Strategic Planning
Part 2 of 7

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Growth of the Marketing Function Excess Manufacturing Capacity

During the early to middle 1960's this demand versus capacity imbalance was reversed and many companies found themselves with significant excess capacity for the first time. Sales were no longer assured and profits began to deteriorate. Management struggled for a solution to fill this excess capacity. The quickest solution was to simply increase sales to previous levels. The job was given to Marketing and the result was the emergence of the that function. It grew in size, status, and influence. To address the need for greater sales, Marketing developed two new general strategies.

New Products

The first strategy was to introduce new products which would consume some of the excess capacity. Many of the new products were outside the narrow product ranges of earlier decades. As a result, many were not a good fit for existing factory systems and technologies. Too often new products were superimposed into the existing factory rather then given their own, dedicated systems and facilities. The poor match between new products and existing systems and technologies led to significant quality and efficiency problems. The additional new products also substantially increased the operational complexity on the factory floor. As a result, profits continued to deteriorate.

Product Differentiation

The second marketing strategy was to engage in significant product differentiation in an attempt to increase market share for existing products. The theory was that signifi­cant product changes would allow the company to differen­tiate its products from those of its competitors and thereby gain market share which would boost sales revenue and consume some of the excess manufacturing capacity. How­ever, the resulting product changes were not a good match for existing manufacturing capabilities. In many cases the differentiation was so great as to constitute new products from a manufacturing viewpoint. So even though the total sales for the product "family" increased, the impact on manufacturing was to significantly reduce effective prod­uct volumes. Smaller production volumes reduced efficien­cies, increased costs, and increased delivery lead times. These problems more than offset the benefits of higher sales for the product family. The differentiated products also contributed to the increasing operational complexity on the factory floor.

Results of the Marketing Initiatives

The result of these two marketing initiatives was to in­crease total sales as planned, but they were accompanied by a continuing deterioration of profitability. Product quality and delivery lead times deteriorated at a time when foreign competition began to secure a foothold against domestic manufacturers. Moreover, the complexity of the factory environment had dramatically increased making the identification and implementation of any solution more difficult.

Manufacturing Is the Scapegoat

Senior managers surveyed the results of the marketing initiatives. Since sales had increased, they concluded that the problem lay outside of the Marketing Department. Since Manufacturing seemed unable to perform its mis­sions of quality, cost, and delivery adequately, it was largely blamed for the continued decline in profitability. The manufacturing function lost additional status and influence.

Growth of the Finance and Accounting Functions

The Baton Is Passed to Finance and Accounting
As companies entered the decade of the 1970's, a new approach was attempted. Since the problem was no longer deemed to be one of adequate sales but one of profitability, the logical solution was thought to be one of better financial analysis and planning. As a result. the problem was given to the Finance and Accounting functions which subse­quently grew in size, status, and influence. The key, so the theory went, was for them to make their contribution more proactive by getting them involved early in the decision process rather than as "scorekeepers" who reported results "after the fact."

To be Continued