Manufacturing CEOs making higher-risk decisions

Weighing strategic actions with appropriate risk. Increasing investment in technology. Restructuring pricing. Making domestic acquisitions. These are higher-risk choices that chief executive officers 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 like 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 percent of manufacturing CEOs have done or plan to increase their investments in technology within the next year – a decision 77 percent of them view as highly or moderately risky.

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

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

CEO focus

The Grant Thornton survey explored how CEOs focus their time in light of the competitive threats and resulting risk taking. The answer? A surprising number are more involved than ever before in the company’s daily operations and relationships. CEOs of manufacturing companies are now focusing most intently on:

- Customers (61 percent), employees (17 percent) or both equally (21 percent)

- Long-term issues (44 percent), short-term issues (41 percent) or both equally (15 percent)

- Relationship and marketing issues (43 percent), operations issues (39 percent) or both equally (18 percent)

Vision, leadership and bold decisions

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 percent excelling or doing very well in that category; 64 percent were recognized for the willingness to make bold decisions and take risks, and 63 percent 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. However, to what extent does this drive the business choices that company leaders are making? "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 & 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," says Maurer.

Where CEOs say they fall short

Despite CEO's 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. Findings include:

- Only 33 percent of CEOs think they do a good job eliminating unprofitable business lines, products and markets.

- 42 percent do well or excel at assessing the probability of delivering the business outcome.

- 44 percent do well or excel at creating a sense of purpose among employees; inspiring them to be passionate about their work.

Other survey findings

Predictions among manufacturers for an improved economy declined sharply, from 60 percent in November 2004 to 42 percent in May/June 2005.

Optimism for business growth among leaders in the manufacturing/wholesale industry remains strong and steady at 91 percent.

Headcount predictions are stable, with 49 percent of manufacturers expecting to increase headcount over the next six months.

About the 11th annual survey of U.S. business leaders

The Grant Thornton Business Leaders Council is composed of 35 forward-looking, innovative business leaders and executives from businesses nationwide.

More than 300 executives from various industries, including 100 manufacturers, responded to the survey. The Grant Thornton Survey of U.S. Business Leaders is published by Grant Thornton LLP.