Name: Mayank Sanganeria

Professor: Dr. Mark Esposito

Course: Masters in International Business

Student Id: 092406

FIN: G0889231N

University: Grenoble Graduate School of Business

Module: Managing People in International Organizations

Focus: R.R. Donnelley & Sons

Source : http://www.rrd.com/wwwRRD1/Home.asp

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Preliminary Question: What is the context of the period, the industry at the time
the case takes place?

Environment in the 90s

The 1990s, abbreviated as the 90s, witnessed a host of important events that included the mass
mobilization of capital markets through neoliberalism, the widespread proliferation of new media such
as the internet and the dissolution of the Soviet Union.1

Living standards and democratic governance improved in East Asia, Eastern Europe, Latin America and
South Africa. The early 90s also witnessed the Gulf War, wherein Iraq conquered Kuwait only for US
Armed forces to drive Iraqi forces out of Kuwait. After many years of white rule and Apartheid in South
Africa, black political leaders were released from jail and Nelson Mandela rose to power in 1994.2

The 90s were a revolutionary decade for digital technology. It saw the growth of the World Wide Web
and the Personal Computer. It grew at a rate of about 3500 times a year. Cloning, stem cell research and
genetic engineering also emerged during the decade. Many technology companies evolved to a market
leader position from being mere humble start – ups. A dominant factor behind these technological
advances was the improvement in communication which included internet access.3

Printing Industry in the 90s

Analysts noted uncertain conditions within the commercial gravure and traditional print industry.
Among catalog and directory printers, gravure accounted for nearly 25% of the market share, and
growth in gravure print orders for catalogs was growing at a faster rate however, in other areas gravure
printers were experiencing decreasing demand as publishers and advertisers turned to other print
processes. There was severe competition in the form of television commercials and other printing
processes. Trends towards shorter press runs to produce different regional issues of highly-circulated
magazines had begun spreading to catalogues and directory clients which created serious issues
compared to gravure’s economies of scale due to large runs. The printing industry was only behind
1
http://en.wikipedia.org/wiki/1990s
2
http://www.mountaintimes.com/history/1990s/world.php3
3
http://www.thepeoplehistory.com/1990s.html

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Germany in product exports as of the late 1990s.It was widely believed that US print companies would
benefit from trade agreements such as NAFTA and GATT which increased export of US prints abroad as
well protection of Intellectual Property Rights.

Digital technology had begun helping to overcome traditional problems such as lengthy cycle times and
by getting rid of the film step in printing process, a large chunk of the cost was already out of the
window. Reportedly by mid 90s all print companies were using some portion of digital technology in
their work and it was widely believed that by 2000 it would be the norm of the day. Max Daetwyler
Corp., of Huntersville, North Carolina, developed one of the first complete digital systems. 4

4
http://business.highbeam.com/industry-reports/wood/commercial-printing-gravure

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How do the characteristics of Donnelley's traditional printing business compare
with the characteristics of on-demand digital printing?

R.R. Donnelley & Sons, established in 1864, had in over a period of 125 years established itself as the
world’s largest commercial printer by 1995. Its major customers were telephone operating companies,
retail and direct – mall merchandisers and publishers of books, magazines and software.

Its traditional businesses were centered on the traditional printing presses and with the dawn of the
digital printing era there appeared to be stark differences with their respective characteristics, which are
enumerated through the table below.

Traditional Printing Press On – Demand Digital Printing

Characteristic

The traditional business was capital

Digital four color printing equipment
intensive and required large capital
cost the company a mere blow of a
Capital Investment investment. The equipments were
whistle, as it required an investment
loosely referred to as ‘heavy iron’ and
to the tune of $200,000 only.
cost at least $12 million.
Digital printing eliminated the use of
Offset presses used films and plates
Technology films as a whole and used computers
as the medium of printing.
to transfer data.
A run time of at least 25,000 or
Allowed very short runs in variable
500,000 was used on press or gravure
Run time quantities and that too as often as
respectively otherwise it was
desired.
considered to be cost ineffective.
The size of the equipment was
The small size of the digital presses
humungous and proper plant
meant that they could be set up at
Equipment Size locations had to be set up to support
distribution points all over or even at
a proper working environment for the
customers’ site.
presses and gravures.
The traditional presses resulted in Digital printing resulted in removing
Costing high fixed costs and low variable the concept of films and plates, which
costs. led to a tremendous cost reduction.

