1. Learning to Profit in
the New Normal
Prepared for
2012 Specialty Paper Conference
Frank Perkowski
Business Development Advisory
November 9, 2012

2. Why Do We Need To Talk About This?
Fundamental Shifts Have / Are Taking Place…….
 New Industry Structures and Dynamics
 Changing Technologies and Customer Solutions
 Evolving Markets and Paper Applications
 New Competitive Sets and Bases for Competition
 Changing Customer Expectations and Needs
 New Opportunities for Growth and Failure!
 Markets Sorting Out Winners and Losers
2

3. Presentation Outline
1.What has changed / stayed the
same?
2.How should specialty paper
companies respond?
3.Path Forward
3

4. What Has
Changed or
Stayed the
Same?
4

5. The World Has Changed Overnight!
Macro Developments Industry Developments
Globalization / Localization Electronic Media Growth
 Asia / New Economy Growth Graphic Paper Declines
Convenience Technologies Industry Shift to Asia / LA
Connected World Declining US Paper Demand
Social Networking Recession Impact on Usage
Smart Technologies Nano Technology Development
Increased Transparency Paper / Plastic Interactions
Sustainability Focus Secure Packaging Solutions
New Energy Solutions Sustainable Materials Focus
Aging Populations Third Party Certifications
Female Empowerment Renewable Energy Sources
Health & Well Being Industry Consolidation
Terrorism / Security Company Repositionings
Global Economic Collapse Import / Export Growth
US Economic Decline New Wax / Plastic Alternatives
5

6. )
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Source: US
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Census Data
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US Paper Demand Has Shifted
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Historic US Paper Production Trends by Selected Grade (1982-2012)
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7. Pricing Trends Vary By Grade / Market
Historic US Nominal Price Trends for Major Paper / Converting Grades
250
Packaging & Ind Converting Paper
Paperboard
Overall Paper
225
Printing & Writing Papers
Coated / Laminated Papers
All Commodities
200
175
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8. Paper Application Dynamics Changing
Specialty Paper Growth Rates by End Use Application
3.0%
2006-2010 AAPC
2011-2015 AAPC
2.0%
1.0%
0.0%
-1.0%
-2.0%
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8

9. Winners and Losers in Specialty Paper
Estimated Growth Rate Trends by Major Specialty Paper Grade
8.0%
Sorted Based on Five Year Projected Rate
2006-2010 AAPC
6.0%
2011-2015 AAPC
4.0%
2.0%
0.0%
-2.0%
Specialty Paper Grades In Study
-4.0% Art papers Kraft specialties Photographic base
Asphalt sat base Label facestock Premium cutsize
Carbonless Label release base Premium writing
-6.0% Coating base Laminating base Security papers
Décor paper Latex sat base Text & cover
Direct thermal base Lightweight pkg Tissue pkg / wraps
-8.0% Electrical papers Lightweight printing Wallpaper base
Filter base stock Medical / Hygienic Waxing base
Industrial sat base OGR treated Wide format inkjet
-10.0%
9

10. Changing Product Requirements
 Electronic substitution threats
accelerating
 More customer SKU’s and increased
targeting capabilities
 More integrated products / solutions
 Higher performing materials available
 Need for more sustainable materials and
processes
 E-commerce and electronics affecting
every aspect of product and delivery
 Increased cost focus due to economy
10

11. Competitive Dynamics Have Shifted
 Fewer but more focused competitors in
many segments
 More disciplined pricing environments
 Lower capital investment but… more
flexible / capable assets
 Less import threats in some markets
while export opportunities expand
 Widening gap between commodity and
specialty solutions
 Better management / optimization focus
11

12. Customers Have Different Needs
 More sophisticated supplier selection /
product qualification process
 Stronger emphasis on preferred
suppliers and relationships
 Consolidations have improved
operations / focus
 Sustainability / environmental focus
resulting in new solutions
 Increased global orientation
 More knowledgeable / informed
12

13. How Should
Specialty Paper
Companies
Respond?
13

14. Re - Evaluate Your Business
Develop and implement successful business models by
employing time - tested management practices that chart
your future development activities …….
Understand how your industry / markets are changing
Prune and develop new product lines
Develop both products and markets
Spur increased growth and profits through new products
Establish / develop your competitive advantages
Differentiate away from competition
Determine where the money is made in your segment
Invest strategically and selectively
Consider all paths to growth…..
14

15. Understand How Your Market is
Changing or both being threatened?
Are your assets, activities,
While most specialty paper markets are changing, only a few cases exist where both
assets and activities are seriously threatened. In most cases, markets have evolved and
an incremental change in strategic approach is required. In other cases (such as
carbonless, white paper, printing papers, and text & cover), a more radical response is
necessary.
15

16. Prune and Re-Develop Product Lines
Product lines should be
continually reviewed
and refined to maximize
profitability.
Specialty paper
companies need to
understand how their
products are
strategically positioned
externally in order to
maximize profits
Most specialty paper
companies are too
focused on internal
capabilities and cost.
16

