Minding My Own Business

Six keys

April 8, 2008

Thomas Boswell, the sports columnist for the Washington Post, has long been one of my favorite writers. His columns and books, which include the wonderfully titled Why Time Begins on Opening Day and How Life Imitates the World Series, utilize professional baseball to subtly develop the framework within which we gain a distinctive perspective on the unpredictability of events and people that shape our lives. Boswell's approach struck me as particularly applicable within our industry as I worked with the owners of a converter client to refine their three year strategic plan.

It is generally understood that in baseball, despite all of the attention paid to home runs and high powered offenses, it is pitching and defense that ultimately win championships. Since 2001, the New York Yankees have spent literally a billion dollars to assemble a team that consistently tops the league in runs scored, but have failed to win a single World Series during that span. The teams that have won during this period have done so primarily through strong and timely pitching and game-saving defense. In my opinion, pitching and defense in the label business are represented by marketing and customer service, while manufacturing capabilities are like the run scoring offense. And like pitching and defense, marketing and customer service should be viewed as complementary, a tag-team tandem of interconnected elements that rely on each other to achieve broad success.

This client and I would guess a great many other label converters does not recognize the lock-and-key interplay between customer service and marketing. Marketing promises, but it is customer service that ultimately delivers. Even the best pitcher will struggle mightily without a strong defense, and the very best marketing effort cannot overcome shoddy customer service.
The opposite is similarly true. By the time customer service enters the picture, the customer has already developed a set of beliefs about the company that have been shaped by marketing. The world's greatest customer service department can verify and fulfill, and even expand a relationship, but what it can't do is bring that customer through the door. The greatest defensive team can never win if the pitcher walks too many batters and gives up too many home runs. One of the ironies of baseball is that it is a sport which tracks individual statistics in far greater detail than any other, but is arguably the sport least reliant on the individual and most reliant on the overall team effort. Most converting businesses are similarly team efforts, regardless of any perceived superstar or star department.

At last month's TLMI converter meeting, three themes stood out in both the programmed content and casual conversations: growth, mergers and acquisitions, and the rising difficulty in staffing label businesses with skilled, effective employees. The canvas upon which these issues were being painted was that of an increasingly competitive business environment, which is foisting greater pressure upon converter management to not only remain profitable, but to achieve profitable growth.

Without question, the label printing marketplace is experiencing a dramatic reshuffling of the competitors, as well as the very business models that have for decades defined the industry. The challenge is as clear as it is daunting: Grow your revenues and profits within a low- to no-growth, overcapacitated industry in the face of consistently rising production and operating costs.

Fifteen years ago, Bernie Reznicek, a former CEO of both public and private utilities, was facing a reshaping of his industry not too dissimilar from what ours is currently experiencing. He offered six keys to managing in a competitive environment. These keys have remained remarkably applicable, and provide a thought-provoking structure for strategic planning in the converting industry today.

Key #1: Pay attention to the strategic direction

A business simply can't plan for the short run unless it has a clear picture of what it is targeting in the long run. This means that you have to understand today's performance within the context of your long term objectives. For example, certain companies may determine that boosting long term profitability could require raising prices on all lower-margin customers. The short term effects may include a drop in revenue as many of those customers depart but if the long term plan assumes the loss of those customers and foresees a stronger and more profitable company, then these are acceptable short term consequences.

Key #2: Get control of your costs

Controlling costs does not mean cutting costs. It means getting a better return on costs. Over the past few years, a great deal of attention has been paid to Lean Manufacturing, which at its core means eliminating wasteful, non-value-producing activities. "You must be cost competitive," Reznicek said, "not necessarily the lowest. The customer must perceive that it is getting the value of the money it is paying. This means you must offer high levels of service. You really have to think and act like your customers so you are able to work with them so that they perceive you as a 'value' supplier."

In pursuit of Lean, keep in mind the importance of Legitimate Lean: The value of the product and/or the service must not be diminished.

Key #3: Know your customers

How well do you understand how your customers use the labels that you produce? Do you study when they use them, what processes they use them for, and how they could use them more effectively and efficiently? Smart companies seek to integrate their customers' usage patterns into their capabilities and capacity. Reznicek, who ran power utilities, referred to this mentality as the "other side of the meter approach" and discovered that the lessons learned at one customer often had applications for other customers.

Key #4: Be responsive to customers' needs

It is not enough just to understand your customers. You need to be able to anticipate their needs, rather than simply be good at reacting to their requests. Once you are priced competitively, it is the level of service that will determine who will be the customer's label supplier. To be at the forefront of providing the best and most useful services, your organization must not just know the customer, but must use that knowledge to provide the most anticipatory and responsive services of any of your competitors.

Key #5: Make better decisions with better information

Those who choose to manage by information can very quickly become inundated with statistics and facts that render decision making virtually impossible. For a label converter, the criteria for useful information are threefold: Accuracy, Managerial, and Timely. Accuracy means developing effective information systems that provide credible data upon which you have the confidence to take action. Managerial means understanding the financial realities within the context of the minute-to-minute and day-to-day functioning of your business, particularly with regard to customer interactions. Timely means being able to make decisions based on real time data, rather than lose an opportunity because circumstances changed since the facts were amassed. Reznicek pointed out that "in many cases, as you interact with the customer, you are not talking about weeks or days, but many times you're talking about hours or minutes. Being 'customer sensitive' means, among other things, being instantly responsive to the customer."

Key #6: Maximize all values

This key focuses on ensuring that you you are getting the highest value out of every organizational asset. Examples are Just-In-Time and Lean, where costs are controlled within the context of providing customer value while reducing financial strain. One of the challenges in the label industry is to maximize capacity, rather than continue to add capacity. Similarly, capital sourcing management is an area that too many converters ignore, preferring to use profits or their local bank to fund their activities rather than investigating the costs of available debt or even equity throughout the marketplace. In effect, this is lean financial management.

These six keys are not counter-intuitive, and do not require tearing up your business plan and organizational chart. In reality, there are probably another two dozen "keys" that we can each come up with if we put our minds to it. But these six strategic thought, cost control, customer knowledge, responsiveness to customers, improved information, and maximizing assets are apt reminders of what is important, and what needs to be focused upon. Their simplicity and universal applicability reaffirms that most label converters can readily equip themselves to not merely survive, but to thrive in this competitive environment.

Elisha Tropper is president and CEO of T3 Associates, a New York based strategic consulting firm, and the former president of Prestige Label, a North Carolina converter. He can be reached by email at et@t3associates.net.