Business Strategy

CFOs fear Brexit will hit business in long-term, claims new survey

BY Fraser Tennant

A challenging and uncertain macroeconomic environment caused by Brexit fears is weighing on UK companies and their job creation and investment plans, according to a new Deloitte survey.

In its ‘CFO Survey: 2019 Q2’ – which features the views of 79 chief financial officers (CFOs) from 48 FTSE 350 companies –  Deloitte reveals that 83 percent of company chief financial officers (CFOs) say they expect the long-term business environment to deteriorate as a result of the UK leaving the European Union (EU). Furthermore, only 4 percent believe the time is right to take greater risk onto their balance sheets.

In terms of the short-term effects of Brexit, pessimism remains elevated, states the report, with 62 percent of CFOs expected to reduce hiring – the highest level in three years – and 25 percent likely to cut their M&A activity. The survey findings also show a drop in confidence among CFOs, with only 9 percent saying they are more optimistic about the prospects for their company than they were three months ago.

“Events in the last three years, and recent news suggesting the economy shrank in the second quarter, have added to worries about the impact of Brexit,” said Ian Stewart, chief economist at Deloitte. “This is not solely a question of the long-term outlook. Brexit has not happened, but it is acting as a drag on corporate sentiment and spending.”

According to the survey, almost two thirds (62 percent) of CFOs expect to reduce hiring in the next three years as a result of Brexit and almost half (47 percent) expect to reduce capital spending, suggesting a cautious approach from businesses.

“Ironically, risk appetite in the corporate sector has slumped just as it has taken off in the equity market,” added Mr Stewart. “Measures of financial market volatility have declined, even though a majority of CFOs rate uncertainty as being at high or very high levels.”

Furthermore, the survey found that UK companies remain focused on defensive strategies with 52 percent citing cost control as a strong priority. Increasing cash flow is also a strong priority for 43 percent of CFOs, down from 52 percent in Q1.

Richard Houston, senior partner and chief executive of Deloitte North and South Europe, concluded: “Companies are looking for more certainty around our country’s economic future, as they prepare themselves for a post-Brexit environment.”

Report: Deloitte CFO Survey: 2019 Q2

Majority of US companies lack compliance automation strategies, claims new report

BY Fraser Tennant

Compliance leaders in the US are yet to fully automate their compliance activities in order to respond more efficiently to shifting regulatory expectations and a changing risk landscape, according to a new KPMG report.

The report, ‘Innovating compliance through automation’, found that only one in five chief information officers (CIOs) and chief compliance officers (CCOs) said they had a well-defined strategy to automate compliance in the next two years. However, 90 percent did say they had plans to increase funding for automation in the coming years.

Among the report’s key findings: (i) 36 percent of CIOs and CCOs said that attention from leadership and stakeholders is a top challenge they have encountered or expect to encounter in implementing compliance automation; (ii) when asked what is limiting their ability to automate compliance activities, 70 percent of CIOs and CCOs named data integrity and 67 percent pointed to data availability as leading factors; and (iii) 32 percent of CIOs and CCOs said the availability of resources to support automation is lacking.

Furthermore, CCOs and CIOs differ on their view of the subject matter knowledge their organisation requires to tackle compliance automation, with approximately 18 percent of CCOs stating knowledge was lacking while 40 percent of CIOs pinpointed this as the main automating compliance challenge.

"Companies are automating routine operational tasks to increase efficiencies and lower costs," said Amy Matsuo, a principal in KPMG’s risk consulting services and national leader of regulatory insights practice. "The next step is for organisations to pivot from using automation in operational processes to deploying it for compliance analytic and predictive purposes. To do so, they must first prioritise compliance activities that can be automated while setting expected returns on investment."

According to the report, compliance activity priorities are based on product safety (42 percent), industry specific regulations (41 percent), cyber security and information protection (36 percent), privacy (29 percent), fraud (27 percent) and consumer protection (22 percent) regulatory obligation categories.

Ms Matsuo concluded: "Organisations will need to identify personnel with the appropriate skills, knowledge and availability to undertake automation. This requires a unique skillset that blends an understanding of business operations, compliance issues and risk management with technological proficiency."

Report: Innovating compliance through automation

British Steel cuts 400 jobs in bid to secure “long-term future”

BY Fraser Tennant

In a streamlining process designed to ensure its long-term growth, British Steel is to cut 400 jobs at its sites in the UK, Ireland, France and the Netherlands – approximately 10 percent of its 5000-strong workforce.

The cuts will be made in managerial, professional and administrative roles, despite first quarter profits being a reported £21m.

The company has stated that the cuts are part of the company’s ongoing transformation – which has already seen it commit £170m toward improving its manufacturing operations during its first three years. British Steel was saved from collapse two years ago when investment firm Greybull bought the business for £1 from Tata Steel.

British Steel is also taking further steps to secure a sustainable future, including continuing to improve manufacturing performance and increasing turnover through strong sales.

