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Give it up!

I lived in Cincinnati, Ohio when the government took over passenger train service and folded all providers into Amtrak. Prior to this, passenger train service ran out of a huge and beautiful old building called Union Station. The popular question/statement at the time went something like this: "Of course Amtrak will continue to use Union Station, won't they?" The official answer at the time was no, Amtrak was not in the historical preservation business.

IS LEGACY A LIABILITY?

That scenario took place around 1970. Fast forward 10 to 12 years, and we find cell phones on the scene, but only in the cities. Of course, today cell phone service is available many places and is dirt cheap. One thing that is noticeable about today's service, though, is that often times in small towns and rural areas (I am not talking about places where service is spotty, that is another matter) the quality of connections, both in the process of making calls as well at the actual audio service level, is superior to that in cities. This is not due to the lack of high rise buildings--it is because the rural equipment, installed later, is of superior technology to the legacy installations in the cities.

Why do the cell phone companies not replace the legacy installations? Because they are accounting and culturally bound to keep running the old stuff. By accounting bound, I mean that it may not be fully depreciated and they are loath to write it off. By culturally bound, I mean the management of these firms cannot stand the idea of replacing equipment that is working "OK Enough" even if it is written off: "Why spend capital money if we are already making money with assets we have?"

EPIC STRUGGLE

Today, the worldwide pulp and paper industry is engaged in a titanic competitive struggle. Lots of noises are made that sound like kids in a sandbox yelling. "You are not playing fair." These noises, sad to say, are often coming from my country, the United States, the birthplace of competition.

And noises they are. However, I am not so concerned about the noises--the market place will sort them out. What I am concerned about is the response of the legacy pulp and paper industry (read North America, and some parts, but not all, of Europe). They are behaving just like the cell phone companies described above, or like the general public wanted Amtrak to behave circa 1970. These legacy companies are looking at some interesting new technologies, but I feel their approach is flawed in two ways.

The first is this. Much time is being spent soliciting governments for funding of research for new technologies. This has two subset problems. The first is that talented people have to waste their time preparing reports, making presentations and so forth just for the purpose of receiving funding (and this burden appears to be much higher than it would to successfully solicit private funding). The second subset problem is once hooked on government funding, nothing tends to get done in a hurry, because the funding becomes an activity unto itself. Having a finite pile of research money, not a seemingly endless government source, is a great focusing technique. One has to look no further than the current race for public space travel to see what I mean. The private parties are way ahead; NASA isn't even in the game.

The second, and perhaps even graver problem, is that the legacy companies' culture is biased towards preserving their synthetic assets. By synthetic assets, I mean existing physical plant and equipment, existing ways of doing things, existing employment policies (as compared to hard assets which I consider to be markets, trees and environmental permits).

THROW AWAY SYNTHETIC ASSETS

Friends, trying to preserve these synthetic assets is a loser's game. You have to give them up and throw them away. Otherwise you will be completely out of business because competitors without them are not similarly constrained and are thus free to do what makes business sense. Like Amtrak said, we are not in the historical preservation business, and as painful as it is, the sooner we recognize this, the sooner legacy companies have a chance to return to their former successful glory.

Legacy companies are behaving as a new pilot trying to fly with one foot on the ground. This will not work for the pulp and paper industry any more than it will for a pilot. Give up the in-place synthetic assets, fly with both feet off the ground. Otherwise, you will crash.

ABOUT THE AUTHOR

Thompson is CEO of Talo Analytic International, Inc. (www.taii.com), a member of the Solutions! editorial board and executive editor of PaperMoney (www.globalpapermoney.org), which is published by TAPPI and TAII. Contact him at jthompson@taii.com.

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Title Annotation:SPOTLIGHT
Author:Thompson, Jim (American legislator)
Publication:Solutions - for People, Processes and Paper
Date:Nov 1, 2005
Words:805
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