wining strategies in the enarging recoevry
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8/6/2019 Wining Strategies in the Enarging Recoevry
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WINNINGSRAEGIES IN
HE EMERGINGRECOVERY
A report on mid-size companiesprepared by CFO Research Services
in collaboration with American Express
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urning thecorner of recovery
In the fall of 2009, as the first green shoots of recovery
began to appear in the landscape of the most serious
economic downturn in a generation, CFO ResearchServices conducted a research program among senior
finance executives at mid-size companies to explore their
responses to the recession. We published the results of
that research in two reports: Getting Focused, Getting
Aheadand Getting to the New Normal.
In those reports, finance executives showed a lively,
competitive spirit as they contemplated the work ahead.
In many cases, the downturn seemed to have reinforced
their faith in core business values. As the CFO of a profes-
sional services firm wrote, If your business is based on
fundamentally sound principles (that is, [if] you put
your customers needs first, deliver value, and are a good
steward of the firm), and you trust and empower your
employees to make decisions for the business, then you
can respond positively to almost any challenge.
Since our last study, the contours of the recovery have
gradually emerged. Tere has been good news: key
economic indicators are trending upward. Corpo-
rate profits are up. Consumer confidence is gradually
returning. Capital markets are recovering. At the same
time, however, lackluster job growth is slowing recovery
in the housing market and, by extension, in the demandfor goods and services. Conditions have improved mark-
edly since the fall of 2009, but the business environment
remains uncertain.
o learn more about finance executives plans, priorities,
and aspirations as this challenging recovery unfolds, CFO
Research Services conducted another survey among senior
finance executives at mid-size companies in December
2010. What strategies will mid-size companies pursue to
thrivenot just survivein this recovery? How will the
finance function and its leaders contribute to their compa-
nies efforts to grow and prosper? We surveyed 231 senior
finance executives at mid-size companies to find out.
WINNING SRAEGIESIN HE EMERGING RECOVERY
1 March 2011 cfo publishing llc
4%
2%
1%
2%
7%
8%
14%
62%
0% 20% 40% 60% 80%
Other
CEO, president, ormanaging director
Treasurer
EVP or SVP of finance
Director of finance
VP of finance
Controller
Chief financial officer
Figure 1. Respondent demographics
Percentage of respondents
All survey respondents work forU.S. companies with annualrevenues between $10 million and$500 million. Respondents work
for companies in a broad rangeof industries.
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Finance executivesanticipate more abundantgrowth opportunities
After two years or more of slashing costs, many finance
chiefs at mid-size companies have a renewed appre-
ciation for their companies ability to do more with less.
Our cost structure was much too high, wrote the CFO
of a construction company in response to an open-ended
question. We learned that we can operate much leaner,
and with virtually no loss of productive capacity.
Survey results show that companies plan to reap the
benefits of these hard-won effi ciencies in the months
ahead. But we also found that companies are shifting the
primary focus of their attention from cost control towardgrowth. wo-thirds of all respondents say their companies
have become at least somewhat more focused on top-line
growth since this time last year. (See Figure 2.) More than
half of all respondents (54%) report that their companies
primarily sought to control costs to maintain profit-
ability over the past two years.
March 2011 cfo publishing llc 2
Figure 2. Mid-size companies are turning their attentionto top-line growth.
Since this time last year, my company has become
Percentage of respondents
6%
8%
20%
36%
30%
0% 10% 20% 30% 40%
Much less focusedon top-line growth
Somewhat less focusedon top-line growth
None of thesemycompanys focus on topline
growth hasnt changed
Somewhat more focusedon top-line growth
Much more focusedon top-line growth
We learned that we can operatemuch leaner, and with virtually noloss of productive capacity, saysone CFO.
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But only 15% of respondents expect their companies will
focus primarily on controlling costs over the next two
years. (See Figure 3.)
Furthermore, finance executives anticipate that new
opportunities to grow will become more abundant over
the next two years (as opposed to remaining static or
receding). A majority of respondents (63%) expect their
companies will focus primarily on identifying new growth
opportunities in the next two years. Relatively few respon-
dents (22%), however, describe their primary business
strategy as capturing market share from competitors.
