There's no way around it. To get the capital equipment you need, you must do your homework.
There you are at NEXPO shopping list in one hand, tote bag and brochures in the other. Like a kid in a candy store, you're downright giddy with excitement as you stroll the aisles and peruse the goodies. Visions of inserters dance in your head.
Then reality hits. You remember what your president said about belt tightening. You recall all the news stories about corporate downsizing. You wince as you ponder the price of newsprint.
How can you possibly get that new inserter under these conditions?
By doing your homework. If you want to get your capital expenditure approved, you must be thorough, say those who control the purse strings. Be sure to collect all the facts and figures, the whys and hows, the what-ifs and wherefores, and be prepared to answer any and all questions. That is the one piece of advice that all the money managers give--whether their newspaper is small or large, independent or part of a group.
Alan Flaherty, a Cincinnati-based newspaper consultant, echoes the words of his first publisher at The New York Daily News: "Make sure to do your staff work, and make sure it's complete."
At many organizations, the initial request for a capital project must be put in writing. This often involves completing a standard form such as a one-page summary sheet with attachments.
This is often more difficult than it sounds. The homework can be quite detailed and extensive, no matter how small the expense or seemingly straightforward the request. Number crunching is key, Flaherty says, as newspapers typically categorize capital investments as either profit improvement or profit maintenance.
Profit improvement is calculated on the basis of expected revenue increases or cost savings from the proposed purchase. Most newspapers use one or more of the following methods:
Profit maintenance, on the other hand, involves maintaining or replacing the equipment needed for simple business survival. Suppose your restaurant is named Cheeseburgers in Paradise, and the widget you're using to make cheeseburgers doesn't work. "Your business is going to fail because you won't be able to make cheeseburgers anymore," says Flaherty. For a newspaper, the critical widget could be anything from a computer to a forklift.
Although the money managers tend to place a lot of value on bean counting, the numbers are usually not their only deciding factor. They also take into account more squishy factors, like customer satisfaction and employee morale.
The details of equipment-acquisition vary widely from newspaper to newspaper. In general, though, small companies tend to be less formal than larger ones, and independents less formal than corporate chains. Here are some real-life examples, starting with the smaller papers and moving through the spectrum to the corporate behemoths.
At the Winchester Sun, a 7,000-circulation daily in Kentucky, the personal touch still goes a long way.
"I think you'll find with small independents, each paper is unique," says Betty Berryman, publisher and executive vice-president. In Winchester, the pressroom operator or whoever is making the funding request "will come and talk to me about it," she says.
"I'll ask, 'What will happen if we don't get it? Will we lose business?' If it's a valid request, I'll take it to the president of the company."
Berryman recently met with the heads of commercial printing and circulation about the need for a new inserter. After they discussed the return and whether they would lose their commercial printing business without it, the $200,000 investment was approved. In this case, Berryman and the company president made the decision jointly. Purchases of $1 million or more go to the executive committee of the board.
"We're pretty conservative. You really have to need it to get it here," says Berryman.
Co-publisher Gregg Jones says The Greeneville (Tenn.) Sun tries to be as formal as time allows, but that one of the advantages of being small is that you can make decisions quickly. With a circulation of 15,042, the Sun is the flagship of Media Services Group Inc., a family-owned group of dailies and non-dailies in Tennessee.
Jones says capital purchases fall into the areas of profit or quality enhancement. More than cost, decisions often depend on "how it's going to change our culture." Jones looks at requests from the perspectives of personnel management, training needs, disruption of operations, employee morale and role changes. "All of these factors enter into decision-making."
Jones relies heavily on the recommendations of his colleagues, but generally makes the final decision himself. If a publisher has a request, it is put in writing to the company's chief operating officer. "After it is thoroughly vetted between them, it will make it to me."
On the other hand, if the need is at the Greeneville paper, Jones can make the decision "on the spot" because he is familiar with the operation.
