BATTENING DOWN THE HATCHES: FINANCE EXECUTIVES FORECAST RECESSION INTO 2010; TURN TO NEW STRATEGIES AND METRICS TO NAVIGATE THE STORM
From Employee Benefits to Business Travel,
Companies Balance
Cost Cuts with Investment in Recovery and Growth
NEW YORK, May 12, 2009 -- The world’s senior finance executives are
focusing on aggressive new methods to reduce and control costs in the face
of the worst economic downturn since the Great Depression. At the same time,
many businesses are continuing to invest in areas such as technology,
marketing, and R&D to generate revenue and improve their operations once the
recovery begins.
These findings were released today in the second annual American Express/CFO
Research Global Business & Spending Monitor, a survey of 285 senior finance
executives from the United States, Europe, Canada, Mexico, Asia, and
Australia.
“While companies are clearly focused on cutting where they can, they are
spending when they should to become more efficient and keep revenue
flowing,” said Gunther Bright, Senior Vice President, Global Client Group at
American Express. “They’re also measuring themselves against new metrics
that reflect today’s market reality, as well as a post-recession global
economy.”
Companies Make Trade-Offs to Control Costs, Avoid Layoffs
Companies in all regions remain pessimistic about the prospects of rapid
economic recovery, with nearly 70% of respondents expecting to see recovery
begin sometime in 2010. Over two-thirds of respondents predicted modest to
substantial economic contraction over the next 12 months, and 63% reported
that their companies’ capital investments will decrease in 2009.
When asked about changes in their workforce, 59% of respondents anticipate a
decrease in headcount. But companies are also taking actions now to avoid
layoffs. Half the executives polled reported plans to freeze salaries and
bonuses, while 32% plan to reduce benefits and 29% plan to cut salaries and
bonuses. Twenty-four percent plan to reduce employee work hours or give
furloughs and 16% plan temporary office or plant closures.
Cost control strategies also dominated finance executives’ sentiments as
they continue to deal with the recession:
- 85% are tightening controls over employee spending.
- 82% are placing greater emphasis on measuring and monitoring company financial performance.
- 71% are improving internal financial controls.
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Sustained Spending in IT, Marketing and R&D
Despite the weight of the economic downturn, many companies are taking proactive
steps to ride out the storm and position themselves for recovery. The research
revealed a clear divide between investments that companies feel are vital to
controlling costs or increasing revenues, and those that may be delayed until a
recovery begins.
When asked where it would be important to sustain spending, companies identified
information technology (69%), employee benefits (64%), marketing/advertising/PR
(57%), and research and development (54%). Other areas of investment, such as
merger opportunities and third-party consultants, were much less likely to be
rated as important categories to sustain spending.
Finance executives’ attitudes toward business travel told a similar story. Overall, 87% of respondents reported that their companies plan to spend less on business travel this year, with 44% expecting a decrease of more than 10%. Yet the corporate travel mix is shifting toward a heavy focus on revenue-generating travel:
- 82% are likely to maintain or increase travel for meetings with new clients or for business development.
- 66% plan to maintain or increase travel for meetings with existing clients.
New Performance Metrics Steer Decision Making
The precipitous decline of economies around the world, combined with the
expectation that the recession will not reverse itself quickly, have led
companies to explore new ways to measure success.
- Many respondents reported using or considering new metrics for financial performance (55%), operational efficiency (54%) and cash flow/capital spending (54%).
- 77% of companies reported that they have completed, are executing, or plan to revise their forecasting methods.
- 70% of respondents said their companies had adopted a formal program to improve employees’ understanding of their contribution to business performance; 64% said they are working to refine or develop new business models to deal with the downturn.
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One finance executive reported creating a financial early warning system by
using forward looking projections linked to performance benchmarks his company
must hit to maintain access to credit. Another said, “We are measuring return on
sales, capital employed, days of working capital, etc. These are all areas (and
several others) that were previously neglected.”
Emerging measurement strategies also included:
- Emphasizing return on investment over earnings per share.
- Focusing on direct impact on company profitability by line of business.
- Measuring customer profitability.
- Creating a “corporate dashboard” to track changes among a company’s key assets.
- Examining employee productivity measures such as sales per employee and value-added per employee.
“Companies are adopting measurements that relate to productivity, profits and
ROI,” added Bright. “As we’ve heard from our own clients, a smart mix of data
and insight can help executives make better decisions about strategy and
investment in this challenging economic environment.”
About the Survey
CFO Research Services surveyed 285 senior finance executives at large global
companies across a wide range of industries in the United States, Canada,
Mexico, Europe, Asia, and Australia. Company revenues ranged from $500 million
to more than $20 billion. The research program, which included an online survey
and interviews with senior financial executives, was completed in April 2009.
About American Express Global Commercial Card
Through its Global Commercial Card group, American Express provides the
Corporate Card, Corporate Purchasing Solutions, and other expense management
services to mid-sized companies and large corporations worldwide. In the U.S.,
it is the leading issuer of commercial cards, serving more than 60% of the
Fortune 500, as well as tens of thousands of mid-sized companies. American
Express issues local-currency commercial cards in 40 countries, and
International Dollar Corporate Cards in an additional 100 countries. For more
information, visit
www.americanexpress.com/corporate.
American Express Company is a leading global payments, network and travel
company founded in 1850.
About CFO Research Services
CFO Research Services is the sponsored research unit of CFO Publishing Corp.,
which publishes CFO magazine in the United States and Europe. CFO Publishing is
an Economist Group business.
