“What CEOs and CFOs are doing today is anticipating recession and ongoing inflation, and managing those dynamics in an environment where demand is still high,” said Mark Elliott, the consultancy’s CFO. a Mercer company, a Marsh McLennan (NYSE: MMC) business. “It’s not like a normal recession in that sense.”
I spoke with Elliott about the trends revealed in Mercer’s new report on the economic and strategic priorities of CEOs and CFOs in 2023. Aiming for growth, cost management, and focusing on skills to meet the talent deficit when demand remains high are some topics.
CEOs and CFOs say inflation rates will decline or stay the same this year. But 49% of survey respondents said inflation poses a higher risk to organizations than recession. Eighty-seven percent believe they are currently in or entering a recession. And one in six leaders in the US expects a structural recession. The findings are based on a global survey of more than 400 chief executives (40%) and chief financial officers (60%) taken by the end of 2022. Regions represented include the US, UK, Ireland, Latin America, Continental Europe, Asia and the Pacific.
In the US, the Bureau of Labor Statistics reported on January 12 that the consumer price index (CPI), which measures inflation, declined 6.5% in December annually. That’s down from 7.1% in November and a peak of 9.1% in June. But the CPI remains above the Federal Reserve’s 2% target.
Globally, half of C-suite leaders surveyed expect wages and supply costs to continue to rise. And because there is still a lot of demand, 63% believe that they can increase the cost to their customers. Among industries, 75% of CEOs and CFOs surveyed in financial services and insurance plan to take this approach.
“How that happens will depend on the potential recession as it affects consumer purchasing power,” Elliott said. And increased scrutiny of the company’s profits during the “continuous cost-of-life squeeze” is likely to impose limits on this practice, according to Mercer’s report.
‘Is the war for talent turning into a war for skills’
As the recession unfolds, the likelihood of layoffs depends on your industry, fortune reported. To reduce risk in response to recessionary pressures, 56% of companies surveyed by Mercer focused on increasing cost control. And more than half (57%), means to reduce the workforce this year. Meanwhile, half said they had increased their hiring budget, but were taking a more targeted approach.
It should not cut the way for growth during this time, Elliott said. “One has to be more sophisticated in thinking about the cycle because the demand is still there,” he said. The majority of respondents expect the demand for organizational services to increase.
If you’re cutting headcount, it’s important to “de-skill the job” to ensure that even when redundant roles are eliminated, employees with critical skills are retained and redeployed to different areas, according to Mercer.
“What was a war for talent is increasingly becoming a war for skills,” Elliott said. “Companies are pivoting more to look at ‘What skills do we need?’ Instead of identifying specific opportunities, they are addressing specific skills gaps. And this translates into a pay-for-skills philosophy. Upskilling and reskilling today’s employees is also important, he said.
If faced with a deeper recession, C-suite leaders say they will prioritize variable staffing models (optimizing the number of positions needed to meet variations in customer demand and employee availability) and reskilling talent more than hiring and reducing headcount.
Instead of the traditional talent model, more and more companies are building “talent markets” to mine internal skill pools and allow talent to migrate fluidly within the organization, according to Mercer.
As a CFO, I asked Elliott if he had any advice for his colleagues. “It all has to do with talent,” he said. “We work in a difficult environment. And the overwhelming feedback from our survey is not an obstacle to growth. We still see strong demand. However, making sure that we create the right capacity to match our company is important.
See you tomorrow.
Sheryl Estrada
sheryl.estrada@fortune.com
big problem
The global cloud enterprise application software market size will reach $116.84 billion by 2021, according to Research and Markets, an online platform that provides market data and research from publishers, consultants, and analysts. It is expected to reach $274.51 billion by 2027, with a compound annual growth rate (CAGR) of 15.3% during 2021-2027, a new report finds. Research and Market defines cloud enterprise application software (EAS) as an advanced business solution that companies integrate to perform various operations with improved productivity and efficiency. Aspects of EAS include enterprise resource planning, supply chain management, sales force automation, customer relationship management and business intelligence.
Deeper
“Today’s Most Critical Workplace Challenges Relate to Systems,” reports the Harvard Business Review, explores why issues like leadership quality issues in organizations or threats to employee mental health and well-being are caused by systemic factors in company culture and processes. However, companies continue to invest in drugs that have no chance of working. Why? It’s likely due to automatic biases in how we perceive and interpret the world, according to the report.
Leader board
Julie Arrowsmith, president and CFO of G6 Hospitality LLC, parent company of the Motel 6 and Studio 6 brands in the US and Canada, has been appointed interim president and CEO. Rob Palleschi is stepping down as CEO of the company, effective January 12. After five years, Palleschi left G6 to take the position of CEO of the American Campus Community. As president and CFO, Arrowsmith has been responsible for all finance and revenue-driving efforts. He has held various leadership roles of increasing responsibility since joining the Motel 6 and Studio 6 brands in 1995. Prior to joining G6, he worked in the audit team at Deloitte.
Michelle S. Hickox named EVP and CFO at First Financial Bankshares, Inc. (Nasdaq: FFIN). Hickox succeeds James R. Gordon, who resigned his position, effective Jan. 9, to pursue other opportunities. Hickox most recently served as CFO of Independent Financial Group, Inc. and its subsidiary, Independent Bank. Prior to joining IBTX, he was an audit partner at RSM US LLP in Dallas, serving financial institutions in Texas.
Hear
“It is the job of the top leadership to solve this problem. We have to communicate very differently.
— Vimeo Chief Executive Officer Anjali Sud commented on how to prevent silence during a panel session at the World Economic Forum in Davos on Tuesday, Bloomberg reported.
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