While many finance executives anticipate an expanding
pool of new opportunities, survey results also suggest that
they believe their current products and services offer the
most promising path to growth. For example, respondents
most frequently identify increasing sales to new customers
in existing product lines (41%) as their most important
opportunity to increase revenues over the next two years.
(See Figure 4, next page.)
International expansion may figure prominently in at least
some of these plans to expand market share. While 55%
of respondents say that international expansion (including
sourcing, production, sales, or distribution abroad) will
notbe important to their companies ability to thrive in
the coming recovery, nearly one-quarter of all respon-
dents (23%) say they expect international expansion to be
very important to their companies over the course of the
recovery.
Senior finance executives indicatethat increasing sales to newcustomers in existing product lines,international expansion, andinnovation are critical components
of their growth plans.
Notably, one-quarter of respondents see innovation (i.e.,
introducing new product or service lines) as their compa-
nies most important growth opportunity over the
next two years. Fewer respondents (19%), however, see
increasing market penetration (i.e., increasing sales to
existing customers) as their companies most important
opportunityand even fewer see adding revenue streams
through acquisition (11%) as their most viable avenue to
growth. Conditions appear to be ripe for an M&A boom inthe broader economy. Many large companies are hoarding
impressive amounts of cash, and there is an abundance of
appealing targets. Tese survey results suggest, however,
that many mid-size companies are more likely to be acqui-
sition targets than acquirers in the current environment.
Figure 3. As companies shift their focus from cost control to growth, identifying new growth opportunitiesasopposed to capturing share in current marketsis emerging as the dominant growth strategy.
Over the past two years, my company primarily sought to Over the next two years, my company primarily will seek to
17%
29%
54%
0% 20% 40% 60%
Capture market share fromcompetitors
Identify new growth opportunities
Control costs tomaintain profitability
15%
22%
63%
0% 20% 40% 60% 80%80%
Control costs tomaintain profitability
Capture market share fromcompetitors
Identify new growth opportunities
Percentage of respondents
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[Table listing verbatim responses on
most promising path to growth TK]
March 2011 cfo publishing llc 4
Figure 4. Finance executives identify expanding market share as their most important opportunity to increase revenues over thenext two years.
Which of the following items represent your companys most important opportunity to increase revenues over the next two years?
Percentage of respondents
4%
11%
19%
25%
41%
0% 10% 20% 30% 40% 50%
Other
Adding revenue streamsthrough acquisition(s)
Increasing sales tocurrent customers
Introducing new product/service lines
Increasing sales to new customersin existing product lines
Finance executives on the mostpromising pathways to growth Expansion of customer base
Obtaining business from strategically identifiednew customers in a globally competitive environment
Getting new products to market in 2011
International expansion
Selling more to current customer base and marketing to new customers
Finding new customers and keeping them with good customer service
Becoming more efficient in how we conduct business and offering more with less
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Persistent uncertaintyand fierce competitionpose obstaclesEvery path to growth has its obstaclesand finance exec-
utives are keenly aware of the barriers they face in thisfragile and uneven recovery. More than half of all respon-
dents (53%) report that uncertain economic conditions,
along with diffi culty adapting to changing circumstances,
are likely to pose barriers to their companies growth plans
in the course of the recovery. Nearly half of all respon-
dents (47%) report that fierce competition and resulting
price pressure rank among the factors most likely to create
obstacles to growth. (See Figure 5.)
Respondents rank uncertaineconomic conditions, fiercecompetition, and price pressure asthe top barriers to growth.
But even as they consider these obstacles, survey respon-
dents seem confident that their companies are well posi-
tioned to succeed in the recovery. Forty-eight percent of
respondents report that their companies are fairly well
positioned to succeed in the coming recovery, compared
to their competitors. Another 44% of respondents report
that they are very well positioned to succeed in the
coming recovery versus their competitors.
Figure 5. Economic uncertainty and fierce competition rank among the most formidable obstacles to growth.
Which of the following items are most likely to pose barriers to your companys growth plans in the course of this recovery?
