Halfway through the year, it’s time for many companies to begin looking ahead again, setting strategies and making decisions for 2014. With the economy still in recovery, businesses continue to fight for every small gain or amount of growth.
Many are still operating with fewer employees than they had in 2008 (there are still 2.6 million fewer Americans on nonfarm payrolls than there were at the start of that year), while struggling to keep up with the many changes in regulations and technology that are reshaping our world.
There are five challenges in particular that we’ve identified and outlined below as essential for CFOs to keep in mind as they make their decisions for 2014 and beyond.
#1. Industry Changes
Among the many CFO challenges, the fundamental change in the way so many industries do business certainly comes to mind.
Consider the patent cliff facing biotechnology and pharmaceutical companies (which has led to Virtual R&D) or the revolution in the electronics market (as sales have moved from big box to online) that have forced companies like Best Buy and Radio Shack to make rough decisions. With these kinds of transformative changes underway, CFOs must find a way to continue to grow their companies.
#2 Being Results-Oriented
Now, more than ever, being results-oriented is important if companies wish to survive the slow economy. It’s even been said that flat is the new up—but that’s no way to lead a company.
There are many tempting diversions out there—other challenges where CFOs may be able to make progress more easily (just consider all the attention social media has gotten in business publications and websites these days). However, results need to remain front and center.
Rather than getting caught up in the latest business fad, CFOs need to return to business basics, whether that means working with their team to add a new product line or service, to better serve the unmet needs of existing customers, or expanding into new markets as a way of attracting new customers.
Otherwise, any hope of progress or growth will be lost.
#3 Security Risks
With fewer employees on staff, more companies are opting to outsource various aspects of their businesses. This means one of the top CFO challenges is dealing with increasing amounts of sensitive company data that needs to be shared outside of office walls—whether it’s new product information sent to an outside marketing or public relations team or the CFO himself/herself reviewing financial projections at home.
While secure options for data sharing such as a virtual data room exist, many companies have yet to take these precautions, leaving them vulnerable. The rise of telecommuting, which requires employees to access company documents remotely, has only compounded the problem. For evidence, CFOs need only look at recent security breaches at major companies such as Sony, Citigroup, Coca-Cola and Apple to see how widespread these security-related issues are.
#4 Keeping Pace with Regulations
In a recent KPMG survey, C-suit executives across a variety of industries ranked the threat of government pressure to reallocate capital as the number one threat facing their companies.
With the Patient Protection and Affordable Care Act beginning to take effect, no one can predict what will happen to health insurance rates and competition. Later this year, state and federally run heath-insurance exchanges will open their doors, which may lead smaller companies to drop health benefits, opting to provide stipends instead. For companies with over 50 full-time employees, however, a penalty of $2,000 per employee per year will eventually be assessed for not offering “minimal essential” health coverage (Note: At the time of publication of this blog post, this employer requirement had been delayed until January 1, 2015).
This, and other regulatory changes (like the recent change in patent law from first-to-invent to first-to-file), will mean that the ability to quickly adapt to an evolving regulatory environment will be essential to business success for many industries in the foreseeable future.
#5 Keeping Communication Open & Investors Engaged
With the down economy, finding and securing funding is harder than ever.
Also, as we’ve mentioned in the past, shareholders are flexing their muscles more (and more often)—even at profitable companies—playing a much more active role in corporate governance than in recent years. For example, ever since the financial crisis of 2007-2008, there has been increased demand for reform of executive compensation and governance, beyond what’s covered under the Sarbanes-Oxley Act.
This often makes it the CFO’s job to balance attempts to increase shareholder returns with corporate growth. Investor relations play an important role in any organization’s ability to secure additional funding and to remain competitive, impacting operational agility and stakeholder confidence.
Despite its importance, an Ernst & Young survey found investor relations has not been a top priority for CFOs. Due to the large impact successful investor relations can have, though, this is likely to become much more of a concern for CFOs heading forward—especially if the economic rebound remains slow.
What other concerns do you think will be top of mind for CFOs in 2014? Let us know in the comments.