Quarterly Priorities Survey: Q3 2020

This newfound optimism is most starkly revealed in the proportion (49%) of companies indicating that they had either accelerated their digital transformation efforts or adopted new ones in the third quarter, showing their willingness to commit resources for growth. What’s more, financial executive confidence in the national and regional economies, as well as industries, increased over the second quarter.

Key findings
Marching on: Financial executive confidence in local/regional economies, the national economy, and industries increased for the third consecutive quarter. 

Is the war for talent reconvening?: After reporting plans to shrink corporate headcounts in Q1 and Q2, the number of respondents indicating that they were planning to increase headcount exceeded those planning to decrease headcount for the first time in 2020.

Bring on the digital transformation: 49% of respondents indicated that their organizations had either accelerated their digital transformation efforts or adopted new digital transformation plans, compared to 44% who indicated that their digital transformation plans had not changed. 

Outlook is Improving, but Uncertainty Remains a Top Management Concern

The upward trajectory in survey respondent sentiment is encouraging and speaks of increase from quarter to quarter. It also points to resilience in fundamentals of the American economy. Considered regionally, we see that respondents in the South region reported having the most confidence in their regional economy (6.97/10.00) and those in the North East reported the lowest confidence (6.38/10.00).   

When turning an eye to the national economy, respondents in the South were the most confident with a score of 6.47, followed by the Midwest (6.23/10.00), West (6.08/10.00), and North East (5.58). 

Even with the substantial economic rebound in the third quarter, management teams report being most preoccupied with lingering economic uncertainty. Given the soaring COVID-19 caseloads through much of the country and the lack of economic stimulus, continued preoccupation with the economy should continue to linger through the remainder of 2020. Interestingly, the average ranking assigned to economic uncertainty rose from 1.86 in Q2 but remains well below Q1’s ranking of 2.22, at 2.08

Both attracting/retaining qualified employees and weak demand for products or services remained among the top three most commonly cited top-of-mind issues for management teams. Moreover, the topics of employee retention (discussed in greater detail below) and weak demand did witness significant changes from the prior quarter.  
The proportion of survey respondents indicating they had experienced weak demand for products and services fell 8% from the prior quarter, while the proportion indicating they were continuing to attract/retain employees increased by 18%; this change is strongly indicative of the shift in financial executive sentiment as the US economy begins its tenuous journey to recovery after a harrowing spring and summer. 

Shaky Foundations

The economic recovery is plainly manifest in the proportion of respondents who indicated that their company’s working capital increased in Q3 (44%) compared to Q2 (28%) – additionally, the percent of respondents indicating that their capital balances decreased fell 10 points from Q2. Even as corporate capital balances improved in Q3, it seems that at this point in nascent recovery, financial executives are prioritizing growth. This is revealed through increasing reserves of human capital (see below) and digital transformation (see below) over other areas like mergers and acquisitions as they wait for  the increased clarity that comes from continued economic. Overall, the corporate acquisition appetite remains fairly weak 64% of respondents indicated that their company’s interest in pursuing acquisitions was unchanged in Q3 and 22% said that their interest had decreased.
As corporations turn their attention to bolstering or replenishing human capital stores, we are entering into the next phase in the war for talent. After posting a net negative headcount differential – defined as the difference between the proportion of those planning to increase headcount less those planning to decrease headcount – in Q1 (-30%) and Q2 (-6%), the 10% net positive differential represents a heating up in the labor market. With this increase, finance teams are looking most closely to fill-in talent gaps related to the following areas: data management/science, financial planning & analysis, and technical accounting.
49% of respondents indicated that they were either accelerating their digital transformation efforts or adopted new ones in Q3 – compared to 44% who indicated that they hadn’t changed their plans and 7% who currently do not have any plans to digitally transform. Given the crisis that took place in the first and second quarters of 2020, it is significant that so many companies indicated that they were prioritizing digital transformation. Overall, it appears that respondents in the Midwest and West regions were most keen in embracing digital transformation efforts as depicted in the graph below. Related to the section on human capital, increased prioritization in digital transformation efforts will lead to greater demand for professionals with data management/science capabilities.