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William L. Davis - Donnelley's Number-one Son

January 1998
AT&T's decision to hire John R. Walter away from R.R. Donnelley & Sons left Wall Street analysts puzzled. Walter seasoned himself in the commercial printing industry, they noted, not the field of telecommunications. For that reason, the experts deemed AT&T's president unqualified.

William L. Davis, Walter's successor at R.R. Donnelley, has faced similar scrutiny.

When R.R. Donnelley appointed Davis chairman and CEO, industry insiders scratched their heads. Davis had no prior experience in the graphic arts. What could Emerson Electric's former senior executive vice president possibly do for North America's largest printer?

The same thing he has done for other companies: pinpoint untapped potential in a mature market.

According to Davis, the consolidation and pricing pressures that permeate the printing industry are signs of maturity. And mature industries call for special strategies—strategies that Davis has skillfully developed for two decades.

"Frankly, in the past 20 years, almost all of the sales, marketing and manufacturing positions I've held have been in what you would call mature industries," he explains. "And all of the companies I have been with have done extremely well. There is a lot of opportunity in mature industries to differentiate yourself—to provide value to your customers and, therefore, provide value to your stakeholders."

Davis may possess the talents R.R. Donnelley needs in a chairman and CEO, but he admits that he didn't initially see himself as a likely candidate. A recruitment firm saw otherwise. Charged with finding an heir to Walter, the executive search company contacted Davis.

"My first reaction was surprise that somebody in the printing industry would be interested in somebody with my experience," he says. "Remember: I didn't understand printing very well."

The Right Man for the Job
Although caught off guard, Davis agreed to a preliminary interview. After meeting with the board, he realized his background would serve him well in the company's top spot.

The directors told Davis about the challenges associated with the position. Later, they would also candidly discuss the two discrimination suits filed against R.R. Donnelley.

"I was assured by the directors, who obviously looked hard at this subject, that these suits were essentially without merit," Davis says.

The lawsuits trace their roots back to 1993. That was the year Donnelley shut down the facility responsible for printing the defunct Sears catalog. The lawsuits came years after, from former employees who felt they were laid off unfairly.

"In late '95, we get this lawsuit on age discrimination, then in '96 we get one on race discrimination, for something that theoretically happened in 1993," Davis says.

"The cases themselves are still in the preliminary-hearing stages," he continues, "and we still feel very strongly that they are without merit. We know of nothing that would change our view on that."

The meetings with the directors went well—so well, that in March of 1997, Davis moved into the corner office in Donnelley's Chicago headquarters. Not that the chairman and CEO collects cobwebs behind his desk. Twelve years in the retail business gave Davis a fear of sitting. He prefers to stay on his feet.

Since Davis enjoys being on the go, he acclimated himself to R.R. Donnelley by touring its vast, global domain. The trips confirmed what he had already believed to be true: Printing shares similarities with the industries to which he was accustomed. Granted, the products differ, but the issues don't. Printing facilities, like the other manufacturing plants where Davis worked, must deal with scheduling, throughput, material flow, training, quality and consistency.

Davis found the commonality between the industries comforting: "I was very pleasantly surprised when I visited my first Donnelley plant my first week—to get a sense that I was back in what I consider traditional manufacturing."

Thus far, Davis has visited nearly every single one of R.R. Donnelley's facilities, as well as many of the sales offices. He's talked to workers and listened to their concerns.

R.R. Donnelley's printing operations employ 28,000 people worldwide. If Davis had his way, he would talk to each individual. But he can't. Instead, he relies on other means to stay in touch with the workforce.

"We do have a pretty good communications network within Donnelley for internal employee communications, and I am able to access that," Davis points out.

In a company the size of R.R. Donnelley, communication is critical. Davis recognizes this. That's why he created the position of chief information officer, an executive responsible for coordinating the communication among plants, vendors and customers.

After a lengthy search, R.R. Donnelley chose Gary Sutula as senior vice president and chief information officer. Sutula previously held the same title at Transamerica Financial Services, an international consumer lending company.

Locating a CIO was just a small part of Davis' overall restructuring program. He has streamlined the entire chain of command.

Before, R.R. Donnelley had been organized under three sector heads. One handled global businesses, regardless of product, while the other two shared domestic businesses.

Davis felt that this approach failed to take advantage of R.R. Donnelley's domestic strengths. For example, while book printing may differ from magazine printing, both processes go through some of the same steps, such as basic prepress. So why not handle the prepress at the best possible plant, regardless of location? The old structure never considered that question.

"The organization did not foster the appropriate level of sharing across the common platform," Davis maintains.

Under Davis' regime, R.R. Donnelley has reduced the three-section structure to one. Jonathan P. Ward became president and COO. The heads of R.R. Donnelley's five business units now report to Ward. So do the heads of the European, Chinese and Latin American divisions.

"Those global organizations now have access to the competencies in our domestic plants, which is exactly what we bring to these foreign markets," Davis says. "This makes it easier for us to deliver these skills."

It also makes it easier to deliver value to shareholders. A well-structured company improves business, which improves stock performance.

