5-RR Donnelley and Sons Presentation_James_Grasty

R.R. Donnelley & Sons

R.R. Donnelley & SonsThe Digital DivisionPresented by James GrastyCompany & BackgroundFounded in 1864 printing catalogs for Montgomery Ward, by 95 they were the largest commercial printer with 41k employees in 22 countriesPrivately held chicago based company for almost a century until they went public in 1956Generated 60% of its revenues from; directories, catalogs and magazinesMajor customers included; telephone companies, retail and direct mail, and publishers of books, magazines and software

Organization & IncentivesManufacturing & Sales were core functions You either make it or you sell itn 95 they had 38 divisions, in 8 business groups, part of 3 sectors: Commercial Print, Networked Services, and Information ResourcesDue to pressures and incentive structure in a typical group, the salesforce sold 80-95% of its volume to its own plantsChanging of incentives What is the most profitable way to run this job for Donnelley? Organizational ChartTraditional Print BusinessTraditional Print business; heavy iron offset/web (used film & plates, cost effective for 25k-500k runs), and Gravure (Used Etched Copper Drums, Cost effective for 500k plus) printing presses, $12 million+ per press, Gravure even moreYou get an emergent strategy based on opportunities, as opposed to selecting the right opportunity based on a strategic assessment of alternatives - Allen CubellLong term relationships with customers70% based on contracts that ran 3-10 years worth $10s of millions, plants built for each contract

Major R.R. Donnelley CustomersIndustry Shifts & New TechnologyDigital in 95' was forecast at 16% growth, while traditional printing was expected to grow at only 3%Trends were moving increasingly towards local, targeted communication, often called mass customization - they printed 66k different versions of the farm journalFilmless printing technology: digital four-color, and computer-to-plate expected to have larger impact with reduced cycle times and pollutionDigital allowed: shorter runs, four-color printing whose image was infinitely customizable, and could be delivered in variable quantities as often as desired.$200k for a digital printer in 95 and it could be put anywhere"Digital technology will atomize the printing industry the way the microprocessor did the computer industry - Rory Cowan

Emerging Competition Desktop publishing emerged in the 1980sThe company made big money on things like; stripping, color correction, and etching for these customized jobs, but now it has migrated to the hands of the document creatorThreats started emerging from several directions, 55k printing companies worldwide, most had less than 25 employees while Donnelley had 6% of the $80 billion market, larger than its next 9 rivals combinedNow a much smaller digital printer could look like the very large heavy iron Donnelley employed The Digital VisionA new Business ModelTo create a new business and have it drip on the culture- Cowan Like IBM in 1983 - PCs are coming in, but management has grown up in a mainframe world- CowanPrint on Demand (POD): publisher sends data files of books, they retain them in a database, when the bookstores needed copies Donnelley would print more, ship and then send the publisher a royalty check.Economic & technical validationThe new process eliminated a range of costly steps, including warehousing and inventory, that represented roughly 60% of book publishers costs. The approach also avoided the usual mismatching of demand and inventory.

Reengineering the Technology Development ProcessThe Existing ProcessSenior managers with clout got their projects funded"First pig to the trough" mentality$1 million or more spent on just investigating new technologiesNo formal process or checks-and-balances The Redesigned Process4 Phase Process: Program Initiation, Proof of Concept, Deployment Commitment, and Post Mortem$100k cap put on investigating new technologiesDeming cycle; plan - do - check - get feedback

The New ProcessPhases Review Process VisualFrom Vision to Reality The Information Services Group (ISG)Digital Division moved to new group, and after much effort got their own P&L Had their own separate sales force: targeted industries such as financial services, pharmaceuticals, and healthcare, places where the primary focus was not publishingISG was unique and their plants did not produce interchangeable work, division managers incentives focused on divisional, rather than group, performance. Building the DivisionMemphis, TN chose as first sight because it was close to FedEx central processing Being close to the FedEx runway, the division gained several hours of work time each day and could offer rapid, reliable delivery Virtually distributed manufacturing11 presses chosen from different vendors for their different strengthsWanted to be industries low cost producerAlthough the equipment was new and unproven

