print demand.

For the past three years, the association has asked printers to identify the impact of the Internet on the demand for their products and services. The latest results reveal that just 20% of the respondents believe the Internet is having a positive effect on print demand, down from 40% in the prior two years. (The number of respondents that indicated a negative effect held steady at 20% for each survey; in all the surveys, the remaining participants indicated no effect.)

"First, the Internet evidently was creating more print than it destroyed; now the forces seem to be reaching equilibrium, but possibly in the future the shift may move in the other direction," says Ron Davis, Ph.D., PIA's chief economist.

The most recent survey, Davis reports, also queried printers on the impact of the restructuring of the "dot-com" companies on print demand; 16% of respondents indicated a negative effect, he adds, since "the dot-com companies were buying a lot of print advertising and direct mail."

But beyond print product demand, the dot-com meltdown may have a more general negative effect on the industry. The threat is that some printing companies, witnessing the troubles of dot-com firms offering Internet-based transaction services, will interpret their demise as an indication that the digital economy has fallen, and therefore may stop investing in technology that will be crucial for future survival.

"The transition to completely digital work processes and business practices is still moving ahead rapidly and printers that don't participate will be left behind," contends Hal Hinderliter, principal of Hinderliter Creative Services, Boulder Creek, Calif., a consultancy that counts e-commerce as one of its specialties.

Hinderliter should know; he formerly served as director of print technologies for Impresse, Inc., a dot-com company that targeted the graphic arts industry, and earlier as director of the Center for Imaging Excellence at the Graphic Arts Technical Foundation, Sewickley, Pa.

Bill Taylor, president of the California region for printing company K/P Corporation, notes that the fall of firms that provided systems for ordering printed products over the Internet shouldn't overshadow the heart of the digital economy, which to printers ought to refer to the digital infrastructure they've been building over the last decade.

"Very sophisticated solutions are in place that can manage digital content, yet all the attention has gone to the simpler task of managing electronic transactions," says Taylor. "In my view, printing is almost the perfect digital industry because most companies already have digital workflows and systems in place to digitize content. Also, the finished product can exist in a completely digital state."

Indeed, it is just these attributes that may place printers in a strong position to prosper in the digital economy.

"I can't think of an industry that is better positioned to benefit from digitization," believes Andrew Paparozzi, director of the Printing Economic Research Center (PERC), part of the National Association for Printing Leadership, Paramus, N.J. "After all, our industry helped build the external and internal front-end digital networks."

However, he warns that printing company managers shouldn't let the temporary economic slowdown divert their attention and continued investment away from digital tools and services.

So far, Paparozzi reports, printers are still interested, based on the results of a recent survey compiled by PERC. In the survey, printers were asked to define their investment "wish" list; four digital-economy products ranked among the top 20 items: e-commerce capabilities, 39%; digital printing, 34.3%; networks, 25.6%; and archiving/retrieval of digital assets, 19.7%.

Still, Paparozzi stresses, multicolor lithography remains a very important part of the communication mix. The challenge, he says, is for printers to advance into emerging services that strengthen their lithographic services offerings.

"Print is not going away and all of the 'digital economy' products we've developed are strategically linked to our core product, which is print," notes John Sisson, vice president and general manager of Banta Integrated Media, Cambridge, Mass., a provider of software and e-business solutions for digital content management, e-commerce, and Internet-based cross-media publishing. The operation is a subsidiary of Banta Corporation, a Menasha, Wis.-based printing company with $1.3 billion in sales.

"We must constantly evaluate the trends and our role in the digital economy," explains Sisson.

The attention to strategy seems to be reverberating throughout the printing industry.

"Today it is definitely not business as usual," contends Marie Poppy, vice president of marketing for Que-Net Media, Schaumburg, Ill., a unit of the Quebecor World Group, Montreal. "We are adapting to what is happening in the market because we believe that printers that don't won't survive."

What's pushing printing firms to offer more services, digital or otherwise, are technological innovations and process automation developments that have improved product quality and manufacturing efficiencies for all. As a result, printers are having a tough time differentiating their printed products from those of their competitors.

"Printing has become a commodity. Today a top-quality job delivered on time with fabulous service is a requirement just to be in the printing business," says Geoffrey Pick, president of Clear Print, Chatsworth, Calif., a $5 million company that provides creative services, printing, and fulfillment.

Pick says that when printing companies can't demonstrate why they are unique, price becomes the deciding factor in awarding jobs.

"The price points printers have had to meet or beat are in most cases lower than the cost to produce the job," he says. "No printer can exist on a steady diet of unprofitable jobs; that's a formula for extinction."

Therefore, Pick reasons, commercial printers must offer more than print because, he notes, "We can't profit by selling only printing in a box."

Customers, too, are pushing printing companies into new product and service areas. Reports Dennis Meyer, Banta's vice president of marketing and planning, "Our quarterly customer surveys tell us that clients want their printers to stay on top of the latest technology, in addition to offering a quality product, speed, and flexibility."

Many printing companies are moving forward in the digital economy and seizing opportunities. What follows is a broad sampling of printing companies' initiatives.

FLM Graphics, a 110-employee company with $20 million in annual sales located in Fairfield, N.J., offers its clients a wide breadth of communications products and services. In addition to sheetfed printing, the company offers digital color printing, large-format digital color output, media asset management, and Internet services.

"We've crossed the line into other technologies and businesses because we need to be more things to our customers. We have to be able to sell the customer an entire product line," explains Frank L. Misischia, FLM's president and chief executive.

