Pulp and paper is a tough industry, with strong cyclicality, pervasive price-cost pressure, waning investor interest, and a track record of insufficient returns. It is borne by proud tradition, often with company histories dating back a hundred years or more.

Yet it is also an industry in transition, with ongoing consolidation, increasing globalization, emerging regions with tremendous strategic production advantages, and a growing need to combine the traditional production focus with more of an eye towards the end users of paper. Surviving, thriving, and being distinct in such an environment is a worthy challenge for any business leader.

In McKinsey's view of the industry, a few fundamental stances should be considered by all organizations aspiring to excel.

	Continuous productivity improvement is key. With across-the-board real price declines of a couple of percent annually, standard work to improve productivity is nowadays merely a ticket to play. To "earn the right" to grow profitably – for example through mergers and acquisitions – a strong and continuous focus on total productivity is necessary.
	The customer is king.  In a traditionally production-focused industry, where products risk becoming commodities, successful companies realize that they can gain inimitable advantages – and create value – by working together with customers and other parties throughout the value chain.
	M&A should be approached with caution. Mergers and acquisitions are normal activities in the business world, and are often necessary to reach companies' own growth ambitions. But they should be approached with caution, undertaken only after stringent analyses of whether the industry segment really can benefit from increased concentration and an honest assessment of whether the company itself can use the transaction as a catalytic event to move to new levels of performance, not just size.
	Distinctiveness sets you apart. Whatever role a company chooses to play – be it industry leader, niche player, or other – setting tough requirements on performance and being the best at what they do characterizes successful companies.

Despite its challenges, the pulp and paper industry is not unique. Other basic materials industries have similar problems with cyclicality, similarly high capital intensity, and similarly disappointing returns. With the benefit of understanding both the particulars of the paper industry itself and those of other basic materials industries, McKinsey can help broaden clients’ views on their business issues – and solutions.