William Dunk's 1996 Annual Report On Annual Reports


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We are at a strange juncture in politics where the consumer is not buying Brand X, Brand Y, or Brand Z. We've just been through Republican primaries in which the party elders have engineered a vote for old Bob, but the exit polls don't show any overwhelming desire for Bob or Pat or Lamar or Steve or Dick or Alan or Morry or whomever. And Whitewash Bill is clearly taken to be flawed merchandise. If you throw in a touch of Greenspan, you've got tepid economic growth, government without leadership, and an eroding standard of living for a substantial majority of the electorate. In general, government and business lack a growth strategy for the economy.

About 6 years ago we started saying to our clientele that the mandate for the economy and for individual businesses was to start growing again. Ultimately, you could not shrink your way into health. From 1983 - 1993, on average, American big business grew a negative 0.3%: it shrunk. Services have been growing overall -- a key to America's future growth.

If government has not gotten the message, business has. In our March 1995 report to you, we said the 1994 crop of annual reports overwhelmingly showed that American business was putting a premium on global (translate overseas) growth. This year many reports are still on that global message now including Proctor and Gamble, Goodyear, Walmart, and Inco, amongst others. In this vein, I was delighted to learn last night that P & G's Head and Shoulders has come to own the Chinese shampoo market, because the Chinese seem to have a lot of dandruff. Today's tired brands can still do well around the globe.

But 1995's leading-edge annual reports show a big preference for new products, just as there seems to be a yen for something genuinely new in politics. Genuinely new products, that is, are taken to be the key to growth this year. We're hearing less about global growth.

This includes mild product statements such as GE's "more new ideas from G E" (p. 67) or Heinz's extensive tableau of all its products on its cover. But the real new product believers are much more direct about their commitment. Emerson brags that 26% of its sales come from products introduced in the last 5 years, and, it says, "we are targeting to increase this key measure to 35 percent, and believe we have the programs in place to accomplish this objective during the next five years." Applied Materials reports that "New products introduced in the last 3 years accounted for 60 percent of revenue in 1995. . . ."

Others report one key product introduction that will ostensibly push a corporation on an accelerated growth path. Microsoft with its Windows 95. Herman Miller with its Aeron Chair. Like the moviemakers, these companies are planning on one huge blockbuster.

The best of breed of these new product reports comes from Anaren, a smallish microwave component company in Rochester, New York. It put a small advanced coupler on its cover, saying, "This is all we have to show for this year." It's saying that its new product offerings will remake this defense electronics company into a wireless component supplier.

If you've got the wrong products, get some right ones. If you can't invent them, buy them. That's what Quaker thinks. "We added brands with high-growth potential like Snapple, and divested lower-growth, lower-margin businesses, like pet foods." Of course, it remains to be seen whether the oats people can keep the snap in Snapple.

Well, we've said here that America's looking for new products in politics and in business. We're also looking for an end to gridlock, for politicians and businessmen who can get something done. In annual reports, this translates into "speed." David Johnson of Campbell Soup says, "I tell all employees there are no speed limits on the road to excellence. We can't be fined for speeding."

A somewhat turgid GE annual report still can brag of learning "to do things faster than we would have going after 'double goals,' while claiming to be "growing rapidly into the next century." R. R. Donnelly, the Chicago printing goliath, instructs us:

The marketplace is demanding not only speed, but new ways of thinking about speed. In many of our businesses, faster, increasingly is better, and companies must be able to act at least as quickly as their fastest moving customers.

But neither "new products" or "speed," taken alone, are the right message for this year. The companies that must command our attention are those that are talking about new products and speed in the same breath. Warner Lambert's 1995 report captures it--"Bringing great products to market with maximum speed." "Emphasizing new products and speed to market, Black & Decker's product development process is a significant competitive advantage. . . . "

As interesting, this year, is First Union Corporation, a North Carolina Bank that one formerly considered a trifle sleepy. Rip Van Winkle is waking up. The 1995 report has a web address on the cover, with a CD-ROM inside that is at once an annual report, but also links to First Union's home page, and is an on-line connection to its banking services. First Union, it seems, is making a big bet on technology, making old services into new products by using technology to deliver the services to customers more rapidly in entirely different ways. What this suggests is that in retail and service businesses, new products are to be created by devising new, faster ways of delivering old products.

The reports that hit the nail on the head this year were the ones that put speed and new products together. Those who have done it are probably the winners for investors in 1995-1996. Longer term, however, investors should pay attention to those who have a more comprehensive long-term strategy for growth. Sara Lee, for instance, talks about exploiting new distribution channels, driving down production costs, and acquiring new brands in its present market segments. Emerson sees growth coming from a focused business organization, new product development, international expansion, acquisitions and joint ventures, and its Best Cost Producer Program. For the long term, the companies which grow consistently will probably have articulated complex development models such as these.

Having carefully read all these earnest paeans to growth, we now anxiously await Vorwerk of Germany's 1995 report. Its leader, Manfred Piwinger, is obviously not in such a hurry. I think his report gets out sometime in May. Last year his report was all about laughter, starting with a winking Mona Lisa on the cover. This 112-year-old company is in everything from appliances to carpets. What will Mr. Piwinger do this year? Stay tuned. Laughter itself is a pretty rare product these days.

Kodak 95 proves our point. Its cover tells us to "Smile," but there's precious little laughter in the array of photos inside. Perhaps American business is simply too uptight, and that's why it's having a hard time growing. And why, when you visit middle managers of Fortune 500 companies, they appear to a man and to a woman to be worried whether they'll have jobs tomorrow.

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