The evolution of ROI

By |  January 26, 2019

Change rarely happens overnight. In the aggregate industry, change typically unfolds at a rather gradual pace.

George Sidney, the president and COO of McLanahan Corp. who retired at the end of 2018, experienced a number of industry changes over the course of his 45-year career. Sidney looks back on the last five decades and considers the industry’s biggest change to be the shift in mine company management from operations personnel to accounting.

“It totally affects the way people purchase equipment or services,” Sidney says. “They’re not looking at the down-the-road effect of purchases, but what it is doing to save us money today.”

A company like McLanahan prides itself on building equipment that lasts over the long haul. Some McLanahan equipment made nearly a century ago continues to run strong, Sidney says. The same goes for other brands that have historic equipment active in the field.

When it comes to buying equipment today, outlooks are much more short-term, Sidney says, and a return on investment is coveted quickly. This equipment-purchasing approach is far more evident in the largest aggregate producers, particularly the publicly traded ones that prioritize shareholder reward. But even smaller companies are more fiscally focused now than they were 45 years ago.

“You have to know what the numbers say,” Sidney says. “Forecasting is so important, as well as cash flow. These are terms you just didn’t hear when I started in the business.”

Reinforcing this concept

A graduate of Penn State, Sidney once returned to his alma mater for a seminar in the industrial engineering department. The seminar, however, proved to be a lesson more for the professor than the attending business owners.

“They were working through scenarios of investment, and the professor made a statement [about] figuring the payback on the investment over a 20-year timeline.”

The seminar stopped in its tracks. Attendees were puzzled, looking around the room to see if others were in agreement about the timeline. Finally, a business owner explained why a 20-year payback wouldn’t fly in his business. The professor chuckled and asked the owner what a fair timeline on a return was.

“If I can’t get a return on investment in three years, I don’t do it,” the owner said.

The professor laughed at the remark but quickly realized no one else was laughing. Soon, another man stated that he wouldn’t make an investment if he couldn’t get a return within 18 months.

“Honestly, that’s how it is today,” Sidney says.

*Featured Image: Megan Smalley

Comments are closed