At the Argos Inspiration Days 2018, Consultant on Innovation and Business Development Sander Jansen gave a great speech about the connection between Creation, Digital Print, and Finishing. Interesting and educational at the same time!
Thank you all for joining me. Are there any business managers in the room? Graphical art studios? No? Not at all?
Because that’s interesting because my presentation is created for the elements of graphical arts and commercial printers, et cetera. But since you’re none of the above, I will change the story a little bit and address you, of course.
I’m gonna wrap it up today with a summary of what you can do with creation, production, and delivery, because those are the main themes of the Argos Inspiration Days.
Well, the reason I use my Innovation Framework as a topic, as you saw in the beginning, is that I’m a little bit worried about how all the beautiful inventions that your companies are building and supplying to the owners of the business in the graphical art industry, how they are using it. Because the machines are becoming more efficient, the software is becoming more efficient, and everything is becoming more automated. And that only ends up at this moment in the graphical art and the commercial print industry companies are squeezing each other’s prices and there is an established, for a long time, a price war.
Well, the author of the book, The Innovator’s Dilemma, that is Clayton Christensen, he has defined three different types of innovation, and we all say, “Well, they’re very innovative in this industry.” Well, that’s true, but we only use innovation to become very efficient and to start price wars.
What you see more rarely nowadays is that with the innovations new products appear because we all remain producing the same products. And what’s more rare, that we change the game and enter new markets and create very new games. So we stop, don’t stop playing the game, and we don’t change the game. And that is where we have disruptive innovation.
So since that not happen, I think this industry really needs that type of innovation, and that is what I’m going to talk about today. And I’ll give you an example of it.
In the Netherlands, in Eindhoven, there is a large truck builder that’s called DAF. And DAF they build every day a few hundred trucks, and they gathered their orders from dealerships from all over Europe. And they do not build one certain type of truck, but they have a big variety of more than 500 different setups and configurations. And now you need to know that every truck who leaves the plant is getting this kind of documentation. This is, and is one of their 10 different types of information.
And thanks to European law and, “Long Live, Brussels,” since we are here. The European law says when a truck is delivered to an owner, then it needs to contain a document, a manual, about that specific truck. But not only about the truck, but as well in the specific language of the new owner. And since DAF is supplying and selling in 22 different language areas, you can think of more than 500 different configurations and too at 22 languages that ends up in a very big warehouse of documents, which you can see on this picture.
And all the competitors in the graphical art industry are being very innovative and very effective, very efficient. They are beating each other and knocking on, at the procurement guy desks at DAF and saying, “I can beat 2% off. I can beat 5% off.” And try to knock out competition like that.
The interesting, in this story, is that DAF did not agree with any of those competitors, but they started with a company in Zaandam located, you can see on the left-hand side, who had a price that was more than 10% above the others. But DAF didn’t worry about those 10% more, because what the company offered was a total cost of ownership, 25% under the original total cost of ownership. And what do I mean of total cost of ownership? That is the whole costs for the warehouse, the maintenance of the warehouse, the purchase of all the books, the people who working there, and the system who order it. So the costs lowering of 25% is very big, and it cannot be competed by if only 2% or 3% of only the cost of the production of the documents.
So I will tell you a little bit about this company in Zaandam, and well, they are now very profitable. They have a very good success. Of course, they have more than 300 customers alive and kicking. And they see the internet and digitation as an opportunity to create new business models. That was not always the case. About 10 years ago, they were in jeopardize. They had problems. Dark clouds were gathering above them because at that moment they were still tried to beat the competition by becoming more and more efficient, and joining in the rat race to the bottom of the industry. That didn’t work out for them, so they say, “Okay, we have to redesign our business, redesign our production from thereof,” and I will tell you a little bit about this transformation.
Well, that started basically in 2005. At that moment, the company was still was in transaction of printer, and maybe you know that a transactional printer does not really make the big money on printing paper and putting it in an envelope, but they make the money by the creation of the data, translating it from systems to nicely produced invoices or pension overviews. The very important thing, of course, if you look at these brands, these brands, you know, that an envelope with their logo on, it must be sent to the correct Mr. Jansen with the correct value and money. And the people need to pay invoices on it. So the actual value of an invoice is much bigger than only the sheet and the envelope.
Well that is a very solid business model, but all these customers told this company is, “We will move away. We move to the internet and all the big data we will supply that to our, and communicate that to our customers.” So it didn’t make sense to become more efficient because their market was changing.
Okay, so what did they do? They make the SWOT analysis. And in the SWOT analysis they identify the strengths and their opportunities, and those elements where they combined, that was what you see on the top left-hand, is that’s where they built a new business models. And they identified where they are weak, and where they are threatened. And that’s where they made an innovation program.
What they wanted to do is step out of the efficiency innovation, create new markets, create new products. So look at it, different angles of this quadrant over there, but they couldn’t afford to gamble away into the future. So what they did, they used science to do instead. And science came from this innovation framework. Because if you do your … if you use your experience and your gut feeling, then probably you will end up what you do always, have always done before. So you need to do something new. Then you need to use all the science that is available to you.
