Workplace Issues

Brother, Can You Spare a Manager?

Tight labor markets are inhibiting corporate expansion, according to the third-quarter Duke/CFO Business Outlook survey.
October 3, 2017

The U.S. labor market continued to tighten, causing companies to pass up valuable investment projects, according to the results of the third-quarter Duke University/CFO Magazine Global Business Outlook Survey. Most tellingly, the survey of 850 CFOs found that 89% of companies do not intend to pursue all planned projects that would increase the value of their firms, with the inability to hire the right employees being a binding constraint for about half of them.

For the second quarter in a row, and for only the second time in the 21-year history of the survey, the top concern of U.S. CFOs was difficulty attracting and retaining qualified employees. The same worry ranked highly in many places around the world. Pushed one notch lower on the list of top concerns in the U.S. were the usual suspects of CFO insomnia: the cost of benefits (respondents expect health-care costs to rise by 8.6% in the coming year), government policies, regulatory requirements, and economic uncertainty.

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Specifically, U.S. firms were having a much harder time finding the capable managerial talent to support growth initiatives, and a somewhat harder time hiring rank-and-file workers. In addition, many U.S. companies indicated that their currently employed managers do not have enough bandwidth to oversee an expanded organization.

17Oct_Outlook_p44Positive Outlook

Despite the talent deficit, U.S. CFOs remained optimistic about the domestic economy. The survey’s CFO optimism index for the United States fell by one point last quarter, to 65.9 on a 100-point scale, but it is still far above the long-run average of 60. U.S.–based CFOs remained optimistic about their own firms’ performance as well, rating their optimism about their companies’ own financial prospects a point higher in the third quarter, at 70.2. (See charts.)

Across America’s northern border, in Canada, CFOs were also feeling largely upbeat. The economic optimism of finance chiefs in Canada was down slightly, but still registered a robust index reading of 64. A recent interest rate hike by the Bank of Canada confirms what CFOs sensed: the Canadian economy is on a roll. Finance executives’ growth projections for 12-month capital, technology, and R&D spending all rose in the third quarter. It remains to be seen whether the economy is beginning to overheat. However, 56% of CFOs at Canadian firms said a managerial labor shortage prevented them from pursuing all value-enhancing projects, and 42% of them indicated that a shortage of nonmanagerial labor was also constraining their growth pursuits.

Economic optimism was up two points in Europe, hitting 63.4. Capital spending will grow an average 6.6% in the next 12 months, estimated European finance executives, with flat employment growth expected. For the first time, the top concern among European CFOs surveyed was attracting and retaining qualified employees, followed by economic uncertainty, governmental regulations, and productivity.

17Oct_Outlook_p45aThirty-six percent of European finance executives said that managerial labor shortages caused their companies to pass up value-increasing projects. When asked, European CFOs said they are slow to increase the managerial workforce or hours worked for three main reasons: it was hard to get new managers up to speed, top management did not have the bandwidth to oversee additional projects, and hiring more managers would reduce organizational focus. On the nonmanagerial side, European firms found it difficult to hire workers possessing the required skills and were hesitant to hire more workers now due to the difficulty in laying off people later if circumstances change.

Up and Down

Outside Europe and the United States, CFO sentiment was more of a mixed bag. Optimism was somewhat lower in Asia (except Japan), at 60.2, down from 63.6 in the second quarter. Company confidence also fell in the third quarter, to 62.5 from 68. Economic uncertainty, difficulty attracting employees, government policies, and weak demand for products were the top worries of the region’s CFOs. Flat employment growth was forecast, but half of Asian companies indicated that a shortage of managerial talent was preventing them from pursuing value-enhancing projects. Financial constraints were the top factor driving the shortage of managerial workers, but the inability to get new managers up to speed quickly was also a hindrance.

As in most economies, Asia faced a dearth of IT talent, with 78% of CFOs saying it adversely impacts their organizations. The shortage was most acutely felt in the innovation/product development support, sales and marketing support, and operations support areas. There were signs, however, that some Asian economies may be cooling: most survey respondents indicated that their companies have fewer backlogged value-enhancing projects now compared with three years ago.

In Latin America, the level of optimism was still relatively low compared to most other regions (57.5). But the area’s CFOs were much more optimistic than they were one year ago. Economic optimism improved the most in Brazil. For the entire region, company confidence rose slightly, increasing to 65 from 63.6. But with some parts of Latin America still volatile politically, economic uncertainty remained far and away the top concern among CFOs, with 70% of firms listing it among their top-four sources of angst. Finance executives in the region were also concerned about governmental policies, weak demand, and access to capital.

17Oct_Outlook_p45bLatin American CFOs were less likely than those in the United States, Europe, and Asia to say that they bypass value-enhancing projects or were experiencing a managerial labor shortage. Among those companies that were struggling to hire the right management team, however, half said that financial constraints prevent them from hiring adequately and 38% said it was difficult to get newly hired managers up to speed quickly. About one-third of companies indicated that a shortage of IT workers was moderately or severely affecting them; among these companies, the greatest shortages were in innovation and operations support, big-data analysis, and competitive intelligence.

At the bottom of the economic optimism index was Africa. But the region’s CFOs have become increasingly optimistic in every quarter over the past year. Economic optimism hit 51.5 in the third quarter, up from the second quarter’s 49.7. Growth projections strengthened for earnings and revenue over the next 12 months, as did planned spending on technology, marketing, and wages and salaries. Capital spending should increase by about 3%, CFOs in Africa said, while employment growth will be flat.

The biggest concerns for CFOs of companies in Africa were the mainstays: economic uncertainty, governmental policies, political volatility, and corruption. Only about one-third of African companies indicated that shortages of managers or nonmanagers restricted their ability to expand. To the extent there is a shortage of desirable managerial candidates, the region’s CFOs are uttering a problem that may bedevil global CFOs for the rest of the year: the difficulty finding candidates with the necessary skill sets.

Source for all charts: Duke University/CFO Magazine Global Business Outlook Survey of finance and corporate executives, Q3 2017. Responses for the current quarter include 400 from the U.S., 79 from Asia (outside of Japan), 22 from Japan, 163 from Europe, 150 from Latin America (including 
Mexico), and 29 from Africa.