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Fortune service and industrial 500 presidents: Priorities and perceptions
Fortune Service and Industrial 500 Presidents: Priorities and Perceptions A. Elliott Carlisle and Kent Carter
A. Elliott Carlisle is a professor of management at the University of Massachusetts, Amherst. Kent Carter is an assistant rofessor of management at the Universty of Maine Orono.
,
A frequent condemnation of U.S. corporate executives is their alleged preoccupation with short-term profits at the expense of long-term competitiveness. Executives deny this. But the survey results reported here indicate that profitability and financial condition are more important to executives than other objectives.
P
erhaps the most frequently offered explanation for U.S. firms’ diminished ability to compete effectively in world markets is a preoccupation with, short-term profits on the part of their chief executive officers. Insistence on immediate profitability, the argument goes, has resulted in underinvestment in plant and equipment, leading to higher prices for American products. Furthermore, unwillingness to spend the funds necessary to prepare new products has resulted in failure to satisfy changing customer tastes. These are believed by many to be the principal reasons for the massive U.S. trade deficit. Discussion on short-term profitability has appeared in general-interest publications, newspaper editorials and features, and business and academic journals. A 1980 Hm-vnrd Busi1zes.s Reviezo article argues that the United States has managed its way to economic decline by neglecting pro-
duction operations and focusing on short-term profits.’ A portion of a survey of CEOs in the U.S., Japan, and Europe by Nonaka and Okumura’ specifically addressed management objectives. They described the U.S. mode as emphasizing return on investment and stockholder gain; the Japanese mode as directed toward market share and new products; and the European mode as looking for return on investment. The Conference Board collected senior executives’ responses to allega t-ions that “U.S. managers focus too much attention on financial indicators that measure short-term results; and that this preoccupation diverts many enterprises from the pursuit of long term goals.” The survey reported that financial indicators constitute only one of a number of tools in a manager’s kit and, therefore, should not be blamed for the business community’s alleged
Business Horizons I
March-April
1988
“The study sought respondents’ perceptions of the importance of each of eight key managerial objectives, the information available as to its performance, and the adequacy of time they allowed to its attainment.”
78 difficulties with foreign competitors. In addition, the survey found that return on investment (calculated in several ways) is not.only the most widely used financial indicator, but it is also ranked first or second in relative importance by the greatest number of survey participants. Respondents pointed out that financial indicators may encourage short-term thinking
and cause managements to overlook, or play down, longer-range considerations. However, most (seven out of ten) survey participants rejected the assertion that their own firms’ use of financial indicators causes them to focus too intently on short-term results.3 In spite of such denials, the notion persists that short-term financial re-
sults have been pre-empting the longterm best interests of many firms. There are good reasons for executives to become preoccupied with short-term performance. They understandably respond to monthly or quarterly evaluations of their units’ performance when their own incomes and often their tenure are tied to such single indices as profitability or growth. When divisional executives are told by corporate vice presidents that those operations failing to achieve a 15 percent return on net assets will be considered candidates for divestiture, those whose figures are hovering around the target can hardly be expected to concentrate on the long run. Presidents of firms also recognize that their organizations’ shortterm results have an important influence not only on their bonuses, but also on stock prices, a significant factor in the appraisal of their performance by stockholders and boards of directors. The problem of the competitiveness of U.S. firms operating in a global market continues, and there is little, if any, empirical data on the priorities of the leaders of these firms. These leaders’ perceptions of organizational objectives deserve closer examination. RESEARCH
T
BACKGROUND
his study is a part of a series of U.S. and international surveys undertaken by the Management Control Center at the School of Management of the University of
Fortwe Service and Industrial 500 Presidents: Priorities and Perceptions
Table 1 Standard Deviations as Indicators of Response Consistency of the Perceptions of Service and Industrial Presidents
Objrctiw
Financial Condition of the Firm Profitability Worker Performance and Attitude Manager Development Marketing Produclivity Innovation Responsibility to the Public
Imyortnrrce
Adcqmy o f Avnilnble l~~forrm7tio~t
Service
lrhstrid
.326
.518
.567 .819 ,733 .871 .865 .897 .863
Massachusetts. These studies focus on the current priorities held and problems encountered by top leaders as they attempt to control their organizations in today’s rapidly changing business environment. The questionnaire was directed to the presidents of the Fortune 500 U.S. industrial and service companies. The study sought respondents’ perceptions of the importance of each of eight key managerial objectives, the information available as to its performance, and the adequacy of time they allowed to its attainment. The objectives used in this study were: profitability, financial condition of the firm, productivity, innovation, marketing, manager development, worker performance, and public responsibility. They were chosen from an almost endless list of possibilities for a number of reasons. First, they include the key functional areas involved in managing a large firm. Second, a careful reading of statements of corporate strategy and objectives shows these eight objectives provide the framework for the strategy of most large firms. Third, they were identified by Peter Drucker as areas “in which objectives of performance and results have to be set” as they “enable executives to organize and explain the whole range of business phenomena in a small number of general statements.“J We feel Peter Drucker’s influence on the thought and practice oi American business leaders is unparalleled. Therefore, his objectives