Operations & TechnologyThey began building the transaction system and database to hold customers content. A customers order would trigger the transaction system, which would then access the right content, send it to the appropriate digital press, and pull together the printed pieces for the customer.Soon customers were able to modify data themselves from their own offices - they could send orders with "Send-IT", and assemble them with "Order-IT"The Digital Division is an attempt to take three distinct value creation devices; a content management system, a transactions management system, and digital imaging technology, and combine them to create a new product. Organization, Reporting Relationships, & RolesISGs sales force formed into 3 teams: health care, federal government, and the eastern US region (retail banking, credit cards, and high-end consumer marketing)Initial customers were ones already using a digital format, such as desktop publishing, but who were encountering problems such as high physical distribution costs or high information obsolescence. Other potential candidates were those with unmet printing needs such as a desire for overnight delivery to multiple sites, increased customization of print materials, or growing need for color.

Marketing & Sales StrategyTarget MarketsMagazine reprints, corporate literature, marketing and product literature for pharmaceuticals and health care, and advance, liquidation, and prospecting catalogsPositioningAs Schneider put it We sometimes say we're not selling printing anymore; we're selling a marketing tool. we are teaching people to do things differentlyBy introducing new capabilities; the creation of short-run, on-demand, customized materials - digital printing could also increase customers revenues by allowing greater market segmentation and more focused selling.Consultative SellingTaught the new customer to think of their information as something that is alive and needs to be updatedliving document database as opposed to dead documents stashed in multiple cubby holesThe literature management process as management at Donnelley had dubbed it, had not yet been identified as a process or a need by most customers.We are selling to customers who sell to customers, rather than to people whose business is publishing. In essence, we are providing tools for marketing" - ClarkeFocused on consultative selling instead of just sales repsConsulting and advertising agencies viewed "As an important leverage point and planned to focus sales attention there."Mobilizing SalesThe Digital Division had to motivate three overlapping and potentially conflicting sales forces: the divisions own sales reps, the ISG salesforce, and the sales forces of other business groups.Clarke stated that "Its better to have sales conflict and overcoverage than to be missing sales. the tension keeps everybody on their toes. It can be a little messy, but creation usually is." They focused the incentives at the rep level because they needed the support of the complete Donnelley sales force. Management proposed an aggressive commission's plan to motivate other groups reps to sell work into MemphisChallenges of Internal AcceptanceExpected sales not coming in, Digital Division under pressureThe company demanded profits by 4th quarter and breakeven by 1996The company didn't want to expand the unit until it was profitable but the division believed it would take a different outlook on investment to develop itSchetters biggest concern was that "We have not, as a company, stood up and said, Short-run, on-demand, color printing and the associated delivery systems are a strategic initiative - the company had the mindset of "Lets wait and see"

Forward to TodayFour Divisions Digital solutionsPrint SolutionsSupply Chain SolutionsIndustry SolutionsOperated at a loss in 2012 Print Falling at 5% per Year20122011201020092008$10,221$10,611$10,018$9,857$11,581Question #1Which Group did the Digital Division find a home in?

A.) Informative Services GroupB.) Information Services GangC.) Information Services GroupD.) Information Sources GroupE.) All of the AboveQuestion #2What was the importance of digital printing?A.) It was pretty coolB.) It was a disruptive technologyC.) It empowered the consumer to control their own contentD.) It presented a threat and an opportunity for RR Donnelley E.) All of the AboveQuestion #3What was RR Donnelley's Biggest Problem in this case?

A.) They were too old to figure out that new fangled technologyB.) They were too big to failC.) Entrenched infrastructure and people made it hard to embrace the new technologyD.) Ink Cartridges are too expensiveE.) All of the AboveReferences R.R. Donnelley & Sons: The Digital Division http://rolnitzky.com/iSchool_UC-Berkeley/iSchool-Fall-09/INFO_290_managing_info_cos/lec2/Donnelley_case.pdfhttp://www.rrdonnelley.com/http://investor.rrd.com/secfiling.cfm?filingID=1193125-13-77082&CIK=29669http://en.wikipedia.org/wiki/RR_Donnelley