Well, what they found was they had, not even in their top 10 list of customers, they had two publishers, and normal organization that is focusing on efficiency says, “Okay. I stop doing all the small stuff. I focus on core activity.” Well now, this company did the other way around, and they were very interesting in knowing, “Okay. Why are those two publishers customers of ours? Why are they purchasing at ours?” So they made a survey of what was going on in the publishing industry and they found something very interesting.
And you need to know about the Netherlands. One very rare thing that is that all the publishers and all the bookstores has made an agreement together more than 100 years ago. They made a local warehouse in the center heart of the Netherlands in a small village called Kunenborg, and all the publishers stored the books they have printed there locally. And all the bookshops ordered the books from that warehouse.
So now Kunenborg is a small village with some houses and very big warehouses completely filled up with books. And since all this efficiency that also publishers want to have every time they have a book they go to an offset printer and they print 5 or 10 or 50,000 books, which they probably will never sell for 100%. Now the guy who is managing the center book house pronounced at the Frankfurt Buchmesse that they now have too much stock. The amount of books that will not be sold any more because they are too long. There is more than 20 million. So I did my mathematics and if you calculate that the book is at average 50 mm thick, and you put 20 million books in one pile, then you can actually climb to the moon. And that is quite a big investment for the publishers, because those are the companies who made this.
At the same time, we saw that Anderson has written his long tale book and he found that already in 2006, more than 50% of the turnover that come from the Amazon sales were books that were not in the top 130,000 of Barnes & Nobles, the biggest bookshops in America. So all the biggest number in the sales was in the smallest amount of the books. So if you combine those two elements together, books that will not be sold and the big sales in books with very low volumes, then you end up in digital print of books.
So this is what the company in Zaandam wanted to offer to the customers. But like I said, instead of them gambling into the market and saying, “Okay. We have a brilliant idea. We build from out ourselves this solution and then we enter and conquer the world,” they first tested it. And they asked from the customer perspective. So, “What do you think of this idea?” And immediately, to their surprise, it was stopped. The publisher said, “Okay. We recognize the problem, but we do not embrace digital print as a solution for our problem. And for a number of reasons. The first one is there is not a good infrastructure, because we have an infrastructure that is focused on bulk production, bulk distribution, and bulk sales. And we don’t have an infrastructure for one-offs. And we don’t have a business model for it. And we are not really interested in building and designing such a thing because we think that the quality of digital print is poor if you compare it with off-set.” And I have to remember you it was in 2007, 2008, at the time.
But these comments dictated the innovation program of this company in Zaandam. And the first thing they wanted to do is then create a new supply chain. And they start doing that by finding a publisher who had a brilliant idea, but they couldn’t bring it to the market. The company existed for more than 70 years, and for every year of their existence, they wanted to republish the bestseller of the year.
So the 1950 bestseller was, Sewing and Needling for Housewives, and well, you cannot do offset print 10,000 books of Sewing and Needling for Housewives from the 1950s and expect them all to be sold, so the publisher thought it was a bad idea at first, but they were willing to give their content to this digital warehouse of this company in [inaudible 00:13:21] and made it available. If they took all the costs for production and distribution of it.
The two parties combined their powers, but they needed someone in retail. Somebody who can address all the consumers. And well, the companies that dominated the market to the consumers, they didn’t want to change the solutions, of course, because they were doing well by the present business model. So the Centra Bookage Company was keeping the solution out. So we really needed to find another solution, and we found it in bol.com and bol.com you probably don’t know it, but it’s a Dutch version of Amazon. And, at the moment, bol.com purchases all the books in the Netherlands at Centra Bookage, so basically they had the same portfolio as any other bookstore did have. And they wanted to distinguish themselves and, therefore, they found it very attractive to connect their system with the virtual warehouse and so they could say, “We have a very different or extra portfolio in our books.” And by connecting those systems together really a new supply chain was born, and it made it possible to connect different publishers and different web shops to it.
So it became a success in its growth, but not all publishers were anxious to use it because they said, “Well, we have a lot of variation in paper. In the Netherlands, if you want to be successful, then you need to have all the paper that you see in this table. If not, then you cut off a big part of the market. So every time you add a flavor of this paper then a new market will open for you.” Well, you can consider it from an efficiency point of view as a problem, and then you don’t do it, and you stay very efficient. But that was not a reason to be in the market. We want to become successful, profitable, and we wanted to grow. So we needed to solve this solution.
And at that time we were discussing with a machine builder in the Netherlands, located in Venlow, this is the Océ organization, and they said, “Well, we might have a solution at our R&Ds. We have designed a machine and it is ready for field testing. It is not commercially available, but maybe you find it interesting.” So somewhere in the corner, the machine was stored and this is the 6,000 machine. And, at that moment, it was not available but it was a success from the start because it could handle all the variation in paper and the offset. The image was like offset print. And this started a strategical cooperation between those two business partners because they both had a common goal.