Percentage of respondentsNote: Respondents were asked to choose up to three.
9%
10%
11%
14%
17%
17%
22%
27%
35%
47%
53%
0% 20% 40% 60%
Other
Increasing business complexity
Low employee morale
Continuing restrictions on credit
Scarcity of financing
Scarcity of skilled labor/Difficultyidentifying, recruiting, and
retaining talent
Increasing cost of production inputs(i.e., energy, raw materials,
or intermediate goods)
Maturing industry/slowingindustry growth
Increasing government regulation
Fierce competition/price pressure
Uncertain economic conditions/Difficulty adapting to changing
circumstances
WINNING SRAEGIESIN HE EMERGING RECOVERY
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[Table listing verbatim responses
Competencies built in thedownturn form the basis forsustained, profitable growth
Where are finance executives drawing this sense of confi-
dence? In part, from the competencies their companies
reinforced (or built) in the course of the recession. We
found that finance executives expect the capabilities, rela-
tionships, and disciplines that served them well in the
downturn to provide a platform for future growth.
Finance executives clearly recognize the contribution of
financial disciplinemaintaining a strong balance sheet,
a lean cost structure, low working capital, and high levels
of liquidityto competitive advantage. More than three-
quarters of all respondents (78%) confirm that their
companies are more financially conservative as a result of
the recent downturn. (See Figure 6.)
In open-ended responses, respondents acknowledge that
a financially conservative posture may lead to missed
opportunities. But two-thirds of survey respondents say
they believe financial conservatism is likely to contribute
tonot detract fromcompetitive advantage over the
course of this recovery. (See Figure 7.)
March cfo publishing llc 6
Figure 6. Finance executives confirm that theyre morecommitted to financial conservatism as a result of the downturn.
Is your company more financially conservative (i.e., morecommitted to maintaining a strong balance sheet, a lean coststructure, low working capital, and high levels of liquidity) as aresult of the recent economic downturn?
Figure 7. Finance executives believe financially conservativebehavior will contribute to their companies competitive edgeover the course of the recovery.
In my companys business sector, financial conservatism is likelyto _________________________ over the course of this recovery.
Percentage of respondentsNote: Percentages may not total 100%, due to rounding.
8%
14%
78%
0% 20% 40% 60% 80%
It depends
No
Yes
11%
23%
67%
0% 20% 40% 60% 80%
It depends
Detract fromcompetitiveadvantage
Contribute tocompetitive
advantage
Two-thirds of survey respondents saythey believe financial conservatism is likelyto contribute tonot detract fromcompetitive advantage over the courseof this recovery.
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Loosening purse strings
Given finance executives ongoing commitment to finan-
cial disciplineincluding cost disciplineits unsurpris-
ing that survey results suggest that spending is likely to
remain stable across most spending categories. Mid-size
companies are most likely to loosen their purse strings for
items that boost productivity and support sales: computer
hardware, enterprise IT systems, and advertising, mar-
keting, and PR. (See Figure A, above.)
While half of all respondents say they plan to buy thesame amount of computer hardware next year, one-third
of respondents say they plan to buy more computer hard-
ware over the next year. Fewer respondents (17%) say they
plan to buy less computer hardware over the next year.
Similarly, 55% of all respondents say they plan to buy the
same amount of advertising, marketing, and PR services
over the next year. But more respondents say their compa-
nies plan to buy more advertising, marketing, and PR next
year than report they plan to buy less. Twenty-nine per-
cent of respondents say they plan to buy more advertis-
ing, marketing, and PR; only 17% say they plan to buy less.
Although only 20% of respondents say they plan to spend
more on travel and lodging for employees next year, other
survey responses indicate that mid-size companies will
be focusing their travel resources on trips to meet currentand potential customers. Sixty-three percent of respon-
dents say their companies are likely to allow more travel
to make sales calls to potential customers; 56% of respon-
dents say theyre likely to allow more travel to visit current
customers. When it comes to fostering the relationships
that foster loyalty, boost customer acquisitionand in-
crease revenuesit seems that theres no substitute for
meeting face-to-face.
