Even before he came our printer, we realized there was something special about Harry V. Quadracci. He once described his fabulously successful and profitable company as a "social experiment," and to an outsider, there seems to be some truth to it. For in the course of taking Quad/Graphics Inc. from less than $1 million to more than $300 million over the past 15 years, Quadracci has broken most of the rules.
Early on, for example, he put his employees on a three-day, 36-hour workweek, which made it easier for the company to keep its presses running round the clock and sent productivity shooting up 20%. Later, he launched Camp Quad, where customers come to be educated about the printing business, and bought a little red schoolhouse for employee-training sessions.He shares ownership with employees -- they now control more than 40% of the company's stock -- and lets them run new divisions as entrepreneurial ventures. One of those divisions, Quad/Tech, develops new printing technologies, which it then sells to other printers, including Quad's competitors. Last year, in fact, Quad/Tech accounted for a significant portion of Quad/Graphics' profits.
Quadracci attributes much of his company's success to "thinking small." But that has not stopped him from signing up some of the biggest names in magazine publishing -- including Newsweek, U.S. News & World Report, and Time -- as customers. He discussed his management experience and his social experiment with INC. editors George Gendron and Bo Burlingham at his office in Pewaukee, Wis.
INC.: There's been a good deal written about your company over the years -- the aggressive research-and-development effort, the education center for employees and customers, the three-day workweek, and so forth. But readers out there who run small companies say to themselves, "That's nice, but I can't afford that. My business isn't large enough. I'm still worrying about survival."
QUADRACCI: You know, whether it's R&D or employee training or customer service, it's always easy to say you'll do that when you have the money. But the truth is that if you don't do it at the beginning, you'll never do it. There's nothing we do now at Quad/Graphics that we didn't do during our first five years. In most cases, anybody can do these things -- it's just a matter of thinking small, of starting in some small way -- of doing something.
INC.: Can you give a for instance -- say, R&D?
QUADRACCI: As I said, it goes back to the very beginning, when we had about 60 employees, $4 million in sales, and one press that didn't work very well.As I looked around, I could see what was happening -- that there was tremendous consolidation going on in the industry, that 35,000 people had already lost their jobs, that magazines such as Life and Look were going out of business.
It was also pretty clear that the technology of printing was about to change very rapidly. I figured that the only way we were going to survive all that was to get big pretty damn fast. And the only possible way I could think of to get big was to be on the leading edge technologically -- high tech. So R&D wasn't something that we considered a luxury, something we might do later. R&D was survival.
INC.: But you were a printer, not an inventor. It's one thing to buy the most modern presses. It's another to start developing them, which is what you eventually got into.
QUADRACCI: In one sense, we faced the same problem a lot of manufacturing companies face. Historically, millions of dollars had been spent to bring electronics to the printing industry -- color separations, filmmaking, typesetting -- but all of these advances seemed to stop at the pressroom door. And there was a very good reason for it. Because while there were almost an infinite number of companies in the market selling better color separators and cameras and typesetting equipment, the number of people who needed computerized presses -- which is what we're really talking about -- was rather limited.
INC.: How limited?
QUADRACCI: Guessing, maybe 50 in the United States, maybe another 50 in the rest of the world.
INC.: So there was not a whole lot of incentive for press manufacturers to invest in R&D?
QUADRACCI: In fact, if anything, the market for presses was probably shrinking. And most of the established printers already had their presses, just as they had their clients. So they weren't thinking the way I was, which in one sense gave us a tremendous advantage -- we could really start out fresh, with everything new and very little that was old.
INC.: But you were also a small company, without much cash to throw around. How does a company like that get into R&D in any formal way?
QUADRACCI: Like so many things, it sort of just evolved. At first, it was shopping around, in Europe mostly, for the most advanced ideas. Then in 1978, we bought a particular piece of equipment that was supposed to assist us in preparing the press and save us paper during that initial phase when the paper first begins to roll on a particular job. Maybe we were going to save 1% on our paper. And somebody asked the simple question, "Why are we spending $100,000 on a machine that is going to save us 1% at the beginning of the run when as much as 15% is wasted in the middle of the run when the rolls of paper are being changed?" It was a good question. What we knew was that the press operators had always tried to anticipate the roll changes by dialing the expected color adjustments into the press. But it was a gut sort of thing. And so we began to ask, "What would happen if we took a little computer to it and started anticipating the changes in a more sophisticated way? And what if, instead of the press operator looking at the registration, how about if we got a robot to look?" And so we began to try to develop a lens that could do the looking.
