Newly installed Federal Reserve Board Chairman Ben Bernanke, in his first appearance on Capitol Hill, said, with hands folded firmly on the table in front of him, that dealing with the myriad influences of globalization will be his toughest challenge.
You'll get no disagreement on that score from risk managers and other top executives at printing industry companies--whether behemoths of the business or smaller-scale niche players.
Luc Desjardins, the president and CEO of Montreal-based Transcontinental Inc., a major North American printing and publishing company, told an industry group last fall: "Globalization has meant we're facing increased competition from all sides, especially Asia in our case. The rise of China as a new economic power doesn't affect us in timely niches such as printing daily newspapers or even magazines, but it's certainly having a considerable impact on the book printing market and some commercial work around the globe."
Disquietingly, even some of those "timely niches" are feeling the pinch. In the U.S. market, there is evidence that a growing number of newspapers are outsourcing certain kinds of work to locations outside the country.
"This is happening not just at the nationals like the New York Times and the Globe and Mail in Canada, but even some regional and more local newspapers have begun doing it," says one well-informed source.
But the best U.S.-based printing companies view globalization as an opportunity, provided the proper strategies and most effective utilization of their resources are in place and are constantly being enhanced and advanced.
"We are a leader in investing in new technology, and we see these productivity enhancements as a means to add significant value for our customers and, therefore, successfully compete over the long-term in the ultracompetitive global commercial print market," says Daniel J. Potter, director of tax, risk and treasury management at Quad/Graphics Inc., one of North America's largest printers, which counts among its clients Newsweek and National Geographic magazines, as well as catalogs for such retailers as Williams-Sonoma and Victoria's Secret.
Potter, like directors of risk and financial management at other top U.S. printing companies, sees global marketplace value in having highly coordinated, efficient risk management programs on a worldwide basis.
Observes Director of Global Risk Management Arthur B. Kordus at giant printer and supply-chain management firm Banta Corp.: "One of the main reasons we place so much emphasis on risk management is to give us a competitive advantage. We believe that having a comprehensive global business insurance and risk program increases our credibility with our customer base."
INDUSTRY AT A CROSSROADS
In his speech to industry leaders last fall, Desjardins said, "Globalization, the foreign exchange rate, rising energy costs and--of course--the Internet's impact are the macroeconomic factors that are adding to the changes we are all facing."
Of those and other major waves sweeping the printing industry, no doubt the most profound one in the long run is the transformative effect of the Internet and digital technology in general on all media, but perhaps most dramatically on the world of printed products. This new and powerful form of competition is putting pressure on printing industry risk managers to play major roles in corporate strategy initiatives, to not just act in the traditional role of being mostly a cost-control defensive-platoon player--or as one risk manager wryly put it, "the keeper of the misfortune business."
"My objectives are to make decisions and to implement strategies that are designed to protect and ultimately increase share value over the long term," says Potter, who was with Arthur Andersen for eight years before joining Quad/Graphics. Through his Andersen experience, he developed a keen sensitivity to overall enterprise risk management.
Potter says he and his group take a "holistic" approach to identifying risk and dealing with it. "Quad/Graphics is a dynamic organization, and risk exposures, large and small, come at us quickly from all directions. We have created a cross-functional, multidimensional approach to managing these risks."
Banta's Kordus observes that his company has a similar battle plan--with full participation from its chairman, president and CEO, Stephanie A. Streeter, and its CFO, Geoffrey J. Hibner, who are the first people Kordus notifies in any emergency.
"There are many times in my role when you have to bring it all together in a hurry, coordinating the expertise of legal, accounting, human resources, safety and engineering," says Kordus.
"After a severe claim is received," he notes, "everybody has to swing into action fast, and there have to be set procedures in place that allow us to work swiftly and smoothly as a team so that an injured worker gets all the best treatment and response from the various disciplines we have. Our aim is: marshal our resources to bear on getting this person recovered and back to health and work again with the best care possible."
At Transcontinental--which has added to its extensive printing and media ownership in Canada by making substantial acquisitions in the United States (going from only 500 employees in the States just a year and a half ago to 2,500 or so today)--Director of Risk Management Michel Rodrigue stressed the importance of getting all employees at all of the company's locations on the same page, so to speak, when it comes to buying into the importance of risk management in general and the company's program in particular.
Rodrigue--who was recruited in late 2003 by Transcontinental to implement and drive forward a risk management master plan created by a Canadian consulting firm--says: "Our goal is to bring the whole company to a risk management culture. My role is to help everybody understand why that is important."
