The Duke CFO Global Business Outlook: Financial Executives on the Year Ahead

Professor John Graham analyzes the latest survey findings

September 8, 2017
Finance, Management

The labor market continues to tighten, causing companies to pass up valuable investment projects, a new survey finds.

The Duke University/CFO Global Business Outlook finds 89 percent of companies surveyed do not intend to pursue all planned projects that would increase the value of their firm, with the inability to hire the right employees a binding constraint at about half of these companies.

The survey has been conducted for 86 consecutive quarters and spans the globe, making it the world's longest-running and most comprehensive research on senior finance executives. This quarter, nearly 850 CFOs responded to the survey, which ended Sept. 8. Results are for the U.S. unless stated otherwise.

For the second quarter in a row, and for only the second time in the history of the survey, difficulty attracting and retaining qualified employees is the top concern of U.S. CFOs. This same concern ranks highly in many places around the world.
"Firms are having a much harder time finding the right managerial talent, and a somewhat harder time hiring rank-and-file workers," said John Graham, a finance professor at Duke's Fuqua School of Business and director of the survey. "In addition, many U.S. companies indicate that their currently employed managers do not have enough bandwidth to oversee an expanded organization. Hence, their firms pull back on expansion."

The survey asked why firms don't hire or train more managers. CFOs indicate that the pool of potential managers lacks enough candidates with industry-specific experience and technical knowledge, critical thinking skills for complex problems, leadership and people skills, and judgment. Firms that say they struggle to hire enough rank-and-file employees indicate that many job candidates lack basic writing and math skills, job-specific technical skills, perseverance, and work ethic.

Due in part to the tight labor market, U.S. companies expect to pay higher wages, with median wage growth of about 3 percent over the next 12 months. Wage growth should be strongest in the tech, health care, and construction industries.

IT employment

Forty percent of U.S. companies said difficulty hiring and retaining technology workers is causing a moderate to substantial negative impact to their organizations. The technology shortage is most evident in operations support, innovation and product development support, IT core functions, and analysis of big data.

Optimism Remains Strong

The Optimism Index fell slightly this quarter to 66 on a 100-point scale. That's one point lower than last quarter but still far above the long-run average of 60.

"CFOs remain optimistic not only about the overall economy but about their own firms, too," said Chris Schmidt, senior editor at CFO Research. "Our analysis of past results shows the CFO Optimism Index is an accurate predictor of hiring plans and overall GDP growth."

Top Concerns

After the labor market, the next largest concern among CFOs is the cost of benefits, with health care costs expected to rise by more than 8 percent. Regulatory and governmental policies, economic uncertainty, and data security are also troubling CFOs.

Global results

Fifty-six percent of Canadian firms say a managerial labor shortage prevents them from pursuing all value-enhancing projects. Compared to other countries, a relatively large 42 percent of Canadian firms indicate that non-managerial labor is also constraining their ability to pursue desirable projects.

Optimism is up in Europe, at 63. Capital spending will strengthen to 6 percent (median 2.4 percent) growth, with flat employment growth expected. For the first time, the top concern among European CFOs is attracting and retaining qualified employees, followed by economic uncertainty, governmental regulations and productivity. Thirty-six percent of European firms say that managerial labor shortages cause them to pass up value-increasing projects.

European firms are slow to increase the managerial workforce or hours worked because it is hard to get new managers up to speed, top management does not have the bandwidth to oversee additional projects, hiring more managers would reduce organizational focus, and because of financial constraints.

European firms find it difficult to hire non-managerial workers possessing the required skills, and firms say they are hesitant to hire more workers now due to the difficulty in laying off workers later if circumstances change.

Optimism is somewhat lower in Asia, at 60. Economic uncertainty, difficulty attracting employees, government policies, and weak demand for products are top concerns. Median 3 percent capital spending and flat employment growth are expected. Half of Asian companies indicate that a shortage of managerial talent is preventing them from pursuing value-enhancing projects, greater than the one-third that say that a shortage of non-managerial labor does the same.

The top factors driving the shortage of managerial workers are financial constraints, ability to get new managers up to speed quickly, and lack of bandwidth for current employees. IT shortages in Asia consist primarily of lack of innovation/product development support, sales and marketing support, and operations support. As one sign that Asian economies have cooled, most companies indicate that they have fewer back-logged value-enhancing projects now relative to three years ago.

While the level of optimism is still relatively low compared to most other regions (57), Latin American CFOs are much more optimistic than they were one year ago. Optimism has improved the most in Brazil relative to one year ago, up to 57. Economic uncertainty is far and away the top concern among Latin American CFOs, with 70 percent of firms listing it as a top four concern. They are also concerned about governmental policies, weak demand, and access to capital. Capital spending and employment are expected to increase modestly (1 to 2 percent), which again is a year-over-year improvement. Latin American firms are less likely (than firms in the US, Europe, and Asia) to say that they bypass value-enhancing projects or have a managerial labor shortage.

Among those firms that are struggling to hire the right management team, half say that financial constraints prevent them from hiring adequately and 38 percent say that it is difficult to get newly hired managers up to speed quickly. About one-third of companies indicate that a shortage of IT workers is moderately or severely affecting them; among these companies, the greatest shortage is lack of innovation support, operations support, analysis of big data, and competitive intelligence.

Business optimism in Africa is up from last quarter to 52, though still the lowest in the world. Capital spending should increase by about 3 percent, while employment will be flat. Though weak, both of these numbers are improvements from last quarter.

The biggest concerns for African CFOs are economic uncertainty, governmental policies, volatility of the political situation, and corruption. Only about one-third of African companies indicate that shortages of managers or non-managers restricts their abilities to expand. To the extent there is a shortage of desirable managerial candidates, companies indicate that the candidate pool is weak on both the desired hard and intangible skill sets.  

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