As publishers, we recognize that our own operations need to evolve if we are going to survive in the long run. Changing times demand an ongoing evaluation of the way we are operating, and outsourcing is a key factor. We need to examine our assumptions of what should be outsourced and how we outsource it. That means first distinguishing between which functions should be handled in-house and which better belong with outside vendors. Also, we need to look with a critical eye at our current client-vendor relationships and be certain they are working to our greater benefit.
There is now an entire industry specializing in content, metadata, and work-flow systems. Every publisher’s business is different, but there are questions we should all be asking when considering developing a system in-house. Do we have the internal expertise, or are we willing to hire expert developers? Are we confident in the estimated development cost and timetable? Do we have the corporate will to manage the ongoing staffing needs and inevitable investments in maintenance and upgrades? Does system development and maintenance really belong in our business?
Honest answers to these questions provide guidance as to which functions should be outsourced. In general, the answer is going to be that only functions consistent with a company’s core business and core resource strengths should remain in-house. If a function does not belong in our wheelhouse, then it emphatically belongs outside.
Even purchasing an outside system and then adapting it to in-house processes is risky business. There have been too many nightmare stories of publishers making huge investments of time and money in an attempt to adapt an existing commercial system to their own internal work flows. Then, when the commercial system is in place, there is a dawning realization that business processes work no better and maybe even worse than before.
In the best-case scenario, the publisher finds the right tech partner for providing a system that meets all its needs. Then the vendor adapts its system to the publisher’s processes (not the other way around). This last point is particularly important. If a system was not developed specifically for the publishing industry, then it is unlikely to be a good fit. If the tech partner is truly servicing the publishing industry, then its system should have the flexibility to be adapted to the publisher’s work flows.
Finally, there needs to be an understanding about the role and responsibility of the vendor over time. It must be the vendor’s task to maintain the host system. Also, there should be the understanding that the vendor must stay committed to finding ways to further develop and evolve the software to accommodate new business needs. The vendor gets the benefit of ongoing work from the publisher, while the publisher gets tools and services that are vital to business. That relationship can be the basis of a strategic alliance.
Full Service and Handing Over the Supply Chain
On the content-production side, it has become increasingly popular to employ a full-service model in which one of multiple vendors provides all production services including the management of the process itself. The model has successfully allowed publishers to save costs and internal resources.
There is a problem, however, in the very nature of full service: it means handing over responsibility for each title’s entire production supply chain. The underlying assumption is that a good vendor will perform each task at the best cost, turnaround time, and quality. That is simply an unreasonable expectation. For one thing, we need to remember that the full-service model is built on low labor rates, and not all functions are best suited for that.
There has been evidence in recent years that tech companies with the right software tools can cut the price of page composition dramatically from that of a manual full-service solution. Also, turnaround time can be significantly reduced, and quality made far more consistent.
Another issue with full service is that each vendor contracted does things differently, and some are better than others at certain functions. Quality consistency is hard to enforce through multiple vendors and can have some unforeseen consequences. Files with inconsistent structure come back to haunt the publisher when it is time to repurpose content. While the full-service model is unlikely to disappear anytime soon, it is time to consider alternative models, especially ones that could offer more economy, efficiency, and consistency through a single source.
An Understanding of Strategic Alliances
In the publishing industry, we have become too fixated on the client-vendor model. Over the years, publishers have squeezed a lot of cost out of the process, but the pressure to improve margins does not stop. How much more can we expect to get from our vendors in this current arrangement?
When the end of a path is in sight, maybe it is time to look for a different one. Let’s take a closer look at a model successfully employed in a number of other industries—the strategic alliance.
There are any number of strategic-alliance examples in other industries. One that is well known is the Apple-Foxconn alliance. Key to the success of Apple’s breakthrough with the iPhone and iPad was Foxconn’s low-cost integrated-manufacturing model, eCMMS (e-enabled components, modules, moves, and services). Each company had a particular expertise that, when combined, together became an extremely powerful vehicle for growing the businesses of both companies. In a strategic alliance, both companies gain something that neither would be able to accomplish on its own. A successful alliance means both companies are building value and sharing risk. The right partner must bring essential know-how to the table, and both partners must have a shared vision and code of ethics. Finally, even though it is inherent in the nature of an alliance, shared trust is vital.
