I. Traditional vs. On-Demand Digital Printing
How do the characteristics of Donnelley's traditional printing business compare with the characteristics of on-demand digital printing?
R.R. Donnelley and Sons traditional printing business pricing varied depending on the number of pages in the print job. The prices per page decreased as the number of pages increased. The traditional print business consisted of high fixed costs and low variable costs. Offset presses cost approximately $12 million using film and plates with runs of 25,000 to 500,000. The gravure print was more expensive and used etched copper cylinders and would run 500,000 or more. The digital presses were more expensive and required skilled and dedicated operators. Donnelley felt they would need to develop and control four database systems to make their model work, adding extra costs. At the same time, Donnelley anticipated savings by eliminating inventory and warehousing costs. The cost per unit for print jobs with run lengths of 2,000 or less would be lower than the costs of the traditional offset print.
What do you have to do well to succeed in the two businesses? What do customers want?
Manufacturing and sales were the core functions of Donnelley. The traditional print business succeeded by employing a superior sales force of over 500 people. The salespeople had considerable customer knowledge to the point they were able to reduce inventory and shorten cycle time for the customer. They developed long term relationships with their customers. Donnelley was founded in 1864; being an early entrant company gave them a competitive advantaged, and allowed them to maintain a loyal customer base. Their strategy was to secure multi-year contracts worth tens of millions of dollars. 70% of business was from long term contracts of 3 to 10 years. Donnelley would build plants specific to the needs of their long term customers. A large segment of their print business was directories, catalogs, and magazines. Donnelley was profitable and competitive in the traditional press business until the mid-1990s. “By 1995, at least 55,000 printing companies operated worldwide. Most had fewer than 25 employees. Donnelley, with 6% of the $80 billion print markets, was larger than its next nine rivals combined. Threats, however, were emerging from several directions, largely because of new technologies and new entrants to the business.
As new technology emerged and shifts in the industry were occurring, customer demands were changing. Customers now wanted to produce a variety of versions of the job, use of a variety of inserts, use of great color, and wanted to have the ability to quickly make revisions to the job. They now placed a premium on speed and global distribution. Donnelly already had the capability to assemble multiple versions of the same job with traditional printing, but they needed to meet customer production expectations. The introduction and push of desktop publishing in the 1980s changed how jobs were assembled and edited. Customers now had the ability to do editorial and prepress tasks that were done by the publisher. “The craft side of the business that we made big money on-stripping, color correction, and etching – has migrated to the hands of the document creator.” (Donnelley p.4) As Donnelley introduced the digital press, they had to make sure their systems were compatible with PCs and MACs.
The digital press business housed the print jobs in a database allowing Donnelley to print and send on demand. This process cut the processing time from upward of 20 days to 2-3 days. It saved publishers close to 60% of the overall cost because it eliminated on- hand inventory and warehousing costs.
How do these differences affect the agenda and tasks of Rory Cowan? What posture must he take toward the rest of the company? Why does he feel that a separate division is...