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Surveys Reveal CFO Mind-Set

Several surveys have recently been published regarding the current priorities, challenges and overall mind-set of chief financial officers. Let's take a look at what these surveys reveal and how you, as a financial services provider, may be able to maximize your value to CFOs going forward.

Attitude Toward Their Primary Bank

Banks need to improve their level of engagement and the quality of service they provide to CFOs,CFO Magazine reports in an October 2010 article "Take Control of Your Bankers." While financial institutions continue to make customer acquisition their primary focus, keeping existing customers loyal needs to be given a higher priority, results of a CFO survey cited in the article suggest.

Almost 25% of the more than 640 survey respondents describe their relationship with their primary bank as "strictly transactional." Another 20% classify it as "deteriorating" or "abysmal." Clients who share these views can easily be spirited away by a competing bank if they are not already actively looking for a replacement service provider.

According to a New York Times article ("The Least-Trusted Banks in America"), this is exactly what's happening. Commercial client defections are at an all-time high, and the cost of these defections can't simply be made up by finding new clients to replace them, the story says.

Frederick Reichheld revealed in his book The Loyalty Effect that if a financial institution can reduce client defections by just 5%, the institution can increase its bottom line profitability by as much as 95%. In contrast, banks that ignore client erosion and focus exclusively on new business acquisition will find that the acquisition cost of a new customer can run as high as $2,500, and that it may be several years before a new customer relationship generates enough revenue to become truly profitable.

Earning and maintaining the loyalty of your current clients is a challenge, but one well worth pursuing, according to Greg Becker, president of Silicon Valley Bank and SVB Financial Group. The longer you keep a client, the greater the lifetime value of that client, Becker says in the CFO article referenced above. Keep in mind that according to a benchmark study by Treasury Strategies, the treasury consulting firm, the average length of a bank's relationship with a large corporate client is eight years with the value of that relationship, on average, exceeding $509,000.

Economic Outlook

According to a survey of CFOs, the economic confidence of CFOs is rising. The Q3 2010 "CFO Outlook Survey," conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business, reveals four key insights:

  • Increased hiring on the horizon. More than half of the CFOs surveyed (56%) plan to hire additional employees within the next six months; they anticipate a 4% increase in hiring during that period.
     
  • More emphasis on talent retention. Following the staff reductions experienced by many during the recession, retention of remaining talent is a priority for 80% of CFOs. Training and development slightly outranks compensation as the top tactic for retaining talent (47% to 45%). These strategies are followed by improvements to office atmosphere and team building (both 35%), and ensuring opportunities for career advancement (30%).
     
  • Increased interest in M&A. When comparing M&A plans relative to the previous quarter, over one-third (34%) of respondents to the Q3 survey say their company's interest in making acquisitions has increased. Only 3% of CFOs say their interest in M&A has decreased. While most respondents (73%) see no change in their company's interest as an acquisition target, nearly one-fourth (23%) say interest has increased. Nearly all respondents (92%) are limiting their acquisition targets to North America (92%), while Asia (19%) and Europe (17%) come in distant second and third places as acquisition targets.
     
  • Uncertainty about accounting standards. International Financial Reporting Standards (IFRS) remains a hot-button issue among CFOs. Survey findings demonstrate that there is still uncertainty about the timing, and anticipated impact, of global convergence. When asked about their confidence as to whether a global adoption of IFRS is obtainable, most CFOs (81%) feel that it is achievable, but they remain unsure when this would happen. Another 16% do not think IFRS will ever be adopted.

GE Capital also conducted a third quarter economic outlook survey of CFOs, interviewing 530 CFOs of companies with revenues ranging from $50 million to $1 billion. Seven industries were represented in the GE Capital CFO Survey: Metals, Mining and Metals Fabrication; Food, Beverage & Agriculture; General Manufacturing; Health Care; Retail; Technology & Business Services and Transportation. Here are highlights:

  • Worst of economic crisis is behind us. While maintaining a cautious tone, 84% of the CFOs expect the U.S. economy to be stable (47%) or improve (37%) over the near term, suggesting little chance for a double-dip recession in the months ahead.
     
  • Low-to-moderate growth in 2011, 2012. Some 86% of the respondents see low-to-moderate growth for their businesses continuing over the next few years. Technology companies are the most optimistic, with 59% expecting moderate-or-better growth in the next few years.
     
  • Credit market conditions improving. A full 85% of CFOs surveyed expect the amount of credit available to them in their next round of financing to remain the same (56%) or improve (29%).

    "Middle-market CFOs are generally more comfortable with their access to credit today," Dan Henson, president and CEO of GE Capital, says in a company news release. "There's more liquidity in the lending markets now, so it's a better time to be borrowing."
  • Stronger companies hiring at healthy rate. Some 62% of CFOs surveyed say they began hiring again in 2010. A large majority (77%) of the CFOs expect operational positions to make up the greatest portion of new hires.

Key Takeaways for Financial Institutions

  • The demands on CFOs continue to expand.
     
  • These demands will include more strategic and long-term planning and execution for sustainable profitability and growth.
     
  • Banks and other financial institutions have an unprecedented opportunity to become an integral part of the process in addressing these increasingly complex roles and responsibilities.
     
  • By providing information and objective guidance to make clients' jobs easier, a bank can move beyond being perceived merely as a "transactional" institution, and instead be viewed as a trusted advisor and financial partner.

 

 . . .
FPS regularly works with financial services companies to maximize the impact of their client communications, including e-mail and online communications. To find out how we can help you develop effective strategies for communicating with corporate financial executives, contact FPS President Vince DiPaolo at 847-501-4120 or [email protected].

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