Generally speaking, companies are increasingly optimistic, with slow, steady, situational growth dotted across the manufacturing landscape. That optimism is increasingly encouraging CFOs to explore growth strategies—both organic and inorganic—as they see positive signs for business into 2015.
More specifically, manufacturers witnessed relatively more positive trends in the second half of 2013, with the most recent Manufacturing ISM Report on Business Economic activity reporting that the manufacturing sector expanded again in December.
Still, CFOs at manufacturing companies face significant challenges in terms of getting their companies on track for sustained, profitable growth. Ironically, many of these challenges stem from the rapid adoption of powerful and disruptive digital technologies in core areas such as manufacturing, customer and supply chain management. While new technologies offer tremendous potential, realizing their full value demands dramatic changes to core business processes and the adoption of new behaviors by workers if companies want to outpace their competitors.
The speed of technology adoption is accelerating rapidly, and many companies have already seized upon new technologies to help reduce costs, improve product and service quality, and build closer relationships with their customers. We believe that CFOs at manufacturing companies can help their organizations compete more effectively by focusing on four main areas of technology investment:
1. Customer Sales and Service. The “Internet of things” has the potential to revolutionize the concept of customer service. Sensors and other devices placed in physical objects are linked through wired and wireless networks. Telematics embedded in heavy equipment, for example, can now signal manufacturers when the products they have sold customers need repair, service or upgrading. Meanwhile, mobile technology continues its transformation of sales and service, as empowering field forces with mobile devices and remote access to real-time data can help to reduce both the cost to serve and the cost to sell, while providing consumers with better service and a higher level of satisfaction.
2. Talent and Training. Companies looking beyond the immediate future generally recognize the need to identify and develop talent, and for those with talented and productive workers nearing retirement age, the need to do so may be greater. Enhanced use of Big Data, analytics and online learning is helping companies target people who fit the right profile for success in the digital world, then helping to develop and train them to remain successful in a rapidly changing environment. Talent is often the largest single cost for companies, yet the understanding of factors that indicate strong performance in the workplace is still extremely limited in many cases. Leading companies are changing that, and quickly.
3. Supply Chain. Technology is enabling manufacturers to re-think their assumptions about where production sites need to be located and how products should be distributed. The use of RFID chips to track shipments and the movement of products after they are manufactured is now fairly widespread. Advances now are being made before the manufacturing process begins. With sophisticated analytics providing better insight into what products consumers want, manufacturers are reducing cycle times and increasing speed to market by putting highly flexible manufacturing operations closer to where the products are actually sold. Products designed, built and sold in their home markets have numerous logistical and other advantages over products shipped in from elsewhere—advantages that may easily outweigh cost benefits derived from labor arbitrage as labor costs in emerging markets continue to rise.
4. The Finance Function Itself. Innovative technologies are reshaping the traditional relationship between finance and operations. Rather than counting products as they are manufactured and then forecasting revenues based on deliveries, finance—using analytics, multiple internal and external data sources and near real-time reporting from the field—now helps drive key decisions about the mix of products, the price points at which they are sold and the locations in which they are manufactured. The successful finance organizations that we have studied invest in tools and technologies that can help them to more accurately forecast performance, identify risk and opportunities, and then adjust their investment decision-making accordingly.
Disciplined Performance Management
We believe that successful companies in this new growth environment will have a clearly defined investment strategy. They will balance the need to invest in growth opportunities against other priorities such as returning funds to shareholders, paying down debt and maintaining adequate reserves. Through cautious optimism, they can explore opportunities while protecting themselves against future volatility and uncertainty.
Along with this investment strategy, high-performing companies will develop and adhere to a disciplined performance management process for tracking growth investments. This will include, among other elements, a clear definition of the “criteria for abandonment” of investments under different economic scenarios, facilitating skilled and agile management of the growth investment portfolio.
Organizations with good visibility, supported by strong analytics capabilities, will be better positioned to support profitable growth. Many companies, however, lack the visibility needed to support performance management. Even as new technologies transform and digitize almost every aspect of business as it is now known, the delivery of timely, actionable data that can improve decision-making will remain a key competitive advantage.