Minding My Own Business

Who Knows Best?

January 16, 2006

Happy New Year to you all! 2006 is now well under way, and that means that by now we've all worked through our budgets, business planning, personnel reviews, and other end-of-year exercises that either burden us with unreachable expectations or saddle us with unbridled pessimism. Either way, each and every one of us will face a host of challenges over the next 12 months that will determine both the current and future states of our operations. With the rapidly escalating pace of change across all facets of our multidimensional business world - technological, macroeconomic, sociological, etc. - the mid- to long term health of any company can no longer ever be taken for granted. In other words, how we face today's struggles will go a long way toward securing our future success or demise.

Over the past couple of years, I've noticed a trend among converters confronting the changes in our industry and marketplace to seek advice from outsiders. Whether they show up at your door in the form of high priced consultants, self-described industry "gurus", retired former converters, or even industry suppliers offering their analytical services, outsiders to your business can serve a useful role in assisting you with your decision making. Especially in areas that fall beyond the scope of your knowledge or experience - your circle of competence, in the current professional vernacular - "off-the-shelf" expertise is sometimes the most worthwhile and least expensive method of shortening a learning curve.

However, too often companies seek outsiders to provide them with confirmation of facts that they already know deep inside but are reluctant to face, or to provide them with the analysis and recommendations that they are perfectly capable of doing for themselves but lack the time or confidence. In some cases, business owners even cede decision-making responsibility and even authority to third party hired guns.

As a former strategy consultant, let me assure you of one truth: Strategic decision making cannot be outsourced. Professionals can assist in research, provide experience and knowledge, offer relevant case studies, and deliver exciting multimedia presentations that highlight their findings and recommendations. But they cannot make strategic decisions for you for one simple reason: It is not their company at stake. After all is said and done, you - and only you - must decide what's best for your company.

Most of us know some version of the story about the entrepreneur who expanded his retail fish store into the shop next door. Seeking to bring in more customers, he commissioned a big, bold sign that stretched across his double storefront that proclaimed "Fresh Fish Sold Here". People flocked to the newly enlarged establishment. One day, a respected businessman told him "You got a great store here, but the sign doesn't make sense. The word 'Here' is excessive. After all, this is a fish store - where else would you be selling fish?" So the owner had the word removed, leaving "Fresh Fish Sold". Soon another friend came by and pointed out "Are you giving away your fish for free? Of course not. Get ride of the 'Sold'. It will make the sign much more to the point, and, after all, brevity in business communication is essential." So the sign soon read "Fresh Fish". It wasn't long before another associate advised the entrepreneur: "Why imply the negative by saying 'Fresh'? Do you want shoppers to be reminded that it is possible to buy fish that aren't fresh?" So the storefront was left with a large sign that simply read "Fish". That is, until another fellow came along and said "Do you really need to have that sign read 'Fish'? Believe me, from a block away, everyone can tell that this is a fish store!" So the entrepreneur took down the sign.

I'm not sure how the story winds up, but in my mind, the point is that you can get lots of advice from a wide range of sources, but you have to be extremely discerning in determining which advice to take. A simple rule of thumb is that if the advisor has nothing at stake, his or her advice should be viewed as such - critically, and assigned no more or less weight than it deserves.

So what challenges are on our horizon today? I've spoken with a lot of converters over the past couple of months, and discovered that despite the varied sizes, geographies, markets, and experiences of their companies, most (including me) entered 2006 with very similar concerns, which include:

1. The imposition of yet another round of cost increases from raw material vendors. Yes, we are all aware of the activity in the commodity markets, but we are universally aware that although prices go up when the oil prices rise, they don't seem to fall at nearly close to the same rate when oil prices decline. This is of particular importance to label converters, because of:

2. Price reduction demands from our customers. Or, in better-case scenarios, "just" a rejection of any price increases necessitated by rising raw material costs. Most converters - in fact, just about all converters - are much, much smaller companies than their larger customers. And most of us are considerably smaller than our key material vendors. This bulletin just in: When costs go up and prices go down, it takes a lot more than just adapting Lean Manufacturing techniques and philosophies to remain profitable.

3. Rising labor costs, including wages and health benefits, which is just another factor impacting the increasing difficulty in locating and retaining quality employees. In one of business life's greater ironies, more than ever it is human capital which makes the difference between success and failure, but the cost of that capital contributes to our pricing requirements that are under fire as described above.

4. The virtual daily onslaught of new technologies. Don't get me wrong - technological innovations are the red blood cells of domestic manufacturing - but for most converters, there are so many new opportunities that it has become a major challenge merely to decide how to deploy (whatever) capital (is left after numbers 1-3 above). Not only must the converter decide where to invest (RFID, flexible packaging, digital technologies, laser diecutting, quality control systems, etc.) but also how to invest. And as if the investment decisions weren't hard enough, each technology seemingly arises with its own version of the VHS-Betamax battle, with industry standards and practices largely undetermined until, according to the vendors and trade press, it will be too late to enter.

5. The China factor. While we are currently noticing only a trickle of Chinese-produced labels competing in our markets, what we are definitely seeing is a decline in the overall market of labels due to the exodus of product manufacturing from the United States to China. Supposedly, according to industry researchers, the domestic pressure sensitive label market is growing at a rate of somewhere between 2 percent and 4 percent, but those figures, if true, are short term. And with the aforementioned forced cost increases and demanded price reductions, the net effect of 2-4 percent growth in volume serves only to slightly reduce the shrinking rate of an overall declining market.

All this being said, I feel optimistic about my business - and many of the converters I spoke with feel the same way. It's not that these issues are not every bit as daunting and threatening as I stated. It's just that we seem to believe that by just working harder - and better! - we can overcome. We don't need consultants at $300 an hour to tell us this. We don't need our vendors to tell us that we should be able to withstand cost increases by simply reducing the waste in our processes. We just need to get our employees to join us in taking a harder look at what we do well, where we can improve, and how we can deliver better value more consistently to our customers.

I thought about all of these issues when I heard about an incident that happened in Wrightsville Beach, on the North Carolina coast, over a weekend this past December. Marine biologists were trying to understand why several hundred thousand fish washed up dead along the beach one day, and after a thorough investigation, they determined it was a remarkable case of follow-the-leader gone wrong. It seems that a giant school of fish was moving through the channels from one large body of water to another, and somewhere along the way they made a wrong turn and swam up a dead-end. The crowd of fish that followed was so large that when the tide rolled out, all of the fish literally suffocated due to the overcrowding.

My point is not that we as converters are following anyone en masse up any shrinking markets that will result in disaster. But I do believe that we are, as a group, far too willing to embrace the ideas, theories, and (usually biased or self-serving) recommendations of the so-called experts, rather than use our own experiences, knowledge, and overall business sense. Third party opinions are valuable as a tool, but not when they are the only tool in the toolbox.

Of course, because I don't work for you, this is just another third party opinion. Take it for what it's worth.

Elisha Tropper is president of Prestige Label Co., of Burgaw, NC, a CFG company, headquartered in New York City.

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