CFOs adapt to the “new normal”
The biggest danger for CFOs may be in assuming we’ll return to robust growth
One of the few skills that isn't currently required of a chief financial officer is being an economist. But at today's board meetings, it’s a lucky finance chief who doesn’t get probed about macro-economics.
It’s hard enough for the professional economist who’s stock has fallen sharply recently. Their models and their training just aren’t up to the kind of lurching around that we’re currently seeing in economic sentiment, the value of money, the intentions of businesses and the confidence of consumers.
“Reading the economy has become an extremely tough exercise,” admits Gerard Gallagher, partner at Ernst & Young, whose global survey reveals slow recovery and double-dip recession as a top 10 risk for executives.
“Sectors and geographies vary wildly and things change very rapidly at the moment. At the start of the year, for example, the BRICs economies were doing great – but suddenly we’re seeing challenges emerge for them.”
So what does that mean for CFOs? Actually, it’s pretty simple. “That kind of volatility, framed within a long-term path of slow growth, is the ‘new normal’,” Gallagher says.
“So the idea of the double-dip recession as some kind of definitive risk is less evident now. If the GDP numbers drop marginally, it’s not some great trigger for panic – most of my clients are running their businesses very tightly and not expecting things to change very much soon, so they’re set up for this kind of bumpy growth pattern.”
It’s a good point. If you plan around a “double-dip recession” as a distinct risk, you’re probably looking at temporary measures to pull the business through a clear period of contraction that will come to an end fairly soon.
“But planning for a prolonged period of slow and bumpy growth forces you to look at a different kind of strategy,” Gallagher adds. “You have to look beyond your native markets and find new opportunities to grow.”
“Overall, while it might seem counter-intuitive, there are lots of businesses in lots of niches within the global economy – especially in the BRICs economies – that are optimistic,” says Narin Ganesh, regional finance director at Crown Worldwide, a highly specialised logistics and storage business.
“And it’s at times like this that those higher up the food chain in business terms are more easily toppled – it’s like the dinosaur and the shrew. So for businesses like ours, it’s all about exploiting that speed of response we have.”
In a sense, then, this is as much about attitude as it is cold numbers. While a sluggish economy means that many businesses’ overall markets are not growing very much, creative ones look to increase market share or open up new markets to compensate.
“We have been winning new business,” says Ganesh. “A good test is the number of RFPs [request for proposals] in the sector are the moment. When our bid team can win contracts, we know we can grow our slice of the cake, even if the cake itself isn’t getting much bigger. So we’ve also been hiring in our business development team, it’s a great area for investment.”
Or, as Arif Kamal, FD at property company GL Hearn, says: “We must not automatically assume that we cannot grow in a downturn. We do need to batten down the hatches – but also be mindful that opportunities will present themselves. If we do not invest, there may not be a business to worry about at all in the future.”
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