Time Devoted Service
Imfustrinl
Srrzh
Indwtrid
,969
,850
,455
.247
,487 .755
1.034 .833
.961 ,839
.557 .780
,531 ,634
.637 .833 .837 .815 .886
.858 .918 1.056 .810 .749
,999 1.059 1.072 1.020 .779
.628 .609 .662 .642 .625
,546 .592 .624 .661 .582
are appropriate to use in an analysis of their perceptions. Methodology
The questionnaire used in this study includes as variables the eight objectives listed above. Each objective is measured on three scales: its importance as perceived by the president, the information available to him in the specific area, and his perception of the adequacy of the amount of time devoted to it. A standard five point Likert-type scale, where 1 represents the lowest score and 5 the highest, was used to direct responses. The Management Control Center received and processed 131 industrial and 113 service company presidents’ questionnaires-a response rate of 26 percent and 23 percent, respectively. Statistical analysis (using the Statistical Package for the Social Sciences) was undertaken, and the findings are reported here. Interpretive comments were received from some of the respondents, but the scope and resources of the study could not provide for personal interviews on a large scale. The Limitations of Survey-Based Research
Survey respondents were invited to remain anonymous; nevertheless, some of them did include their names. This was not necessary, as requests for survey results could have been and were made in separate letters. The
promise of anonymity not only increases the likelihood of the president responding in person, it facilitates a greater degree of honesty and frankness in the response. The additional problem of inconsistency in interpretation can dramatically reduce the validity of information collected from surveys. In an effort to overcome this, the questions were formatted in short headings preceded by clear definitions of terminology and directions for answering. No respondents indicated difficulty or confusion in answering the survey questions. A final major concern is the well-known tendency for earlier respondents to be biased and later respondents to be more reliable in their answers. This problem can be, and was, adequately controlled during the statistical analysis procedures. One final caveat: there is no way of being certain that those who respond to any mailed questionnaire have the same perceptions as those who elect not to do so. FINDINGS
T
he presidents’ perceptions as to the eight objectives are re1 ported in Figures 1, 2 and 3. These are ranked in descending order in the three areas: importance (Figure 1), availability of information (Figure 2), and appropriateness of the amount of time devoted to each variable (Figure 3).
79
Business Horizons I March-April 1988 Figure 1 Average Responses of the Service and Industrial Company Presidents as to Importance
Mea
80
5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0
::. ::. .‘.‘. _‘.‘. ::. ::. ::. ::. ;:_ ,:;:. ::: :;: ::: ::: ::: :
Financial Condition of the Firm
Profitability
Worker Manager Performance Development and Attitude
0
f?J
Service Company Presidents
Industrial Company Presidents
To obtain a feeling for the dispersion of the responses, we also calculated the standard deviations of the responses to the questions in each of the areas (see Table 1). We report these statistics to show the variation in the presidents’ perceptions. The spread was very slight (generally less than one standard deviation), indicating that these executives tend to see eye to eye on these issues. Importance
Figure 1 makes it clear that in the eyes of presidents of large U.S. firms some objectives are signficantly more important than others. FinanciaI condition of the firm and profitability stand out and rank as significantly more important than any of the other objectives, a finding that strongly suggests that financial matters dominate a president’s priorities. It should. be
Marketing
noted that both profitability and financial condition of the firm are reported frequently, not only to a firm’s executives but in most instances to stockholders and the general public as well. Presidents rate manager development the most important of the remaining objectives. The firm’s survival and growth depends on capable management and orderly succession, and presidents do assign this area a very high priority, an indication of concern for the future. Presidents often emphasize their own personal commitment and that of their organizations to innovation as a key to maintaining competitiveness in the marketplace and improving stockholder value. Yet the survey shows innovation is not high on their lists of priorities. Innovation virtually always has a short-run depressing effect on profitability. It costs money to disrupt production operations with
Productivity
Innovation Responsibility to the Public
innovation in production methods and product design, yet these are the means used by foreign competition to achieve substantial penetration of the American marketplace. Presidents of service companies give innovation a significantly lower importance rating than that given by their counterparts in the industrial sector. One could speculate that increasing competition in the service area may close this gap. Interestingly, the objective rated lowest of all in importance by industrial presidents, responsibility to the public, is a frequent topic for their public speeches. The same depressing effect on short-term profitability takes place, as demonstrating real concern for responsibility to the public usually involves expenditure of stockholders’ money. On the other hand, service-company presidents rate it significantly more important than do industrial presidents, perhaps because of greater levels of gov-
