Thriving companies are different.
In the 2014 RSM Manufacturing & Distribution Monitor survey, 36 percent of participating executives described their business as thriving, a modest rebound from 2013 when 31 percent said they were in that category. This increase is not unique—the percentage of thriving manufacturing and distribution companies in the United States is up from 2009, when only 9 percent were bold enough to say in the middle of the recession that they were doing more than just holding steady. There have been setbacks along the way and the proportion of thriving companies hit its high point of 45 percent in 2011 (Figure 1). But this relatively steady growth suggests that 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 (60 percent) or declining (5 percent)? To be sure, “thriving” is a somewhat subjective term. For an executive to say a company is thriving, it 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).
Figure 1. U.S. thriving companies year over year
This report takes a close look at how and why thriving companies are able to succeed. As the following pages will show, thriving companies follow a number of similar patterns:
- Investments: 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. They are also more likely to invest in acquisitions.
- Continuous improvement: Leadership and management development programs at these companies are expected to increase in the next 12 months. Employee training on the shop floor will also increase among a greater percentage of thriving companies (80 percent) than those holding steady (70 percent) or declining (64 percent). Thriving companies also lead in significant initiatives in operational and other improvements.
- Effective strategies: Notably, thriving companies use these strategies more effectively than others. Whether it’s addressing operational efficiencies, focusing on more profitable existing customers or leveraging technology, these companies are taking the time to make these strategies work for them.
- Managing relationships: Thriving 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.
- Managing external challenges: Thriving companies are better able to minimize the financial impact of government regulations and taxation.
Generally, executives are encouraged by sales growth over the past year, and they expect growth and hiring to continue. However, stricter regulations, high corporate tax rates, increasingly aggressive state tax agencies and not knowing what the federal government may deliver have all contributed to a continued uncertainty and frustration among executives trying to plan for the future. More than half of executives participating in the survey believe the U.S. government will limit or significantly limit their company’s growth in the next 12 months.
This suggests that many companies may be at an inflection point. The choice can be relatively simple:
- Invest optimistically in the future now: Bet that healthier markets are here to stay, but risk their balance sheets and income statements if economic growth falters.
- Remain cautious and safe for another year: But take a chance that aggressive competitors will steal market share—and profits.
The 2014 Monitor report should empower executives to make informed strategic and tactical decisions based on detailed analysis of the industry in domestic and international markets and the best practices of thriving companies.
Please note: There were 920 U.S. participants in the 2014 survey. In addition, there were 227 participants based in countries outside the United States. While the focus in this report is primarily on the U.S. participants, highlights of the global perspectives may be found throughout the report.
In addition, we spoke directly with several groups of executives from a number of middle-market manufacturing and distribution companies. From Seattle, Washington to Washington, D.C., these executives shared their reactions to the survey results. These discussions helped form much of this report.
Finally, throughout this report, the percentage figures in some charts may not add up to 100 percent due to rounding.
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