CFOs’ concerns over geopolitical tensions and inflation dim their economic outlook: 1Q22 CFO Signals Survey

Deloitte’s 1Q22 CFO Signals? survey, which was fielded in mid-February and closed the day after Russia invaded Ukraine, found CFOs starting the year with a more cautious outlook than in recent quarters, highlighting overarching concerns over geopolitical relations, the talent crunch, and inflation. Less than two full months into the year, finance leaders found themselves having to adapt to developments such as rising inflation and an increasingly uncertain business environment.

Economic outlook for North America and Europe and own-company optimism drops

As the economy continues to weather unusual circumstances from factors like supply chain disruptions and inflation, CFOs expressed diminished optimism in their broader economic outlook, with just 64% of surveyed CFOs rating the current North American economy as “good” or “very good,” down from 72% in 4Q21. Looking forward, just over one-third (36%) of CFOs indicated they expect conditions to improve in a year. Slightly more than one-quarter (26%) of CFOs said they expect Europe’s economy to improve a year out, a sharp decline from 40% in 4Q21. CFOs also indicated a drop in their appetite for risk-taking, with less than half ?(47%) of CFOs saying now is a good time to take risks, down from 57% in 4Q21.

In addition, slightly more than one-third (38%) of CFOs indicated that they are “somewhat” or “significantly” more optimistic about their company’s financial prospects, dropping 11 percentage points from last quarter’s 49%. While CFOs raised their year-over-year growth expectations for revenue and dividends, growth expectations for earnings, capital spending, domestic hiring, and domestic wages and salaries fell.

Talent retention becomes the chief internal concern while geopolitical tensions and inflation top external risks

CFOs indicated that talent and labor were the primary internal risks this quarter, in line with recent surveys, and they pointed out retention in particular. Additional internal concerns included prioritizing initiatives and their execution, wage inflation, and the hybrid work model. ?

Inflation, geopolitical instability, and policies and regulation topped the list of external concerns for CFOs this quarter. CFOs also mentioned other factors, including supply-chain issues, the state of the economy, rising interest rates, and the potential for an economic downturn.

Gaining greater value from the IT function

The 1Q22 CFO Signals survey’s special topic focused on managing the IT function. Thirty-five percent of CFOs reported overseeing their organizations’ IT function either directly or indirectly. More than one-third (34%) of CFOs indicated they are either “satisfied” or “very satisfied” with their organizations’ IT services. A smaller percentage, 25%, expressed various degrees of dissatisfaction. Talent, complexity and non-standardization, and business partnering and alignment were the top three challenges to realizing value from their IT function. As far as metrics to measure the effectiveness of the IT function, CFOs noted include reliability, cost/revenue ratio, user satisfaction, help desk statistics, and return on investment.

On average, surveyed CFOs placed their organizations’ overall IT spend at 3.1% of annual revenue, with more than half (52%) of their organizations’ IT spend going toward maintaining the day-to-day operations. ??Enhancing existing capabilities and operations (26%) and creating new capabilities for their businesses (22%) took up the remaining IT budget.

When asked what their IT function could improve to realize greater value, CFOs cited most frequently the following areas: speed, agility, and innovation; governance, accountability, and transparency; talent, skills, and business acumen; and digitization.

With the ongoing war in Ukraine and sustained inflation, CFOs will want to work closely and effectively across the C-suite to make strategic pivots. From addressing ongoing talent concerns to realizing the full potential and value of their IT function, CFOs are at the helm of managing their organizations’ top priorities. The role of the CFO is continuing to evolve and encompass more responsibilities as a leader in the C-suite. The coming months will be telling a telling barometer for organizations as they manage these uncertainties. We’ll check back in with CFOs for the next quarter’s survey to see how they’re faring.

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