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Confronting Reality About Margins --Dickeson

May 2005
Why do we duck the reality of the Ratio Studies published by the Printing Industries of America (PIA)? In a prior article, a summary of the last six years of those studies was published. If we accept those studies as representative, the lower three-fourths of our commercial printing industry have had margins that are below the survival level. Either the results presented by PIA are misleading—or downright phony—or we're in denial of the reality of what they clearly say.

To put it in existential terms, why haven't at least 10,000 of our 20,000 commercial printing firms filed for bankruptcy?

Suppose we accept the PIA Ratios as the realistic view of our industry. No one seems to be in the least excited or disturbed by the condition. At least I haven't seen any written outcry. We just see the data and go on about our business. So, what else is new?

Truth Is in the Numbers

There are more than 30 firms selling computer systems to printers. How many companies are supplying paper (and credit) to printers? Ink companies? Machinery and equipment suppliers? It's not only printers who should be concerned about these gloomy numbers—if true.

Larry Bossidy and Ram Charan published a book last year titled "Confronting Reality—Doing What Matters to Get Things Right." They stress that businesses have to change their operating models continuously as economic conditions change.

One of the first things to be done, they suggest, is to look at the market as an outsider. Has it changed? Is it changing? Has the product become, or is it becoming, "commoditized?" If so, pricing margins must fall and, to succeed, operators (printers) must do everything they can to reduce their costs to maintain margins. Can we say that printing has changed, that it's become more of a commodity over the past six or seven years? Personally, I don't think that it has changed that much.

But is the balance between being an industry of service or commodity slowly tipping? Each printing company has to look at what its product is and give some thought to this question. Clearly, the balance tipped for personal computers. Personal computers are now a commodity like telephone receivers or calculators.

But where are all the software companies that sprang up in the late '90s that purported to be auction houses—little Ebays—for printing? They depended on printing being a commodity that could be bought and sold by price bid. They're history! That's the reality of the matter.


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