Quad/Graphics' acquisition of World Color following Quebecor World's January 2008 bankruptcy has tongues wagging as to the potential impact on the printing industry as well as large print buyers. Here are my thoughts on how this may unfold.
Preserving Quad's Unique Culture
I am not aware of any substantial printing company in the world that values its own unique culture more than Quad. Thirty years ago, Quad's Bean (Atlanta) acquisition was reported to be not faring well because of this culture incompatibility issue. As a result, virtually all of Quad's dynamic growth since then has been virgin meadow startups.
What is Quad's distinctive culture that has never been replicated by any other graphics vendor? It certainly is not limited to being family owned and all employees considered part of this extended family. Other firms profess this approach as being a key to their success. Many printers claim to be leading-edge technology purveyors. None can hold a candle to Quad, as evidenced by their own enhancements to existing leading equipment, receiving patents on these improvements and reselling these innovations via QuadTech.
This is not due to leveraging the wits of one or two mechanical or electronic geniuses on staff. Quad buys the latest proven technology, as do RR Donnelley and others, but then challenges a team of operators to master the beast, look to correct its inevitable weaknesses and come up with auxiliary features that can be patented to lift the entire application above the rest of the industry. No other printer has ever been able to perpetuate this success formula like Quad/Graphics.
World Color (the old Quebecor World), on the other hand, rode Harris M1000a and M1000b web presses for decades beyond what the rest of the industry found this equipment to be economically viable. Their finance-driven executive management did not reinvest in current technology for eons. Only recently have they attempted to leap-frog generations of printing technology by purchasing some new Roland webs.
This lack of firsthand innovation experience and technology awareness by World Color's journeyman operators and entire management team will be an extremely difficult cultural chasm to breach.
This deal may be exciting from the merged balance sheet and even superficial marketing perspectives; however, Quad's operations team has never ever had this kind of a challenge to bootstrap a printer of this size before. It is interesting that Joel Quadracci put Mark Angelson, World Color's CEO, in charge of the integration and consolidation effort. Angelson has had extensive experience formerly with RR Donnelley in this mergers-and-acquisition game and therefore the rationalization task; and Quadracci and his operations team have had no experience at all in this area. The danger is that Angelson has never lived nor experienced the Quad culture and would, therefore, not be expected to know how to preserve that mystic.
Moving select senior operations leaders from proven Quad plants to the strongest World plants (to be retained) may seem like common sense since that is exactly what Quad did for every new plant startup in their own history. However, new employees of new Quad plants often with marginal printing experience knew that they were "clay to be molded"âÂ and had the right attitude about this necessary learning curve. World Color's journeymen operators may instead suggest, "We've never found that to be the best way to run this equipment."âÂ They may resist relearning what they consider to be the basics of their jobs.
I'm not trying to suggest that World Color does not have good equipment operators or operational management teams. They simply, for much of their entire careers, have never been given leading-edge tools and resources to use. They've always had to make do. Having the best and being the best is second nature to the Quad DNA.
Perhaps this analogy is not a total exaggeration. At DRUPA 90, I recall my family held German printer clients discussing excitedly how they were going to bootstrap their East German printer relatives (many were literally family enterprises before WWII) into the modern era now that the Communist wall came down only months earlier in 1989. While the work ethic and intelligence of the East Germans were never at issue, the printing technology upgrades (40 years' worth) and skill bootstrapping took more than a decade for the Eastern block firms to reach efficiency parity.
RR Donnelley's Reaction
Some talk has suggested that RR Donnelley (RRD) will be nervous at this new competitor as Quad has always been a competitive nemesis and now they are even bigger. I could not disagree more. I expect RRD to be thrilled for the following reasons:
- World Color has been reported to be the rotten apple in the barrel for years for creating pricing wars.
- Quad will never allow that to continue as they (1) know their costs, (2) have a disciplined sales and marketing approach that does not allow entrepreneurial salesman to sling loose prices around and (3) have known and understood the value of the services they provide well before it was the latest consultant's buzz word.
- Angelson attempted to put the skids on low prices when he took over as CEO at World Color. While he is reported to have had some success, he found the freefall to be difficult to arrest. Many contracts at little more than variable costs still had years to run.
- Quad's management team will be so focused on eating this elephant that new product development initiatives and other competitive moves to thwart RRD would be expected to be backburner priorities.
- RRD is aware of the fact that the rest of the developed world is bouncing back from their economic recession much more quickly than the United States is. Quad's attention will overwhelmingly be stateside for the next 24-36 months, which will allow RRD free reign on the more attractive global growth stages.
Large Print Buyers' Reactions
It has been suggested that large print buyers will be upset at losing a major low-cost supplier. That old dog will always howl.
Multi-title publishers are naturally concerned that there are only two giant vendors, who have proven never to participate in reverse auction pricing regardless of the "promised"âÂ volumes. Smart publishers will discover stable, solid regional web printers that can lay down any dot, offer flexible customer service and schedules, as well as fair prices.
It will be exciting to see how this unfolds. Whether Quad realizes the Angelson-promised $225 million in synergies in the first two years will probably never be known. The North American printing industry will be stronger for the exercise. And the whole industry wishes Quad well in the process.
C. Clint Bolte is Principle of Consultants to the Printing Industry, 809 Philadelphia Avenue, Chambersburg, PA 17201-1268. For more information, contact him at email@example.com or 717.263.5768, or visit www.clintbolte.com.