Large expenditures, like the $100,000 piece of mailroom equipment Greeneville purchased last year, are reviewed in every possible way including return on investment, Jones says. But in some cases, "Rather than ROI, we just consider how long it would take to pay for itself." The payback threshold varies according to the situation.
Publishers at the group's other papers can handle simple capital expenses on their own, but Jones hears about them all. The system works, he says. "We're centralized in accounting and communicate so well. Generally, there are no surprises."
Richard Vezza, president and CEO of North Jersey Newspapers Co., puts capital projects into two categories: ROI (this project should produce a return on investment) and continuing operations (it will let us continue functioning).
Examples of the latter would be replacing presses, circulation trucks or editorial computers that have broken down, says Vezza, who operates The North Jersey Herald & News in Passaic, N.J., and about 20 weeklies.
Most requests come from publishers and are written on one-page forms. For ROI projects, Vezza asks what the return is and how the publisher plans to achieve it. He passes requests on to corporate, where the chief financial officer double checks the numbers.
Vezza likes to see a payback period of about two years on a capital project, but he recognizes that isn't always possible. "If a press blows up, you're not going to have an ROI on it. You could go to three or four years. You've got to remain flexible."
The recent emphasis at the Tribune Co. has been on simplification, says Jim Hitchman, manager of newspaper technology. Capital-acquisition forms had been getting more and more complex at the company's four newspapers, and requests had begun to resemble dissertations. "We were almost at analysis paralysis."
These days, all that paperwork has been reduced to a double-sided summary sheet. Managers at the individual newspapers do extensive analyses before sending the summary to senior managers at the group level.
"If anyone comes up with any idea that would make a lot of revenue or reduce costs, it can be proposed at any time," says Hitchman. "We are fortunate because, with Tribune's resources, we may be able to do something outside of the plan."
Board approval is required for all major projects, but a substantial amount of funding can be approved by the newspapers locally after their capital budgets are approved.
"Some capital investments are very easy to justify and some not," says Mike Ide, vice president of production at The Boston Globe, part of The New York Times Co. family of newspapers. The easy ones: ROIs that are simple to calculate and are well in excess of the hurdle rate. The not-so-easy ones: those that maintain market share.
Other projects deal with improving quality, such as the integrity of insert packaging, says Ide. "Those kinds of benefits are difficult to quantify in terms of dollars and cents, but clearly both have both intuitive and factual justifications. Those are more difficult to sell. You need to sell a wider community of people within the organization on the idea. You recruit more people by talking to them and helping them to understand. These are not the ones you try to slide through."
In fact, Ide says, capital requests at the Globe typically don't start out on paper. "You start by soliciting opinions and selling ideas."
His advice: Understand the details. Talk with vendors, technical people, finance people and general managers. You have to prove that in the long term, it is in the greater interest of the organization. After everyone becomes acquainted with the terminology and the decisions to be made, the final document can be shaped and submitted for approval. "Then, at least, you know it will be received with understanding," he says.
One of the categories most subject to scrutiny is computer software. "Those investments are more difficult to sell. You're not buying a piece of iron that you can see and feel and touch. You're buying capabilities that are as yet not created."
Recently the Globe made a case for a new, multimillion-dollar, bundle-distribution system. Ide says the paper amassed information from advertising, circulation and maintenance people and prepared a series of formal and informal presentations to finance and general management, who agreed to send it to The New York Times Co. for approval. The justifications were spelled out in detail, and the system was ultimately approved by the Times' finance committee.
Ide points to three main justifications. The Globe was suffering with aging, costly-to-maintain technology, the old system was unreliable and interfering with production runs, and it was unable to meet new advertising objectives.
The Globe conducted an ROI analysis for each area. "We added the three together, and they exceeded the cost of the installation and purchase of the equipment by the hurdle," he says.
