First, it is becoming clear that the crisis in the euro zone is not primarily a debt crisis, but a crisis of governance. For a long time, the world was impressed by the EU’s integrated markets for goods and services, while the labor markets in member states remained practically walled off, and no EU-wide policy was implemented to overcome this. Throughout its first decade, the euro was considered a potential alternative to the dollar’s dominance as the world’s reserve currency, while the fact that markets in government securities remained separated was largely ignored. The European Central Bank’s principled hawkish monetary policy was implemented within an institutional vacuum that lacked any unified fiscal policy backing. As a result, these policies were at the whim of deeply conflicting member state interests without a clear leadership structure. This explains how successive Greek governments got away with disastrous policies for as long as they did.

Second, the European core, and particularly Germany, is now left in a position where it cannot effectively lead the reforms necessary to consolidate the euro zone. Instead, Germany asserts its influence through indirect measures, such as the austerity campaign, which is deeply unpopular and, ultimately, counterproductive. The push for austerity is based on a profound misunderstanding of the German macroeconomic experience in 2000. German leaders today argue that since Germany was able to increase its competitiveness in the past decade, the EU periphery can do the same now. What this argument is missing is the fact that rising prices and wages in the periphery had boosted demand for German goods, which allowed Germany to run large trade surpluses that compensated for lagging domestic demand. If the EU periphery were to repeat this experience now, the entire situation would have to reverse – Germany would have to go through a period of rising inflation and wages, which would result in large German trade deficits that would mop up goods and services from the troubled periphery. Unfortunately, this is exactly what German policymakers are not willing to do. Instead, they maintain a hawkish anti-inflationary bias with no sign of trade deficit with the rest of the EU.

This leads us to the third characteristic of the current EU situation. Constant emphasis on austerity, which defined the past two years of euro zone policy making, led to widespread confusion about the difference between the means and the ends of this policy. Austerity has been widely accepted as “the right thing to do” but, EU leaders have forgotten that austerity was never the goal – it was just a means to bringing the sovereign debt under control.

While we agree that containing the crisis is the most important goal, we warned from the very beginning that EU-wide austerity was the wrong policy to reach that goal. Deep budget cuts in the vulnerable countries caused a double-dip recession, which makes balancing budgets even more difficult. As a result, the wrong approach has backfired. Instead of solving the debt crisis, the euro zone has created a combination of several crises: deepening sovereign debt crisis, double-dip recession with an unemployment crisis, and an increasing threat of another financial crisis.

Quarterly Report

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I. The percentage of executives anticipating top-line revenue growth in the next 12 months increased somewhat from 66% to 69%. Executive expectations about growth at industry peers improved marginally as well: 57% of executives expect higher industry revenues (up from 52% last quarter).

• Expectations for new orders and production continue to improve: The outlook for new orders improved again with 66% of operations executives now expecting an increase (up from 60% in Q1 2012). In addition, 61% of respondents expect higher production levels in the next 12 months (versus 57% last quarter).
• Expectations for consumer confidence as well as sales to new customers improved: Executive sentiment about consumer confidence improved relative to last quarter: 38% of executives now expect consumer confidence to improve over the next 12 months (up from 31% in Q1). Seventy-one percent of sales executives expect higher sales to new customers (up from 64% in Q1).

II. However, concerns about cost pressure remain high, as 71% of executives expect cost pressure to increase, up from 68% in Q1 2012.

• Expectations for energy costs worsened again: Sixty-four percent believe energy costs will be higher (compared to 57% last quarter).
• Expectations for core input prices also deteriorated: Input prices were 68% higher versus 61% last quarter.
• Budgets remain tight: More finance executives (40%) expect general and administrative expenses to shrink in the next year than those (39%) who expect them to grow. Even fewer executives expect higher budgets in Finance, Marketing, and HR.

III. Investment expectations improved, hiring outlook remains muted.

• Capital Expenditure and R&D expectations improved marginally: Forty-nine percent of executives expect to increase CAPEX (up from 47% in Q1 2012). Forty-two percent of executives expect greater R&D expenditures in the next 12 months, a small change from Q1 2012.
• Hiring remains weak: Only 38% of executives expect total headcount to increase (versus 36% last quarter). A full 32% of executives expect lower headcount in the next 12 months.

