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Survey shows that little seems to be gained by annual planning; why bother? Plus: the rebirth of IPOs, Amerco's CFO departs, and low-paid employees being laid off in droves.
Stephen Taub, CFO.com | US
August 12, 2003
If summer is starting to ebb away, can strategic planning be far behind?
In just a few weeks, scores of corporate executives will begin their annual exercise in torture: that is, the setting out a strategic plan for the coming year. It's a pursuit that many managers dread, particularly since staffs at many companies are already overloaded.
And make no mistake, strategic planning eats up corporate manhours. According to a recent survey conducted by The Buttonwood Group, the annual strategic plan for a typical U.S. company requires 10.5 days of work for about 22 percent of that company's employees.
Strategic planning also costs a lot of money.
The average company in the Buttonwood survey (with just over 3,000 employees and $850 million in sales) will spend $3.1 million to produce the plan. Altogether, companies with at least 500 employees shelled out an estimated $55 billion on the annual planning process, the survey found.
Managers at most of the surveyed companies, however, apparently believe this is a waste of money.
Just one quarter of the respondents at the 225 companies surveyed felt their annual planning process is time well spent (from a shareholder's perspective). According to Lawrence Serven, a principal of Buttonwood. "The annual plan is a big and visible task across Corporate America, and unfortunately only a few companies are extracting significant value from it."
More than half of those surveyed did say the planning process controls costs. Otherwise, few respondents had good things to say about the exercise. For example:
How do companies divide their time when going through this planning process?
Respondents indicated they spend about half their time "developing departmental budgets" and "making sales and revenue projections."
They devote an additional 32 percent of their time to other types of expense projections, including capital spending, marketing and R&D.
"Most employees will tell you they hate working on the annual plan, which many see as a time-consuming budget exercise with seemingly endless reviews and revisions," said Serven. "But the real issue for most people is relevance, because the annual plan at many companies is really an exercise around 'the numbers we want next year,' rather than an integrated process where budgets and forecasts flow out of corporate strategy and into operating plans and incentive programs."
On the other hand, companies in the Buttonwood survey said they spent just 16 percent of their planning time "developing strategic direction." However, they said they would like to boost time spent in this area to 29 percent. At the same time, they would cut time spent on "developing departmental budgets" from 26 percent to 16 percent.
Rebirth of IPOs?
The climate for initial offerings of stock continues to improve.
As proof: This could wind up becoming the busiest week for IPOs since last August, according to Reuters.
Four companies plan to offer their shares for the first time, and will raise a total of about $335 million.
Granted, $335 million was a morning's work during the late 1990s stock market boom. Still, if all four deals go through, it would mark the most since the week of Nov. 4, according to the wire service, citing data provider Dealogic LLC.
July, in fact, was the first month this year in which there have been more than four IPOs.
Altogether, just 19 companies have gone public in the U.S. so far this year, according to The New York Times. As a result, this could mark the fewest IPOs since the 1970s.
The companies that have launched IPOs have fared pretty well, however. First-day gains in share prices for public offerings so far in the third quarter have averaged 26 percent, according to The Times, citing Thomson Financial. And all but one of the 19 companies that have gone public so far in 2003 are still trading above their opening day prices.
So, who is planning to go public this week?
Direct General Corp., a provider of "nonstandard" car insurance, is shaping up to be the biggest deal of the week, as the company and shareholders plan to sell 6.9 million shares at $19 to $21 each, raising roughly $139 million. In fact, nearly half the shares will be sold by existing shareholders -- a fact which may not be taken as an encouraging sign by potential investors.
Another company that this week plans to issue its shares for the first time: Gladstone Commercial Corp., a six-month-old real estate company. Gladstone expects to sell 5.5 million shares at $15 a pop, raising about $82.5 million.
Bank holding company Texas Capital Bancshares Inc. and shareholders plan to sell 6 million shares at $10 to $12 per share, raising about $66 million.
And Providence Service Corp. and shareholders plan to sell 4.3 million shares at $10 to $12 each, raising about $47.3 million. It provides government-sponsored social services, such as counseling and foster care, both directly and through not-for-profit social services organizations.
SEC Probing Two Companies
Two companies Friday announced that they are the subject of a Securities and Exchange Commission probe.
Management at oilfield services specialist Baker Hughes Inc. said the commission has issued a subpoena seeking information about the company's operations in Angola and Kazakhstan.
Baker Hughes said it intends to provide documents and to cooperate with the SEC in its ongoing investigation.
The company also said it was conducting an internal investigation into the matter.
Meanwhile, Transaction Systems Architects, Inc., a provider of e-commerce software, reported that it too is being investigated by the SEC in connection with a prior restatement of its financials.
The company has already acknowledged it has been in contact with the SEC in connection with the restatement and said it has met with representatives of the commission and responded to questions and provided additional written information regarding the restatement.
The company said it will continue to cooperate fully with the SEC's probe.
Fifty-six percent of the survey participants said they and some of their family members have been laid off at least once, while 63 percent of those workers who have a high school education said that they or a family member had been laid off at least once during their work lives, according to the study.
Also, 44 percent of those with a college degree have been downsized.