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 High shipping and postal rates Electronic storage in the form of
Distribution and
coupled with the cost of storage, database leading to absence of
Storage
inventory and warehousing. warehousing and inventory costs.
Possible only at the hands of the Could be carried out by anybody,
Customization
analysts at the company. client or company.
Resulted in a lot of chemical Was environment friendly, resulted in
Pollution
pollution. lesser chemical pollutants.
Breakthrough technology with
The traditional print media had been constant modifications leading to cost
Stability stable since the 60s and the Company reduction, expected to duplicate the
was forefront leaders in technology. microprocessor effect of the
computer industry.

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What do you have to do well to succeed in the two businesses? What do customers
want? How do you make large profits in each business?

To succeed in any business, you must have the customer to show interest in your product, this is interest
could be in the form of a cost advantage or a unique feature which is not there in your competitors’
products. At other times, it can be the quality of your work as compared with that of a rival that helps
you stand out in the market.

Similarly in the print industry, Donnelly had a dedicated sales force in each division to look after its sales
and revenues. There was a very intensive commission based incentive for sales force to perform and
their main objective is to gather in sales. Since we have established the fact that to succeed in the
industry you need revenue, we must evaluate what is that would lead to a successful return on
investment and why a customer would choose either traditional or digital print.

The first consideration that every client of Donnelly had was how much it would cost him per page.
Following which the traditional print clients wanted to target the variable portions of their print matter
as per the needs and mentality of their regional subscribers and would require Donnelly to come up
with a cost effective solution. Donnelly had the answer to it as their binding machine enabled them to
print according to zip code with correct labeling thereby having umpteen versions of the same magazine
or journal issue. Better color combinations and the ability to offer output in different shapes and sizes in
an optimally acceptable time frame were also the necessary criteria to succeed in the traditional print
business.5 To sum it up, the traditional print media success was variability in final output with
considerable economies of scale resulting from large cycle runs!

In the on demand digital printing, the formula for success was simple, “Printing industry customers need
up-to-date documents in short runs. The answer: Digital, on – demand printing.”6 The ability to provide
quality output with shorter runs, more versions, tailored inserts, greater use of color and the basic
requirement of being able to revise, modify and edit the content within a very short time was the
mantra for success in the digital division. Inflationary trends such as increasing postal, shipping, storage
and warehousing rates along with paper prices started bringing digital to the forefront and making it a
widespread belief, even before it had been launched, that digital was the way to be.
5
http://www.elf-design.com/article-Digital-Printing-Traditional-Press-Printing.html
6
<<Digital on-demand printing heats up>> By: Sharples, Hadley. Graphic Arts Monthly, Jul94, Vol. 66 Issue 7, p78

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It can be said that customers under the traditional presses wanted bulk output at the cheapest price
possible with brighter output in different unlimited shapes and sizes (digital printers had limits to size).
Traditional press printing could accommodate a wide range of paper sizes and resulted in innovative and
creative finished projects which was largely due to the "have-it-your-way" range of options, where you
could specify special sizes and finishing techniques.5

Customers with demand for digital outputs had the need for a lesser expensive output which could be
processed faster and as and when required. It had the core requirement of being able to redo, edit and
modify their content as and when they wanted without undergoing much wastage of time and financial
resources. They literally jumped at the idea of being able to edit on their own and up on coming to know
that they could simply interact with technology and voila, their print would be ready in a day or two.

As evident from the case, to succeed in the traditional print business the company followed a policy of
having contracts with businesses that would run in to a period from anywhere between three years to
ten years. These enabling contracts were worth tens of millions of dollars and resource allocation
actually followed when the opportunity had been procured. This way they could easily recover their
investment costs and with bulk orders secured for all print media, it would ensure that the money keeps
streaming in.

In the words of Xerox, “Digital on – demand printing is estimated to be $93 billion. It offers opportunity
for commercial printing houses to respond to customers’ needs.”7 Donnelly was able to produce short
runs at lower cost per page because of elimination of film, plate making and make ready costs.
Therefore it already enjoyed a considerably higher margin already and by offering further facilities such
as database publishing and value creation opportunities like mass customization would enable it to
capture market share and higher the market share, larger would be the profits. Even if the company
continued their practices of “enabling contracts” and at the same time target other clients with short
return demands, ultimately it would all add to the bottom line profits.

7
<<Digital on-demand printing heats up>> By: Sharples, Hadley. Graphic Arts Monthly, Jul94, Vol. 66 Issue 7, p78

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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 necessary? Can he afford to create a totally autonomous
group? Why or why not?