Fortrrtlr
Service and Industrial 500 Presidents: Priorities and Perceptions
Figure 2 Average Responses of the Service and Industrial Company Presidents Concerning the Adequacy of Information Means 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5
I.;.:. :::
::: ::: ::: ;:: ::: :;: ::: ::. ;:: ;:: ,.:.:.: :::_ :::. _‘,‘_‘_ :_:.:.: ,‘_‘_’
i
Financial Condition of the Firm
Profitability
Worker Performance and Attitude
q
~.‘:: 1.;:. ;:: cl Industrial Company Presidents
Service Company Presidents
ernmental regulation
in the service
sector.
Productivi~/, worker performme, and tnarketing are ranked in the middle of
the list of the presidents’ priorities, more important than responsibility to the public, but less important than financial condition of the firm. Yet these three items are keys to improving the long-term competitive ability of U.S. ,(or any other nation’s) firms. Adequacy of Information
Financial condition of the firm and profitability also dominate the list of the presidents’ perceptions of the availability of information on key objective areas. This is not surprising: financial data are more easily quantifiable and obtainable than information about any of the other key areas. Furthermore, management-information systems are frequently housed in the corporate financial function. When we compare the adequacy of information available for industrial as
Manager Development
Marketing
opposed to service presidents, we see the former indicate that in at least two key areas (financial condition of the firm and profitability), they feel significantly better informed (see Figure 2). In the cases of responsibility to the public and worker performance, the service presidents feel they have more adequate information than their colleagues in the industrial sector. The survey results indicate a need to improve the availability to U.S. firms’ presidents (particularly in the industrial sector) of information about areas other than finance and profitability. Presidents of large U.S. firms feel that the information they receive about productivity, innovation, worker performance and attitude, and manager development is less adequate than that received about profitability, the financial condition of the firm, and even marketing. People do react more strongly to those areas about which they are well informed than those about which they are less informed; this may well be one reason
Productivity
Innovation
Reponsibility to the Public
why some areas are seen as more important than others. Allocation of Time
As far as allocation of time is concerned, again financial condition of the firm and profitability stand out (see Figure 3). Industrial-sector presidents rank responsibility to the public third, while service-sector presidents rank it second out of the eight objectives. Curiously, although industrial presidents rate innovation higher than do their counterparts in the service sector, the latter feel that they allocate significantly more time to this area. In addition, the bar graphs in Figures 1-3 show that the presidents have stronger feelings about the importance of questions than they do about the adequacy of information they receive, denoting their level of concern about the nature of their responsibilities. The shortest set of bars (that is, the lowest means) on the three bar
81
Business Horizons I March-April 1988 Figure 3 Average Responses of the Service and Industrial Company Presidents Concerning Giving Enough Time
Me; 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3
82
5
:::... ;::I.. :IL _.
Financial Condition of the Firm
Profitability
Service Company Presidents charts is for allocation of time, suggesting that presidents feel that they never really have enough time to carry out all the duties that make up their responsibilities, not an uncommon complaint of presidents about their jobs. Variation between Responses
A statistical analysis of the standard deviations of presidents’ responses (see Table 1) shows the highest consistency of responses to questions in time allocation, the lowest in adequacy of available information, with importance in the middle. This holds true for responses of both service and industrial presidents. We may then conclude from this data that the presidents feel more uniformly about time than they do about any of the other areas of inquiry. They would probably argue that having an inadequate amount of time is an innate characteristic of the job of president. There is great variation in response to questions about adequacy of available information. Clearly, the presidents’ confidence in the information they receive about key performance areas in their organizations varies considerably, revealing differences in
1::. :.. ;:,:‘:;_:>:’. :: ... ;I:.:‘: Worker Manager Performance Development and Attitude
Marketing
Productivity
Innovation
Responsibility to the Public
Industrial Company Presidents the sophistication of management-information systems or reporting procedures. It is also interesting to note that the service-sector presidents are even more divided on this issue than are their colleagues in the industrial sector. Further analysis of similar data may reveal a relationship between size of organizations and perceptions of adequacy of information. Examination of standard deviations in importance indicates great consistency of response to questions about financial condition of the firm and profitability for both industrial and service sectors. Presidents are in agreement as to their assessment of these key responsibility areas.