In 2012, they started talking about inkjet on cut sheet for a machine that was only available in 2015. And they both challenged each other in creating better quality and making it better, usable in the production environment.
So since that solution made the quality of the digital print books better, there was only one thing to tackle, and that was an important one since 95% of success is still 100% of a failure. So they needed to be … created a new business model, a new way of calculating. And that’s what has been done in this table you see here. We have an average book of it, €14.95 and in a traditional way, the publisher get, in the end, 11% of margin, and the offset printer goes away with about 16%. And what you can see in the solution that this company has built it while cutting away all things that are not necessary any more because they receive the order from a web shop or from a digital system, and immediately send it to the end user. Now the margin of the publisher grew to 40%, so almost times 4. And they didn’t effect the price of the digital print negatively, certainly not. Because they get paid very well as you can see in this table.
And now with this solution it was very easy to duplicate and attach more and more customers. And at this moment this company is, and functions as a virtual warehouse, managing more than 60,000 different documents and more than 60 web shops or systems are connected to it. And ordering, on a daily base, and every minute realtime orders are dripping in and produced on demand. And not only for publishers, because that’s where it started, a new product basically was entered in an existing market, and the new product was not, “We have a book,” but the product was, “We have a book on demand. We have a different solution. We have a different calculation model,” really solving an issue that was urgent for the industry. So that was a new thing. But it also helped the company to move into new markets like the automotive as I shown here.
And it did something else. Because I said at the beginning what we need to do is help our customers, the managers of graphical art industry companies and of commercial printers to create new business models with these innovations, not making sure that they do the same product more efficient and we have lower cost because then you’re in the converse business model. You’re on the left downside and the problem is when you’re a carrier from the perspective of your customer, then it can easily exchange you. And that’s the reason why you’re always competing your competitors only on price. What you want to do is to help them to become a key partner of the customer and to bring solutions that really enables them to improve the end result of their business.
And that’s what we did, for example, with the DAF company. Their total cost of ownership, of their warehouse, dropped with 25%. And so that is really, in the end result of the company, it is visible. And if you can do that, then you become a key partner. And that is very important because you’re always with your key partners have discussion about the price, of course. But the difference with just a cost carrier is a key partner. When you are a cost carrier you don’t agree with the contract, well then boo-hoo for you. But if you’re a key partner, then you know that if one of the two parties finds his self not happy with the contract, then in most of the times ends as a disaster for both of them. And everybody knows that with key partners, so you do live and let live, and make sure that the other becomes successful as well.
And that gave the opportunity, if you go to the left-hand side, for these companies to generate new margin drivers. So not only production, but also delivery, the other two things of the Argos Inspiration Days. Because sending to the end user, make sure that you need fulfillment and make sure that you do shipment. And this was with the company of Zaandam made an extra extra turnover with.
Okay. Then was a nice attraction at the end of the game is that you need to know that for educational content, the Netherlands is a country where education of content is not produced for decades. All the educational books are offset printed in China and moved in by a boat for prices in the Netherlands we not even can buy paper for. So we thought that is an industry that is gone from our country.
Interesting thing is that the publisher [Mombere 00:22:32], they wanted to innovate the way of learning and they have created a large system, a counter management system, where professors and teachers can enter content in on a very adaptive way. They can create educational programs for students. So that means that if you have easy questions for students, they will be skipped and difficult one will be entered and asked in a different matter. And another thing is that this counter management system can contain tutorials and movies, and that kind of stuff. So it makes it much more interactive, but … and they thought they supply it to schools, to students with iPads, and we move away completely from paper. But they learned the hard way that students do not embrace 100% digitally. They learned that students, and even children from 11 years old, find it much more comfortable to have the long reach from paper and to use … writing something down, that it helps better memorizing it.
And so you see on the picture I’ve taken a photograph of my daughter, Jasmine, and she’s making her homework now from an iPad, but with full color-printed books. And those are digital printed books. Those are personalized with logins, codes that helps them enter their personal domain in this system. And it is very adaptive. So small piece of paper printed on demand, very adaptive, and now educational content is printed in the Netherlands again. Because this is produced, of course, in this company. And not offset printed in China. So now there’s disruptive innovation going on since we disrupt the Chinese offset market.
Okay. Well what can we conclude with this is that instead of just using software and using digital print technology to become more and more and more competitive only on price. Instead of that, we used a framework, like Drucker said, “If you want to change the game, you don’t go on experience, you don’t go on your gut feeling, because that might steer you wrong. You need to use science to do so and look at the things from other perspective.”
So what I want to ask to you is if you want to change the game, then identify your strengths, identify your opportunities, get it all on the table, and look at it from a completely different perspective than you have done so far. And try to build a new business model as I just showed you this company in Zaandam did.
Well, as a closure I haven’t introduced myself formally. I’m Sander Jansen. I guide companies, doing these kind of transformations, and since you’re all here and I have plenty of books. I can give them away if you like. I have a book written about this framework. Oh, great for you! And it contains information about the building blocks and how you can do so.
Thank you very much.