Deloitte: New report finds CFOs have “diminished optimism” for the economy

After a period of generally sustained economic optimism, CFOs are entering 2022 with a diminishing view of the economy and business prospects, according to Deloitte’s newly released Signals survey for 1Q22. In the face of looming geopolitical tensions and rising inflation, CFOs indicated declining expectations across several key business indicators. The survey closed on Feb. 25, 2022, the day after Russia invaded Ukraine.

The 36% of CFOs expecting North America’s economy to be better dropped from 45% in the prior quarter, according to the CFO Signals report. Similarly, 26% of CFOs said they expect Europe’s economy to improve a year out, a sharp decline from 40% in 4Q21. There was also a drop in the percentage of CFOs expecting Asia’s economy, excluding China, to improve in 12 months, at 33%, compared to 37% in 4Q21.

Chief risk concerns

As in 4Q21, talent/labor appeared at the top of CFOs’ list of most worrisome internal risks, specifically retention. CFOs also noted concerns over the prioritization of initiatives and strategy execution. In addition to inflation and geopolitical instability, CFOs cited policies and regulations as a key external risk.

Other external risks cited included supply chain issues, a potential downturn in the economy, and rising interest rates. Some CFOs expressed concern over new COVID-19 variants. Together, these concerns might explain why less than half (47%) of CFOs said now is a good time to be taking on more risk, down from 57% in the prior quarter, the Deloitte report said.

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Managing the IT function

CFOs increasingly recognize the critical role that their organizations’ IT function plays — not only in keeping systems running smoothly, but also in contributing to the ability to compete effectively and enhance financial performance, and in managing cyberthreats, the report said.

While more satisfied than dissatisfied with their IT function, surveyed CFOs identified several areas that they would like to see improved to gain greater value from it, including speed, agility and innovation; governance, accountability and transparency; talent, skill and business acumen; and digitization.

Of 97 CFOs who responded to a question about whether their primary IT leader (CTO, CIO, etc.) reports to them, 28% said they have direct oversight over their organizations’ IT leader, while 7% said their IT leader reports to them indirectly. The remaining 65% said their organizations’ IT leader does not report to them.

Further, more than one-third (34%) of CFOs indicated they are very satisfied (5%) or satisfied (29%) with their organizations’ IT services. Another 34% reported they are somewhat satisfied. Sixteen percent of CFOs said they are somewhat dissatisfied with their organizations’ IT services. Eight percent noted they are dissatisfied, and just 1% said they are very dissatisfied.

On average, CFOs indicated their organizations’ overall IT spend was 3.1% of annual revenue. The percentage varied somewhat from industry to industry. On the high end, 8% of CFOs reported their overall IT spend is more than 6% of annual revenue. The average of 3.1% was lower than the 4.25% average that CIOs cited in the 2020 Global Technology Leadership Study regarding their companies’ technology budget as a percentage of annual revenue.

On average, 23.7% of CFOs said their organizations’ IT spend goes to agile initiatives. The highest percentage cited 70% and above, which the Deloitte report said may be an outlier, while 14% of CFOs said it was less than 1%, and 16% reported between 1% and 5% of their IT spend goes toward agile initiatives (44 of 97 CFOs responded to this question). Regardless of whether IT leadership is a direct or indirect report, it might be difficult to have visibility into IT spend, including allocations to agile activities, the report said.

The majority (52%) of respondents said their IT spend goes toward maintaining day-to-day operations. The remainder was split between enhancing existing capabilities and operations at 26% and creating new capabilities for their business at 22%, according to the report.

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Deriving value from IT

CFOs’ top three responses to realizing value from IT were talent, complexity and non-standardization, and business partnering and alignment. Technology debt, prioritization and execution, and time to value were the next most common categories of challenges.

When asked what actions their organization has taken to enhance the value derived from the information technology function and technology spend, CFOs’ responses fell into eight categories:

• Change IT leadership
• Improve governance
• Increase investment
• Increase talent
• Leverage their organizations’ ecosystem
• Increase agile development
• Restructure the IT operating model
• Core modernization

To measure the effectiveness of their IT function, CFO respondents cited metrics within these key categories: reliability, cost/revenue ratio, user satisfaction, help desk statistics and return on investment (ROI).

Some CFOs mentioned using benchmarks and measuring their IT functions’ effectiveness against peers’ data. Others noted their organizations are tracking the number of cyber incidents that are prevented, the number of web channel threats, and internal phishing failures to measure the IT functions’ effectiveness.

When asked if their IT function could improve three things to realize greater value, what would they be, CFOs came forward with far more than three things, the report noted. Overall, they zeroed in on four areas: speed, agility, and innovation; governance, accountability and transparency; talent, skills and business acumen; and digitization.

Management of data interfaces, analytics, and insights, and operational execution and efficiency were other areas that, if improved, could position the IT function to provide more value, the report said.