7 March 2011 cfo publishing llc
Figure A. Compared to the past year, is your company likely to buy more, the same amount, or less in each of the followingcategories over the next year, in order to support its growth objectives?
Percentage of respondentsNote: Percentages may not total 100%, due to rounding.
7%
10%
13%
13%
19%
20%
20%
27%
29%
33%
74%
63%
61%
64%
62%
51%
55%
49%
55%
50%
20%
27%
26%
24%
19%
29%
25%
24%
17%
17%
0% 20% 40% 60% 80% 100%
Office supplies
Entertainment/restaurant meals/catering
Business and professional services(consulting services, legal services)
Meetings and conferences
Transportation/logistics services(including freight shipping)
Construction/Facilities improvementand maintenance
Travel and lodging for employees
Enterprise-level IT systems
Advertising and marketing/PR services
Computer hardware (PCs, printers,servers, mobile technology)
Buy more over the next year Buy the same amount over the next year Buy less over the next year
WINNING SRAEGIESIN HE EMERGING RECOVERY
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Finance executives anticipate thatbuilding on the competenciesemployed to survive the downturn
including a lean cost structureand improved efficiency willcontribute to their success as theypursue growth and prosperity in thecourse of the recovery.
Enhanced financial discipline isnt the only product of the
downturn that has honed companies competitive edge.
We asked respondents to evaluate the contribution of a
range of business competencies to their companies efforts
to weather the downturn successfully. In their responses,
respondents most often say their companies ability tosatisfy customer expectations for quality, price, and
service made an essential contribution to their efforts to
weather the downturn (38%). (See Figure 8.) More than
one-third of all respondents (34%) say that their compa-
nies ability to maintain a lean cost structure and boost
effi ciency made an essential contribution to their efforts
to survive the downturn, followed by 26% of respondents
who cited their ability to secure financing and maintain a
strong financial position.
March 2011 cfo publishing llc 8
Figure 8. Satisfying customer expectations, controlling costs, and securing funding were key competencies during the downturn.
To what extent did the following capabilities contribute to your companys efforts to weather the recent downturn successfully?
Ability to
8%
8%
11%
11%
12%
18%
21%
24%
26%
34%
38%
12%
12%
27%
35%
22%
33%
31%
38%
26%
37%
36%
24%
22%
38%
39%
25%
32%
32%
30%
23%
21%
18%
27%
26%
17%
12%
27%
12%
13%
7%
15%
6%
5%
28%
31%
6%
4%
14%
5%
3%
2%
10%
3%
4%
0% 20% 40% 60% 80% 100%
Adapt to regulatory change
Form fruitful joint ventures and business alliances
Manage risks to performance
Maintain positive employee morale
Expand our business into unfamiliar territory (i.e., newproducts/services, new geographies, new customers)
Compete for share in current markets
Maintain strong relationships with suppliers
Respond to changing business conditions
Secure financing/Maintain a strong financial position
Maintain a lean cost structure/Boost efficiency
Satisfy customer expectations for
quality, price, and service
Made an essential contribution toour efforts to weather the downturn
Made a substantial contributionto our efforts to weather the downturn
Made some contribution toour efforts to weather the downturn
Made little or no contributionto our efforts to weather the downturn
Not sure/Does not apply
Percentage of respondentsNote: Percentages may not total 100%, due to rounding.
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Looking forward, finance executives anticipate that
building on these competencies will contribute to their
success as they pursue growth and prosperity in the course
of the recovery. Improving the ability to satisfy customer
expectations (48%) ranks among the changes most likelyto contribute to their companies success in the course of
the recovery. Forty-seven percent of respondents also say
that improving their ability to maintain a lean cost struc-
ture and boost effi ciency is likely to contribute to their
success in the course of the recovery. (See Figure 9.)
Te one area where pressure to improve seems to be
easing is the ability to secure financing and maintain
a strong financial position. Relatively few respondents
(23%) say that improving their ability to secure financing
will contribute to their companies success in the recovery.Tese results do not necessarily suggest that companies
are abandoning financial discipline. aken as a whole, the
results of this survey indicate that many mid-size compa-
nies thoroughly integrated financial discipline through the
course of the downturn and see limited room for further
improvement.