INC.: Did you bring in special engineers to do this?
QUADRACCI: No, we went outside to find whatever lenses -- whatever existing technology -- there was. And then we had to adapt it to this particular situation. So I took two electricians who were already working for us, and I set them up that winter at a vacation house I had on a nearby lake. They worked on it some, and before long, they came back and said it was looking good. And so I said, "Great. And once we get it up and running, let's sell it."
INC.: Wasn't the point, though, to keep it proprietary and use it to give you an advantage over your competitors?
QUADRACCI: Maybe that was the original motivation. But the more I thought about it, the more I knew that there was no way we could hold on to it for very long. People would leave and take it with them.Or outside people would hear about it and develop it and market it themselves. So I figured, Why not sell the product and take the money and pour it back into more R&D? Remember, we were a fledgling little company, we didn't have much money, and this was one way to fund a whole new effort at bringing the computer into the pressroom. Even if we sold it, we'd always be a couple of years ahead. And if we did it right, we'd eventually be making money on it besides.
INC.: Surely you must give up something by allowing your competitors to be as efficient as you are?
QUADRACCI: Well, it depends on what you think of as the competition. Other printers aren't really my competition. If there's anybody that we're really up against, it is the other forms of media.We're competing with radio; we're competing with television; we're competing with billboards and newspapers. In that sense, our customers are really our customers' customers. And so whatever we can do to bring down the cost of printing, the more ad pages magazines are going to sell and the better it is going to be for us. We'd rather be a midsize printr in a very healthy print environment than be number one in a lousy environment.
INC.: Why didn't you just sell your developments to the press manufacturer?
QUADRACCI: I tried, believe me -- at the time, I didn't have the marketing group to really get out there and sell it. But the people who made the presses were afflicted with the not-invented-here syndrome. We had put in two person-years on that first project, and they offered me $70,000 for it. I said no, thank you.
INC.: So somebody from Quad/Tech goes across the river to one of your competitors, knocks on the door, and says, "We've got this nifty new technology that can increase your efficiency or your quality, and we'd like to sell it to you." What was the response?
QUADRACCI: First of all, you don't start that way. There are many, many printers in the United States who don't compete with us at all, and those are the ones we approached first. In fact, there is one regional printer that doesn't compete with us directly that just sends us a pile of standard purchase orders with the instruction to send whatever we develop, as soon as we develop it.
INC.: And I suppose, since printers like that don't think of themselves as competing with you, they don't mind contributing to your bottom line by buying technology from your subsidiary.
QUADRACCI: You know, it's funny about that. The response from the healthier companies -- whether they compete with us directly or not -- is to admire what we've done and try to get ahold of it. And ironically, the response from the less healthy companies -- the ones that could use the technology the most -- is to worry about contributing to our war chest.
INC.: How large is Quad/Tech now?
QUADRACCI: We have about 150 people now. And sales are about $20 million.
INC.: And it's profitable?
QUADRACCI: Wildly profitable.
INC.: Has that changed your outlook on the R&D effort? Is Quad/Tech still there primarily to ensure the survival of Quad/Graphics?
QUADRACCI: No, that used to be true, but I think that is long past now. Quad/Tech has very much become its own business, with its own imperative to survive. In fact, I would suspect that some people at Quad/Graphics think they don't get quite the service that other Quad/Tech customers get.
INC.: But you still get the benefit of the technology for a year or two before you start selling it.
QUADRACCI: Not really. By and large, the time element has disappeared. Maybe we get a leg up during the testing phase, but as soon as the kinks are out, we put it right out in the field. If nothing else, that is a reflection of how short the shelf life is on most of this new technology.
INC.: How short is short?
QUADRACCI: Take the example of that lens I talked about, the Register Guidance System, as it's called. We're probably on our 14th model in five years.
INC.: So you're talking months.
QUADRACCI: That's right. In almost every department of our printing operation today, there is virtually no similarity to the way things were running six months ago.
INC.: You're exaggerating, of course.
