Over the past three years, the recession has pummeled Los Angeles. Unemployment in the county skyrocketed from just under 6 percent in March 2008 to roughly 12 percent this March. Banks tightened lending standards, consumers reigned in spending and, as a result, a number of local companies downsized or shuttered operations.
But now, we’re starting to see faint glimmers of hope. I was heartened to read reports that California has added more than 90,000 jobs this year, and that the Los Angeles Economic Development Corp. declared an economic recovery underway in Southern California, forecasting growth in 2012.
Yet another study reminded me that, as business leaders, we are at a crucial tipping point.
I was reviewing the results of Deloitte’s latest CFO Signals Survey, which we conduct quarterly to track the thoughts and actions of chief financial officers from North America’s largest and most influential companies. The findings were a reality check for me, and illustrate the “new norm” that we are facing.
Our survey shows that businesses are operating differently as a result of the recession. One remarkable difference is that CFOs, typically the overseers of a company’s finances, are taking on a broader range of duties. Many are becoming co-pilots in their company’s journey from survival to growth and profitability.
In my role, I meet with L.A. CFOs regularly, and many agree: The business sector is at a crossroads.
In this precarious and increasingly competitive environment, CFOs can help their companies by avoiding these five critical missteps:
• Delegating the decision-making process
For many companies, boosts in revenue from the economic recovery are leveling off, and they are shifting focus from cost containment to growth. As a result, the CFO role is rapidly evolving into a more hands-on catalyst role. In fact, nearly 43 percent of those surveyed by Deloitte say that influencing business strategy and operational priorities is a leading challenge. This shift is a tremendous opportunity – it allows CFOs to use their full range of leadership, facilitation and analytical skills to have a greater impact on their company’s business strategy and, in turn, its future.
• Taking your eye off your talent
Despite high unemployment, one-third of CFOs surveyed say they are having trouble filling open positions. I was discussing the irony of this recently with a CFO of a local manufacturing company, who agreed that the problem was mainly structural, driven by a combination of changing staffing needs and a shortage of workers who fit complex staffing profiles. Our study also showed that nearly 60 percent of CFOs are taking new steps to keep top performers. With a talent war brewing, organizations that make hiring and investing in skilled talent a priority are the ones who will remain competitive.
• Not thinking globally
Los Angeles is an international gateway. In fact, the LAEDC just reiterated L.A.’s ranking as the nation’s No. 1 manufacturing center. Business leaders cannot afford to ignore foreign markets, and must leverage technology and talent to tap into emerging markets. CFOs surveyed by Deloitte agree: Two-thirds expect revenue from foreign markets to be higher within the next year than it was before the recession.
• Being penny wise and pound foolish
As the economy gains momentum, it will be increasingly important to know your market, target clients carefully and make strategic investments. Despite sitting on an estimated $2 trillion in cash reserves, U.S. companies are increasing their diligence around investments. With less margin for error, business leaders must be cautious in deciding how and when to lend money, invest in new markets and infrastructure, and hire people.
• Refusing to innovate and diversify
More than 70 percent of CFOs surveyed expect revenue from new products and services to be higher a year from now than before the recession. To achieve growth, innovation and diversification will be critical. As home to such dynamic industries as high tech, and media and entertainment, as well as the highest rate of entrepreneurs in the nation according to the Kauffman Foundation, Los Angeles is a hotbed of innovation. The local community has the talent, resources and wherewithal to spur the economy, but we can’t do it without anticipating and meeting the ever-changing needs of our customers.
Los Angeles is home to more than a dozen Fortune 500 corporations and countless large private companies, all of which are looking to plot a course in this uncertain economic climate. The sooner organizations identify and address potential pitfalls, the stronger their roadmap for growth will be.
At the conclusion of this recession, there will be survivors, there will even be a few winners and there will be casualties. Which one will you be?
Michelle Kerrick is L.A. managing partner for Deloitte LLP.
