7 questions manufacturers should answer before investing in growth
Is your company ready to grow?
INSIGHT ARTICLE |
Most manufacturing and distribution executives are optimistic about growth this year. According to the most-recent RSM Manufacturing Monitor survey, the vast majority expect increased revenues, profits and employment in the next 12 months; more than 40 percent described their companies as “thriving.” Given this positive outlook, how are companies planning to generate this growth?
While there are sectors in our economy that are challenged, the United States remains one of the stronger economies around the world. And we are seeing signs of improvements in other parts around the world, including Europe and some emerging markets. Industry leaders are betting on growth by increasing their investments in information technology (IT), equipment, facilities, supply chain solutions, training, process improvements, and research and development.
They are also implementing strategic plans to capitalize on these investments in order to:
- Introduce new products, often in collaboration with key customers
- Grow sales domestically, both in existing and new markets
- Grow sales internationally with a focus on existing markets
Before a company commits to a growth strategy, we recommend every company performs a rigorous review of their company’s current strengths and weaknesses (which can often benefit from an outsider’s fresh perspective), and assess past performance and available resources. They should also seek out opportunities, such as where to drive growth, which products to improve and promote, and which customers and prospects to target. From this baseline, executives need to answer key questions in order to develop a realistic strategy for growth:
- Should you grow? Not every company should grow—or has the resources to do so. Growth may require new leadership, new capabilities, additional financing and new resources—possibly via merger, acquisition or strategic alliance.
- Should you make an acquisition? Make sure your company has a well-crafted mergers and acquisitions strategy, including market goals, valuation estimates and detailed plans for post-merger integration. The realization of forecasted synergies and integration can be critical to the success of an acquisition. Trusted advisors—financial, tax, human capital and legal—can all help you prepare for and realize the benefits of purchasing a business.
- In what markets should you grow? Manufacturing and distribution are capital-intensive industries. Unfortunately, some firms invest first and ask questions later, developing new products for the wrong customers, at the wrong time, with the wrong features—leading to the wrong financial results. A better approach is to leverage existing customer data via research and analytics to identify new opportunities. Or work directly with customers to bring value to their organization with special products or products with higher margins. For example, manufacturers can find ways to leverage existing production processes in new markets or sectors to prevent and overreliance on a single, popular area.
- What are the risks of considering international markets? It can seem overwhelming to expand internationally—as well it should. Yet moving beyond traditional borders can be lucrative, and doesn’t necessarily require new facilities or staff in new countries. For example, long-term opportunities may be found in emerging markets that have been hit hard over the past few years. An experienced third party can often help firms enter foreign markets—whether via partnership, licensing or joint production facilities—and identify and minimize their risks.
- Can your supply chain support profitable growth? Regardless if growth comes from increased volume of existing products or bringing new products to market or increasing volumes of existing products, it’s imperative that procurement, production and distribution be as efficient (and profitable) as possible. Make sure your supply chain is ready to keep pace, and consider investments in equipment and IT to increase agility—and to build stronger customer relationships.
- Are you making data-driven decisions? Most companies have troves of data about their sales activities and related profitability. The data residing in enterprise resource planning systems tells a story. Managing that data to find the strengths and opportunities in a company’s product portfolio requires technology and people resources, but is critical to making the right decisions.
- Can services be aligned with product sales? Companies are looking for new revenue streams and one area of increased consideration is whether you can provide services to support the products sold. While not all manufactured goods require support, providing technical skills or helping a customer manage their inventory may present new growth opportunities.
If growth is expected from new markets, products or services, how will you reach and manage new sales channels? How will you make customers aware of innovative products or value-adding services? Developing a multisector sales approach—while maintaining current levels of customer intimacy and satisfaction—often requires new talent, including sales staff familiar with new sectors, development engineers skilled in emerging areas and suppliers able to meet new sourcing requirements. Staff will need to be found, recruited or transferred.
Many executives extol the virtues of growth, but growth itself isn’t a strategy. Growth is a very intentional commitment of company resources to increase revenues and create more organizational value. Management must perform comprehensive and timely analyses in order to understand the strengths and challenges in their company, assess their competition and new markets, and then prioritize investments—in resources, technologies, new products, sales channels, equipment—designed to generate sustainable returns.
you may also be interested in
When developing plans to expand or improve facilities, manufacturers should take an approach that includes analysis of tax opportunities.