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This webinar will specifically discuss what the best organizations are doing to boost the analytic maturity of their finance function. Please stay tuned for updates as we finalize the agenda.

Learning Objectives: After this teleconference you will be able to:

• Enhance the use of data and judgment in financial decision making
• Understand the analytical needs of the business before you decide where to focus improvements in finance capabilities

Prerequisites: None
Program Level: Overview
Advanced Preparation: None
Instructional Delivery Method: Group-Live
CPE Credit: 1
Field of Study: Finance
Course Registration Requirement: Must be pre-registered for this course

View Our Detailed Market Summary

View Our Detailed Market Summary

View Our Detailed Market Summary

In Brief: A new bill to offer a tax credit for 20% of the cost of returning  jobs to the US from overseas has been introduced in the US House of Representatives. The bill would also end deductions for organizations that send jobs out of the country.

Our View: Many officials around the world are urging their governments to promote economic growth by reducing tax rates on corporate income and capital gains. Heads of Tax should develop legislative strategies to inform both the “one-off” and the fundamental reform process.  Coordinate with government affairs representatives and leverage CFOs, employees, and suppliers.

In Brief: India will demand $3.75 billion in taxes, penalties and interest from Vodafone Group PLC if a law that permits retroactive taxing on overseas mergers is enacted, according to a senior government official. The country wants to collect the money for Vodafone’s $11.2 billion purchase in 2007 of a majority stake in Hutchison Whampoa Ltd.’s Indian assets.  Although a Supreme Court ruling in January sided with the telecommunications company, the Indian government introduced a bill to circumvent the ruling; the measure covers deals involving Indian assets that occurred as long as 60 years ago.

Our View: Although it may make sense for companies to consider outsourcing certain operations to India, heads of Tax must be stay on top of the risks associated with the country. Defining a global philosophy and setting a framework for the governance of tax issues throughout the business is an essential step to mitigate corporate exposure and meet the overall goals of the business.

In Brief: Breakthrough innovation is impossible without the right people to develop the product, this writer says. Start from scratch and throw out all assumptions. Build a team for the specific task, rather than cobbling one together from whomever is available. Don’t be afraid to rethink your hierarchy.

Our View: Most companies find it challenging to identify and assemble the right mix of skills for quick and accurate execution. Be sure to match staff profiles to distinct activities and equip project leaders to take end-to-end ownership of the innovation process.

If your son or daughter is a fan of horror flicks, then Dominic Deville is the evil birthday clown for you. When he’s hired to entertain at children’s parties, he sends warning notes, calls and texts during the week leading up to the celebration, and on the big day, he launches his attack: smashing a piece of cake in the honoree’s face. The Swiss actor backs off if he is actually frightening a youngster, or if parents get concerned, but adds that this rarely happens. “Most kids absolutely love being scared senseless,” he says.

In Brief: No single company is likely to have a monopoly on all the best ideas, this writer says. Open innovation to create and develop better products can take various forms, including co-development and other non-equity alliances, crowdsourcing, and user innovation.

Our View: Companies spend more than 20% of R&D budgets on open innovation, yet few realize profitable returns from their collaborations with universities, suppliers, and customers. Identify the right partners by assessing the credibility, network presence, and engagement level of potential partners to find the degree to which both parties can benefit.

In Brief: Enterprises around the world lose about 5% of revenue to dishonesty every year, according to a recent Certified Fraud Examiners survey. The median amount was $140,000 and more than one-fifth reported losses of at least $1 million. The study also found that most of these cases surfaced when employees reported them.

Our View: The changing corporate landscape means potential frauds can lurk almost anywhere in the organization. This makes it harder than ever for audit functions to identify high-risk areas of the business, roles, or individuals that warrant a detailed evaluation. Leading organizations incorporate some level of fraud testing in every audit engagement, in addition to conducting regular enterprise-wide fraud risk assessments, and actively communicate fraud occurrences to boost awareness and instill a sense of organizational justice.