Meanwhile, The New York Times is embarking on its own colossal project--a $300 million-plus printing facility at College Point in Queens. The paper is now printed in the basement of an office building in Manhattan and at a three-year-old plant in nearby Edison, N.J.
The College Point request took a different route from other capital requests because "it doesn't make sense to put a one-page document together to say we want $300 million," says Angelo Salvatore, accounting manager of The New York Times' Newspaper Division.
The paper did run an ROI, quantifying the value of the new plant as best it could. But, asks Salvatore, "How do you quantify the value of a late close in terms of circulation and advertising revenue? At best, it's a very difficult thing to do."
Salvatore says newspaper managers in numerous departments, including finance, strategic planning, project development and others, defined their needs and put together a briefing book. The newspaper then reviewed the book with the corporate treasury, controller, tax and legal departments.
"The book defined our business strategy, our current financial picture and what a new facility would bring to the newspaper, including things like a late close, improved sectioning and paging, daily color, improved quality, ability to zone and daily inserts," says Salvatore. The book also included discounted cash flow, ROI analysis and a budget.
The briefing book eventually made its way to the board of directors, and the new facility's five Goss presses will go on line in January of 1997.
The Miami Herald will soon fire up five new Goss presses of its own, as well as conveyors and a bundle-distribution system--all part of a $112 million project that should be completed by the end of 1998. The new-press project was unusual in that it was approved outside of the standard Knight-Ridder process, called "normal capitals."
Under normal capitals, Knight-Ridder determines what it is going to spend on its newspapers for the coming year and then allocates a percentage of that amount to each property, based on revenue, circulation and capital requirements, says Joe Bowman, vice president of operations at the Herald.
Each newspaper sets priorities internally and submits requests to the president of the newspaper division, who brings the capital numbers to the board of directors. Fairly simple one-page forms, called C1 forms, capture the basic information, while attachments can include materials from vendors, photographs, and costs of installation, freight, maintenance and spare parts. The forms are sent into corporate in early fall and are voted on by the board of directors in December. Cost-justified projects that have a fairly attractive rate of return can be sent in anytime, however.
"It's a well thought-out procedure refined over a period of years," says Production Director Jerry Polk of Knight-Ridder's San Jose Mercury News, "and it truly works."
The capital-acquisition process at the Gannett media empire is practically a science. With so many newspapers, television stations and other properties, adherence to form is vital.
Getting money into the capital budget is the first step for each Gannett paper. Publishers put together a wish list each spring for the next year's budget, which is subjected to several levels of review before being approved by the board of directors a few months later.
"We try to do some decentralization by putting some decision-making in publishers' hands, but only up to $20,000," says Dale Henn, assistant treasurer for the chain.
Group presidents (for eight geographic regions) and division heads (for newspaper, television, etc.) can approve up to $150,000. Anything above that requires a review by senior financial and operational managers at corporate headquarters in Arlington, Va.
A capital-appropriations committee, consisting of nine corporate managers, reviews every capital budget and then submits them to Chairman John J. Curley and Vice Chairman Douglas H. McCorkindale. Curley and McCorkindale present the budgets to the board of directors, of which they are members.
Like many organizations, Gannett has two broad criteria for capital allocations--they must either produce an attractive financial return or represent necessary maintenance or replacement. However, allocations are also made for projects "where we're trying to do something new operationally," says Henn. "These projects might be important to support the business but difficult to submit to a return on investment."
An example would be trying out new technology, like digital archiving. "We may decide there is enough of an operational benefit, but it is difficult to quantify, so we don't do a formal ROI."
All capital requests are submitted on paper--a one-page form with a checklist. The form asks for estimated start and completion dates, expected useful life and discounted-cashflow ROI. Under a heading titled justification, it asks for savings, income and costs over a number of years, factoring in depreciation and pretax savings. It also seeks an explanation of non-economic benefits. The checklist contains four main categories: cost of the proposed acquisition, justification for new equipment, justification for additional equipment or upgrades, and justification for all projects.
