Prescription for profit

The second phase of findings from a study of manufacturing companies by Robert Morris University and Alpern, Rosenthal & Co. reveals a strong correlation between manufacturing companies that have a board of advisers, a marketing plan and merit-based compensation, and financial performance.

The data was collected from about 200 Western Pennsylvania manufacturers with sales of between $5 million and $50 million.

Bill Rupp, associate professor of management at Robert Morris and the study’s principle investigator, says the study proves the validity of using the balanced scorecard method across an industry as well as to evaluate an individual company. The balanced scorecard analyzes a wider set of measures rather than simply looking at financial data to better understand what is occurring at a company.

“It proved to me to be a valuable tool for analyzing an industry,” says Rupp.
Some of the conclusions the data support are:

  • Companies that provide performance-based bonus programs to their employees are more profitable than those that do not.
  • Companies that have a marketing plan have a higher expected annual average sales growth for the next five years.
  • Companies that have a marketing plan are more likely to use a business plan and integrate their sales and operations plan.

The study also reveals that only 41 percent of companies surveyed have a succession plan, and 70 percent name children as the new owners. That could be problematic, says Rupp, because other studies have found that companies passed on to successive generations don’t fare as well as those sold to nonfamily members.

The study found that only 21 percent of the companies had a board of advisers. Study authors say companies with a board of advisers have higher average net income before taxes as a percent of sales over the last three years.

Joel Rosenthal, co-director of the manufacturing services group at Alpern, Rosenthal, says the data support his experience with clients. Those that do well tend to have a board of advisers and integrate their operations and sales plans. The data can be used to help persuade clients to make changes in their structure and planning practices.

Says Rosenthal: “We can show them what the more successful companies are doing.”

Robert Morris University