CONCLUSIONS
The question of whether U.S. executives overemphasize profitability to the detriment of the long-term growth and welfare of their organizations will never be definitely answered. One portion of this study confirms the dominance of the financial dimensions in the priorities of top executives of large American industrial companies found in the Nonaka
1
and Okumura study cited earlier. Our study indicates, on the basis of empirical data rather than conventional wisdom (the principal basis for these claims in the past), that Fortum 500 presidents from both industrial and service firms perceive that financial condition and profitability are the most important of the eight organizational objectives studied. The results also suggest that presidents would welcome better information on the other key areas and, not surprisingly, that they feel they do not have as much time as they would like to allocate to their responsibilities. One can argue that profitability and financial condition of the firm are the products of management decisions made at an earlier time and they reflect past management decisions, but the other key results areas are essential for modifying present strategy or planning for the future. The primary responsibility of company presidents is making and implementing decisions that will affect the survival and growth of their organizations in the future; accordingly, if their organizations are to develop viable strategies to compete effectively in the global marketplace, they must recognize the importance of all of the key areas, even those that produce a short-
Fortrrtrc
Service and Industrial 500 Presidents: Priorities and Perceptions
“Presidents responding to the study indicate that the information they receive about productivity, innovation, tind worker performance is significantly less adequate than that available about other areas of their responsibility.”
83
term decline in profitability. Compensation systems for presidents and other top-level managers that are based on short-term profitability to the virtual exclusion of such other key performance areas as innovation and productivity are bound to give financial indices the supremacy that was shown in this study. Presidents responding to the study indicate that the information they receive about productivity, innovation, and worker performance is significantly less adequate than that available about other areas of their responsibility. Management-information systems specialists, both inside the organizations and in the software industry, need to turn their attention to this problem. Foreign companies have been enormously successful in winning customers with innovation, productivity, and an enthusiastic work force. It is not unreasonable to suggest that U.S. firms presidents’ lack of adequate information, coupled with constant time pressure, diverts their attention from
these crucial responsibilities to more immediate concerns. The anonymity of many of the respondents makes it difficult to associate response patterns of presidents with the size or industry of their firms; however, a substantial number felt no heiitancy in identifying themselves or their firms, and the analysis of these relationships may well yield further valuable information.
T
he Management Control Center has replicated this study with the presidents of Canadian firms, and findings are currently being analyzed. Comparisons among importance, adequacy of information, and allocation of time should indicate the extent to which presidents’ jobs are related to their -firm’s size, business sector, and country. Future research should include comparisons with the firms of Japan and other developed countries utilizing this same questionnaire. Some research has been carried out on the time dimension of the CEO’s
job;5 however, further research on the adequacy of information question would be enormously helpful. Emphasis on analyzing how corporate management-information-system departments develop executive information in the areas of productivity, innovation, manager development, and worker performance would also provide useful data on how to structure the top executive’s time so that more can be accomplished. 0
1. R. H. Hayes and W. J. Abernathy, “Managing Our Way to Economic Decline,” Hnrvord Busirwss Reuiezu, 58, (July-August 1980): pp. 6777. 2. 1. Nonaka and A. Okumura, “A Comparison of Management in American, Japanese and European Firms,” Mntmgotrer~t /qm, 17:l (1984): 23-40; 17:2: 20-27. 3. Mmrrriq B~tsit~css Perfortnmce, The Conference Board, Research Bulletin #153 (1984). 4. I’. F. Drucker, The Pmctice of Mnnnpwr~t (New York: Heinemann, 1955). 5. M. W. McCall and R. E. Kaplan, Wlmhcr It Tnkcs: Decision Makers of Work (Englewood Cliffs, N.J.: Prentice-Hall, 1985); H. Mintzberg, The Ahhrrc of Mntmpinl Work (New York: Harper & Row, 1973).
