CFO’s Aren’t Too Optimistic, What Does That Mean for Sales People?

Twitter pointed me to this article this morning, it’s from Business Finance Magazine. As read it I couldn’t help but think of it as sales gold.

Having insight into what our customers and prospects are thinking is a tremendous benefit. This article gives us a lot to think about and leverage.

If you sell B2B, this is worth the read.  As you read it be thinking about your sales world.

Sales leaders, as you read it, what do you surmise   You should be planning for 2013.  What does this survey tell you about 2013?  How will it affect your sales planning? How does this information affect your sales organization?

Optimism among large-company CFOs plunged again in the third quarter, as company financial performance expectations were scaled back amid renewed concerns about global economic conditions, according to Deloitte’s most recent CFO Signals survey. The quarterly survey tracks the thinking and actions of CFOs representing North American companies averaging more than $5 billion in annual revenue.

The fall in third-quarter sentiment cut so deeply that CFOs’ expectations for several important company performance metrics fell sharply lower as well. In fact, year-over-year expectations for sales, earnings, capital investment, and hiring growth all sunk to their lowest levels in the 10-quarter history of the survey.

Forty percent of CFOs report rising pessimism about their companies’ prospects (up from 28% in the second quarter). On the performance level, expectations for year-over-year sales growth fell to 4.8%* in the third quarter, from 6.6%* in the second. CFOs’ expectations for earnings growth dipped to 8% versus 10.5%* in the second quarter.

(*All numbers with an asterisk are averages that have been adjusted to eliminate the effects of stark outliers.)

Perhaps even more concerning is the large drop in their expectations for capital investment, which tumbled to 4.7%* growth versus 11.4%* in the second quarter. Slightly more than half of CFOs expect gains at all, and the median expectation is now just 3%*. Economic volatility, uncertainty about the November elections, and the U.S. “fiscal cliff” were among the issues weighing on CFOs’ minds in the third quarter. But there may be more to CFOs’ trepidation than political or policy uncertainty, looking at the third-quarter results. It may be the case that the levers capable of allowing companies to outperform their underlying economies have mostly been pulled, or at least that the strongest levers have. If so, further gains are going to be even tougher to achieve.

Global economic developments have clearly taken a big toll on CFOs’ expectations for their home economies. In the U.S., more than 80% of CFOs say their economy is either stalling or about to stall. In Canada and Mexico, about 65% of CFOs have similar views. Overall, nearly 60% of CFOs mention U.S. or global economic conditions as their most worrisome risk, while one-third of those CFOs specifically mention European conditions. Nearly two-thirds of CFOs say their companies have been working to reduce their exposure to Europe, with the most common changes involving cash levels, treasury/FX approaches, and banking relationships.

In the U.S. specifically, the presidential election and a pending fiscal cliff are clearly making CFOs nervous. About one-quarter of CFOs name government- and regulation-related issues their most worrisome risk. Weighing on CFOs’ minds, in particular, are possible changes to tax and regulatory policy and the potential impact of U.S. elections on policy and equity markets.

Meanwhile, 58% of companies overall are not taking any steps to address the fiscal cliff. Those who are taking steps say they are mostly delaying hiring and capital investment.

Fiscal Cliff Crimps Hiring Plans

The fiscal cliff appears to be a contributing factor to CFOs’ projections for scaled-back hiring, although it is likely not the sole cause. While unemployment is among CFOs’ top concerns related to the economy, expectations for hiring domestically fell to a low of 0.6%*. The median expectation is now 0%, with 40% of CFOs projecting gains and 27% projecting cuts. U.S. projections plummeted from 1.9%* to 0.2%*, while Canadian projections declined from 2.7%* to 1.1%*. Offshore personnel growth fell to just 1.5%* this quarter, and outsourced staffing growth fell to just 1.6%*—both additional survey lows.

Employer-sponsored Health Coverage Alive and Well

U.S. CFOs have been grappling with the fallout from health care reform for two years now. In the latest survey, CFOs overwhelmingly said their companies will maintain current enrollment levels and/or maintain the levels and scope of benefits they provide. Just 2% say they are considering limiting coverage to the legal minimum, and none are considering dropping employer-sponsored coverage and paying the applicable penalties.

When it comes to health care cost, about 70% of U.S. CFOs expect their company’s costs to rise as a result of health care reform, down from the 90% who formerly expected an increase. Those who do expect a cost increase say they expect reform to increase their company’s health care costs by 10%.

Decision-making under broad-based uncertainty is clearly a challenge. CFOs say their executive teams struggle the most with strategy and growth decisions. About 60% cite difficulties with strategic decisions, another 60% cite struggles with organic growth decisions, and nearly one-third mention decisions around inorganic growth. In addition, about 45% say they are also struggling with decisions around further cost-reduction efforts.

CFOs cite a very broad range of barriers to making good decisions. Leading the list are differing views of strategies and goals, biases of executives, and insufficient understanding of options and outcomes. The next tier of barriers pertains mostly to processes, such as inappropriate assignment of authority, lack of agreement around the problem to be solved, and conflicting decision-making styles.

CFOs are clearly feeling the pressures associated with turbulence and uncertainty, reporting major change initiatives and strategic ambiguity as two of their top career-level stresses. They say finance’s top challenge is providing information and analysis for business decisions, but only about half are confident they have the information they need to effectively manage the business. The same proportion say their systems do not adapt well to changes in strategy, tactics, or scale. The good news may be that, with IT increasingly falling under the direct or indirect purview of finance, finance may be able to drive the improvements they want and need.

More Findings

Additional findings from the Deloitte CFO Signals survey include: (estimates are adjusted averages to reduce the effect of outliers):

  • CFOs say their companies’ top three challenges are revenue growth from existing markets (58%, about the same as in the second quarter), framing and/or adapting strategy (41%, up from 30%), and talent (34%, down from 41%).
  • CFOs offered a mixed assessment of IT capabilities. About two-thirds say their IT approaches ensure information security and facilitate compliance and reporting, and half are positive about having the information they need. But nearly half also say their IT systems do not adapt well to changes in strategy, operations, and/or scale.

About the Survey

The Deloitte CFO Signals survey was conducted for the third quarter of 2012. More than 80% of the 85 CFO respondents were from companies with more than $1 billion in annual revenues, and three fourths were from publicly traded companies. Each quarterly CFO Signals report analyzes CFOs’ opinions in five areas: CFO career, finance organization, company, industry and economy.

Do you see your customers in here?  What information, concerns, challenges or issues jump out at you?

I’d love to hear what you get out of this piece and how you might use it to sell.