Quality Magazine

Manufacturing CEOs Make Higher Risk Decisions

December 1, 2005

CHICAGO-Weighing strategic actions with appropriate risk, increasing investment in technology, restructuring pricing and making domestic acquisitions are higher-risk choices chief executive officers (CEOs) of manufacturing companies are willing to make, reports the manufacturing-focused results of the Survey of U.S. Business Leaders by Grant Thornton LLP. They are less inclined, however, to pursue even higher-risk actions such as international expansion.

"What this survey demonstrates is that American CEOs are faced with daunting challenges, ranging from intensified competition to a higher level of shareholder and regulatory scrutiny," says Cal Hackeman, partner in charge of the Grant Thornton Business Leaders Council. "To thrive in today's environment, these business leaders are weighing their options and taking on more risk."

Regarding growth strategies and risk, the survey found that:

• 89% of manufacturing CEOs have done or plan to increase their investments in technology within the next year, a decision 77% of them view as highly or moderately risky.

• 80% plan for expansion into new domestic markets, while 59% plan on international expansion, decisions that some three-quarters of manufacturing CEOs see as highly or moderately risky.

• 73% intend to restructure their pricing, a move 79% of manufacturing CEOs see as risky.

The survey also explores what manufacturing CEOs are doing to increase the probability of success in making higher-risk choices and how well they are doing it. Manufacturing CEOs received high scores for ensuring there is a clear vision for the company, with 67% excelling or doing very well in that category; 64% were recognized for the willingness to make bold decisions and take risks and 63% scored high for involving leadership in all core decisions.

Many factors impact a company's need to focus on high-risk choices to grow business. "Intensified competition, heightened expectations from both stakeholders and consumers, and greater need for differentiation are the primary drivers of high-risk business choices for manufacturing/wholesale companies," says Jim Maurer, managing partner of the Grant Thornton Consumer and Industrial Products practice.

There are even higher risk choices for manufacturers to consider. "Restructuring pricing and international expansion and outsourcing are thought to be the most risky among business leaders in manufacturing and wholesale; domestic outsourcing and expansion into new domestic markets are the least risky," Maurer says.

Despite CEOs' acknowledged desire and need to be more familiar with and accountable for the daily operations of their companies, there are some areas where they admittedly need improvement.

Thirty-three percent of CEOs think they do a good job eliminating unprofitable business lines, products and markets, while 42% do well or excel at assessing the probability of delivering the business outcome. Forty-four percent do well or excel at creating a sense of purpose among employees, inspiring them to be passionate about their work.

In other findings, predictions among manufacturers for an improved economy declined sharply, from 60% in November 2004 to 42% in May and June 2005. Optimism for business growth among leaders in the manufacturing and wholesale industry remains steady at 91%, and headcount predictions are stable, with 49% of manufacturers expecting to increase headcount during the next six months.

More than 300 executives from various industries, including 100 manufacturers, responded to the survey.