Some of America’s largest companies have been releasing worrisome earnings reports to Wall Street lately. The phrase being bandied about by equity analysts is “revenue light,” meaning such and such a company failed to deliver expected levels of revenue growth. Corporate profits, meanwhile, have been sporting steady and plump gains for several years. Shareholders expect CFOs to protect the profit picture no matter what. So, we can expect another round of cost cutting at a number of America’s largest employers, a trend that observers say is likely to hit heavy manufacturing and chemicals rather hard.
Unfortunately, this need for a fresh look at the cost structure every few years is endemic among the Fortune 500. The typical large and complex U.S. company is incapable of sustaining cost reductions beyond three years, according to research cited in APQC’s financial management webinar that was aired on October 28: https://goo.gl/iqfn25. Dean Sorensen, the thought-leader who delivered the presentation, also argued that large companies tend to realize a mere two-thirds of the value promised in their stated strategic intent. He went on to state that 58 percent of continuous improvement efforts deliver minimal financial impact.
Sorensen’s remedy revolves around the concept of integrated business planning and performance management. In short, to improve the execution of strategy—and to avoid unhappy earnings announcements—people involved in operational planning (for example, demand and capacity planning) need to have processes and management systems that integrate smoothly with processes and systems that drive forecasts of cash flows, working capital requirements, foreign exchange impacts, and revenue streams. “But the way functional silos operate is a major obstacle to cross-functional collaboration,” he observed. It’s not surprising, he added, that “many companies admit they lack effective management systems needed in the pursuit of operational excellence. His webinar included suggestions for how to go about assessing the current state and success factors needed to move in the right direction. If you missed it, it’s worth viewing the slides and listening to the recording at your convenience.