Learning to Profit in the New Normal
Prepared for
2012 Specialty Paper Conference
Frank PerkowskiBusiness Development Advisory
November 9, 2012
2
Fundamental Shifts Have / Are Taking Place…….
New Industry Structures and Dynamics
Changing Technologies and Customer Solutions
Evolving Markets and Paper Applications
New Competitive Sets and Bases for Competition
Changing Customer Expectations and Needs
New Opportunities for Growth and Failure!
Markets Sorting Out Winners and Losers
Why Do We Need To Talk About This?
3
1.What has changed / stayed the same?
2.How should specialty paper companies respond?
3.Path Forward
Presentation Outline
4
What Has Changed or Stayed the
Same?
5
The World Has Changed Overnight!
Electronic Media GrowthGraphic Paper DeclinesIndustry Shift to Asia / LADeclining US Paper DemandRecession Impact on UsageNano Technology DevelopmentPaper / Plastic InteractionsSecure Packaging SolutionsSustainable Materials FocusThird Party CertificationsRenewable Energy SourcesIndustry ConsolidationCompany RepositioningsImport / Export GrowthNew Wax / Plastic Alternatives
Globalization / Localization Asia / New Economy GrowthConvenience TechnologiesConnected WorldSocial NetworkingSmart TechnologiesIncreased TransparencySustainability FocusNew Energy SolutionsAging PopulationsFemale EmpowermentHealth & Well BeingTerrorism / SecurityGlobal Economic CollapseUS Economic Decline
Macro Developments Industry Developments
6
US Paper Demand Has Shifted
60
70
80
90
100
110
120
130
1982
-01
1982
-09
1983
-05
1984
-01
1984
-09
1985
-05
1986
-01
1986
-09
1987
-05
1988
-01
1988
-09
1989
-05
1990
-01
1990
-09
1991
-05
1992
-01
1992
-09
1993
-05
1994
-01
1994
-09
1995
-05
1996
-01
1996
-09
1997
-05
1998
-01
1998
-09
1999
-05
2000
-01
2000
-09
2001
-05
2002
-01
2002
-09
2003
-05
2004
-01
2004
-09
2005
-05
2006
-01
2006
-09
2007
-05
2008
-01
2008
-09
2009
-05
2010
-01
2010
-09
2011
-05
2012
-01
US
Prod
uctio
n In
dex (
2007
= 1
00)
Historic US Paper Production Trends by Selected Grade (1982-2012)
Total Paper ProductionOther converted paperPaper bag & coated / treated paper All Publishing Papers
New Normal
Source: US Census Data
7
Pricing Trends Vary By Grade / Market
125
150
175
200
225
250
2002
-120
02-4
2002
-720
02-1
020
03-1
2003
-420
03-7
2003
-10
2004
-120
04-4
2004
-720
04-1
020
05-1
2005
-420
05-7
2005
-10
2006
-120
06-4
2006
-720
06-1
020
07-1
2007
-420
07-7
2007
-10
2008
-120
08-4
2008
-720
08-1
020
09-1
2009
-420
09-7
2009
-10
2010
-120
10-4
2010
-720
10-1
020
11-1
2011
-420
11-7
2011
-10
2012
-120
12-4
US
Nom
inal
Pri
ce In
dex (
1982
=100
)
Historic US Nominal Price Trends for Major Paper / Converting Grades
Packaging & Ind Converting Paper
Paperboard
Overall Paper
Printing & Writing Papers
Coated / Laminated Papers
All Commodities
8
Paper Application Dynamics Changing
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Aver
age
Dem
and
Gro
wth
Rat
es b
y 5
Year
Per
iod
Specialty Paper Growth Rates by End Use Application
2006-2010 AAPC2011-2015 AAPC
9
Winners and Losers in Specialty Paper
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Estimated Growth Rate Trends by Major Specialty Paper GradeSorted Based on Five Year Projected Rate
2006-2010 AAPC
2011-2015 AAPC
Art papers Kraft specialties Photographic base
Asphalt sat base Label facestock Premium cutsize
Carbonless Label release base Premium writingCoating base Laminating base Security papersDécor paper Latex sat base Text & coverDirect thermal base Lightweight pkg Tissue pkg / wrapsElectrical papers Lightweight printing Wallpaper base Filter base stock Medical / Hygienic Waxing baseIndustrial sat base OGR treated Wide format inkjet
Specialty Paper Grades In Study
10
Changing Product Requirements
Electronic substitution threats accelerating
More customer SKU’s and increased targeting capabilities
More integrated products / solutions Higher performing materials available Need for more sustainable materials and
processes E-commerce and electronics affecting
every aspect of product and delivery Increased cost focus due to economy
11
Competitive Dynamics Have Shifted
Fewer but more focused competitors in many segments
More disciplined pricing environments Lower capital investment but… more
flexible / capable assets Less import threats in some markets
while export opportunities expand Widening gap between commodity and
specialty solutions Better management / optimization focus
12
Customers Have Different Needs
More sophisticated supplier selection / product qualification process
Stronger emphasis on preferred suppliers and relationships
Consolidations have improved operations / focus
Sustainability / environmental focus resulting in new solutions
Increased global orientation More knowledgeable / informed
13
How Should Specialty Paper
Companies Respond?
14
Re - Evaluate Your BusinessDevelop and implement successful business models by employing time - tested management practices that chart your future development activities …….
Understand how your industry / markets are changingPrune and develop new product linesDevelop both products and marketsSpur increased growth and profits through new productsEstablish / develop your competitive advantagesDifferentiate away from competitionDetermine where the money is made in your segmentInvest strategically and selectivelyConsider all paths to growth…..
