Stivison — Are the Barbarians at the Gates?

Several friends were talking recently about the effect executive-level turnover has on morale at the shop-floor level. One industry veteran summed up his feelings: "The Barbarians are really at the gates now!"

"Heck, they're not at the gates," replied another. "They've been here, they've gone and they're coming back for dessert!" The comment was met with very strained laughter.

As I read through recent copies of Printing Impressions' Top Management News, I became unsettled. Amid the upbeat declarations of new contracts and plant expansions, there seem to be more reports of turmoil in the boardrooms and executive suites of many mid- and giant-size printers. We're seeing turnover among CEOs at an unprecedented rate. And while "golden parachutes" may protect individual CEOs from personal catastrophe, there is often nothing to buffer the folks on the shop floor from the upheaval and uncertainly that follow top-level changes.

"Will we be sold again?" "Will I still have a job?" "What will happen to my pension?" We've all heard these responses and many more like them. And, while much of it is just talk, it diverts too much attention from the issues that really matter: serving our customers.

Why the turmoil in the corner office? One big reason is recent consolidation enabled by stock swaps. Printing firms that once supported a single family or small group of owners now have to satisfy shareholders. Moreover, many of these stockholders are anxious to make an immediate profit on their swap. As a result, they are much more interested in short-term stock prices than in the long-range growth of the firms. They want higher stock prices and they want them now. Period.

This intense pressure for profits gives today's CEOs precious little time to deliver big results. Executives no longer have time to analyze business plans thoroughly, launch them in steps and then make course corrections based on experience.

The pressure today is for CEOs to generate big numbers, quickly, or be replaced by somebody who promises faster results. This inevitably encourages short-term thinking and zig-zags in business direction, at the expense of building long-term strength.

But the quest for short-term profits has not panned out. In fact, the industry's financial numbers have been disappointing. Despite the overall economy's bull market, the printing industry has recently seen a NASDAQ stock delisted, and the PI/Compass 30 Stock Report shows the printing industry significantly underperforming against the Standard & Poor's 500 Composite. Forgetting comparisons with other industries, the vast majority of our leading companies are performing significantly below the levels attained by their stocks last year.

Folks are scrambling for explanations and there are no comfortable answers. The firms "right-sized" and redesigned processes years ago. They achieved "critical mass" through acquisitions. They put in new technology infrastructure and enterprise management systems. They rationalized their supply chains. Why, then, aren't the stocks of more commercial printers doing better? It can't all be attributed to the individual CEOs, because the pattern cuts across so many firms as to qualify as an industry-wide trend.

In many cases, the problem is not lack of sales. Generally, sales are up. Could the problem be as simple as unrealistic expectations? Could it be that the profit projections based on assumptions of new critical mass, economies of scale and new technologies were simply unrealistically optimistic? Could it be that if a few major competitors all go on an acquisition spree—or all adopt new technology—at the same time, that no single firm leapfrogs the competitors? Could it be that all the process redesign and new technology have only bought a new, albeit higher, level of competitive parity?

There is a genuine risk that rather than acknowledging which expectations might have been unrealistic and simply need to be adjusted, that too much effort will be squandered looking to lay blame. Worse yet, effort and money will be squandered trying to fix something that isn't really broken. Often, the easiest and most visible fix is a new CEO.

This, however, actually leads to some real problems. The upheaval of changing CEOs diverts the attention of the organization away from the job of putting ink on paper, profitably. It drains the energy that should be going into customer service. Speculation replaces action. More time is spent protecting careers than nurturing the business. Turnover increases. What started out as a relatively simple problem—overly optimistic projections—actually begets genuine problems as quality slips, schedules are missed, skilled and experienced people choose to leave.

The months ahead will be very uncomfortable. The investors will be demanding better profits. More CEOs will come and go. If managers and executives did not already have enough on their plates, they will have the added burden of turning around the company's finances.

The irony of the CEO upheaval, of course, is that a printing company's financial performance ultimately does not depend on the business strategy-of-the-month. Rather, it depends on a lot of dedicated people being allowed to do what they do best: Get jobs off the loading dock, on time, error free.

—Douglas Stivison

About the Author
Douglas Stivison is a consultant at PricewaterhouseCoopers, the world's largest professional services organization. He welcomes your comments via e-mail at douglas.stivison@us.pwcglobal.com or (973) 236-4908.