The sixth in a series of posts focused on insights from the National Center for the Middle Market’s research initiatives, this article focuses on the impact of the industry effect as well as the importance of strategic management choices for addressing business challenges and achieving growth goals.
Business leaders’ perceptions of what the future holds for their industry have a major impact on company growth. In our recent analysis of the growth drivers of middle market companies the Center revealed that these expectations for future expansion or contraction of an industry—what we dub “industry effects”—actually have a greater influence on growth than any specific action a company can take, such as expanding into a new market or making an acquisition.
In other words, being in a robust industry is clearly good for business. Look at middle market manufacturers, for example. They have benefitted from the industry effect for some time now. Per the Center’s Middle Market Indicator, manufacturers have grown their revenues by an average rate of 7.9% annually since the beginning of 2017. Since the U.S. middle market over-indexes on manufacturing—manufacturers represent approximately 17% of middle market companies, compared to about 12% of the overall economy—the success of the industry contributes to the strong performance of the middle market as a whole.
But a healthy industry can only take you so far.
Despite strong performance, manufacturing executives are in no way immune to the challenges that all middle market businesses face. To the contrary, these businesses’ leaders are facing a unique set of interconnected challenges that make the manufacturing environment much more complex today than it was five years ago.
The Center dove into those challenges in a recent manufacturing research study and found five key issues that top manufacturers’ list of concerns: increased competition resulting from globalization, consolidation, and greater cost pressure; evolving relationships with both customers and suppliers; changes to product and service mix; the impact of technology including advanced manufacturing techniques; and talent management issues. When we presented these findings to more than 200 manufacturing executives during the Chief Executive 2018 Smart Manufacturing Summit, a live polling question revealed that talent management issues present the greatest challenge by far, followed by the need to incorporate the right technology.
Manufacturers, of course, are not alone in dealing with these types of issues. Across the middle market, talent management remains a top challenge for all types of businesses, and cost concerns are rising as well, as revealed by the latest MMI.
Companies need solid management practices to resolve challenges and spur growth.
While manufacturers may have an edge by being in a growing industry, they cannot merely ride the tide. Like leaders in all industries, they must proactively solve challenges to fuel their future growth. Our growth DNA report reveals seven managerial actions that have the greatest impact on growth: market expansion, formal growth strategy, investing and innovating, attracting/retaining staff quality, financial management, cost efficiencies, and staff development.
Interestingly, these factors correlate to the challenges managers say they face. For example, manufacturers that invest in strategies for training and growing their people internally may be able to more effectively contend with talent and skills shortages. Those that focus on innovation will be ahead in the technology arena as well as in providing the best new products and services to meet customer demand. And focusing on acquiring new customers and selling more to them through strong sales and marketing efforts can help businesses get an edge on their competition.
Learn more about your industry’s specific challenges and how to resolve them.
While companies have little direct control over the state of their industry, they can most certainly take charge of how they respond to the challenges they face. Every quarter, the Center breaks down the Middle Market Indicator data by industry segment to provide focused insight into growth rates and key challenges in each sector. We invite you to explore the latest MMI data. Then see how the insights from our middle market growth report can help you address the issues you’re facing. Or to start a more detailed discussion of your industry’s needs, please contact the Center today.