In Brief: Offering too much is a common mistake made by presenters reporting risk data to their boards, a consultant says in this interview. As the volume of available material increases, CFOs, risk officers, chief audit executives, and chief compliance officers must home in on the data that matters.

Our View: As boards aim to improve their risk oversight, they will likely look to legal, compliance, finance, audit, and risk teams for greater assistance and assurance. However, boards often do not receive the risk information they so highly value, and presentations to them often rely too heavily on text without delivering a clear message or calling attention to critical issues. Leading executives in our network develop clear, concise, and compelling templates that find the sweet spot between too much and too little detail. They also include analysis that makes data useful for decision making.

In Brief: Unilever recently entered its 30th strategic supplier partnership as part of an ambitious bid to double growth while halving environmental impact. Vendor ideas are responsible for about 50% of the innovations in Unilever’s pipeline, according to the company’s chief supply chain officer. Last year, the consumer goods manufacturer also launched a program to cultivate long-term alliances to concentrate on forward-looking procurement plans for packaging, chemicals, commodities, and services.

Our View: Most companies want to collaborate with key suppliers but fail because they try to work with too many or focus on projects that are untimely or irrelevant to their partners. Progressive organizations choose only a few projects that both parties consider urgent and important for their overall business strategy.

In Brief: Sunny Delight Beverages Co. rolled out a fleet of compressed natural gas vehicles for deliveries in southern California. The company expects these alternative fuel vehicles to cut diesel fuel demand by 400,000 gallons this year and reduce well-to-wheel greenhouse gas emissions by 23%.

Our View: Sunny Delight’s sourcing decisions directly impact the company’s brand (by bolstering its image as socially responsible) as well as its cost structure. To find different inputs or services to improve operations, progressive organizations take advantage of employees’ passion for innovation, coach staff on how to think bigger, and model breakthrough thinking.

In Brief: Before you can engage your employees, you need to serve them, according to this writer. Give them your time, concern, and interest, he says, and they will reward you with increased productivity and a higher level of commitment.

Our View: Start assessing your employees’ level of engagement by getting feedback on their perceptions of past events and future expectations. Then, build “Engagement Capital” with the following seven initiatives: 1) Involve your staff in developing organizational values, 2) Show employees how they contribute to the company’s success, 3) Establish networks that extend beyond the department, 4) Help them advance, 5) Motivate workers through non-cash awards, 6) Foster peer-to-peer informal feedback, and 7) Demonstrate how organizational goals break down into individual, day-to-day tasks. 

In Brief: To increase sales of specialty foods and expand its mix of products, Bed, Bath & Beyond will acquire Cost Plus Inc. in a deal worth $495 million.

Our View: Companies should prioritize their deal opportunities systematically and transparently to accelerate M&A value capture. Conduct due diligence to develop a clear view of the challenges you face and a full understanding of your target’s potential value. The most important stage of any M&A deal is integration planning; “sanity check” your plan and engage business unit leaders so they understand what will be required of them post-close.

In Brief: Corporate leaders should learn everything about their companies and industries, because only then will they be able to think strategically about the big picture, this writer says.

Our View: This is good advice, particularly for finance executives, who are asked more frequently to use their proximity to financial information to weigh in on strategic decisions. Start by focusing on your relationships with general managers; becoming the CEO’s strategic partner will require an intimate knowledge of business operations. Another thing to consider: most finance chiefs promoted to CEO have previously held operational positions.

In Brief: Last month, Ford Motor Co. announced that, during a specific period of time, some 90,000 retirees and current employees could opt to take their pensions as a lump sum payout instead of a monthly benefit. The auto maker’s offer is an attempt to downsize the pension plan and make it easier to manage, this writer says.

Our View: In an environment of low interest rates and high equity market volatility, sponsors of defined-benefit plans are adopting comprehensive pension risk management strategies that align with their corporate objectives. Leading practitioners are shifting to long-duration bonds, using equity overlay strategies to mitigate equity volatility, and increasing use of metrics, such as “funded status volatility” and “value-at-risk.”