Companies Take a Swing at Economic Curve Ball
Some say company leaders are pessimistic, others retort they're just playing it safe. In response to the fiscal cliff decision, economic forecasts calling for snail-paced growth and obscure predictions for European markets, global companies are treading lightly in the first quarter of 2013 with modest expansion and hiring plans.
Fiscal Cliff Gloom Still Hangs over CFOs
In the fourth quarter of 2012, CFOs expressed negative sentiments for the year to come, according to Deloitte. The research and consulting firm's quarterly "CFO Signals Survey" found 40 percent of respondents reported rising pessimism about their company's prospects. While this rate is unchanged from the previous quarter, Deloitte noted fewer CFOs expressed a positive outlook, bringing net optimism from zero in mid 2012 to -21 this quarter.
"Despite recent clarity on the fiscal cliff, CFOs remain understandably cautious with their cash," said Sanford Cockrell III, the national managing partner of Deloitte's CFO Program. "Between the uncertainty stemming from the lengthy political stalemate in the U.S. and the continued global economic volatility, CFOs have very little visibility into the future - and hence very little comfort in investing for growth."
Deloitte's study surveyed CFOs who represent North America's largest companies averaging $5 billion in annual revenue. In terms of fiscal cliff fears, only 5 percent expected Washington to "go over the cliff." Most predicted modifications or delays of scheduled spending cuts and many feared looming tax hikes.
Meanwhile, the European crisis still ranks a top "most worrisome risk," among Deloitte's study sample. CFOs are being extremely cautious about capital spending predictions, which is expected to rise only 4.2 percent from 4.6 percent the previous quarter. Research and development and advertising and marketing saw their lowest expected growth rates. Employment, the real buzzword, is only expected to rise 1 percent.
Coping With Pessimism From the Inside Out
While the fiscal cliff and the eurozone crisis painted a particularly dreary picture in late 2012, business leaders are realizing economic uncertainty is not a passing phase. Globalization is teaching large businesses that factors like slow growth, tepid markets and other economic clouds will constantly be part of the business atmosphere. Preserving flexibility, focusing on the future and being ready for the unpredictable will become the characteristics that keep successful organizations afloat.
While investing more in financial security is reassuring many companies, the majority are focusing on strengthening their internal weaknesses.
In "CEO Challenge 2013," a survey of more than 700 senior executives, the Conference Board found developing, engaging, managing and retaining talent as the toughest challenge company leaders face. Operational excellence came in second place, followed by innovation and customer relationships.
"Leaders seem to be turning away from macro factors outside their control to look hard at their own organizations, employees, customers, level of efficiency, and capacity for innovation," said Bart van Ark, executive vice president and chief economist of the Conference Board.
How do you think companies can best prepare for constant economic uncertainty?