Rev. February 19, 1998
Andrew Cha, the founder of Colorscope, Inc., a small, vibrant firm in the graphic arts industry, had seen his business change dramatically over the years. The rapid development of such technologies as desktop publishing and the World Wide Web as well as the consolidation of several major players within the industry had radically altered his company’s relative positioning on the competitive landscape. Preparing to celebrate the company’s twentieth anniversary in March 1996, Cha pondered the issues involved in moving Colorscope ahead.
Born in Anhui, China in 1938, Andrew Cha immigrated to the United States in 1967 to seek a better life. Originally planning to settle in New York City, where he would pursue his craft as a painter and his wife would attend New York University, his funds ran out in Los Angeles, forcing him to work as a cook and busboy in a downtown Chinese restaurant. Through fortune and hard work, however, Cha eventually found jobs that took advantage of his artistic skills in draftmanship and photography; a succession of promotions within one graphic arts company convinced him that his abilities would enable him to start his own business. Founded on March 1, 1976, Colorscope Inc. was established as a special-effects photography laboratory serving local advertising agencies in southern California. As Cha’s reputation grew, so did the business. Sales increased steadily over the years, peaking in 1988 at $5 million dollars. The company served agency giants such as Saatchi & Saatchi, Grey Advertising, and J. Walter Thompson and large retailing and entertainment companies such as The Walt Disney Company and R. H. Macy & Co. To improve service to these customers, Cha invested in expensive proprietary computer equipment to continue providing ever more complicated print special effects. During 1988, Cha was approached by R. R. Donnelley & Sons Co. about a possible acquisition. Donnelley, the largest printer in the world with roughly $4.3 billion in sales at the time, was interested in acquiring Colorscope for approximately $10 million. The interest in Colorscope was twofold. First, Cha had built solid relationships with highly valuable print and pre-press buyers in the marketplace. Every pre-press dollar he sold was worth several more in printing. By owning Joseph Cha, HBS MBA class of 1996 and Assistant Professor V.G. Narayanan prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1996 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
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Cha’s pre-press business and employing him as a sales consultant, Donnelley hoped to secure large print contracts, which at the time were still subject to open bidding. Second, Cha’s operation was considered one of the most efficient in the business. Donnelley employees had previously visited his operation and modeled some of his workflows, adapting them into the design of one of their own pre-press facilities. As a result, Donnelley considered Cha’s business processes as well as his training methods an operational advantage they could leverage to other pre-press facilities in their network of operations across the country. After considering his options and his belief in the potential of the business, however, Cha grew dissatisfied with several of the...