Swimming downstream – the Creo interview

The decision by Creo to enter the world of printing plate manufacture transfixed the industry. What could it mean? Why would anyone want to get into the hugely competitive world of plate supply?
Conscious of industry speculation Creo management conducted a series of question and answer sessions to share its vision for the company and why it believes there are more opportunities downstream.

Photo caption : Creo’s view from Vancouver:(left to right) Amos Michelson, chief executive officer; Judi Hess, president; Mark Dance, chief financial officer and chief operating officer.

What are the critical factors for Creo to make a success in consumables?

Mark Dance, chief financial officer and chief operating officer: “Good execution is crucial. We now have the global systems in place and we’ve done extensive planning for the move into the printing plate business. We have built the infrastructure to support the billing and delivery cycles of consumable products. We have the people, and the technology, to run an international ordering and fulfilment chain. Properly executed, we can deliver sustained double-digit growth in consumable products.”

What are the dynamics of Creo’s global business model?
Amos Michelson, chief executive officer: “Our ability to serve customers in every region is a tremendous asset. At any point in time, slower markets can be offset by growth elsewhere. And naturally, we focus our energies on the areas of growth. This past year saw very strong sales in Europe. With the right products and the right team we increased our market share, even in the face of economic uncertainty. Assisted by the increased value of the euro, that region performed very well.

“In China, the adoption of digital systems has been well above predictions, and we have staked out the leading market share, so we are positioned for aggressive expansion. Japan is another region where we were successful in 2003 and expect further growth. In that market, superior printing is highly valued, and the quality and efficiency that our solutions deliver is especially important. Many of our Japanese customers have been actively promoting Creo Staccato technology for their own marketing advantage, and establishing new benchmarks for quality. This is a perfect example of how we help our customers succeed.”

Why did Creo transform Networked Graphic Production into an industry-wide initiative?
Judi Hess, president: “Because Networked Graphic Production is all about integration. With control in the hands of a broad industry partnership, the result is far more powerful for everyone.
“Working together, each partner can progress toward full digital integration much more quickly than they could alone. And customers see more stability, more assurance of compatibility, and more overall benefit in an industry-wide solution based on open standards like JDF and CIP4. The concept of an industry-wide partnership has been compelling; when we started there were three partners, now we have 33 – including 19 ERP suppliers and five press vendors – and new companies continue to come on board.”

How does the printing plate business change the company’s potential?
AM: “Selling plates should provide us with an ongoing revenue stream from each customer, and effectively double the size of the market we can address. It makes us more attractive to smaller printers and lets us provide an end-to-end solution that our customers can rely on. And it allows us to go head-to-head with major competitors who have been selling devices with consumables. Our goal is for digital media – both plates and proofing consumables – to account for 20 percent of our revenue, even as total revenue is growing.”

Why have you built such a large software development capability?
JH: “With over 400 software engineers, our software development group is the strongest in the industry. We are committed to software development for a number of reasons. One is that software represents a large portion of our installed base and a significant part of future upgrade revenue. Brisque and Prinergy alone represent over 13,000 installations of highly-sophisticated software products that are continually being improved in performance and features.

“Another reason is that software is an essential component of every system we make. Software-controlled automation is fundamental to the value that we deliver to our customers. In every product, the software interface increases efficiency, minimises operator error, and reduces training and support costs. Software enables the integration of our systems with other vendors’ systems, which is essential to the Networked Graphic Production initiative. As well, software allows us to add the powerful features that distinguish our solutions and support a customer’s business success.”

Did the move into printing plates require major operational changes?
MD: “For the launch of the Creo plates, we were able to build upon our existing infrastructure. We already had a strong direct sales and support organisation, so we have not had to add a lot of people. Early on we recognised that our infrastructure had to evolve if we were going to run a consumables business. In preparation, we put in place the mechanisms to deal with commissioning, revenue recognition and other factors. And we integrated these new practices into our ERP implementation.

“Before the announcement the Creo plates went into confidential beta testing with customers in North America and Europe. They used our plates in the pressroom, and they used our ordering and fulfilment network to maintain their supplies of plates and chemicals, just like any customer would. Those customers tested more than the plates, they tested our entire consumables infrastructure.”

Do you think that digital printing will displace commercial offset printing?
AM: “Digital print is definitely a growth market. This year the biggest portion of our OEM business was our digital printing partnership with Xerox. But let’s put this in perspective: the digital print market is only a tiny fraction of the commercial print market. The cost per page for digital print is considerably higher, so it only makes sense where there is a higher value for each page, or much lower cost for the other steps needed to produce a document. There are obvious applications for digital print, like variable-data printing, and there is compelling value in producing complete documents with in-line finishing.

“Customised, short-run and short deadline work can now be printed in high-quality colour, which creates new potential uses for print. Often we see the same document later printed in longer runs with conventional offset printing. I think that digital printing offers a great profit opportunity for commercial printers. By adding a digital press, commercial printers can extend their range of services. They can bring in more work, higher-value work and help their clients by steering each job to the appropriate print technology. And Creo can play an important role: we provide integration of the digital and offset printing systems so our customers can easily and profitably incorporate digital printing into an existing plant.”

How important are acquisitions to the company’s growth strategy?
MD: “We don’t plan to grow by acquisition, but we do plan to build a stronger product portfolio. We would consider adding products that are field-proven and that fit our key initiatives such as Networked Graphic Production. The ScenicSoft acquisition, at the beginning of the fiscal year, is a good example of a product line that integrated smoothly. These products extend the breadth and completeness of the solutions that we can offer, they don’t dilute existing products, and they help our sales force bring our solutions to targeted growth markets.”

What about proofing devices and proofing media?
JH: “Proofing represents a major opportunity and Creo now offers the broadest range of proofing systems in the industry. Proofing is an important revenue component – last year, for instance, ink and paper sales for our installed base of Iris proofers comprised the bulk of our US$47.3 million in consumables revenue. The new Integris and Veris proofers will contribute meaningful revenue in 2004. Our proofing line is deep: Integris proofers, which have sold very well, offer less expensive proofing in four-page and eight-page formats, with a unique duplexing capability.

“The Veris has taken longer to ramp up than we first expected, but has established extremely high standards for reliability and performance. Early customers and industry experts have been enthusiastic about its quality and repeatability. It stands a good chance of becoming the kind of industry benchmark that the Iris has been for years. To complete the line we have Spectrum thermal halftone proofers, which are available as stand-alone systems or as an option on many of our CTP devices. Nothing else provides the level of certainty and predictability to a print buyer for high-value, colour-critical jobs.”

What strategies are most important for growing Creo?
AM: “Simply put, our strategy is to deliver competitive advantage to our customers – to create value that they cannot achieve elsewhere. For example, printers and publishers may not be increasing their output capacity, but they are investing in differentiation and efficiency. Differentiation is the core of our Value in Print initiative, which helps printers produce higher quality products, and thus increase their business.

“Our Professional Services teams help them implement Staccato screening and other modern pressroom practices, and train their sales teams to better market and sell the superior printed products that their Creo systems make possible. And if they can produce this quality with maximum efficiency, they can produce more without increasing their operational costs. These strategic initiatives are designed to maintain and improve our market position, so that Creo will continue to be the company that customers turn to for the solutions they need to thrive.