A. Elliott Carlisle is a professor of management at the University of Massachusetts, Amherst. Kent Carter is an assistant rofessor of management at the Universty of Maine Orono.
,
A frequent condemnation of U.S. corporate executives is their alleged preoccupation with short-term profits at the expense of long-term competitiveness. Executives deny this. But the survey results reported here indicate that profitability and financial condition are more important to executives than other objectives.
P
erhaps the most frequently offered explanation for U.S. firms’ diminished ability to compete effectively in world markets is a preoccupation with, short-term profits on the part of their chief executive officers. Insistence on immediate profitability, the argument goes, has resulted in underinvestment in plant and equipment, leading to higher prices for American products. Furthermore, unwillingness to spend the funds necessary to prepare new products has resulted in failure to satisfy changing customer tastes. These are believed by many to be the principal reasons for the massive U.S. trade deficit. Discussion on short-term profitability has appeared in general-interest publications, newspaper editorials and features, and business and academic journals. A 1980 Hm-vnrd Busi1zes.s Reviezo article argues that the United States has managed its way to economic decline by neglecting pro-
duction operations and focusing on short-term profits.’ A portion of a survey of CEOs in the U.S., Japan, and Europe by Nonaka and Okumura’ specifically addressed management objectives. They described the U.S. mode as emphasizing return on investment and stockholder gain; the Japanese mode as directed toward market share and new products; and the European mode as looking for return on investment. The Conference Board collected senior executives’ responses to allega t-ions that “U.S. managers focus too much attention on financial indicators that measure short-term results; and that this preoccupation diverts many enterprises from the pursuit of long term goals.” The survey reported that financial indicators constitute only one of a number of tools in a manager’s kit and, therefore, should not be blamed for the business community’s alleged
Business Horizons I
March-April
1988
“The study sought respondents’ perceptions of the importance of each of eight key managerial objectives, the information available as to its performance, and the adequacy of time they allowed to its attainment.”
78 difficulties with foreign competitors. In addition, the survey found that return on investment (calculated in several ways) is not.only the most widely used financial indicator, but it is also ranked first or second in relative importance by the greatest number of survey participants. Respondents pointed out that financial indicators may encourage short-term thinking
and cause managements to overlook, or play down, longer-range considerations. However, most (seven out of ten) survey participants rejected the assertion that their own firms’ use of financial indicators causes them to focus too intently on short-term results.3 In spite of such denials, the notion persists that short-term financial re-
sults have been pre-empting the longterm best interests of many firms. There are good reasons for executives to become preoccupied with short-term performance. They understandably respond to monthly or quarterly evaluations of their units’ performance when their own incomes and often their tenure are tied to such single indices as profitability or growth. When divisional executives are told by corporate vice presidents that those operations failing to achieve a 15 percent return on net assets will be considered candidates for divestiture, those whose figures are hovering around the target can hardly be expected to concentrate on the long run. Presidents of firms also recognize that their organizations’ shortterm results have an important influence not only on their bonuses, but also on stock prices, a significant factor in the appraisal of their performance by stockholders and boards of directors. The problem of the competitiveness of U.S. firms operating in a global market continues, and there is little, if any, empirical data on the priorities of the leaders of these firms. These leaders’ perceptions of organizational objectives deserve closer examination. RESEARCH
T
BACKGROUND
his study is a part of a series of U.S. and international surveys undertaken by the Management Control Center at the School of Management of the University of
Fortwe Service and Industrial 500 Presidents: Priorities and Perceptions
Table 1 Standard Deviations as Indicators of Response Consistency of the Perceptions of Service and Industrial Presidents
Objrctiw
Financial Condition of the Firm Profitability Worker Performance and Attitude Manager Development Marketing Produclivity Innovation Responsibility to the Public
Imyortnrrce
Adcqmy o f Avnilnble l~~forrm7tio~t
Service
lrhstrid
.326
.518
.567 .819 ,733 .871 .865 .897 .863
Massachusetts. These studies focus on the current priorities held and problems encountered by top leaders as they attempt to control their organizations in today’s rapidly changing business environment. The questionnaire was directed to the presidents of the Fortune 500 U.S. industrial and service companies. The study sought respondents’ perceptions of the importance of each of eight key managerial objectives, the information available as to its performance, and the adequacy of time they allowed to its attainment. The objectives used in this study were: profitability, financial condition of the firm, productivity, innovation, marketing, manager development, worker performance, and public responsibility. They were chosen from an almost endless list of possibilities for a number of reasons. First, they include the key functional areas involved in managing a large firm. Second, a careful reading of statements of corporate strategy and objectives shows these eight objectives provide the framework for the strategy of most large firms. Third, they were identified by Peter Drucker as areas “in which objectives of performance and results have to be set” as they “enable executives to organize and explain the whole range of business phenomena in a small number of general statements.“J We feel Peter Drucker’s influence on the thought and practice oi American business leaders is unparalleled. Therefore, his objectives