The Apple-Foxconn relationship is an example in which the success of the customer’s product is dependent in part upon the particular expertise of a sole supplier. Publishers are often wary of sole suppliers because of the risk of putting “all our eggs into one basket.” In some cases, however, it is the only way to fully exploit a new technology. A single source with expertise provides the consistent pricing, turnaround times, and quality we cannot expect from multiple vendors. Our concern about consolidating a function with one source harks back to that fixation on the standard client-vendor model. With the strategic alliance, consolidating a function makes good sense.
Applying the Strategic Alliance to Publishing
For this section, let’s take a more focused look at the full-service model and the production supply chain. There is good reason to examine every function within that chain, but a single example will do. As noted, page composition is an area in which technological automation trumps low labor costs.
For the sake of this example, imagine a publisher entering into a strategic alliance with a tech company that is expert in the automation of page composition. This means redirecting all page composition through that single partner. In this alliance, the tech vendor gets the benefit of consistent volume. The publisher gets consistently better cost, turnaround time, and quality. Let’s look at the cost savings in some detail with an example that could be typical in a STEM operation.
Assuming a page of medium complexity, it would be reasonable to figure a current price of $5 per page in the full-service model. From experience, I can predict that tech automation can reduce that cost to $3 per page, a 40% savings. While a mere $2 savings does not seem all that much, we need to examine how its overall influence is not insignificant.
• If we assume the publisher’s total plant costs presently come to $18 per page, the composition savings bring that price down to $16, which is a 16.66% reduction.
• If the publisher produces a 400-page book, total composition costs are reduced from $2,000 to $1,200.
• Now let’s look at what happens when that book is sold. Assume our publisher sells 480 books at $100 each. That would be revenues of $48,000. The current plant cost of $18 multiplied by 400 equals $7,200, or 15% of revenue. However, that $2 comp savings means plant cost is $16 multiplied by 400, which equals $6,400, or an even lower 13.33% of revenue.
• Ultimately, we need to look at what happens in one year. If our publisher is midsize, it would not be unreasonable to expect a total annual production of 500,000 pages. It doesn’t take high-level math to realize the comp savings here amount to $1 million.
The other two key measures of a job—turnaround time and quality—also deserve mention here. The average turn time for initial page composition in a standard production schedule is two weeks. There is evidence that with an automated system, a tech vendor can reduce that turn time to two days. With page production quality, tech automation has the advantage of consistency over the numerous possibilities of human error or varying interpretations from a labor-centric vendor. Even when there is not an advantage for tech automation, consolidation and specialization can improve the metrics. Strategic-alliance experts in editorial services, project management, and file conversion could reduce costs and turn times while increasing quality.
Consider the possibility of consolidating these remaining production tasks in addition to page composition. It is not unreasonable to expect that we could shave another $2 off of the per-page plant costs. In that case, our plant-cost percentage, using the same example as above, would come down to 11.66%, and the overall savings for 500,000 pages annually would be $2 million.
The changing world requires publishers to consistently reexamine how we are operating and whether it is time to make some changes. With the practice of outsourcing, that means not only evaluating what functions make sense to outsource, but also the very nature of our outsourcing relationships. The management of content, metadata, and work flows may have been an appropriate in-house function in a more print-centric world, but now that management has become far more complex and in need of specialized systems, creating our own in-house systems can too easily lead to nightmare scenarios. In this case, outsourcing is not simply going out to buy a commercial system, but linking in with an outside system that can accommodate our existing work flows.
The full-service model of outsourcing has become popular with publishers for content production. However, the very nature of the model is also its limitation: full service means handing over the entire production supply chain for a title to one vendor, and that may not always give us the best cost and efficiencies.
Finally, the publishing business may have become too fixated on the standard client-vendor relationship. While outsourcing on a project-by-project basis has its place, the changing nature of the business is such that more collaboration is required than ever before. There are companies that specialize in technology solutions, and there is a good argument for them working with the publisher in a more ongoing, synchronized relationship.
Strategic alliances are more common in other businesses but may soon be finding their place in publishing. When two or more companies combine their core talents in a mutually beneficial alliance, then the sum is always greater than the parts.
The Technology-Publishing Connection
This article is the third in a print and webinar series presented by CodeMantra on how publishers can best use technology. The next webinar, on outsourcing, is set for Dec. 14 at 1 p.m.