R.R.

Donnelley & Sons

The Digital Division
Presented by James Grasty

Company & Background

Founded in 1864 printing catalogs for Montgomery

Ward, by 95 they were the largest commercial printer
with 41k employees in 22 countries
Privately held chicago based company for almost a
century until they went public in 1956
Generated 60% of its revenues from; directories,
catalogs and magazines
Major customers included; telephone companies, retail
and direct mail, and publishers of books, magazines and
software

Organization & Incentives

Manufacturing & Sales were core functions You either

make it or you sell it
n 95 they had 38 divisions, in 8 business groups, part of
3 sectors: Commercial Print, Networked Services, and
Information Resources
Due to pressures and incentive structure in a typical
group, the salesforce sold 80-95% of its volume to its
own plants
Changing of incentives What is the most profitable way
to run this job for Donnelley?

Organizational Chart

Traditional Print Business

Traditional Print business; heavy iron offset/web

(used film & plates, cost effective for 25k-500k runs),
and Gravure (Used Etched Copper Drums, Cost effective
for 500k plus) printing presses, $12 million+ per press,
Gravure even more
You get an emergent strategy based on opportunities,
as opposed to selecting the right opportunity based on a
strategic assessment of alternatives - Allen Cubell
Long term relationships with customers
o 70% based on contracts that ran 3-10 years worth
$10s of millions, plants built for each contract

Major R.R. Donnelley

Customers

Industry Shifts & New

Technology

Digital in 95' was forecast at 16% growth, while traditional

printing was expected to grow at only 3%
Trends were moving increasingly towards local, targeted
communication, often called mass customization - they
printed 66k different versions of the farm journal
Filmless printing technology: digital four-color, and
computer-to-plate expected to have larger impact with
reduced cycle times and pollution
Digital allowed: shorter runs, four-color printing whose
image was infinitely customizable, and could be delivered in
variable quantities as often as desired.
$200k for a digital printer in 95 and it could be put anywhere
"Digital technology will atomize the printing industry the way
the microprocessor did the computer industry - Rory Cowan

Emerging Competition

Desktop publishing emerged in the 1980s

Threats started emerging from several directions, 55k

printing companies worldwide, most had less than 25
employees while Donnelley had 6% of the $80 billion
market, larger than its next 9 rivals combined

Now a much smaller digital printer could look like the

very large heavy iron Donnelley employed

The company made big money on things like; stripping,

color correction, and etching for these customized jobs,
but now it has migrated to the hands of the document
creator

The Digital Vision

A new Business Model
To create a new business and have it drip on the cultureCowan
Like IBM in 1983 - PCs are coming in, but management has
grown up in a mainframe world- Cowan
Print on Demand (POD): publisher sends data files of books,
they retain them in a database, when the bookstores needed
copies Donnelley would print more, ship and then send the
publisher a royalty check.
Economic & technical validation
The new process eliminated a range of costly steps, including
warehousing and inventory, that represented roughly 60% of
book publishers costs. The approach also avoided the usual
mismatching of demand and inventory.

Reengineering the Technology

Development Process
The Existing Process
Senior managers with clout got their projects funded
"First pig to the trough" mentality
$1 million or more spent on just investigating new
technologies
No formal process or checks-and-balances
The Redesigned Process
4 Phase Process: Program Initiation, Proof of Concept,
Deployment Commitment, and Post Mortem
$100k cap put on investigating new technologies
Deming cycle; plan - do - check - get feedback

The New Process

Phases Review Process

Visual

From Vision to Reality

The Information Services Group (ISG)

Digital Division moved to new group, and after much

effort got their own P&L
Had their own separate sales force: targeted industries
such as financial services, pharmaceuticals, and
healthcare, places where the primary focus was not
publishing
ISG was unique and their plants did not produce
interchangeable work, division managers incentives
focused on divisional, rather than group, performance.

Building the Division

Memphis, TN chose as first sight because it was

close to FedEx central processing
Being close to the FedEx runway, the division
gained several hours of work time each day and
could offer rapid, reliable delivery Virtually
distributed manufacturing
11 presses chosen from different vendors for their
different strengths
Wanted to be industries low cost producer
Although the equipment was new and unproven

Operations & Technology

They began building the transaction system and database to

hold customers content. A customers order would trigger
the transaction system, which would then access the right
content, send it to the appropriate digital press, and pull
together the printed pieces for the customer.
Soon customers were able to modify data themselves from
their own offices - they could send orders with "Send-IT", and
assemble them with "Order-IT"
The Digital Division is an attempt to take three distinct value
creation devices; a content management system, a
transactions management system, and digital imaging
technology, and combine them to create a new product.

