If you read material printed on paper (and not just stuff on your computer screen), you’ve had contact with R.R. Donnelley and Sons (see chart here.) This was one of the industrial era’s venerable companies. In the time of Lincoln, books were somewhat rare and very precious. But in the industrial era improvements in printing technology allowed printing to become everyday – commonplance. And the world’s largest printer became R.R. Donnelley. So everything from phonebooks (do you remember phonebooks?) to books to magazines to financial reports and a lot more were printed, and continue to be printed, by R.R. Donnelley.
But, you’ve probably noticed that the world shifted. We don’t read as many newspapers, magazines and books – printed items – as we used to. The web changed things. We now do company research on-line, rather than through paper-based company reports. We want analyst reports on stocks, markets, new products, technology and everything else sent via pdf download rather than a booklet. There is still a place for printed material, but every year we see the shift toward digital distribution continue picking up steam. And that is bad news if you’re business is printing. A reinvention gap is being created between businesses focused on printing, and markets consuming information from analog but increasingly digital sources.
Alas, R.R. Donnelley saw this trend and made big acquisitions in 2005 and 2006 (Astron and Office Tiger, to name a couple) to move the company into business process outsourcing (BPO). These services were, and are, growing very, very fast as companies move all kinds of back office operations from payroll to accounts receivable, HR, payables, document design, etc. into someone else’s hands. GE created and spun off a company with more than $1B revenues (and as much market value captured by GE) named GenPact to compete in this business (Genpact chart here, and info on GE Genpact ownership here). Moving into BPO was a great way for R.R. Donnelley to migrate toward the new information economy.
But, R.R. Donnelley implemented its transition all wrong. Now the company is losing money, and undertaking massive writedowns (see Marketwatch news release here.) Instead of these acquisitions closing R.R. Donnelley’s reinvention gap, the company has fallen into a growth stall – and is farther from the Rapids than before! R.R. Donnelley is stuck in the Swamp – and headed for the Whirlpool if it can’t find some growth markets to patch up its leaky boat.
R.R. Donnelley did not put its BPO acquisitions in White Space and allow them to flourish. Instead, after acquisition R.R. Donnelley leadership tried to apply company practices to these acquisitions. They tried forcing these acquisitions into alignment with old-economy management techniques currently used by R.R. Donnelley. This resulted in acquired management, those that had built revenues and profits in the new markets, quickly deciding to leave – and leaving R.R. Donnelley with floundering ventures no longer as competitive.
Since then, R.R. Donnelley has continued making acquisitions. But not in growth businesses. Most recently management agreed to acquire a company that prints newspaper inserts! Imagine that, traditional printing in the declining newspaper market! R.R. Donnelley’s current CEO is committed to old Lock–ins and efforts to try Defending & Extending the expiring Success Formula. He’s blaming the problems on his predecessor – who led the charge toward innovation, while saying – in the midst of announcing losses and write-downs – "We are pleased with our performance in 2007"! (Read this quote plus more about R.R. Donnelley’s business reported in The Chicago Tribune here.)
Investors should run, not walk, to their computers and place orders for selling positions in R.R. Donnelley. Even though the value has declined by 50%, to levels not seen for 4 years, this company is very unlikely to ever have the glory it had when running printing presses was as profitable as making railroad cars, American automobiles and selling products at Sears.
