January 1996 € Volume 6 € No. 1

Real World

Midsize U.S. manufacturers upbeat about economy

America's midsize manufacturers are highly optimistic about the near-term outlook for the nation's economy and their own companies' profits, according to a national study conducted last month by Grant Thornton LLP, a Chicago-based accounting and management consulting firm.

In interviews with executives from 250 U.S. manufacturing companies with annual sales from $10 million to $500 million, Grant Thornton discovered that 67 percent describe their outlook on the national economy as optimistic. While 24 percent are uncertain about the prospects for the coming year, only 9 percent say they are pessimistic.

In line with their upbeat attitude toward the nation's economic health, the survey shows that 54 percent of all midsize manufacturers expect their companies to realize higher year-end profits for 1995. Even more-65 percent-foresee next year's profits rising higher still. Only 16 percent anticipate a decrease in earnings, while 28 percent believe this year's profit levels will remain the same as last year.

Business growth myths

After the past few years of business success, many companies are seriously considering growing their operations. However, according to The Wall Street Journal, there are numerous myths surrounding the growth of business that should be dispelled before any organization takes its first steps toward a larger business presence.

Myth #1: Growth is common. In fact, profitable growth is very difficult to achieve. The annual compound growth rate of Standard & Poor's 500 companies between 1984 and 1994 was 1.4 percent, which lags behind the 2.6 percent growth rate of the overall economy during that time.

Myth #2: We are ending a short and unusual period of downsizing. "Normal" times are ahead. Actually, sales growth, margins and return on assets have declined consistently over the past 40 years for major corporations. Managers convinced of the values of growth should be aware that they are pursuing a state of affairs that is not only rare, but becoming even rarer.

Myth #3: It's the economy. The cyclical behavior of the U.S. economy does not produce dramatic upward fluctuations. Even a rising economic tide will not lift corporate fortunes anywhere near the common goal of double-digit growth.

Myth #4: Big companies can't grow. As evidence of the inaccuracy of this statement, take a look at Hewlett-Packard, a 56-year-old company which has quadrupled in size over the past decade, and Wal-Mart-a premier growth company now approaching middle age.

Myth #5: We're in a dead (no growth) industry. Even in the most mundane industries, some companies are recording double-digit growth rates. In fact, the greater variation in growth rates is between companies within industries, rather than among industries themselves.

Myth #6: Most large company growth is created through acquisition. While this statement is not totally false, the road to growth through acquisition is definitely an unstable one. Not a surprising fact considering that the number of companies with real growth potential that are "acquirable" at a reasonable price is actually quite small.

Myth #7: Cost-cutting sets the stage for growth. Only 7 percent of profitable growers between 1988 and 1993 were cost-cutters in the previous five-year period, the rest were profitable growers.

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