The Digital Division Presented by James Grasty R.R. Donnelley & Sons The Digital Division Presented by James Grasty

Company & Background Founded in 1864 printing catalogs for Montgomery Ward, by 95’ they were the largest commercial printer with 41k employees in 22 countries Privately held chicago based company for almost a century until they went public in 1956 Generated 60% of its revenues from; directories, catalogs and magazines Major customers included; telephone companies, retail and direct mail, and publishers of books, magazines and software

Organization & Incentives Manufacturing & Sales were core functions “You either make it or you sell it” n 95’ they had 38 divisions, in 8 business groups, part of 3 sectors: Commercial Print, Networked Services, and Information Resources Due to pressures and incentive structure in a typical group, the salesforce sold 80-95% of its volume to its own plants Changing of incentives “What is the most profitable way to run this job for Donnelley?”

Organizational Chart

Traditional Print Business Traditional 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 more “You get an emergent strategy based on opportunities, as opposed to selecting the right opportunity based on a strategic assessment of alternatives” - Allen Cubell Long term relationships with customers 70% based on contracts that ran 3-10 years worth $10’s of millions, plants built for each contract

Major R.R. Donnelley Customers

Industry Shifts & New Technology Digital 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 journal Filmless printing technology: digital four-color, and computer-to-plate expected to have larger impact with reduced cycle times and pollution Digital 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 1980’s The 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 creator Threats 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 combined Now a much smaller digital printer could look like the very large heavy iron Donnelley employed

The Digital Vision A new Business Model “To create a new business and have it drip on the culture”- Cowan “Like IBM in 1983 - PC’s are coming in, but management has grown up in a mainframe world”- Cowan Print 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 validation The 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 Process The Existing Process Senior managers with clout got their projects funded "First pig to the trough" mentality $1 million or more spent on just investigating new technologies No formal process or checks-and-balances The Redesigned Process 4 Phase Process: Program Initiation, Proof of Concept, Deployment Commitment, and Post Mortem $100k cap put on investigating new technologies Deming cycle; plan - do - check - get feedback

The New Process

Phases Review Process Visual

From 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 publishing ISG was unique and their plants did not produce interchangeable work, division managers’ incentives focused on divisional, rather than group, performance.

Building the Division Memphis, 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 manufacturing” 11 presses chosen from different vendors for their different strengths Wanted to be industries low cost producer Although the equipment was new and unproven

Operations & Technology They began building the transaction system and database to hold customers’ content. A customer’s 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, & Roles ISG’s 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 Strategy Target Markets Magazine reprints, corporate literature, marketing and product literature for pharmaceuticals and health care, and advance, liquidation, and prospecting catalogs Positioning As 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 differently” By 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 Selling Taught the new customer to think of their information as something that is alive and needs to be updated ”living document database” as opposed to “dead documents” stashed in multiple cubby holes The “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" - Clarke Focused on consultative selling instead of just sales reps Consulting and advertising agencies viewed "As an important leverage point and planned to focus sales attention there."

Mobilizing Sales The 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 "It’s 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 Memphis

Challenges of Internal Acceptance Expected sales not coming in, Digital Division under pressure The company demanded profits by 4th quarter and breakeven by 1996 The 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 it Schetter’s 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 Today Four Divisions Digital solutions Print Solutions Supply Chain Solutions Industry Solutions Operated at a loss in 2012 Print Falling at 5% per Year 2012 2011 2010 2009 2008 $10,221 $10,611 $10,018 $9,857 $11,581

Question #1 Which Group did the Digital Division find a home in? A.) Informative Services Group B.) Information Services Gang C.) Information Services Group D.) Information Sources Group E.) All of the Above

Question #2 What was the importance of digital printing? A.) It was pretty cool B.) It was a disruptive technology C.) It empowered the consumer to control their own content D.) It presented a threat and an opportunity for RR Donnelley E.) All of the Above

Question #3 What was RR Donnelley's Biggest Problem in this case? A.) They were too old to figure out that new fangled technology B.) They were too big to fail C.) Entrenched infrastructure and people made it hard to embrace the new technology D.) Ink Cartridges are too expensive E.) All of the Above

References R.R. Donnelley & Sons: The Digital Division http://rolnitzky.com/iSchool_UC-Berkeley/iSchool-Fall-09/INFO_290_managing_info_cos/lec2/Donnelley_case.pdf http://www.rrdonnelley.com/ http://investor.rrd.com/secfiling.cfm?filingID=1193125-13-77082&CIK=29669 http://en.wikipedia.org/wiki/RR_Donnelley