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Manufacturing Growth in Spite of Uncertainty

For many, the word “entrepreneur” is likely to evoke images of one or two individuals pursuing a start-up business in a garage or spare room.

Industry Works to Catch Up to Technology

For many, the word “entrepreneur” is likely to evoke images of one or two individuals pursuing a start-up business in a garage or spare room.  Yet entrepreneurial thinking is at the heart of any successful organization—no matter how large or small.  Top companies stay on top because they are always looking for the hot growth markets and examining how their core products or services can evolve to enter those spaces.

McGladrey LLP released the results of its annual Manufacturing & Distribution Monitor, which takes an in-depth look at middle market companies in the industrial sector through the eyes of their executives. This year’s survey suggests that middle market manufacturers and distributors are cautiously optimistic about its growth prospects for the coming year, with the vast majority projecting increases in sales – both domestic and foreign – and net income, and nearly two-thirds expecting to add jobs.All together, the results make clear that the sector is steadily continuing to move forward from the dark days of the recession. Despite lingering concerns about the economy and uncertainty over a variety of government policies and struggling worldwide markets, mid-sized industrial firms appear poised to make the investments needed in order to grow. And investing in technology is clearly first on their “to-do” lists.

Catching Up Post Recession                                                                                                       

As the industrial sector looks to the future with optimism about revenue and income growth, technology is proving to be a high priority for companies as they begin to increase investment in key areas. When asked about their investment priorities for the next 12 months, 79 percent of respondents said they planned to increase spending on information technology (IT) — more than any other category of investment. In addition, manufacturers and distributors predicted a higher average spending increase (11.5 percent) on IT than in any other category of investment. These numbers suggest that, in many cases, companies are catching up on modernization initiatives that were delayed by the recession. This prioritization of technological investment makes sense, as it is clear that executives already view their informational technology assets as effective contributors to a wide array of business processes and capabilities. When asked about the impact of IT on various capabilities and business imperatives, executives were most likely to give higher marks to internal information sharing (85 percent); improving customer satisfaction (73 percent); and improving company productivity and reducing costs (73 percent). However, a surprisingly high number of executives rated their IT systems as ineffective in aiding with external information sharing — with both customers (36 percent) and suppliers (44 percent).

Integrating Technology

While all of this points to a brighter, more advanced future for middle market industrial firms, the survey also indicated that challenges remain for the sector as it attempts to “catch up” to the technology integration of other industries.

Data security represents a particularly critical challenge. Despite the constant stream
of news about web-based corporate data theft, approximately 68 percent of manufacturing and distribution executives believe that their data is either not at risk (17 percent) or carries very little risk (50 percent). In fact, despite IT risk management being a widely recognized necessity in the corporate world, 35 percent of respondents reported that they either didn’t have an IT risk management process in place (25 percent) or didn’t know if they had one (10 percent).

With so many mid-sized industrial firms emerging from the recession having held back on key investments in these areas, it is no wonder that some still have distance to travel along the learning curve. However, taken together, these results make clear that integrating new technologies is not only a major opportunity for our country’s mid-sized industrial firms – it is, at the moment, their highest priority.

Kathy-Thomas-Beck_img_9945_BWKathy Thomas-Beck is a partner and Florida managing partner for McGladrey, the fifth largest accounting firm nationally, and serves on the South East Region Executive Team.

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