As a C-Level Executive, Sustainable Growth and Profitability Should beÂ Your #1 Concern
As a C-Level Executive, what is your ultimate goal? You may have several, such as providing excellent products and services, outstanding customer service, a great workplace, a reputation as the market leaderâ€¦Â However, it is undeniable that these must all contribute to one overarching goal, without which the organization will not survive in the long term. Achieving sustainable growth and profitability.
All of your other goals are admirable, but without sustainable growth and profitability, they will not be met. Most companies are currently growing and are to some extent profitable or else they would have already gone out of business.
But is their growth and profitability sustainable over the long term, that is the crucial question? Today, some major corporations are â€˜playing gamesâ€™ to make their results appear to be sustainable. For instance, IBM, a company that for decades has enjoyed the reputation of being a top Fortune 100 company.
As I write this, IBM currently enjoys Fortuneâ€™s 24th spot and over the past five years, its earning per share have risen. But a quick look under the hood shows quite a different, and for shareholders, alarming picture.
During this same five year period, sales revenue has decreased 18.2% and net income has fallen a whooping 11%. Then how has IBMâ€™s earning per share continued to rise, you may ask?
The key to IBMâ€™s slight of hand is termed â€˜Financial Engineering.â€™ What the companyâ€™s CEO and Board has done is to buy back large amounts of IBMâ€™s stock, in itself not a bad idea, however, since profits werenâ€™t available to accomplish this, the company has borrowed $10 Billion, yes, thatâ€™s Billion, of new debt.
Sustainable? No! But in the short term it does paint a rosy earnings per share picture and many less than savvy investors look no further than this single metric. In many public companies the CEO does not stay around long enough to reap the harvest of these types of actions. And as most have golden parachutes, they depart unscathed, leaving the next CEO to deal with the mess.
But in privately held, middle market and smaller firms and even smaller publicly held companies, these types of shenanigans wonâ€™t work, even temporarily. Thus, REAL growth and profitability which are sustainable beyond the short term are essential to the health and even the ultimate survival of the company.
In the past, this wasnâ€™t actually all that difficult for most companies to accomplish. Certainly, the new business five year failure rate has traditionally been 80%. But for those companies that survived those brutal early years and especially those that were still around at the end of their first decade, the majority enjoyed the likelihood of a long and prosperous future.
However, today, business life has changed. And it is for two reasons.
First, because the world has fundamentally changed and will not be returning to the old status quo. America is no longer protected by two great oceans.
Increasing Global Competition
Ever increasing global competition has forever ended our geographic isolation. Moreover, as cost of production in China continues to rise, new competition is emerging from Vietnam, Cambodia and other new low wage economies. But it wonâ€™t end there. Those countries in Africa which enjoy reasonable political stability are about to come on stream as the newest and lowest international wage centers.
American businesses can no longer compete on price! Not today and not in the foreseeable future.
But there is a second and even more dangerous trend facing American businesses across all industries, not just manufacturers, but also those in the professional services sectors that have traditionally enjoyed immunity from foreign competition. What is this new and pervasive danger?
Disruption either is occurring or will soon occur in virtually ever industry and at an increasing pace. Still more dangerous is the fact that, in most industries, the source of the disruption is external to the industry. I’ll say much more on the topic of Disruption as I continue this discussionÂ in my next post.
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John Di Frances is a Strategic Innovation Consultant and Facilitator. He is the author of three books and has three additional new books being released in 2016. He can be contacted though Strategic Innovation Consulting. John has been serving Fortune 100’s to startups, nonprofits and government agenciesÂ globally since 1983 in the disciplines of Strategy and Open Innovation.