The good news in the latest of Deloitte's "CFO Signals," a quarterly report that Deloitte has been producing for a year now, is that financial executives' optimism seems to be sharply increasing. And this, of course, both reflects their reading of the economy, and augurs well for economic progress continuing to be made via additional positive corporate growth decisions.
But the most surprising finding is the high corporate bar that the CFOs are setting to measure the improvement needed to become major job creators again. Indeed, most of the executives questioned said that it would take a 20% revenue gain before they would boost domestic hiring substantially.
"We were shocked by that also," says Greg Dickinson, who leads the Deloitte Signals survey. His reading of the situation is that after the constriction of recent years, finance executives "think there's unused capacity in the organization, so they can grow quite a bit without hiring."
Projections for year-to-year domestic hiring growth among the large North American companies represented in the survey -- 75% of respondents were from firms with more than $1 billion in annual revenues -- stayed at the low 1.8% that Deloitte had seen for the past three quarters. Responses also showed that a 5% upturn in revenue would have little or no affect on hiring for seven of 10 of the companies queried. A 10% revenue rise would lead to substantial hiring moves among only 11% of the companies. (Get a link to the entire survey .)
Dickinson tells CFOworld that he believes that the survey also reveals a sense among CFOs that skill sets have changed for the people most needed to turn things around. "What they're saying is, When we do bring people back in, we're going to go for the people we really need," says Dickinson. "We got that indication loud and clear in the fourth quarter."
Evidence in the survey seemed to be strong, in Deloitte's view, that even that the CFO high optimism level could contribute to companies reaching their goals for additional hiring.
CFOs saying they had a more positive outlook about their companies' progress rose to 62% from 53% during the fourth quarter. Only 16% said they were less optimistic than they were in the previous quarter, which Deloitte said was the lowers level over the four quarters of its survey.
On the numbers side of the latest questionnaire, the finance executives projected gains of 8.2% in sales and 12.6% in earnings year-to-year for their companies -- up from 6.5% and 12%, respectively at the end of 2010. Still, Deloitte noted that both sales and earnings projections are substantially lower than estimates from the middle quarters of 2010, "possibly indication that many of the strongest recovery gains have already been achieved," according to the press release accompanying the report.
Sanford Cockrell III, Deloitte's national managing partner for the CFO Program, said in the release, "With cash on their balance sheets and cost efficiency gains largely accounted for, many companies are now heavily focused on top-line growth. Having ridden a wave of recovery-related improvements for the past few quarters, companies are seeking growth on their own terms."
The survey itself is not intended by Deloitte to be a business outlook report, like others in the field, says Greg Dickinson. In presenting the CFO Signals information, "the pitch we make to CFOs is, What if you had a way to check what's on the radar screen of other CFOs like you?" Hence, the narrowed profile of the respondents. Not only are the companies involved large, multinational and North American, but eight of 10 of them are publicly traded.
"We tend to see the big companies as struggling with things first," Dickinson adds. "If smaller companies are out of the woods, that would come to the top rather quickly." As to why revenue and earnings projects have been stepped down slightly in recent quarters, he says that Deloitte's discussions suggest while "optimism is a human perception measure," the forecasting of sales and earnings require tougher standards from finance executives. "We've been through a rough period of time, with a lot of volatility," he says, and the overall sense is "that things have adjusted pretty well."
While certainly willing to do its share of interpreting the results, Deloitte also works to let the numbers speak for themselves. "We try to go pretty light in explaining it," he says. "Mostly, CFOs want to know what their peers think," and the numbers speak clearly to that.
In all, 77 CFOs or other finance executives participated in the latest survey, emailed to them, and turned back to Deloitte over two weeks in late February. "So all these results came in before Japan, and Egypt [and the expanding Mideast protests] was just sort of escalating," Dickinson notes.
Among the more-specific elements in the survey, CFOs said they expect significant changes in the sources of their companies' growth over the next year, with 73% of respondents saying new products and issues will result in increased revenue, and 68% expecting foreign markets to generate higher volume.
Price increases by their companies are expected by 56%, with rising commodity prices driving much of that, of course. Eight of 10 CFOs expect commodity prices to continue rising. But revenue growth from existing markets seemed to present the biggest challenge, in the view of 55% of respondents, who listed it among their top three concerns.
The survey recorded specific concerns about regulatory provisions that CFOs see ahead -- relating to tax policies and repatriation of earnings, health care reform they see as a corporate burden. The CFOs also perceive "unanticipated future regulation not accounted for in their current plans," according to Dickinson. "This uncertainty is making many potential investments appear risky and unattractive."
Still, the survey results suggested that strong concerns about most such regulatory issues aren't substantially impacting their investment of available cash. (Dickinson noted, for example, that "large organizations by and large are pretty progressive in their benefits and health care already.") Favorable changes to corporate taxes, though, would raise hiring to some degree, 45% of the survey respondents said.
More broadly, Dickinson sees threads from the survey responses as weaving together into a major shift in the way finance professionals at large companies perceive their role. "They're looking at how they spend time between the roles of operator and steward, versus catalyst and strategist," he says -- a division of responsibilities that the Deloitte research attempts to follow quarter-by-quarter.
Right now, indications are that CFOs see themselves as "the stabilizers" in a time of economic and corporate shifting. But there's a "shift to CFOs being pulled into the strategy resetting." That will require a change in the type of finance staff that finance chiefs will have to bring in -- "technical people, but really good facilitators, too."