Thriving companies may differ in approach, but follow a number of similar patterns.
In the 2014 McGladrey Manufacturing & Distribution Monitor survey, 36 percent of participating executives described their business as thriving. There have been setbacks along the way—with the proportion of thriving companies hitting its high point of 45 percent in 2011—but this relatively steady growth suggests these companies have succeeded in spite of weak economic environments, low customer demand and rising commodity prices.
How are these companies thriving, when others are holding steady or declining? To be sure, “thriving” is a somewhat subjective term. For an executive to say a company is thriving could simply mean that revenue growth is outpacing inflation. Yet the thriving companies participating in the 2014 Monitor survey have more in common than strong revenue growth or higher demand; these are simply the outcomes of the investments these companies make, the strategies they develop and the priorities they set. Profits before interest and tax are greater for thriving U.S. companies (an average of 10 percent) than they are for companies holding steady (6 percent) or declining (-3 percent).
Thriving companies follow many similar patterns, including:
Thriving companies lead others in a number of investment areas. A greater percentage of them invest in equipment (and at a higher rate), as well as in technology infrastructure and software. Generally speaking, non-U.S. thriving businesses are more likely to invest in research and development in the next 12 months. This may be due in part to better tax incentives for R&D outside the United States.
Thriving companies are also more likely to invest in acquisitions. U.S. businesses are more likely to be buyers than their global counterparts, which may be due to an assessment by non-U.S. companies of the fundraising success in the United States by private equity firms and those groups’ willingness to invest overseas.
Continuous Improvement and Innovation
Thriving companies utilize continuous improvement techniques to streamline processes, train personnel, minimize corporate risk and improve customer satisfaction. As one Seattle manufacturer put it: “No matter how many times you do a Lean event on a process, you can find substantial gain.”
According to the Monitor survey, 65 percent of thriving companies attribute improved company performance in the past 12 months to innovation of products and processes. Leadership and management development programs at thriving companies are expected to increase in the next 12 months, as will employee training on the shop floor. Thriving companies also lead in significant initiatives in operational and other improvements; nearly three-quarters will create new products in the coming year.
Outside of the United States, 39 percent of survey participants in non-U.S. companies view providing new services as an important strategy for sales growth.
Thriving companies are more likely to have a successful strategy to sell products outside of the United States. Sales outside the United States increased for just over half of thriving companies in the past 12 months, with nearly 60 percent expecting increases in the coming year.
Approximately 83 percent of non-U.S. companies have sales outside their own country, compared to 72 percent of U.S. companies. The international sales percentage for non-U.S. companies is a median of 40 percent, compared to only five percent for U.S. participants.
Every decision made along the supply chain continuum, including those regarding the products and services that companies provide, should be based on supporting the needs and values of the end user. Thriving companies know the importance of the vendor relationship; nearly three-quarters found working with suppliers to improve processes and lower costs was an effective means to maintaining or improving profit margins. These companies are using information technology and other resources to share information with suppliers and internal personnel to understand and meet the needs of their customers.
Building on a Solid Foundation
Generally, industry executives are encouraged by sales growth over the past year, and they expect growth and hiring to continue. But how do some companies thrive where others may not do as well?
Thriving companies bring an in-depth understanding of their business fundamentals, strategic priorities and financial knowledge, building on a foundation of accurate information gained through dedicated IT systems and key performance measures. This allows them to be informed and nimble in their responses to changing circumstances and opportunities.
Success also requires that companies leverage a few process improvement best practices:
- Involve employees in the improvement process. They, in turn, become the company’s greatest champions and are much more likely to internalize and integrate the process improvement results.
- Provide just enough process to support the change, and avoid sharing too much detail that can make the change overwhelming.
- Establish clear and concise measures of where the company is starting and what measures will accurately tell them how well it’s doing. iBi
Thomas M. Farrell, CPA is assurance partner at McGladrey LLP. He can be reached at [email protected].