In This Issue:
Surviving Industry Disruption: More Examples from the Paper Business
A March 8-9, 2014 Wall Street Journal article titled "In Digital Era, Paper Makers Manage to Fight, Not Fold" by Katherine Rosman tells how paper companies are responding to digital disruption.
The article provides good follow up for readers of my January newsletter "Lessons Related to Paper vs. Digital—Can Paper Win at All?" My January newsletter describes how older technologies can still have a place in the market, and it briefly discussed paper producer Domtar Corp.'s "Paper Because" ad campaign that was the subject of a January 2014 Marketing News article "Better on Paper". Domtar's ads are a response to the digital disruption of paper.
My January newsletter explained that older technology can remain viable in the market if there are still uses where the older technology has advantages. And, the Wall Street Journal article shows how paper companies are finding exactly those types of market opportunities.
According to the Wall Street Journal article, Mohawk Fine Papers, Inc. has been coming up with ways to replace declining sales of newsprint and of paper used for corporate purposes like brochures and annual reports. Mohawk does this by concentrating on areas where paper still has strong demand, such as luxury stationery and greeting cards, which are increasingly produced digitally and personalized.
According to the Wall Street Journal, Mohawk acquired producers of fine paper and stationery. Also, Mohawk had purchased a machine that cut paper into smaller batches, and this equipment proved useful for serving the digital printing industry. For test purposes, Mohawk also acquired a small software firm to experiment with producing personalized cards and stationery. Then, during the holiday season, Mohawk employees sent personalized photo cards printed on expensive high end paper produced by their company, as a test. The outcome was favorable, so Mohawk showed samples to digital companies like Shutterfly. Soon, Mohawk was doing a good business selling its high end paper to small batch digital printers like Shutterfly and to Moo.com, which prints business cards. Thus, Mohawk shifted from making paper products facing disruption to those where the increasing use of digital technology was actually fueling demand for paper.
The Wall Street Journal article also discussed how the largest paper producer, International Paper, is responding to the digital era. Like Mohawk, International Paper put greater emphasis upon paper products where demand is increasing due to the shift toward digital. For example, International Paper acquired producers of cardboard boxes, a paper product with growing demand as packaging for e-commerce.
As I see it, both Mohawk and International Paper are taking steps that characterize right ways to respond to digital disruption. Both are sticking with their paper producing strength, but are pursuing paper products with growing demand fueled by digital technology. Both are de-emphasizing areas facing digital disruption. In looking at Mohawk and International Paper, however, we can also be reminded of what they are not doing in the examples discussed here. They are not making the money draining mistake of trying to transform themselves into high tech companies that compete directly with tech powerhouses such as Apple.
This can reinforce lessons of what not to do learned from how Federal Express, now FedEx, responded to potential digital disruption years ago and lost huge sums of money trying to offer an electronic document delivery service, which was eventually discontinued. Yet, the advent of digital technology that appeared so threatening to their business years ago actually represented growing opportunities for FedEx in e-commerce delivery. So, rather than sinking money into electronic document delivery, FedEx would have been better off dealing with disruption by waiting for the growing e-commerce opportunity, and then using its strengths in support of the shift to digital, much like Mohawk and International Paper are doing, and like FedEx does today.
Mohawk appears to recognize the importance of using its strengths to support the digital era, rather than investing huge sums to compete directly with companies in high tech areas where Mohawk has little strength. Still, as the Wall Street Journal reported, not all of Mohawk's new products paid off. An attempt to sell chlorine free paper to environmentally conscious consumers failed.
As I see it, however, Mohawk was more likely to fail with chlorine free paper and more likely to succeed with expensive high end paper. This is the case because the latter more closely resembles an area where Mohawk was previously strong. And, based on my 25+ years of researching business success and failure patterns, success is more likely when a company builds on prior strengths and pursues areas it understands.
As I see it, Mohawk's prior business with corporate brochures and annual reports as well as its current luxury paper business both supply clients with what is needed to produce beautifully printed products. Understanding how to help clients end up with beautifully printed products can enable Mohawk to shift its paper business into new areas that also apply this expertise. Yet, in the Wall Street Journal article, Mohawk management described this shift as a bet they didn't know would work.
As I see it, however, the odds of success were improved and the risk was reduced to a more reasonable level because Mohawk's shift appears to build on what the company knew and understood. Yes, there was uncertainty, and no guarantee that all would turn out well. But, because it seems to fit with what the company knew and understood, the risk associated with Mohawk's shift was reduced from high to a more prudent level that is far more likely to be associated with success. And, testing also helped.
In contrast, Mohawk may be much less likely to know how to persuade people to buy chlorine free paper for environmental reasons and to understand any resistance environmentally conscious buyers might have toward purchasing much paper. Thus, shifting its efforts into this area can be more challenging and less likely to go well.
In conclusion, it can be very effective to respond to digital disruption by finding ways to use a firm's existing strengths to support areas where growth is fueled by digital. And, it can be a huge disaster to respond to digital disruption by investing tons of money trying to acquire the sophisticated high tech expertise to transform a previously lower tech firm into something resembling an Apple competitor. Yet, some companies do make this mistake when faced with potential disruption. That's why it's so important to evaluate business strengths before making major shifts in response to disruption.
La Grange Park, IL