Time Devoted Service
Imfustrinl
Srrzh
Indwtrid
,969
,850
,455
.247
,487 .755
1.034 .833
.961 ,839
.557 .780
,531 ,634
.637 .833 .837 .815 .886
.858 .918 1.056 .810 .749
,999 1.059 1.072 1.020 .779
.628 .609 .662 .642 .625
,546 .592 .624 .661 .582
are appropriate to use in an analysis of their perceptions. Methodology
The questionnaire used in this study includes as variables the eight objectives listed above. Each objective is measured on three scales: its importance as perceived by the president, the information available to him in the specific area, and his perception of the adequacy of the amount of time devoted to it. A standard five point Likert-type scale, where 1 represents the lowest score and 5 the highest, was used to direct responses. The Management Control Center received and processed 131 industrial and 113 service company presidents’ questionnaires-a response rate of 26 percent and 23 percent, respectively. Statistical analysis (using the Statistical Package for the Social Sciences) was undertaken, and the findings are reported here. Interpretive comments were received from some of the respondents, but the scope and resources of the study could not provide for personal interviews on a large scale. The Limitations of Survey-Based Research
Survey respondents were invited to remain anonymous; nevertheless, some of them did include their names. This was not necessary, as requests for survey results could have been and were made in separate letters. The
promise of anonymity not only increases the likelihood of the president responding in person, it facilitates a greater degree of honesty and frankness in the response. The additional problem of inconsistency in interpretation can dramatically reduce the validity of information collected from surveys. In an effort to overcome this, the questions were formatted in short headings preceded by clear definitions of terminology and directions for answering. No respondents indicated difficulty or confusion in answering the survey questions. A final major concern is the well-known tendency for earlier respondents to be biased and later respondents to be more reliable in their answers. This problem can be, and was, adequately controlled during the statistical analysis procedures. One final caveat: there is no way of being certain that those who respond to any mailed questionnaire have the same perceptions as those who elect not to do so. FINDINGS
T
he presidents’ perceptions as to the eight objectives are re1 ported in Figures 1, 2 and 3. These are ranked in descending order in the three areas: importance (Figure 1), availability of information (Figure 2), and appropriateness of the amount of time devoted to each variable (Figure 3).
79
Business Horizons I March-April 1988 Figure 1 Average Responses of the Service and Industrial Company Presidents as to Importance
Mea
80
5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0
::. ::. .‘.‘. _‘.‘. ::. ::. ::. ::. ;:_ ,:;:. ::: :;: ::: ::: ::: :
Financial Condition of the Firm
Profitability
Worker Manager Performance Development and Attitude
0
f?J
Service Company Presidents
Industrial Company Presidents
To obtain a feeling for the dispersion of the responses, we also calculated the standard deviations of the responses to the questions in each of the areas (see Table 1). We report these statistics to show the variation in the presidents’ perceptions. The spread was very slight (generally less than one standard deviation), indicating that these executives tend to see eye to eye on these issues. Importance
Figure 1 makes it clear that in the eyes of presidents of large U.S. firms some objectives are signficantly more important than others. FinanciaI condition of the firm and profitability stand out and rank as significantly more important than any of the other objectives, a finding that strongly suggests that financial matters dominate a president’s priorities. It should. be
Marketing
noted that both profitability and financial condition of the firm are reported frequently, not only to a firm’s executives but in most instances to stockholders and the general public as well. Presidents rate manager development the most important of the remaining objectives. The firm’s survival and growth depends on capable management and orderly succession, and presidents do assign this area a very high priority, an indication of concern for the future. Presidents often emphasize their own personal commitment and that of their organizations to innovation as a key to maintaining competitiveness in the marketplace and improving stockholder value. Yet the survey shows innovation is not high on their lists of priorities. Innovation virtually always has a short-run depressing effect on profitability. It costs money to disrupt production operations with
Productivity
Innovation Responsibility to the Public
innovation in production methods and product design, yet these are the means used by foreign competition to achieve substantial penetration of the American marketplace. Presidents of service companies give innovation a significantly lower importance rating than that given by their counterparts in the industrial sector. One could speculate that increasing competition in the service area may close this gap. Interestingly, the objective rated lowest of all in importance by industrial presidents, responsibility to the public, is a frequent topic for their public speeches. The same depressing effect on short-term profitability takes place, as demonstrating real concern for responsibility to the public usually involves expenditure of stockholders’ money. On the other hand, service-company presidents rate it significantly more important than do industrial presidents, perhaps because of greater levels of gov-
