Chief executives suddenly more confident

Jul 10 2009 by Nic Paton Print This Article

Are we finally moving out of survival mode? The suggestion in latest research that chief executives are feeling increasingly confident and intend to spend the next few months maintaining a firm grip on costs not so much because it's the only way for them to keep their heads above water, but as a means of increasing profits certainly seems to point in that direction.

While the rest of this year is still unlikely to be easy, the poll from the respected Conference Board does indicate a resurgence in optimism, particularly when CEOs are asked to assess how they think things will be six months down the line.

The Conference Board's CEO confidence measure, which had increased in the first quarter of this year, "surged" in the second quarter, the organisation said.

The measure, which polls some 100 business leaders, improved to 55, up from 30 in the last quarter, with a reading of more than 50 points reflecting more positive than negative responses.

"CEOs are considerably more optimistic than last time about the short-term outlook, however, their assessment of current conditions, while also improved, suggests the economy remains weak," said Lynn Franco, director of board's Consumer Research Center.

"Among those expecting an increase in profits over the next year, the majority see cost reductions as the primary driver," she added.

When looking at current economic conditions, nearly a third felt conditions had improved compared with six months ago, with the increase markedly up from the zero per cent recorded in the last quarter.

In assessing their own industries, business leaders were also much less negative, with nearly a quarter claiming conditions were better, up from just one per cent in the first quarter.

Looking ahead six months, CEOs were even more optimistic. More than half Ė 55 per cent Ė of the business leaders polled expected economic conditions to improve in the next six months, up from under a fifth in the last quarter.

At the same time, 45 per cent anticipated an improvement in their own industry in the months ahead, up from just over a quarter in the last quarter.

Nearly half anticipated increased profits over the next year, with 77 per cent of those in the durable goods sector expecting this.

Among these optimists, more than half believed cost reductions would drive profits up, while a third highlighted market/demand growth as the main source of ther improvement.

Intriguingly, just seven per cent cited new technology as a driver of growth, with the remaining four per cent saying price increases would be the key catalyst for them.

But before we all get over-excited, it is worth being aware that the upbeat tone is at odds with research last month by consultancy Ernst & Young that argued two thirds of managers were still focused almost solely on survival, though this was an improvement on the three quarters it had reported previously.

And the need to be making the right decisions to maximise any benefit from an upturn was also highlighted last month in research by consultancy Deloitte.

It argued that the decisions managers and chief executives made over the next two years, as much as their current confidence, would govern how quickly their organisations recovered, as well as how they performed over the next decade.