"The important thing is whether there is a compelling reason to dispense the money. We want to know about ROI and operational value, including product improvement," says Henn.
A good example of a purchase with operational value is safety equipment. "We would invest in that so our employees don't get hurt." Ergonomic equipment is another. In 1991, Gannett did a review of ergonomics in the news division and established a pool of funds from which individual newspapers can draw.
While the written presentation is critical, it is also helpful for publishers to call some of the key operational people in corporate, Henn says. Before reaching the capital-appropriations committee, a request for a major project is thoroughly reviewed by corporate staff.
From the perspective of one of Gannett's newspapers, review and input from the experts on the corporate staff can be both helpful and sensible. "They can make it better," says Mark Francis, president and publisher of the Niagara Gazette in New York.
The last major purchase at the Niagara Falls paper was a new heating and air-conditioning system in 1994. Francis says his people spent several months talking about it with system vendors and professionals.
"We had an older building that was added onto three times. The original part was built in 1914. There were separate heating systems and 13 separate air-conditioning systems. It was a real hodgepodge. Difficult to maintain. Hard to get parts. Now we have one unified system. We've reduced our maintenance and operating costs, and our employees are more comfortable."
Francis says that the Gannett corporate staff is "not only there to challenge us but also to help."
Henn agrees, offering an example. A production director at the San Bernardino, Calif., paper may request only one new production system every 10 years, while the production expert in corporate may see as many as 10 or 15 such requests every year.
If a project does not have the support of the corporate staff, it will most likely be withdrawn or the paper will be asked for a better justification, says Henn.
"We're really asking the publishers to look carefully at their own needs. And if you're not convinced you're going to get significant economic or operational improvement, don't even ask."
Judy Grande is a free-lance writer in Great Falls, Va. Phone is (703) 759-0276.
Related item:
Betty Berryman, The Winchester Sun, P.O. Box 4300, Winchester, Ky. 40392, (606) 744-3123; fax, (606) 745-0638.
Joe Bowman, The Miami Herald, One Herald Plaza, Miami, Fla. 33132, (305) 350-2111; fax, (305) 376-8999.
Alan Flaherty, ComPlan Inc., 3451 Fawnrun Drive, Cincinnati, Ohio 45241, (513) 769-1440; fax, (513) 769-1446.
Mark Francis, Niagara Gazette, 310 Niagara St., P.O. Box 549, Niagara Falls, N.Y. 14302, (716) 282-2311; fax, (716) 286-3913.
Dale Henn, Gannett Co. Inc., 1100 Wilson Blvd., Arlington, Va. 22234. Email, dhenn@gannett.com; phone, (703) 284-6000; fax, (703) 558-4638.
Jim Hitchman, Tribune Co., 777 W. Chicago Ave., Chicago, Ill. 60610. Email, jhitchman@tribune.com; phone, (312) 222-2625; fax, (312) 527-2484.
Mike Ide, The Boston Globe, 135 Morrissey Blvd., P.O. Box 2378, Boston, Mass. 02107, (617) 929-2000; fax, (617) 929-1581.
Gregg Jones, The Greeneville Sun, P.O. Box 1630, Greeneville, Tenn. 37744. Email, gjones@greene.net; phone, (423) 638-4181; fax, (423) 638-3645.
Jerry Polk, San Jose Mercury News, 750 Ridder Park Dr., San Jose, Calif. 95190. Email, jerrypolk@aol.com; phone, (408) 920-5000; fax, (408) 271-3686.
Angelo Salvatore, The New York Times, 229 W. 43rd St., New York, N.Y. 10036. Email, asalvatore@nytimes.com; phone, (212) 556-4574; fax, (212) 556-3809.
Richard Vezza, North Jersey Newspapers Co., 988 Main Ave., Passaic, N.J. 07055, (201) 365-3000; fax, (201) 365-5887.
©1997 Newspaper Association of America. All rights reserved.