William Dunk's 1994 Annual Report On Annual Reports


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Once a year (for more than 10 years) William Dunk, a management consultant in Dallas and New York, reviews major editorial trends in corporate annual reports. Once head of Corporate Annual Reports, then the largest preparer of Fortune 100 annual reports, he now focuses on strategic, management development, and corporate reputation issues for companies in North America and Europe.

At William Dunk Partners, we have discovered that content analysis of annual reports can (a) help predict which companies will do well investment-wise for the ensuing 18 months and (b) uncover competitive thinking that should drive global strategic shifts in forward-thinking organizations. For instance, the 93 reports reveal a broad change in how major thoughtful organizations communicate externally and internally. They now see grim competition in global markets for the decade to come and are preparing employees and investors for relentless competition, relentless austerity, relentless striving--for a decade of economic war in business.

In our 1993 review (of 1992 reports), we said reports were design-poor and word-rich. The exceptionally wordy 1992 reports either were full of business schooltype essays or slogan-heavy language calculated to show that corporate leaders had mastered the science of management or the rhetoric of leadership. The 93 crop is about reengineering, revenue, and reform. Last year was theory; this year deals more realistically with the practical difficulties of business transformation.

The present business mood is best summarized by George B. Bennett, the chairman of Symmetrix, the nation's most creative reengineering firm, "We've done wonders in corporate divisions or in re-doing some business processes. But now we're up against the tough one--trying to transform whole corporations in the context of troubled, flat markets in North America, Japan, and Europe. And instead of realigning the behavior and attitudes of 1,000 people, we're trying to reach 25,000 or 125,000 or 250,000 people. How do you scale up reengineering technology to reach across the globe to affect vast numbers of people operating in very different but universally troubled markets?"

All the major corporations have discovered reengineering. A few have discovered it's very hard, unrelenting, sometimes unrewarding work. Chrysler 93, whose whole book really amounts to an essay on reengineering, notes that "We're not yet the company we want to be" and that "We're starting to institutionalize dissatisfaction," recognizing that even with all its recent success, it is not half the corporation it has to be. But management feels it is terribly realistic about the depth of its challenge, claiming that "establishing our vision as a process rather than a dream ties it to the reality of constant change. . . ."

John Welch of General Electric has been dealing with reengineering themes for several years in his annual reports letters. He's at it again this year, dwelling on the kind of consciousness it takes to produce a reprocessed corporation--"Boundaryless, Speed, Stretch putting this all together: boundaryless people, excited by speed and inspired by stretch dreams, have an absolutely infinite capacity to improve everything."

And Nation's Bank, North Carolina's regional banking juggernaut, includes this year an essay on "Model Banking: A New Way of Doing Business," where it talks about the way it has redesigned its business process in response to intense non-banking competition. It has needed a goad to reengineer itself, and it has found the prod--outside banking.

So far, of course, reengineering has been more about cutting costs and firing people--about downsizing--than growing the corporation. New CEOs realize once again that they have to grow, even with the sluggishness of the U. S., Japanese, and European economies. One of the best reports of the year--Emerson Electric 93--takes this lesson very much to heart:

To implement our cost reduction programs and restructure manufacturing costs, Emerson invested more than $300 million in non-recurring expenses over the last two years. In the next five years, we plan to commit a similar level of funds to support investments in identified sales programs.

The cornerstones of this growth program are in place: acceleration of new product introductions, rapid expansion of our Asian infrastructure, redeployment of key assets into joint ventures, and strong momentum in our acquisition program.

Revenues, not expense-cutting, are moving to center stage as the key focus for business as we move towards 1995. We would suggest that investors will be paying more attention to top-line growth, less to bottom-line results. It is from Emerson's first two initiatives for growth--new product introductions and global growth--that most companies expect to fuel their expansion.

Rapid Production Introduction
Chrysler proudly brags that it "can take a vehicle from program approval to the customer's garage faster and at a lower cost than our competition." Kimberly Clark's report, devoted this year to innovation, shows how it has constantly tweaked all its product lines from Huggies to Kotex to sustain or gain marketshare. H.J. Heinz "introduced a record 500 new products and increased . . . marketing support to all-time high levels."

Global Penetration
Suddenly, this year, consumer companies no longer have brands: they now have global brands. Philip Morris cites "The World's Best Brands." More importantly a host of companies see their next burst of revenues coming from global activity. Campbell pledges to focus on "Global Marketing." Coca-Cola points out that it is only really reaching 20% of the world's population: the other 80% is its market of the future. Maxus, an oil exploration company, dots its whole report with maps from cover to cover, in order to clearly define its future in global terms.

In this new competitive landscape of reengineering and hard-won revenue growth, a paradox arises. We are trying to achieve revenue growth even as we are shrinking our employee population, and sometimes, our capital base. How do you grow with less horsepower? This atmosphere is so demanding that corporations are literally seeking to reform the character and behavior of their employee populations.

In this vein, AT&T--the other outstanding annual report of 1993--is remarkable not for what's inside its cover, but for what's outside its covers. On its rear cover appears a statement about values and ethics--"We commit to these values to guide our decisions and behavior." More than most large companies, AT&T is making an attempt to make its values very, very apparent to its constituencies--values which neatly link to its current positioning statement: "Bringing People Together Anytime Anywhere." To accomplish its business goals, AT&T (and other companies) is linking the accomplishment of its business objectives to moral commitment and intensely cooperative behavior on the part of its employees.

John Welch of GE is even more explicit about the fact that he expects radically different behavior out of his managers in order to move mountains with too few shovels:

What we are looking for today at GE are leaders at every level who can energize, excite and coach rather then enervate, depress, and control. And never has this atmosphere been more critical. Today, everyone must be engaged if we are to win.

To be blunt, the two quickest ways to part company with GE are, one, to commit an integrity violation or, two, to be a controlling, turf-defending, oppressive manager who can't change and who saps and squeezes people. . .

Utter dedication to the enterprise. Hyper performance in a team setting. And one other element is part of the corporate formula for navigating through the 1990's perpetual dissatisfaction. Lewis Platt of Hewlett Packard, who had a big earnings leap, moans, "Despite these gains, we didn't improve profit margins as we had hoped." Lawrence Bossidy of Allied Signal berates Allied's "layers of bureaucracy," lack of customer orientation, and "stagnant sales." Chrysler, as we noted above, pridefully announces it is building a culture of "dissatisfaction."

At William Dunk Partners, our ethics practice has been soaring. In part this is a response of business leaders to managers and workers whom they find to be fractious and divided. But most of all, it appears to be an attempt to put the Protestant Ethic back in business. The work ethic. Austerity. Guilt. Dissatisfaction with the status quo. A Reformation is sensed to be the critical ingredient in creating reengineered growth companies.

The most striking report we've seen this year is the Chicago Board of Trade (CBOT) 1993, which dramatically invokes all the furor of the options floor with big, dramatic invocations of the words and cries you'd hear on an exchange. Perhaps the most popular report has been Scoreboard 93 which includes trading cards from Shaquille O'Neal to Troy Aikman: this underscores the fact that annual reports are becoming more of a hard-sell, advertising medium. Oracle 93 has put its annual report on a CD-ROM, but it's already such a bestseller that it's out of stock.

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