What can business management do about the profit squeeze?

              What can
business management do
about the profit squeeze?
by Lynn A.Townsend*
Mr. Townsend was a partner in Touche, Ross, Bailey ir Smart
before joining Chrysler Corporation. He spent 10 years with
our firm . . . he started in 1947 as supervising accountant at
George Bailey &r Company, and became a partner in 1952.
In 1957 Mr. Townsend was elected comptroller of Chrysler
and in 1958 was named group vice president—International
Operations in charge of all Chrysler Corporation activities
outside the United States.
He was elected a member of Chrysler Corporation's Board
of Directors in January, 1959 and has served on the board's
executive committee since it was established in July, 1961.
A native of Michigan, Mr. Townsend graduated from the
University of Michigan where he received the degrees of bach­elor
of arts in 1940 and master of business administration
with distinction in 1941. He spent three years with Ernst &
Ernst in Detroit before joining the Navy in 1944 as a disburs­ing
officer.
1 ODAY THERE is NO QUESTION whatever about the im­p
o r t a n c e of a c c o u n t i n g in p l a n n i n g a company's
profitable future. Without sound financial information
no company can make meaningful plans—and without
financial discipline no plans can be successfully exe­cuted.
I n t h e minds of most accountants today t he
function of record keeping and statement presentation
is still important but subordinate to profit planning
and control. T h e main job of modern accountancy is to
analyze a company's past and projected earnings per­formance
and to see what can be done to improve profits
* From an address at the 36th Annual Michigan Accounting
Conference, University of Michigan, October 12th, 1962.
in the short and long-range future. And with this new
emphasis, the importance of accountancy has increased
accordingly.
How and why did this come about? Was this the
natural and logical course of evolution that the profes­sion
of accountancy was bound to take? Possibly. But
it is more likely that this development has been forced
and speeded up by a special set of circumstances affect­ing
the entire world of business in recent years.
As we all know, during the early years after the end
of World War I I the main concern of the American
manufacturer was to produce enough goods to keep up
with demand. Capacity was the big, overriding problem.
In those days it was one of the pleasant duties of the
financial staff to bring to top management the good
news concerning the current and expected rate of prof­its.
And as far out ahead as anyone could see, it ap­peared
that the curve of profits would continue to rise
steadily.
As might have been expected, that situation was too
good to last. As soon as the first big postwar demands
had been satisfied and manufacturing capacity had been
increased in anticipation of that unlimited rising curve
of profits, domestic competition began to get tougher,
and this put a strong downward pressure on the prices
of finished products. On the other hand, the steadily
6 THE QUARTERLY