“We have made a strong start to life as British Steel but our external environment is constantly changing,” said Gerald Reichmann, British Steel’s chief financial officer. “It is unfortunate we need to go through the proposed redundancy process but by focusing on profitable, niche products I am confident we will create a long-term future for our business and the communities in which we operate.”

British Steel has made it clear that no site closures are being considered as part of the streamlining process. The company has also said that it remains committed to making significant investments in its core products – rail, wire rod, construction and special profiles – along with its iron and steel-making operations.

“It is important our business continues to evolve,” said Roland Junck, British Steel’s executive chairman. “We have already committed £120m to capital expenditure projects and are pressing ahead with the £50m upgrade to our Scunthorpe Rod Mill. However, the pace of change we need in this challenging industry requires further and continued investment along with more agile and efficient operations. To help us achieve this, we have to make difficult decisions.”

Mr Reichmann concluded: “Strong market conditions support the approach we are taking – we have a robust order book and continue to secure significant contracts with customers, old and new, around the world.”

News: British Steel plans to shed 400 jobs 'a body blow' to workforce

Data scientists top UK CEO recruitment wishlist, claims new survey

BY Fraser Tennant

Illustrating their increasing role in supporting future business growth, data scientists have been named the most important workforce capability by UK chief executives, according to a new survey by KPMG.

In its ‘Growing pains: 2018 Global CEO Outlook’ report, KPMG states that more than two thirds of survey respondents (69 percent) named the data scientist role as important in supporting future growth plans, followed by emerging markets experts (57 percent) and emerging technology specialists (55 percent ), such as artificial intelligence professionals.

The KPMG analysis also suggests that firms should focus on the impact of technological disruption as well as considering business opportunities beyond domestic markets.

“UK CEOs are encouragingly bullish on their resourcing requirements and evidently more so than their counterparts elsewhere in the world,” said Mark Williamson, partner and head of the people consulting practice at KPMG in the UK. “This sends a powerful message to the world that UK business leaders can see past market uncertainty and are focused on future-proofing their operations.”

In order to respond to technological disruption, the report also notes that UK businesses need to treat technology disruption as part of an integral part of business strategy, and respond by looking at ways in which their workforce can change its size, shape and composition to meet the strategic demands of the next decade.

“Fundamentally, the nature of digital disruption is potentially transformative if approached with the right mindset,” continued Mr Williamson. “Technology disruption is becoming such an integral part of business strategy that we expect business leaders to increasingly establish their own training programmes and invest in external support.”

The KPMG report showcases the views of 150 UK leaders and a further 1150 chief executives across the globe.

Mr Williamson concluded: “UK business leaders are embracing digital disruption and are confident in the potential for automation to create jobs in the near future. The rise of the data scientist is clear evidence of this sentiment and shift in priorities within UK boardrooms.”

Report: ‘Growing pains: 2018 Global CEO Outlook’

Digital doubts for CPOs

BY Richard Summerfield

Procurement has continued to deliver solid savings and manage risk, according to the eighth annual 'Global Chief Procurement Officer Survey' from Deloitte.

While most procurement leaders feel supported by their executives, they are, however, unsure about whether they are contributing significant strategic value, the report suggests.

However, more procurement leaders believe that their teams have sufficient capabilities to deliver on their procurement strategy – 49 percent of those surveyed, compared to 40 percent in 2017. The survey also indicates that while many CPOs have high hopes for the potential of analytics to transform their profession, only a third of them are utilising such technology.

Though many organisations have identified digital skills as a major area of focus, the majority of companies are neglecting to prioritise digital functions. Just 3 percent of CPOs believe that their teams possess the skills required to maximise digital capabilities. Only 16 percent of procurement leaders surveyed were focused on enhancing these skills. Seventy-two percent of procurement leaders are spending less than 2 percent of their budget on training, compared to 66 percent in 2017. Furthermore, 17 percent of procurement leaders do not have a digital procurement strategy.

“With today's global supply chains, risk exists across geopolitical and economic disruptions," said Brian Umbenhauer, principal and global head of sourcing and procurement at Deloitte Consulting LLP. "There are demonstrated techniques to help drive value, reduce risk and meet goals – from digital transformation to increasing visibility and properly training teams – but CPOs right now are struggling to make the most of them. Major benefits and competitive advantage await those who do.” 

Despite uncertainty around issues such as Brexit, NAFTA, weakness and volatility in emerging markets, rising geopolitical risks in the Middle East and Asia, as well as the spillover effects of a slowdown of China, many procurement leaders remain cautiously optimistic about the future.

“Lack of visibility is a major concern for CPOs as they look to navigate global headwinds and prepare their teams for the future of procurement and innovative technologies,” said Mr Umbenhauer. “Visibility throughout the supply chain is a key tool for meeting regulatory and corporate social responsibility requirements while mitigating risk.”

For most respondents, cost reduction, product and market development and managing risk are the top business priorities. Despite concerns, 61 percent of CPOs delivered better year-over-year savings performance than last year, with the highest-performing leaders excelling in executive advocacy, leadership, talent and digital.

Report: The Global Chief Procurement Officer Survey 2018

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