WINNING SRAEGIESIN HE EMERGING RECOVERY
Figure 9. Finance executives anticipate that building on some of the same competencies will contribute to their success in thecourse of the recovery.
Which of the following improvements would contribute most to your companys success over the course of the recovery?
Improvement in our ability to.
1%
8%
11%
13%
16%
19%
23%
29%
29%
37%
47%
48%
0% 20% 40% 60%
Other
Adapt to regulatory change
Manage risks to performance
Form fruitful joint ventures and business alliances
Maintain strong relationships with suppliers
Maintain positive employee morale
Secure financing/Maintain a strong financial position
Respond to changing business conditions
Compete for share in current markets
Expand our business into unfamiliar territory (i.e., newproducts/services, new geographies, new customers)
Maintain a lean cost structure/boost efficiency
Satisfy customer expectationsfor quality, price, and service
Percentage of respondentsNote: Respondents were asked to choose up to three.
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Tese results confirm that maintaining good relationships
with customers, in particular, will be critical for success in
a fiercely competitive, price-pressured environment. But
survey respondents also frequently cite their employees
as key assets in their companies efforts to overcomeobstacles and make the most of their growth opportuni-
ties. Our employees are the most valuable asset we have,
wrote the controller of a manufacturing company. We
asked respondents to identify, in their own words, their
companies most valuable assets in the quest to make the
most of their opportunities in the recovery. More than
half of all respondents who chose to answer cited, in some
capacity, their companies employees.
* * * *
Te relationships forged in diffi cult times form the core of
a winning strategy in this recovery, according to finance
executives at mid-size companies. Finance executives are
looking forward to drawing on the strengths that saw themthrough troubled times as they work toward growthand
even prosperityin the coming recovery. Te resilience of
mid-size companies depends on their ability to build pros-
perity from those strengths in the months ahead.
March 2011 cfo publishing llc 10
Finance executives on lessons learned
through the downturn Its easy when times are goodbut you know who your
true partners are during challenging times.
People are what make the difference in a company.Customers see that.
Maintain excellent relationships and communicationwith customers and suppliers.
Stay lean, keep an eye on the balance sheet,marketing/PR remains important.
Reacting fast to reduce expenses was key.
Maintain open and timely communications withinvestors and bankers.
Managing cash flow is the critical component in both
bad and good times to assure growth and profitability. Learn to run lean, smart regardless of economic environment.
The importance of communication.
Need to keep your best athletes when you want to domore with less.
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Sponsors statement
Following the recession, mid-size companies continued to closely manage their bottom lines and incorporate strong
financial discipline around their expense management programs. Teir efforts are paying offcorporate profits are up,
the economy is recovering, and consumer confidence is on the rise. According to the American Express/CFO Research
Services report Winning Strategies in the Emerging Recovery, companies are beginning to see the benefits of the manage-
ment rigor they put into place, and are looking to grow their business while still maintaining their strong financial position.
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Darryl Brown
Executive Vice President, U.S. Commercial Card
WINNING SRAEGIESIN HE EMERGING RECOVERY
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Winning Strategies in the Emerging Recovery is pub-
lishedby CFO Publishing LLC, 51 Sleeper Street,Boston, MA 02210. Please direct inquiries to JaneCoulter at (617) 790-3211 or janecoulter@cfo.com.
CFO Research Services and American Expressdeveloped the hypothesis for this research jointly.American Express funded the research andpublication of our findings. We would like toacknowledge Bartholomew Baptista, Nyala Ward,and Kyona Wilson for their contributions andsupport.
At CFO Research Services, Celina Rogers directed
the research and wrote the report. John Fischerdesigned the report. CFO Research Services is thesponsored research group within CFO Publishing LLC,which also includes CFOmagazine, CFO Conferences,and CFO.com
March 2011
Copyright 2011 CFO Publishing LLC, whichis solely responsible for its content. All rightsreserved. No part of this report may bereproduced, stored in a retrieval system, ortransmitted in any form, by any means,without written permission.
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