Technological innovation is one of the defining features of industrialized societies. Computing,

telecommunications and other information technologies have always appeared to be changing the
nature of work and organizations. These innovations affect how people communicate, how they buy
goods and services and how they spend their leisure time.8

The difference between characteristics, profitability and customer needs in traditional offset printers
and digital printing technology clearly outlines the policies and approach undertaken by Rory Cowan. A
proven and successful entrepreneur, Cowan saw the benefits of adopting the new technology and was
far sighted enough to see it becoming a global phenomena. He had plans and to put it in place he had to
be firm in his belief and opinion. The stark differences created hindrances for him as it is easy to
convince a small team but to bring about a major organizational change is a Herculean task.

After going through the article on Putting Leadership Back into Strategy by Cynthia A. Montgomery,
Harvard Business Review, January 2008, I think that Cowan should adopt his strategy of going digital as a
dynamic process. Accordingly his goal should solely be creation of value, so as to attract customers and
win over market share. He should be the brain child behind the project, the man with the vision and the
process should be such that it is organic, meaning it is adaptive, holistic and open – ended. We must
always remember one thing, change is constant. A plan which is not flexible enough to meet changing
conditions will meet its doomsday! It has to be an everyday continuous and unending process. Only then
can competitive advantages be developed over time and targets achieved.9

Cowan’s idea was to create a new division than simply spreading the digital technology throughout the
company. He knew that if he went ahead with the latter, there would be a couple of equipment in every
plant which would never meet its true purpose and swallowed by the forces of organizational resistance
to change. His main idea was to create a four prong system using internet as an interactive media,

8 th
<<Organisational Behaviour>>, A.A.Huczynski and D.A.Buchanan,6 Edition, Pearson Education, Page 71
9
Leadership back into strategy, Harvard Business Review, Cynthia A. Montgomery, January 2008.

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wherein there would be a transaction processing system for creation of an order and initiating the
purchasing process; a royalty management system for tracking royalty payments; a database for
handling all the intellectual property entrusted to the division; and a manufacturing database for
directing the actual printing process.

With the help of this idea of his, he had the belief that cost per copy would be independent of run
length as the document would be stored digitally and have no set up time/cost. A total reduction would
occur as there would not be any storage involved and cycle time would be down to within a 3 day
window. Therefore I think his idea to have a separate digital division was a good one.

The following diagram further illustrates how well internet was suited for his approach and how could it
help him segment tailored products for everyone.10

10
Organizing today for the digital marketing of tomorrow, Parsons, Zeisser and Waitman, Journal of Interactive
Marketing (John Wiley & Sons); Winter98, Vol. 12 Issue 1

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In my opinion Cowan should not create a totally autonomous group as he would slow down the
company from embracing the technology and the digital age. By staying where he is and integrating it
into the traditional business, he would be able to merge the processes easily and help create value for
the entire firm together without a split in management policies.

By not developing an autonomous group, there will also be the additional benefits of future checks and
developments in place so that there is a group of people questioning their decisions at every stage.
People who were not involved in the digital division but heading the traditional businesses could get a
better understanding of what is happening, when they can see it happening around them and have the
right to ask questions and be answered. With autonomous ability, integrating it back in to the existing
organization structure when the digital era sets in finally will become a messy affair as autonomous
thinking would not then be aligned simultaneously with bureaucratic thinking.

Instead he could have simply guided the technology development better following an approach similar
to that of Jim Turner, who documented the entire process by developing parameters for evaluation,
funding and coming to a go / no go decision.

He should have invested aggressively in R&D to stay on the leading edge of technological knowhow. This
would deepen their expertise, master technology and capture learning curve effects leading to a
dominant market leader capability in the years to come. On the other hand also rely on strategic
partnerships with outside suppliers and with companies making tie-in products. Donnelly did participate
with Xerox in the Open Document Services, it developed key relations with Adobe , Apple, Microsoft and
Oracle among others. This helped them integrate technology with suppliers and develop suitable
interactive media.

It is important to understand that competitive success in fast – changing markets tend to hinge on a
company’s ability to improvise experiment, adapt, reinvent and regenerate as market and competitive
conditions shift rapidly and sometimes unpredictably.11

11
<<Crafting and Executing Strategy>>, Thompson/Strickland/Gamble, McGraw – Hill International Edition,2010.

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