17. Develop Both Products and Markets
Sub-performing specialty
Ansoff Matrix paper companies must
expand into new markets
and /or products to survive
in the future.
The best approach is to
transition the business into
new markets OR new
products sequentially
Doing both simultaneously
(diversification) is risky
and often fails
Even more risky is
failing to develop new
markets and products
on an ongoing basis.
17

18. New Products Spur Growth & Profits
Most specialty paper
markets and products
today operate in the
mature or declining
stage
This is evidenced by low
growth rates and a
declining base of
competitors and
customers
Companies in these
businesses can only
grow by developing new
products, markets, or
broader / better
solutions (innovation).
18

19. Develop a Real Competitive Advantage
Competitive advantages can
be based on cost or product
(differentiation) related
dimensions
Unlike commodity papers,
successful specialty paper
products typically offer
product related advantages
A narrow focus is most
appropriate for a small
specialty paper company
with limited resources….
But a broader focus creates
economies of scale which
potentially results in higher
profit margins.
19

20. Differentiate Away From the Competition
Most specialty paper
companies employ “Red
Ocean” strategies
“Blue Ocean” strategies
reduce the significance of
competition and increase
margins
Declining markets are
often the result of
someone else's Blue
Ocean success
Successful Blue Ocean
initiatives have their basis
in a superior
*Excerpted from W. Chan Kim and Renee Mauborgne book
understanding of customer
needs coupled with better
solutions
20

21. Determine Where the Money is Made
Auto Industry Profit Pool Analysis (Bain - 1990's)
35 16
Profit Pool Assessment
Revenue Share
14
30
Operating Margin
12
High revenues and shares do not
-%
ple
25
translate into high profit margins!…..
-%
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Analysis of other industries such as autos,
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airlines, and personal computers show that
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supporting products and services tend to carry
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2 higher margins than the core business.
0 0
Used Car Auto Manuf Auto Service & Aftermarket Auto Auto Rental New Car Warranty Gasoline
Dealers Insurance Repair Parts Financing Dealers
Specialty paper companies should consider
45
PC Industry Profit Pool Analysis (Bain - 1998) 40
related and supporting segments to grow their
40
Revenue Share sales and profits:
35
Operating Margin
35
forward integrate into converting
ple
30
-%
develop supporting / related services
m
30
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xa
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develop supporting / related products
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20
20 create bundled / integrated solutions
15
offer competing processes or solutions to
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better meet customer needs.
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Personal Other Components Periferals Services Software Micro Compressors
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Computers

22. Invest Strategically & Selectively
Another required
analysis considers the
attractiveness of markets
and the company’s
business position in
each.
“Business position” and
“attractiveness” can be
defined in different ways
to yield different results.
Depending on the
analytical result,
investments should then
be prioritized to ensure
the highest returns and
long term viability.
22

23. Consider All Paths to Growth
Unique tangible or intangible
McKinsey Growth Pyramid capabilities should provide
the foundation for a growth
initiative ….
But organic investment may
not be the best growth option
for many specialty paper
companies…
In mature or declining
markets, other riskier
approaches may be more
successful
Special alliances /
relationships can provide the
best growth options but
these are rarely pursued in
our industry.
23

24. Specialty Paper
Companies –
The Path to Success
24

25. New Broad-Based Approaches Are
Needed
Changing Markets
 Smarter Solutions using
 Globalization / High Performance
Localization Materials and
 Asia / New Economies Information Technologies
Convenience Technologies  Interactive Offerings
that Integrate Products &
Connected World Services to Create Better
Smart Technologies Solutions
Increased Transparency  Relevant Values and
Global Sustainability Methods that Match
Customer Objectives
New Energy Solutions  Empathetic Interactions
Aging Populations with Customers Based on
“Want it Now” Mentality Deeper Understanding of
Health & Well Being their Business
25

26. Focus on Issues Needing Solutions
General Issues / Problems Potential Solutions
Counterfeit Products  Unique Product
Food Waste Functionality
Safety Concerns  More Sustainable
Aging Population Products
Health Care Costs  More Integrated Solutions
Litter (paper & plastic)  “Cradle to Grave”
Waste Collection / Processing Approach
Energy Sources / Concerns  Better Delivery Systems
High Cost Supply Chains  Different Access to Market
Fragmented Population Segments  More Individualized
Distribution Channel Proliferation Products & Services
Fragmented Customer Needs  Complementary Products
Growing Information Needs & Services
Need for Increased Convenience  More Targeted Customer
Need for Lower Labor Costs Base
26

27. Characteristics of Successful
Specialty Paper Companies in Future
 Highly focused on a global niche segments
(grade / customer base / market / process)
 Forward integrated into converting / value
adding processes
 Value added service / solutions provider
 Unique value proposition
 Strong supply chain relationships / networks
 Commitment to ongoing development efforts
27

28. Food for Thought………
"It's not the strongest nor most
intelligent of the species that
survive; it is the one most adaptable
to change."
~ Charles Darwin
28

29. Who is BDA?
• Growth development consulting firm
focused on paper and packaging markets
• Based in Marietta, GA
• Contact:
Frank Perkowski
frank@bd-advisory.com
www.bd-advisory.com
770-643-0981
29