The company, which serves automobile manufacturers, producers of luxury products, pharmaceutical companies, and marketing departments of major corporations, recently added media asset management services, which allow clients to access their digital assets—which include images, video, and audio—via the Internet.

To support its digital product lines, FLM Graphics set up an information technology department charged with developing, researching, and managing its digital processes.

"We are bullish on our future," says Misischia. "We are aggressively entering new markets but are doing so cautiously, which is a strategy that has worked well for us."

K/P Corporation of San Ramon, Calif., which has 750 employees and annual sales of $100 million, offers printing, mailing, fulfillment, and Internet services. It allows customers to order a variety of products via the Web.

Says Bill Taylor, president of the California region for K/P, "Digital technology is going to change the world in ways we don't completely understand. Our company is not trying to be on the leading or bleeding edge, but we just want to keep as active as we can."

K/P recently released ClickOn 3.0, an upgrade to its on-line service that enables customers to order business cards, letterhead, envelopes, and other business stationery products along with templated marketing materials from their personal computers.

ClickOn 3.0 allows customers to personalize items, proofread on line, and submit orders, which then flow through automated manufacturing processes and accounting systems. K/P introduced ClickOn as a standalone software application in 1996, before most companies had access to the Internet.

In another program, clients can order printed materials on demand in a variety of ways, from logging on to a Web site set up by K/P or submitting job codes by telephone or fax.

As Taylor explains, "Part of our strategy is to sell clients a program of products and services, not individual jobs. To do so, we need to be able to offer an arsenal of products that solve their business problems. The fact is, today's technology makes it easier to manage customer programs."

Prime Mover of Irvine, Calif., which specializes in the production and fulfillment of just-in-time training materials and manuals for information technology training and publishing firms, allows its customers to place orders and check job status via the World Wide Web. Clients include New Horizons Computer Learning Centers, Prosoftraining.com, Course Technology, and ExecuTrain.

The company employs 75 people, bills $14.7 million in sales, and operates a 29", five-color Heidelberg Speedmaster 74 sheetfed, seven Xerox DocuTech 6180 systems, a Creo Trendsetter digital plate imaging device, and an Océ Demandstream 8090 digital web press in a 75,000-square-foot facility.

"We do very little business locally. Close to 95% of our revenue comes from clients that are not located in our state," explains Luis Garcia, Prime Mover's president. The company, which prints, binds, and ships almost all manuals on the same day the order is received, produces about 120,000 manuals per month.

"We produce manuals on a just-in-time basis so clients don't have to maintain inventories," Garcia explains. "Also, since books can be produced essentially the same way, we've turned our print shop into a factory. Digital technologies have allowed me to find niches and efficiencies that previously were unthinkable."

Since founding Prime Mover 15 years ago at his kitchen table and launching it with $300 in savings, Garcia has always looked for ways to automate. He adds, "My background is industrial engineering, which concentrates on saving money through the study of time and motion."

R.R. Donnelley & Sons Company, Chicago, is aggressively expanding many diverse services—digital photography, digital asset management, digital printing, and Internet services—to complement its print products. It recently moved its Internet consulting business into a new subsidiary called Red Rover Digital to help publishers and merchandisers find ways to more effectively communicate with their audiences.

"We are investing for growth in this robust market, and about 30% of Red Rover's revenues now come from customers that had not done business with us before," says William L. Davis, chairman, president, and chief executive of Donnelley, which posted $5.2 billion in sales last year.

Donnelley is a technology-savvy company that is revolutionizing communications effectiveness, says Robert S. Pyzdrowski, president of the company's commercial print operations. As evidence, he points out the following Donnelley achievements:

• it holds more than 25 issued and pending patents for emerging technologies;
• it operates a dedicated research and development center staffed by more than 80 engineers and specialists; and
• it participates in all industry standards committees in the premedia arena.

Concludes Pyzdrowski, "The companies that will succeed in the digital economy will be those that integrate technology into their processes to serve clients more effectively and efficiently."

Printing giant Quebecor World, Montreal, recently spun off its premedia business into a wholly owned subsidiary called Que-Net Media to provide greater focus to developing digital products and services.

Headquartered near Chicago, Que-Net Media also offers creative services, digital and conventional photography, and software applications for automated publishing and content management. The unit has 16 locations in North America that are digitally linked to Quebecor World facilities.

"We are projecting double-digit top-line growth over the next three years," says Jack Schuh, Que-Net Media's president and chief operating officer.

Que-Net Media just launched a suite of automated publishing tools that include template-driven campaign management tools and customized systems for linking design layouts with content management databases.

The company also opened four technology solutions centers where clients can gain first-hand experience with Que-Net Media's product and service offerings and receive training (turn to Inside Business on page 26 for more).

Worth Higgins & Associates, Inc., a Richmond, Va.-based sheetfed printer that produces general commercial work, newsletters, brochures, and annual reports, bills $11 million in annual sales and employs 100 people. It chose to leverage the digital economy via digital printing, last December installing an Indigo TurboStream digital press and launching a new division, Worth Digital.

"We have no desire to be another 'me too' printer," says John Fechino, business development manager for Worth Digital. "We are looking at where the communication industry is taking the printing industry and see variable-data printing as the biggest opportunity for growth."

But before investing, the company did its homework—and waited until the technology matched customer expectations. As Fechino explains, "We're known for a higher level of service and quality, so we couldn't just buy the newest toy but produce an inferior product."

The first job put on the Indigo press: visitor passes for the Orange Bowl, containing variable data.

One strategic action the company took to ensure the success of its investment was to create Fechino's position. He is responsible for developing the market and keeping up on industry trends.