Justin Ribeiro

October 21, 2001

MGMT 489

R.R. Donnelley & Sons

The main problem with R.R. Donnelley and the digital division has nothing really to do

with the digital division at all, or at least not as much as first seems apparent. The real problem

inside R.R. Donnelley is the fact that their incentive pay structure is undermining how business

units and sales work, which in turn is dividing the business units among themselves. This is

causing each unit to duplicate other functions within, and adding high cost equipment to their

own plant, running their own version of software, and in turn depriving what could possibly be

sales for that particular unit, and depriving sales to the corporation by possibly turning what

could be a large job done correctly by one group, that can only be done on a smaller scale by

another group.

Another issue that is apparent to me from the onset of the case, is that fact that the Digital

Division is not being welcomed into the rest of the organization. The fact that some in the

company think that digital printing is still looking for a market allows me to speculate that they

are resistant to the change in technology that no doubt in the future will lead to lower costs and

higher profits. Taking into account that fact that the Digital Division is in the best position to

offer digital printing services to existing and potential customers, each company (including the

Book Publishing Services) is considering adding digital printing to their own plants, to maintain

their own sales and revenue. It all comes back to the way the company is handling it’s incentive

plans, which are causing management to mismanage in my view, for their own personal gain.

While this is happening, they are looking at shifts in the market and technology to be only a

thought if they have to make there group more profitable, instead of making the company more

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 profitable. This in turn will only hurt them, with competition coming from the flanks, and the

printing business changing as a whole. I’ll take a look at that changes that had occurred inside

Donnelley, including the fundamental change in processes at the corporate level, as well as

shifting ideas in the business itself.

The first problem that Donnelley faced really was the fact that technology development

was done on an Ad Hoc basis. This left way to many doors open for bad projects to go through,

as well as use many resources that might be better used somewhere else. This existing process

allowed for people in higher positions to leverage their power too much, and often caused good

technology to go to waste in the long run. There was simply too many holes in the existing

process for it to be any good, and in fact, it was a horrible process, which probably cost

Donnelley millions over the years in wasted money.

The redesigned process is by far leaps and bounds above the first, considering the number

of checkpoints, and accountability that it holders the developers to. This process in fact would

stave off any attempt at running many of the technological projects of the past, which were unti

by unit, that offered really no overall benefit but to those using it. And even in their use, it was

limited, and never to the full potential of the technology. While the Digital Division was the first

real benefactor of this new process, it still is to be seen if it will create a business that will indeed

find revenue and profit goals reachable. Even with Schetter making a case for it to be it’s own

unit, it was being considered part of manufacturing. And although the Phase III review allowed

it to be spun off into it’s own division, I think the view that upper management had of digital

printing, was not yet in the mainstream, that it was a manufacturing function (even though many

indicators pointed otherwise), it would continue to face an upstream battle by trying to get work

and business from other units, when the gain for them was little.

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 While this new process allowed the Digital Division to become and actual division, it is

also one of the Digital Divisions strong points. With this new process, management will have a

harder time pushing digital printing development because the Digital Division is already set to

take and integrate their technology inside these other plants. (By technology I mean the software,

mostly the database, and customer support functions.) The idea that they’ll just develop it in

house is likely to become less and less of a reality, with a shift more to integration across the

company. The process in turn helps reduce the costs in Donnelley and overall stamp out

duplication of function that could otherwise be done by another division cheaper.

The one challenge to this process is that it units will continue to use current processes to

do the work, at a higher cost to them and the customer, which keeps there division as well as

group profits high, and incentive to higher management. This is one issue that I think will take

place. If they can’t have the technology or the funds to to it, they’ll adapt current processes and

equipment to do the job they need.

The uphill battle that The Digital Group faces, is more core problems with the

organization itself then with anything else. The fact that Faber notes that one of the only ways to

convince people is show success is of little consolation. The division is fighting to gain

acceptance, as well as put it’s own strategy to work. The problem of course, is that to have

success your core strategy must work, and frankly their strategy faces two very large problems.

The first, is that their sales force is going head to head, abeit with different reasons, with other

groups sales forces. This is not going to gain them any more acceptance, although it may gain

them more business. The second problem, is that they are looking at becoming a services / out

source shop for corporations marketing and printing needs. From internal manuals, to marketing

materials, things business often did in house at great cost, yet didn’t even know they did. The

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 problem is, since very few companies had ever defined such printing and marketing items to be

of any benefit, they are basically trying to educate companies that they burning money on

something that they didn’t know they were doing. Again, a tough sell, considering the ease of

desktop publishing, and computer hardware capable of printing and organizing things much like

that of the digital division., although on a much smaller scale.

Again the challenge for acceptance is a hard road ahead, because management is taking a

wait and see stance, instead of proclaiming that change needs to be made, and that this division is

going to spearhead the digital revolution for Donnelley. Instead, the company is putting itself

into a spot were competitors could come and take away customers that are in need of digital

printing. And since they in all likelihood might axe the digital division, they would have to add

the capability to existing plants, and in would cost them a significant sum of money to do so.

The incentives for the Book Company to shift digital printing to the Digital Division are

actually quite a few. The reduced cost of having to deal with shipping on a deadline, the

decreased costs of deploying a new solution with dedicated operators in both transaction,

printing and database back end. The idea that digital printing can be profitable is probably

floating through the Book groups mind, although I think for the book group, it is an issue of

having to deploy such a large scale item, with added additional cost of labor and skilled

knowledge workers. I would also point out that these customers are probably on a time crunch,

and the necessary time for the proper funding and deployment of such a solution may cause such

customers to look elsewhere for that service.

Besides the cost incentive, it also allows the book group to do what it does best, and

allows them to take on additional customers, without the needed and added work of adding new

process and customization. I would also point out that the Digital Division is not looking to

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 move in on the core business of the Books Group. As a matter of fact, I would point that out

heavily. The Digital group is only a group looking to supplement businesses with marketing and

internal documents, as well as take added load of of existing groups as to cut their costs, and

allow them to take on work that better suits there position. Digital Division has never positioned

itself as a printer per say; more of services oriented relationship with a customer that can grow

into other possible work for not only the digital division, but also other divisions as they see that

Donnelley does fine work.

But no matter what they say the incentives are, the problem is a larger problem of the

corporation simply shying away from having to make such a change that would allow the Digital

Division to take of. Without company wide roll out to have digital do short-run on-demand

printing, it likely will continue to have to fight, while convincing management to place some

kind of corporte change policy into effect, or at least so type of strategic plan.

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