Fortrrtlr
Service and Industrial 500 Presidents: Priorities and Perceptions
Figure 2 Average Responses of the Service and Industrial Company Presidents Concerning the Adequacy of Information Means 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5
I.;.:. :::
::: ::: ::: ;:: ::: :;: ::: ::. ;:: ;:: ,.:.:.: :::_ :::. _‘,‘_‘_ :_:.:.: ,‘_‘_’
i
Financial Condition of the Firm
Profitability
Worker Performance and Attitude
q
~.‘:: 1.;:. ;:: cl Industrial Company Presidents
Service Company Presidents
ernmental regulation
in the service
sector.
Productivi~/, worker performme, and tnarketing are ranked in the middle of
the list of the presidents’ priorities, more important than responsibility to the public, but less important than financial condition of the firm. Yet these three items are keys to improving the long-term competitive ability of U.S. ,(or any other nation’s) firms. Adequacy of Information
Financial condition of the firm and profitability also dominate the list of the presidents’ perceptions of the availability of information on key objective areas. This is not surprising: financial data are more easily quantifiable and obtainable than information about any of the other key areas. Furthermore, management-information systems are frequently housed in the corporate financial function. When we compare the adequacy of information available for industrial as
Manager Development
Marketing
opposed to service presidents, we see the former indicate that in at least two key areas (financial condition of the firm and profitability), they feel significantly better informed (see Figure 2). In the cases of responsibility to the public and worker performance, the service presidents feel they have more adequate information than their colleagues in the industrial sector. The survey results indicate a need to improve the availability to U.S. firms’ presidents (particularly in the industrial sector) of information about areas other than finance and profitability. Presidents of large U.S. firms feel that the information they receive about productivity, innovation, worker performance and attitude, and manager development is less adequate than that received about profitability, the financial condition of the firm, and even marketing. People do react more strongly to those areas about which they are well informed than those about which they are less informed; this may well be one reason
Productivity
Innovation
Reponsibility to the Public
why some areas are seen as more important than others. Allocation of Time
As far as allocation of time is concerned, again financial condition of the firm and profitability stand out (see Figure 3). Industrial-sector presidents rank responsibility to the public third, while service-sector presidents rank it second out of the eight objectives. Curiously, although industrial presidents rate innovation higher than do their counterparts in the service sector, the latter feel that they allocate significantly more time to this area. In addition, the bar graphs in Figures 1-3 show that the presidents have stronger feelings about the importance of questions than they do about the adequacy of information they receive, denoting their level of concern about the nature of their responsibilities. The shortest set of bars (that is, the lowest means) on the three bar
81
Business Horizons I March-April 1988 Figure 3 Average Responses of the Service and Industrial Company Presidents Concerning Giving Enough Time
Me; 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3
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5
:::... ;::I.. :IL _.
Financial Condition of the Firm
Profitability
Service Company Presidents charts is for allocation of time, suggesting that presidents feel that they never really have enough time to carry out all the duties that make up their responsibilities, not an uncommon complaint of presidents about their jobs. Variation between Responses
A statistical analysis of the standard deviations of presidents’ responses (see Table 1) shows the highest consistency of responses to questions in time allocation, the lowest in adequacy of available information, with importance in the middle. This holds true for responses of both service and industrial presidents. We may then conclude from this data that the presidents feel more uniformly about time than they do about any of the other areas of inquiry. They would probably argue that having an inadequate amount of time is an innate characteristic of the job of president. There is great variation in response to questions about adequacy of available information. Clearly, the presidents’ confidence in the information they receive about key performance areas in their organizations varies considerably, revealing differences in
1::. :.. ;:,:‘:;_:>:’. :: ... ;I:.:‘: Worker Manager Performance Development and Attitude
Marketing
Productivity
Innovation
Responsibility to the Public
Industrial Company Presidents the sophistication of management-information systems or reporting procedures. It is also interesting to note that the service-sector presidents are even more divided on this issue than are their colleagues in the industrial sector. Further analysis of similar data may reveal a relationship between size of organizations and perceptions of adequacy of information. Examination of standard deviations in importance indicates great consistency of response to questions about financial condition of the firm and profitability for both industrial and service sectors. Presidents are in agreement as to their assessment of these key responsibility areas.