"You have to meet with people to do that," he adds. Toward that end, Rodrigue is a frequent flyer to all of Transcontinental's 60 plants in Mexico, the United States and throughout Canada. (A profile of Rodrigue begins on page 20.)
Despite an ongoing consolidation in the North American printing business at all levels (since 1990, there has been a 20 percent reduction of various kinds of traditional printing plants in North America), the industry remains a giant employer.
In the United States alone, it is estimated that more than 1 million people work in the industry in one way or another, versus approximately 750,000 people in the next largest group, the auto industry. In addition to traditional printing plants, Kinko's has approximately 1,500 copying centers in the United States.
Thus, the day-in, day-out risk exposures and risk management programs have a huge impact on the economic life of North America and the safety and health of so many of its citizens.
WORKERS' COMP LEADS EXPENSES
Of the risk exposure costs associated with the printing industry, far and away the biggest cost driver is workers' comp.
Marsh Inc.'s most recent "Casualty Cost of Risk" report noted that, of each dollar spent by the printing/publishing industry on its primary casualty program in 2004, 77 cents was allocated to workers' compensation, 17 cents to general liability and 6 cents to automobile liability. Claims handling in the printing industry, according to the report, was bundled for 78 percent of the loss-sensitive programs, with 22 percent unbundled. On average, the industry spent $2.53 per $1,000 of revenue on its primary-care casualty program.
According to the author of the printing section of the report, Marsh senior vice president and work-force strategies consultant Bob Frenson, the most troublesome drivers of casualty cost will remain the same when the next report is issued late this spring. "Cost drivers include employee safety and health issues, arising out of industry exposures that include material-handling, slip-and-fall incidents, and delivery operations," Frenson wrote in the most recent report. He does, however, plan to add one new cost driver to his part of the next report: A maturing population of workers, leading to rising costs of medical coverage.
Cindy Roelke, corporate claims manager at Cenveo, Inc., a large printer of envelopes and other kinds of packaging, echoes this observation, noting that of major risk exposures facing her company, one is "an aging workforce coupled with rising healthcare costs."
One antidote to curbing soaring medical costs is to develop relationships with 24 hour, 7-day a week medical services, notes Frenson. Many printing companies work round the clock, so planning with medical providers must address these hours of operation. If the facilities or clinics the companies use on a contract basis are not in service at night or weekends, the gate swings open on higher costs.
"Treatment for injuries in emergency rooms with whom the company has no relationship can result in higher costs as the lack of knowledge of company jobs, conditions, and return to work programs may undermine the injury management process compared to medical providers with which a company has established a regular relationship," says Frenson.
Quad/Graphics, a privately held company that was just chosen by Fortune magazine as one of the "100 Best Companies to Work For" because of its outstanding benefits and unique corporate culture, has taken in-house employee medical care to a much higher--and more profitable--level. The company's Quad/Med LLC group runs a fully staffed in-house medical unit. The group also sells the service to other companies, including operating full-service clinics for Miller Brewing Co. and Briggs & Stratton Corp.
One remedy for dealing with an aging workforce and rising medical costs is for the industry to institute early-retirement plans. "These programs have been going on for some time in the publishing industry, but they are definitely accelerating," says Ed Atorino, a media analyst and managing director at The Benchmark Co. "Just look at the cutbacks recently at The New York Times Co., The Tribune Co. and Dow Jones." In the auto-and-truck liability realm, the issue is whether to outsource the driving function. The industry seems to be trending toward "leave the driving to them"--that is, professional outside driving firms. "Other printers and publishers have joined forces to share delivery drivers in certain markets," says Marsh's Frenson.
John Morton, a newspaper industry consultant, adds another interesting delivery-cost reduction twist increasingly being used by newspapers of all sizes: shrinking their geographic delivery area footprint, sometimes dramatically, by eliminating truck delivery to outlying areas and instead offering mail-delivery service. "With the onset of corporate ownership in the newspaper business, cost-cutting has become a way of life," says Morton, president of Morton Research Inc. in Silver Spring, Md. "Originally, a lot of the impetus for reducing circulation in general came in the mid-1990s when newsprint costs shot way up. But more recently, reducing physical circulation distribution areas has become a means of reducing costs in general"--including auto liability costs.
On the health-care costs front, Morton, who is frequently on the road visiting newspaper clients around the country, observes that "newspaper employees in the United States are a lot healthier than they used to be."
"Now you go into a newspaper office and it looks like an insurance company," Morton says.
contributes frequently to the magazine.
April 1, 2006
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