Organization, Reporting
Relationships, & Roles

ISGs sales force formed into 3 teams: health care,

federal government, and the eastern US region (retail
banking, credit cards, and high-end consumer
marketing)
Initial customers were ones already using a digital
format, such as desktop publishing, but who were
encountering problems such as high physical
distribution costs or high information obsolescence.
Other potential candidates were those with unmet
printing needs such as a desire for overnight delivery to
multiple sites, increased customization of print
materials, or growing need for color.

Marketing & Sales Strategy

Target Markets
Magazine reprints, corporate literature, marketing and
product literature for pharmaceuticals and health care,
and advance, liquidation, and prospecting catalogs
Positioning
As Schneider put it We sometimes say we're not selling
printing anymore; we're selling a marketing tool. we are
teaching people to do things differently
By introducing new capabilities; the creation of short-run,
on-demand, customized materials - digital printing could
also increase customers revenues by allowing greater
market segmentation and more focused selling.

Consultative Selling

Taught the new customer to think of their information as

something that is alive and needs to be updated
living document database as opposed to dead documents
stashed in multiple cubby holes
The literature management process as management at Donnelley
had dubbed it, had not yet been identified as a process or a need by
most customers.
We are selling to customers who sell to customers, rather than to
people whose business is publishing. In essence, we are providing
tools for marketing" - Clarke
Focused on consultative selling instead of just sales reps
Consulting and advertising agencies viewed "As an important
leverage point and planned to focus sales attention there."

Mobilizing Sales

The Digital Division had to motivate three overlapping

and potentially conflicting sales forces: the divisions
own sales reps, the ISG salesforce, and the sales forces
of other business groups.
Clarke stated that "Its better to have sales conflict and
overcoverage than to be missing sales. the tension
keeps everybody on their toes. It can be a little messy,
but creation usually is."
They focused the incentives at the rep level because
they needed the support of the complete Donnelley sales
force.
Management proposed an aggressive commission's plan
to motivate other groups reps to sell work into Memphis

Challenges of Internal
Acceptance
sales not coming in, Digital Division under
Expected
pressure
company demanded profits by 4th quarter and
The
breakeven by 1996
company didn't want to expand the unit until it was
The
profitable but the division believed it would take a

different outlook on investment to develop it

Schetters biggest concern was that "We have not, as a
company, stood up and said, Short-run, on-demand,
color printing and the associated delivery systems are a
strategic initiative - the company had the mindset of "Lets
wait and see"

Forward to Today

Four Divisions
o Digital solutions
o Print Solutions
o Supply Chain Solutions
o Industry Solutions

Operated at a loss in 2012

Print Falling at 5% per Year
2012
2011
2010
$10,221

$10,611 $10,018

2009

2008

$9,857

$11,581

Question #1
Which Group did the Digital Division
find a home in?
A.) Informative Services Group
B.) Information Services Gang
C.) Information Services Group
D.) Information Sources Group
E.) All of the Above

Question #2
What was the importance of digital
printing?
A.) It was pretty cool
B.) It was a disruptive technology
C.) It empowered the consumer to control their
own content
D.) It presented a threat and an opportunity for
RR Donnelley
E.) All of the Above

Question #3
What was RR Donnelley's Biggest
Problem in this case?
A.) They were too old to figure out that new
fangled technology
B.) They were too big to fail
C.) Entrenched infrastructure and people made
it hard to embrace the new technology
D.) Ink Cartridges are too expensive
E.) All of the Above

References
1. R.R. Donnelley & Sons: The Digital Division
http://rolnitzky.com/iSchool_UC-Berkeley/iSchool-Fall
-09/INFO_290_managing_info_cos/lec2/Donnelley_case.pd
f
2. http://www.rrdonnelley.com/
3. http://investor.rrd.com/secfiling.cfm?
filingID=1193125-13-77082&CIK=29669
4. http://en.wikipedia.org/wiki/RR_Donnelley