Davis admits that shareholders have a right to be disappointed in the company's stock performance during the past few years. He doesn't plan on disappointing them in the future. His mission? To get R.R. Donnelley back to the basics.

Returning to Its Roots
In a time when non-print services have the industry buzzing, R.R. Donnelley is rediscovering ink on paper. The company has committed to traditional printing.

"Perhaps we lost a little bit of the intensity in that area as we looked into non-print-related opportunities," Davis says. "We're back to focusing our attention almost exclusively on printing, ink on paper, and all the related functions. That means some long-term investments, but they will be long-term investments in ink on paper."

R.R. Donnelley made such a long-term investment recently in its Lancaster, PA, facility. The board of directors approved a $20 million allocation to purchase a Heidelberg Harris M-3000 "Sunday" press and related finishing equipment, expanding the Lancaster plant's catalog operations. Scheduled to begin production in the summer, the web offset press will benefit high-profile customers such as Nordstrom and Eddie Bauer.

Just because R.R. Donnelley now emphasizes traditional printing doesn't mean the company will produce all of its jobs on traditional presses, however. Digital printing systems occupy a pivotal position in the hierarchy of equipment.

In March of 1997, R.R. Donnelley shut down the Memphis facility that housed its standalone digital division and relocated the equipment to other plants across various business units. Davis claims that this move brought digital printing capabilities closer to customers.

"We have a different deployment strategy towards digital printing than what you might see from other printing companies," he offers.

While turning back to core competencies, R.R. Donnelley intends to complement traditional printing with additional services, such as content management. Davis wants to show customers that R.R. Donnelley doesn't sell a commodity.

When customers think of printing as a commodity, they expect lower prices. To charge a premium, printers must demonstrate what they truly provide. Subtract the quality and timeliness that good printers add to the equation, and customers aren't left with much of a product.

"It's important that we find and emphasize the appropriate way to stress the value we bring to our marketplace and our customers," Davis maintains.

New Services, Old Niches
Just as R.R. Donnelley has committed to traditional printing and complementary services, so has the company committed to its core markets. Donnelley has no intention of exiting one niche to concentrate on another. In fact, by expanding the successful strategies of individual business units, R.R. Donnelley hopes to uncover new opportunities within mature segments.

For example, Donnelley's financial printing business has done very well in the mutual funds area. Its secret? Capabilities that allow quick responses, sending highly personalized mailings to mutual fund customers within 24 hours. R.R. Donnelley is now applying the same capabilities to the healthcare field.

Not that R.R. Donnelley generates all business ideas from within. The company also develops services by talking to those who matter most: print buyers.

On occasion, customers may request non-print services. As a result, R.R. Donnelley may explore these opportunities—although ink on paper will still receive the most attention. Davis is vehement that R.R. Donnelley & Sons will not introduce non-print services unless they directly satisfy stated customer needs or complement ink-on-paper products.

"Understand that [non-print services] are going to be in conjunction with the customers and the work we do in printing," he says.

One non-print area that looks promising is the Internet. One popular Internet product, SENDD (secure electronic net document delivery), comes from the financial printing division.

SENDD allows clients to manipulate their files behind R.R. Donnelley's firewall. Users download their digital documents, work on them, then upload the revamped files. In the future, SENDD will even permit online editing.

Despite the success of SENDD and other Internet-based products, R.R. Donnelley has decided to tread the World Wide Web cautiously. Rather than unleash a wave of products in the hopes that some will float, the company will slowly launch Web services that fit into its overall strategic plan. Davis believes that printers in a rush to surf the 'Net tend to wipe out.

"A problem that companies generally have is grabbing onto a big, new idea and never executing it well because it's too big to get your hands around," he explains.

Speaking of big, printing companies don't come much bigger than Donnelley. And Davis doesn't want to get smaller. Does that mean the $6.5 billion behemoth will take part in the consolidation craze? Possibly.

Cautious Consolidation
Unlike the industry's other now-famous Davis, R.R. Donnelley's chief is in no hurry to purchase other printers. Consolidation may be natural for a mature industry, but not for R.R. Donnelley & Sons. Not yet, anyway.

"You have to look at the printing industry overall," Davis explains. "Our industry does not earn the cost of capital. From that standpoint today, this is not a terribly attractive industry in which to invest. And an acquisition that we would make would obviously have to provide a clear path toward a strong return for our shareholders."

Davis is quick to add that he doesn't disapprove of M&A activity. He's just waiting for "the appropriate time." Expect acquisitions from R.R. Donnelley—eventually.

"I'm not at all opposed to acquisitions," he says, "because I feel very strongly that there is a lot of life left in printing and ink on paper."

And a lot of life left in R.R. Donnelley. Now that Davis has settled into his new role, he's prepared to awaken the sleeping printing giant. The apprehensive job candidate has become the confident, aggressive executive—a chairman and CEO with no regrets.

"I'm delighted with my decision," Davis claims. "I'm excited about the prospects of Donnelley. This is a great company with wonderful people and great competencies. And it has a lot of untapped potential to do better to serve our customers and our stakeholders."

—Jerry Janda

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