MCAA 2003: better financials; hit the cycle now
Lake Buena Vista, FL—Indicators show we're going to miss a double dip downturn, so now may be the time for heavy investment in many industries, according to data from instrumentation and controls manufacturers presented May 13 here during the Measurement, Control & Automation Association's (MCAA, Williamsburg, VA) 2003 Executive Forum.
Lake Buena Vista, FL— Indicators show we're going to miss a double dip downturn, so now may be the time for heavy investment in many industries.
Manufacturers of instrumentation and controls and the industries they serve generally are doing better financially. Making appropriate financial/capital investment decisions in advance of business cycles can save your company from ruin and maximize benefits during boom times. These were among topics covered May 13 here during the Measurement, Control & Automation Association 's (MCAA, Williamsburg, VA) 2003 Executive Forum. The conference ran May 12-14, 2003. MCAA's next executive forum is planned for May 17-18, 2004, in Oak Brook, IL.
One of the functions of MCAA members is to provide detailed financial information for benchmark and analysis. A look at five years of results for 41 participating companies showed relatively flat performance for the period, according to Edward J. Curry Jr., Curry & Hurd (Gwyendd Valley, PA). From 2001 to 2002, Mr. Curry noted that sales revenue increased 0.4%; gross profit dipped 1.5%; R&D funding increased 5.3%; and income from operations decreased 5.5%. The full report breaks out results into five groups based on company revenue.
Among data points analyzed was to see if R&D investments provided same-year or three-year benefits. Amount of R&D invested actually showed negative correlation with operating margins. Mr. Curry and others looking at the numbers concluded that R&D investments were part of the cost of doing business and may not impact operating margins within one or three years. Doing without R&D funding, he warns, risks losing many customers by falling a generation behind in product development.
While continuous R&D funding among technology companies is considered a "given," knowing when to invest in large capital outlays can be tantamount to "betting the company," according to Martha Thomas, Institute of Trend Research .
After analysis of dozens of industries and indicators, Ms. Thomas says, "We're seeing positive signs that we will avoid a double-dip recession and move beyond the slight stall." So, depending on industries you're selling to, now may be the time to heavily expand and invest, she suggests.
Because industries follow cyclical patterns, Ms. Thomas notes, knowing when to do what is key. She divides the pattern into four parts:
"A" is the period from the low point in the cycle to where positive performance begins. Companies should replenish staff by hiring top people, build inventory, secure contracts, introduce new product lines and plan for/build facilities, in time to come online for the growth phase.
"B" is the growth period from when from positive performance begins to the peak of the cycle. Companies should continue to expand workforce, build inventory, and spend on efficiency and cost reduction.
"C" is when the curve peaks and growth slows, then stops. In late B and early C is an extremely dangerous time, warns Ms. Thomas. Companies should make provisions to get all the new accounts they can get because they'll need them for the pending downturn. Expansion plans should freeze. Late in the phase is when workforce reduction should begin. More than one unfortunate company started, then had to abandon, large-scale expansion projects begun in this phase.
"D" is when the industry crosses over into recession. Staff cuts and belt-tightening continue with a well-trained eye toward identifying when the bottom point is, so as not to miss the important transition into "A," which is when large capital investments should be made.
Of course, the key is to figure the cyclical impact of combined industries served and how to respond appropriately and in time.
Control Engineering Daily News Desk
Mark T. Hoske, editor-in-chief