QUADRACCI: No, not at all. Let's talk about the pressroom, where, in the past six months, we're producing magazines 30% faster and wasting 20% less paper than six months ago. Or the bindery -- speeds there are up 20%.
INC.: Is there some way you have been able to quantify how much you save in terms of, say, labor?
QUADRACCI: Actually, labor savings are the last important by-product of automation. Much more important is the elimination of the human variable. You automate something -- you eliminate a little bit of labor, yes -- but that is nothing compared to the improvement in quality and consistency. We are now running 1.6 million pages an hour; 10 years ago, on our first press, it was 480,000 pages an hour. And the quality level is head and shoulders above what it was. We've still got five people running the press. But the press is doing about three times more.
INC.: I think it was your annual report that said you're almost running a technology company more than a manufacturing company now.
QUADRACCI: We're a know-how company, a knowledge company, an R&D company. And that means we're also a people company -- because where else are the ideas going to come from? And that's why we have to spend so much time on training and education. Because unlike some high-tech company out in Silicon Valley or something, we don't hire a lot of engineers. The average employee who joins my company looks like a loser.
QUADRACCI: They are the kids in the class who didn't go to college, who didn't make it in school for some reason, and in many ways have nowhere to go. And what we do is to get them to elevate their sights, to become something more than they had ever hoped to be. I like to say that we get extraordinary results from ordinary people. Instead of thinking of themselves as printers, we get them to think of themselves as trained technicians who run the computers that run the press. And we can do that because so much of the drudge work has been eliminated from their jobs. Now, they have jobs that they can be proud of, which, in terms of improved quality, is perhaps the most important thing of all. Because by using technology to make ours a better, happier, more satisfying place to work, employees take more pride in what they do. And the quality of what is produced is improved even beyond what the technology can do directly.
INC.: All of which must require a good deal of training on your part.
QUADRACCI: You can't have a technology company without also being a training company. And this is something we've understood right from the beginning. We like to think that we have an enlightened management philosophy. But enlightened management works best on enlightened employees. They're not born that way -- they have to be indoctrinated. You don't have time to argue with them. Our attitude, is, You're 18 years old. You're coming to work for Quad/Graphics. Yours is not to reason why. Welcome to boot camp. For the next three years, you're going to learn our way -- and it's your responsibility to learn. We're going to give you the proper equipment, and it's your responsibility to educate yourself to use it.
INC.: What exactly does that mean?
QUADRACCI: We keep the training where it belongs, with the individual managers -- all managers are responsible for training their own crews. In addition, we have an education department with a staff of 18, and a little red schoolhouse where we have courses all the time ranging from remedial reading and math to technical computer programming. And so on Monday, Tuesday, and Wednesday, employees will run the presses, and then on Friday mornings, they go to school. It's a tremendous staff-development system -- the kids really take off.
INC.: That raises the same problem we asked about before. All this education stuff is great if you can afford a little red schoolhouse and can afford to have your employees set aside one day a week for courses. But how does somebody running a small shop do something like that?
QUADRACCI: Who says it has to cost a lot of money? Forget the schoolhouse. Forget the staff. When we started, we did training on a strictly voluntary basis. And, in fact, it is still done on a voluntary basis.
INC.: Your people don't get paid for training time?
QUADRACCI: No -- that's on their free time. Nor do they get promotions based on going to school -- although they often learn something that will make them promotable. Even the instructors come in on a voluntary basis. And they love it. Nobody wants to run a press anymore -- they all want to teach!
INC.: From some of our production colleagues at INC., we also hear they like to teach customers . . .
QUADRACCI: Camp Quad, our sleepaway printing camp.
INC.: Where did that idea come from?
QUADRACCI: Well, when the company first got started, if customers came to watch a job or approve the color or whatever, there really weren't enough of us in the office to escort them around. The escort is sort of traditional in the business -- I don't know whether the escort is to protect the customer from the employee or the employee from the customer. But in our case, it didn't matter, because there was no other way to do it except to let the customer rub elbows with the press operations. And we found out early on that many of these customers really didn't know much about printing at all -- they were just faking it.
INC.: Faking it?
