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ISM 2016: Behind the ISM Manufacturing Index

Last month, the Ardent Partners analyst team took the short flight out to Indianapolis to attend the Institute for Supply Management’s (ISM) 101st annual conference. For the second year in a row, we had the pleasure of meeting with ISM’s CEO, Tom Derry, to discuss all things ISM. The conversation covered the growth of the ISM Conference and the changing demographics of its attendees. It also covered progressive ISM programs, like the 30-under-30 Recognition program and the Richter Scholarship, plus new learning solutions, like eISM and the Mastery Model, that are all intended to help grow the organization, particularly among the millennial generation. We also gained some insight into the ISM Manufacturing Index, a global economic metric that resonates far and wide, but remains shrouded in mystery. We covered enough ground with Tom to span multiple articles. Today’s article is the third and final installment of a multi-part series.

Behind the ISM Manufacturing Index

About halfway through our conversation with Tom, the discussion turned to the Purchasing Manager’s Index (“PMI”), also called the Manufacturing Index, or simply “the ISM Number.” The PMI is a widely regarded indicator of global economic strength and one of the first metrics of its kind to be considered by international business leaders and heads of state. “We’re sort of the Godfather of this method of economic research,” said Tom. But rather than discuss the PMI directly, he opted to trace the evolutionary developments of ISM’s products and services and put the metric into greater context.

For starters, Tom highlighted the nearly 50-year gap between the launch of The ISM Manufacturing Report On Business in 1931 and the PMI – “the crown jewel of ISM” – in 1982. He also noted the release of its sister report, the Non-Manufacturing Report On Business, and the accompanying Non-Manufacturing Index (“NMI”) in 1998, followed by the NMI composite index in 2008. Over time, these reports and metrics have become economic bellwethers for many organizations, and their impact is felt across markets and regions.

In fact, ISM’s data has mostly been consumed by people running businesses to help them fine tune their strategies and make better decisions. Some might say that this is akin to telling people the direction in which the wind blows – helpful on some level but lacking in deep strategic value. Still, the PMI is a major economic indicator with significant growth potential, and “a fair amount of mindshare is invested in this part of the business,” said Tom. As a result, ISM takes their responsibility to produce accurate and insightful information and to safeguard its analysis and reporting very seriously. And for good reason.

The organization sits at the intersection of where supply meets demand. Not surprisingly, Tom has regular meetings with major U.S. Government institutions and receives calls from Wall Street. Due to ISM’s unique position and the attention that it attracts, Tom believes that its role is changing. He also believes that there is an opportunity for ISM to build upon the PMI and NMI and go to market with something new that will be of even greater value to investors and business leaders worldwide. However, only Tom and his staff know what that is or what it would look like.

Because of the sensitive nature of the numbers and their impact, Tom cautions that “the reputational risk to ISM is potentially very high” if their analyses would be compromised in some way. As a result, ISM invests a considerable amount of mindshare into conducting its economic analyses and publishing the PMI; those costs would become more significant if the organization goes to market with additional analyses and outlooks.

Final Thoughts

Tom was careful not to give away too much during our interview, only to foreshadow what may lie ahead for ISM in terms of economic forecasting. For now, he remains focused on how ISM can provide a greater service to both business managers and owners, whether that is through traditional outputs like the PMI and NMI metrics, or new products and services, like the Mastery Model and eISM. But one thing is for sure: when they do publish something new, everyone will be watching.

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