2014 has begun with economic conditions in North America continuing to strengthen and general improvement globally. But amid the improving numbers and rising optimism, questions and concerns remain, as reflected in CFOs’ relatively weak company growth expectations reported in Deloitte’s fourth-quarter CFO Signals™ survey. Frank Friedman, CFO and Managing Partner of Finance and Administration for Deloitte LLP, discusses his outlook for 2014 and offers his insights on the important issues, opportunities and challenges for finance chiefs to consider this year. Mr. Friedman explains why he believes that now is the time for companies to turn the page on market turbulence and business uncertainty and shift their focus toward innovation and growth.

Q: What’s your outlook for the economy and business environment?

Frank Friedman: In general, the economy is in better shape and companies are gaining momentum. My view is based on what the data is telling us about business factors and the direction in which those factors are moving, along with what we’re hearing from our clients. It’s significant that what got us into a mess—housing—is a key part of what is taking us out of the mess: demand is up, inventories are down and interest rates are modest.

Moreover the job market is improving. There’s still a lot of cash on the sidelines. We’re also seeing the economies of U.S. trading partners improve. That’s not to say this is anything remotely approaching a boom time. We still need to see consumers increase their buying and for business investment to pick up. However, as long as the fundamentals around housing, inflation and interest rates stay positive, I believe we’re poised for a relatively good year.

Q: What are some of the biggest risks to the improving macroeconomic and business environment?

Frank Friedman: As I mentioned, we’re still seeing weakness in investments being made in business equipment and in consumer spending, which is reflected in the GDP numbers. There’s also the continuing risk that government budget and spending policies, as well as increased regulation, could hinder the recovery. Health care is another possibility. The sleeper issue for CFOs could actually turn out to be talent. If the job market really opens up, people will have more choices. For companies, that means the ability to find top talent and the right talent with deep subject matter expertise could be even harder than it is now. Companies may need to be prepared to pay more for the talent they really need. Another potential impediment for CFOs to keep an eye on is the health of major trading partners because if these trading partners can’t buy, it restricts the ability of North American companies to grow. Overall, although there may be some fits and starts during the year, I would characterize these more as short-term issues than major sustained risks.

Q: Despite a growing consensus that business conditions are stabilizing, CFOs responding to Deloitte’s fourth-quarter 2013 CFO Signals survey appear to be tempering their growth expectations for the coming year. Is there one area of uncertainty you would suggest CFOs focus most closely on?

Frank Friedman: As I see it, uncertainty really doesn’t have a lot of meaning as an issue any longer. The message now should be, “Stop dwelling on the past and look to the future.” For the most part, we have a handle on what’s happening in Europe and China and the new regulatory climate. Yes, the economic growth picture could be clearer and the same can be said for the budget and fiscal policy wrangling. But there has always been, and will always be, uncertainty in business, through good times as well as bad. Invoking uncertainty has become somewhat of a crutch, I believe, an excuse not to be doing the things that all businesses need to do right now to remain competitive, such as innovating and investing.

We’re in a good and improving economy, and companies’ focus now should be on growing the business and taking advantage of their uniqueness, whatever that is. That doesn’t mean companies should take their eye off the ball on cost containment or ignore good cost-cutting opportunities, but it’s time to focus the conversation on how to grow. Valuations are rising and assets are becoming more expensive. This is the time for companies to act, whether that means going after opportunities in their own markets or expanding into new ones through investment, acquisition and distribution.

Q: You say, it’s time to focus the conversation on how to grow. What does that mean for CFOs in terms of their own role and responsibilities?

Frank Friedman: A big challenge for CFOs this year is how to maintain, as much as possible, the larger role they have gained over the last several years in strategic planning and a host of issues related to the extreme stresses companies experienced from 2008 to 2012. Those four years were the Super Bowl for CFOs in terms of their influence.  CFOs should focus on keeping their seat at the table for all strategic planning, but their role might have to pivot somewhat as the market and economy come back. That could mean taking a contrarian position when appropriate, making sure that as companies emphasize growth, they do so with discipline. That doesn’t mean CFOs should focus on hunkering down while other leaders look up; CFOs can and should be innovative and looking for opportunities to create the financial environment that allows companies to innovate. Reigniting growth will likely require more investment in marketing, new products and R&D, as well as expanding in different geographic areas. Of course, that has to be done with the appropriate analysis the current business environment calls for and being prepared to take actions if revenues miss expectations.

Q: What should CFOs be doing to prepare their organizations to act on growth opportunities in the coming months?

Frank Friedman: CFOs need to be planning for higher growth rates, which means expecting growth and working that expectation into their financial plan, and challenging the status quo if growth drops back. This is the time for CFOs to think about building liquidity because the price of capital will likely get higher. They also should consider opportunities to take advantage of their capital, be it making investments aimed at where the company most wants to grow or hiring people in key positions. I believe talent will be a critical element in companies’ ability to achieve growth. For CFOs, that means understanding how the changing business environment impacts the talent model and how to respond to that. They might ask themselves whether they want to hire fulltime people now and reduce outsourcing, or whether they should consider moving some jobs back on shore vs. off shore. Businesses typically concentrate on hiring for their core business, but areas such as data collection and analytics, marketing and sales are critical for companies that might want to change their operating dynamics from the last few years. In that case, that’s where the hiring focus should be.

At the same time, CFOs should take the lead in getting the company into the mode of being more judicious about where they’re investing their capital and about getting better at making the tough choices to stop doing certain things that are either unnecessary or are simply not working. It’s easy to expand and much harder to trim down and cut losses. CFOs can take it upon themselves to be just as focused on putting an end to things that aren’t working as they are in starting new things that might work.

(This publication contains general information only and Deloitte LLP and its subsidiaries ("Deloitte") are not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. Copyright © 2014 Deloitte Development LLC.)

By The Wall Street Journal, Feburary, 2014

Ideal job offers more than money
China's job market resilient despite slowdown

News & Articles

Growth, Talent and Other Top Issues for Finance Chiefs in 2014