You’ve heard the expression, “You cannot save yourself into prosperity.”


Harding

In today’s challenging economy, this offers an important perspective. While getting approval for capital projects may not be as simple as it was just a few years ago, investing in improved operational capacity should remain a focus. If current capacities are insufficient, growth — and future prosperity — is restricted.

Not enough capability

Oftentimes the ability to justify capital spending for enhanced capabilities is compromised because insufficient operational capacity creates a false ceiling on revenue.

Instances of this false ceiling scenario are easy to find. For example, it is not often that a sales representative will sell process color in a specific location and then go back to the customer and explain why the request can’t be delivered.

Another example is the current “en vogue” use of the second Section A. Advertisers delight in thinking their ad will appear in the first Section A, only to find it has been printed in the back of the paper, but with an “A” on the folio. When reading my Sunday newspaper, I find the second A long after the first, and sometimes never get to that section at all.

Preprint free standing insert zoning is another example. Packaging or postpress operations with insufficient equipment and controls limit zoning complexity. Whether the number of sold zones is limited or confidence from the advertiser is reduced because of quality issues, fewer preprints are sold than could have been with sufficient equipment capacity and capabilities.

Effects of insufficient production capabilities are twofold. First, the market is underserved and revenue is left on the table. Second, by underserving the market the advertising department accepts that upgrades in color, paging or preprint capacity are not needed.

This misperception compromises the ability to justify new or upgraded equipment.

These activities continue to reinforce one another, with negative impacts on the operations department, revenues and the ability to satisfy advertising customers.

Getting capital funding

Understanding the key drivers is the first step in justifying capital for an identified project. Many newspapers focus on reducing operating costs, including consumables. Several realize that most, if not all, major projects require some amount of incremental revenue associated with the project to create a compelling return on investment.

Often overlooked altogether are the enhanced and new end-to-end operations that the investment enables, i.e. new ways of working. Keep in mind that proposed projects with a promised ROI of as high as 30 percent are sometimes not funded.

This increases the importance of including unquantifiable benefits — such as increased overall efficiency or customer satisfaction — into a project’s overall ROI.

Most newspapers address reduced operating costs driven from higher nets — among those fewer people performing the same task, or newsprint savings — as they compile savings to add to a project’s ROI. However, this is frequently done with too narrow a focus. Newspapers tend to think about operating in a method similar to how they currently operate, or they embrace the obvious changes without evaluating the entire system for opportunities to drive out cost or time based on the assets purchased.

Blank paper

Depending on the scale and type of project, many capital projects allow a newspaper to think with a blank piece of paper in terms of how they operate. Detroit Newspapers’ current press project is a good example. Six seven-unit presses enable a new way of operating that is not the norm, but which creates great opportunity for Detroit Newspapers’ operation and for the Detroit News and the Detroit Free Press, which it produces.

This creative operating model, supported by a major capital investment, helped improve this project’s ROI.

In some cases, a major contributor to a project’s ROI can be looking at the overall system to determine what the investment enables. A project is often viewed by what it does in a specific area, without a thorough end-to-end assessment. In many cases, an investment in one area positively affects the entire system and drives out additional costs and time, adding to the ROI of the project.

Finding ROI

A good example of this is the Chicago Tribune’s recently completed packaging and distribution project. The newspaper wanted to shift from its previous bundle-by-bundle design to one that favored unit loading.

By evaluating the system from end to end, the new project yielded significant additional savings opportunities — beyond those normally associated with the new packaging and loading equipment. As a result, the Tribune improved press nets, revised its logistics plan and found new ways to handle single copies.

The real bottom line is that insufficient capacity sets a false marketplace ceiling that complicates finding incremental revenue to support capital projects. Point this out to your advertising department and create examples that make the case.

Once you have the opportunity to justify a capital project, use all the tools at your disposal from the obvious savings, to new ways of working and end-to-end review of the operation. That is how newspapers can create projects with very compelling returns that will enable a more effective operation to better serve customers.

Ken Harding is executive vice president of McClier’s newspaper and media group. Harding has more than 20 years’ experience as a newspaper consultant and is a frequent speaker at newspaper industry conferences and events. He can be reached at 303.228.3054 or via e-mail at kenneth.harding@mcclier.com.