QUADRACCI: Yeah. You'd get these guys in their fifties who'd been in charge of buying printing all their lives, and they didn't know what they were doing. They'd always bluffed it -- and nobody had ever called their bluffs, so they never learned. So we let them observe the process and let them know as much as possible about what was going on. And after a while, the manufacturing director of a magazine would say, "Jeez, my art director should know about this," or "My sales department should know about this."
And so eventually we decided to formalize that by offering some training seminars at a campground nearby, which we call Camp Quad. We do it about eight times a year, back to back, about 35 people at a crack.
INC.: Just to play the devil's advocate here -- why go to the trouble and expense of educating customers who will ask more questions and be more demanding? Why not just let them keep on bluffing?
QUADRACCI: Because I want them to print the best magazines at the lowest possible cost, so that they can sell more magazines and more ad pages and we can get more printing. Remember, our customer is really our customers' customer. And frankly, the camp also helps us develop a really harmonious partnership with the customer that makes it easier to deliver a good product and gives us an edge in developing new products that publishers might use.
INC.: Just to get a sense of it, what is your R&D budget, say, for this year?
QUADRACCI: We don't have budgets.
INC.: You don't have budgets?
QUADRACCI: Why should we? You know, for some reason or another, the whole aspect of the information explosion and computers has reached a blind spot when it comes to the accounting group. Why is it that so many companies insist on having a 12-month budget, drawn up in November of one year, based on still-incomplete numbers, that will be the bible for running the company as far away as December of the following year? Why do that when we have a computer now that can give me a profit-and-loss statement today on what we did on a press yesterday? Isn't actual performance a better guide -- a better budget -- than a budget?
INC.: One reason for a budget, perhaps, is to anticipate what capital needs you'll have. In your annual report, you boast that you've just placed one of the biggest orders in printing history -- $50 million worth of equipment. How do you anticipate capital for something like that with no budget?
QUADRACCI: We have a simple rule: if you can finance it, buy it. That's what it comes down to -- ready, fire, aim. We go out and order 14 presses that will be ready in two years, roughly. And then, based on some inquiries and sales calls and my gut feeling about our ability to sell, we may locate two of them in Saratoga Springs, N.Y., maybe another two in Lomira, Wis. But there is no way that you can plan that -- it's more heart than head. It's hunchmanship.
INC.: What's the difference between a hunch and a guess?
QUADRACCI: A hunch is something you have after you go out and talk to your customers, to see what they're feeling -- what they did this year, what they think for 1987. It's taking the temperature of the customers almost daily. And if you're an owner, you've got to be there, you've got to sense it for yourself. There is no substitute for hands on.
That's the problem with a large company. In a large company, managers rely on reports, but you cannot feel reports. You've got to be there -- in the field, in the plant, out in the street. You don't learn the business from salespeople or budget planners. You learn the business from the clients -- who, by the way, love to teach. And on that basis, you're ready to make hunches.
INC.: And doesn't that approach to long-range decision making -- buy it if you can finance it, go on your hunches -- lead to some rather large mistakes?
QUADRACCI: Look, the reason you have a bad-debt reserve is because if you are aggressive in your sales, you're going to have some people who don't pay. The same goes for hunchmanship and planning -- you've got to make allowances for mistakes.
In the technology area, for example, if you don't have what I like to call "perfect failures," then you're not being aggressive enough in your R&D. And the larger you get, the bigger the perfect failures you can afford. We had great success putting two guys in a basement of a summer house -- and as a result we started Quad/Tech. We had a perfect failure when we developed a $780,000 folding machine that didn't work. Three guys worked two years because we felt sure there had to be a better way to deliver a folded page. And when it became apparent finally that it wasn't going to work, they felt terrible about it. But why should they have? By making that mistake, they explored the alternative.
INC.: Trial and error. Start early. Think small. These are your constant refrains.
QUADRACCI: Look, we are living in an age of change -- change that we no longer measure in evoluationary terms. If you're going to succeed in business today, you have to thrive on change, think in terms of change, assume that whatever is here today is going to be different tomorrow. You have to eat change for breakfast -- that's what I tell new employees. And that's the spirit that goes all the way back here -- before we were big, before we were very profitable, before there was a little red schoolhouse or Quad/Tech or Camp Quad. The trick was to keep telling ourselves, "There must be a better way." And most of the time, there has been.