CONCLUSIONS
The question of whether U.S. executives overemphasize profitability to the detriment of the long-term growth and welfare of their organizations will never be definitely answered. One portion of this study confirms the dominance of the financial dimensions in the priorities of top executives of large American industrial companies found in the Nonaka
1
and Okumura study cited earlier. Our study indicates, on the basis of empirical data rather than conventional wisdom (the principal basis for these claims in the past), that Fortum 500 presidents from both industrial and service firms perceive that financial condition and profitability are the most important of the eight organizational objectives studied. The results also suggest that presidents would welcome better information on the other key areas and, not surprisingly, that they feel they do not have as much time as they would like to allocate to their responsibilities. One can argue that profitability and financial condition of the firm are the products of management decisions made at an earlier time and they reflect past management decisions, but the other key results areas are essential for modifying present strategy or planning for the future. The primary responsibility of company presidents is making and implementing decisions that will affect the survival and growth of their organizations in the future; accordingly, if their organizations are to develop viable strategies to compete effectively in the global marketplace, they must recognize the importance of all of the key areas, even those that produce a short-
Fortrrtrc
Service and Industrial 500 Presidents: Priorities and Perceptions
“Presidents responding to the study indicate that the information they receive about productivity, innovation, tind worker performance is significantly less adequate than that available about other areas of their responsibility.”
83
term decline in profitability. Compensation systems for presidents and other top-level managers that are based on short-term profitability to the virtual exclusion of such other key performance areas as innovation and productivity are bound to give financial indices the supremacy that was shown in this study. Presidents responding to the study indicate that the information they receive about productivity, innovation, and worker performance is significantly less adequate than that available about other areas of their responsibility. Management-information systems specialists, both inside the organizations and in the software industry, need to turn their attention to this problem. Foreign companies have been enormously successful in winning customers with innovation, productivity, and an enthusiastic work force. It is not unreasonable to suggest that U.S. firms presidents’ lack of adequate information, coupled with constant time pressure, diverts their attention from
these crucial responsibilities to more immediate concerns. The anonymity of many of the respondents makes it difficult to associate response patterns of presidents with the size or industry of their firms; however, a substantial number felt no heiitancy in identifying themselves or their firms, and the analysis of these relationships may well yield further valuable information.
T
he Management Control Center has replicated this study with the presidents of Canadian firms, and findings are currently being analyzed. Comparisons among importance, adequacy of information, and allocation of time should indicate the extent to which presidents’ jobs are related to their -firm’s size, business sector, and country. Future research should include comparisons with the firms of Japan and other developed countries utilizing this same questionnaire. Some research has been carried out on the time dimension of the CEO’s
job;5 however, further research on the adequacy of information question would be enormously helpful. Emphasis on analyzing how corporate management-information-system departments develop executive information in the areas of productivity, innovation, manager development, and worker performance would also provide useful data on how to structure the top executive’s time so that more can be accomplished. 0
1. R. H. Hayes and W. J. Abernathy, “Managing Our Way to Economic Decline,” Hnrvord Busirwss Reuiezu, 58, (July-August 1980): pp. 6777. 2. 1. Nonaka and A. Okumura, “A Comparison of Management in American, Japanese and European Firms,” Mntmgotrer~t /qm, 17:l (1984): 23-40; 17:2: 20-27. 3. Mmrrriq B~tsit~css Perfortnmce, The Conference Board, Research Bulletin #153 (1984). 4. I’. F. Drucker, The Pmctice of Mnnnpwr~t (New York: Heinemann, 1955). 5. M. W. McCall and R. E. Kaplan, Wlmhcr It Tnkcs: Decision Makers of Work (Englewood Cliffs, N.J.: Prentice-Hall, 1985); H. Mintzberg, The Ahhrrc of Mntmpinl Work (New York: Harper & Row, 1973).