15
Understand How Your Market is ChangingAre your assets, activities, or both being threatened?
While most specialty paper markets are changing, only a few cases exist where both assets and activities are seriously threatened. In most cases, markets have evolved and an incremental change in strategic approach is required. In other cases (such as carbonless, white paper, printing papers, and text & cover), a more radical response is necessary.
16
Prune and Re-Develop Product Lines
Product lines should be continually reviewed and refined to maximize profitability.
Specialty paper companies need to understand how their products are strategically positioned externally in order to maximize profits
Most specialty paper companies are too focused on internal capabilities and cost.
17
Develop Both Products and MarketsSub-performing specialty paper companies must expand into new markets and /or products to survive in the future.
The best approach is to transition the business into new markets OR new products sequentially
Doing both simultaneously (diversification) is risky and often fails
Even more risky is failing to develop new markets and products on an ongoing basis.
Ansoff Matrix
18
New Products Spur Growth & ProfitsMost specialty paper markets and products today operate in the mature or declining stage
This is evidenced by low growth rates and a declining base of competitors and customers
Companies in these businesses can only grow by developing new products, markets, or broader / better solutions (innovation).
19
Develop a Real Competitive AdvantageCompetitive advantages can be based on cost or product (differentiation) related dimensions
Unlike commodity papers, successful specialty paper products typically offer product related advantages
A narrow focus is most appropriate for a small specialty paper company with limited resources….
But a broader focus creates economies of scale which potentially results in higher profit margins.
20
Differentiate Away From the CompetitionMost specialty paper companies employ “Red Ocean” strategies
“Blue Ocean” strategies reduce the significance of competition and increase margins
Declining markets are often the result of someone else's Blue Ocean success
Successful Blue Ocean initiatives have their basis in a superior understanding of customer needs coupled with better solutions
*Excerpted from W. Chan Kim and Renee Mauborgne book
21
Determine Where the Money is Made
High revenues and shares do not translate into high profit margins!…..
Analysis of other industries such as autos, airlines, and personal computers show that supporting products and services tend to carry higher margins than the core business.
Specialty paper companies should consider related and supporting segments to grow their sales and profits:
forward integrate into convertingdevelop supporting / related servicesdevelop supporting / related productscreate bundled / integrated solutionsoffer competing processes or solutions to better meet customer needs.
Profit Pool Assessment
0
2
4
6
8
10
12
14
16
0
5
10
15
20
25
30
35
Used Car Dealers
Auto Manuf Auto Insurance
Service & Repair
Aftermarket Parts
Auto Financing
Auto Rental New Car Dealers
Warranty Gasoline
Ope
ratin
g M
argi
n -
%
Reve
nue
Shar
e of
Indu
stry
-%
Auto Industry Profit Pool Analysis (Bain - 1990's)
Revenue Share
Operating Margin
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
45
Personal Computers
Other Components Periferals Services Software Micro Compressors
Ope
ratin
g M
argi
n -%
Indu
st4r
y Rev
enue
Sha
re -
%
PC Industry Profit Pool Analysis (Bain - 1998)
Revenue Share
Operating Margin
Example
Example
22
Invest Strategically & SelectivelyAnother required analysis considers the attractiveness of markets and the company’s business position in each.
“Business position” and “attractiveness” can be defined in different ways to yield different results.
Depending on the analytical result, investments should then be prioritized to ensure the highest returns and long term viability.
23
Consider All Paths to GrowthUnique tangible or intangible capabilities should provide the foundation for a growth initiative ….
But organic investment may not be the best growth option for many specialty paper companies…
In mature or declining markets, other riskier approaches may be more successful
Special alliances / relationships can provide the best growth options but these are rarely pursued in our industry.
McKinsey Growth Pyramid
24
Specialty Paper Companies –
The Path to Success
25
New Broad-Based Approaches Are Needed
Globalization / Localization Asia / New EconomiesConvenience TechnologiesConnected WorldSmart TechnologiesIncreased TransparencyGlobal SustainabilityNew Energy SolutionsAging Populations“Want it Now” MentalityHealth & Well Being
Smarter Solutions using High Performance Materials and Information Technologies
Interactive Offerings that Integrate Products & Services to Create Better Solutions
Relevant Values and Methods that Match Customer Objectives
Empathetic Interactions with Customers Based on Deeper Understanding of their Business
Changing Markets
26
Focus on Issues Needing Solutions
Counterfeit ProductsFood WasteSafety ConcernsAging PopulationHealth Care CostsLitter (paper & plastic)Waste Collection / ProcessingEnergy Sources / ConcernsHigh Cost Supply ChainsFragmented Population SegmentsDistribution Channel ProliferationFragmented Customer NeedsGrowing Information NeedsNeed for Increased ConvenienceNeed for Lower Labor Costs
Unique Product Functionality
More Sustainable Products
More Integrated Solutions“Cradle to Grave”
ApproachBetter Delivery SystemsDifferent Access to MarketMore Individualized
Products & ServicesComplementary Products
& ServicesMore Targeted Customer
Base
General Issues / Problems Potential Solutions
27
Highly focused on a global niche segments (grade / customer base / market / process)
Forward integrated into converting / value adding processes
Value added service / solutions provider Unique value proposition Strong supply chain relationships / networks Commitment to ongoing development efforts
Characteristics of Successful Specialty Paper Companies in Future
28
Food for Thought………
"It's not the strongest nor most intelligent of the species that
survive; it is the one most adaptable to change."
~ Charles Darwin
29
• Growth development consulting firm focused on paper and packaging markets
• Based in Marietta, GA
• Contact:
Frank Perkowski [email protected] www.bd-advisory.com 770-643-0981
Who is BDA?
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