CEO Stories with Tom Stewart, AchieveNEXT
Talent, costs, and supply chain are the top three issues emerging and mid-sized companies are grappling with, according to research from AchieveNEXT. Mid-size companies play a huge role in our economy, accounting for more than 25 percent of revenue produced by U.S. businesses. As providers of goods and services to other, much larger companies, their issues can cause enormous ripples that impact other businesses.
CFOs and CHROs expressed strong optimism about 2022 – and this was after a better-than-expected 2021. More than three-quarters of participants – 77 percent – anticipated that 2022 would be “much better” or “better” than last year. And 75 percent of those surveyed said 2021 was a strong year for them. Stewart said the results make sense for two reasons: 2021 saw companies more adept at dealing with challenges posed by COVID, and middle-market companies tend to underpromise and overdeliver.
It’s common for companies to say that their people are their greatest asset. And while that’s still true, people represent the biggest threat to a company’s ability to execute strategic plans. In roundtables across the country in the first quarter of the year, companies said that both retaining and attracting talent remains challenging. Everyone is competing for talent; and big companies can often pay more. Smaller companies need to emphasize that their size can make them more attractive to employers because they are less bureaucratic.
SUPPLY CHAIN AND COSTS
Talent is also an issue vis-à-vis supply chain and costs, the other top concerns for companies. While companies can be proactive in dealing with talent – being more aggressive in recruiting, making sure they are getting value for what they are paying talent – they have less control overall with supply chain and talent.
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This Is Capitalism: Extraordinary People, Extraordinary Stories
Tom Stewart, AchieveNext
Talent, costs, and supply chain. Those are the top three issues emerging and mid-sized companies are grappling with, according to research from AchieveNEXT, which specializes in helping businesses grow by sharpening their focus on human capital.
Mid-size companies play a huge role in our economy. They account for more than a quarter of all revenue produced by US businesses. And they are providers of goods and services to other, much larger companies, so the ripple effect of what’s happening in mid-size companies is enormous.
Here to give us some more insight is Tom Stewart, Chief knowledge Officer from Achieve Next.
POC: Tom, thanks for joining us today on This Is Capitalism to talk about the CFO-CHRO sentiment study.
TS: Thanks, I’m glad to be here, Patricia.
POC: So what is the sentiment among CFOs that you can tell us about?
TS: Well, we survey these people at the end of the year and beginning of the year. So as the year began, they looked back on 2021 and they said it was a really, really good year. Like 40 percent said that their performance was very much better than the year before. And looking forward, 46 percent expected 2022 to be even better. So the sentiment at the beginning of the year was very confident.
A grand total of 77 percent said that they expected 2022 to be much better or better than 2021 was. And that’s on top of 75 percent that said 2021 was really good.
POC: Even though of course we also want to talk about how things are now and how things are going forward, I am curious to look back a little bit. What did people at the end of 2020, beginning of 2021 say they expected for 2021?
TAS: The way to think about this is to recognize how the Covid crash happened in 2020. I mean business fell off a cliff in the spring of 2020 and by the end of 2020, the end of that year, there was a lot of rebound happening. There was still a lot of sickness, still a lot of businesses closed, but people entered 2021 pretty confident that 2021 was going to be a good year.
The performance that we saw exceeded the performance that they expected. That is a pattern, by the way, with mid-size companies. They tend to want to underpromise and overdeliver. But so they were expecting 2021 to be good because they thought the worst was behind them.
POC: So that was the beginning of the year and I’m going to imagine some sentiment may have changed given what we have seen in the last few months. What have you been finding out since? You’ve been doing roundtables and speaking with people actually in person since you’ve done the study.
TS: Let me give you a little background. At the beginning of the year, we asked people what their biggest risks and challenges and threats were, and No. 1 with a bullet was talent. If you asked them your biggest risk, they said talent.
If you asked them the biggest obstacle to their strategic plans, or to their growth plans, they said talent. It didn’t matter what you asked them about, talent was the problem. I mean people were looking at the Great Resignation, they were also looking at “I need people to execute these growth plans,” and “where are they?” and “people are leaving.”
We have just completed 10 roundtable meetings of CFOs and CHROs from New York to Orange County and if you ask them now, talent remains the No. 1 issue. Now it has two nuances: No. 1 nuance is can I get the talent? No. 2 is how much is it going to cost me to get the talent?
POC: Do you have a sense of which is of greater concern — getting the talent or the cost of talent?
TS: It sort of depends on who you ask. You know Oscar Wilde’s famous quip that a cynic is somebody who knows the cost of everything and the value of nothing? Some of the CFOs we talked to are just saying “I’m worried about the cost.”
The others with the more strategic perspective are looking at cost and value, looking at “I need to get critical technical employees that are hard to find.” The power in the labor market has shifted from employer to employee and they are looking at how to create strategies and processes to do this.
So it really is two issues. There are some people who are just looking at the cost issue but those tend to be those who are less strategic in their thinking. The strategists see you can’t play whack-a-mole with costs and expect to succeed, you’ve got to really start addressing the talent strategy issues.
POC: What are people doing about the talent issue? I would imagine that retention has got to be an aspect that they are probably thinking about as well?
TS: Yes, it’s a suite of things. You’ve got to be thinking about “what are we doing in the recruiting area, what are the ways in which we can improve our recruiting processes?” And you know, a lot of mid-sized companies don’t really have formal processes for recruiting. Things are sort of ad hoc, and in a looser labor market that was fine. So they are strengthening those processes and strengthening strategy in that.
Many of them are looking again in the attraction area. There’s increasing interest in seeing “what we can do about recruiters?” Recruiters themselves are in very high demand. So trying to find creative and new kinds of ways of doing recruiting are also happening.
POC: I just want to go back to recruiting for a minute. Would it be fair to say that most mid-market companies aren’t of a size where they have a robust internal recruitment process? I mean they don’t have an in-house recruiter, per se?
TS: Or they might have somebody that they have on contract. I once heard a rule of thumb from the Society for Human Resources Management that says that for every 75 full-time employees, you’ve got one person in HR. So if you are a company with 300 employees, that would translate to four people in HR. You haven’t got a full-time recruiter in those four people.
POC: And you may also just not have a wildly sophisticated HR function.
TS: Exactly, exactly. So outsourcing of recruiting, outsourcing of training and development, we are seeing more and more of that. And that gets to the retention thing.
I don’t know if you saw…there was a very interesting survey that was done by McKinsey that looked at how employers versus employees thought about the reasons that they left. And employers were thinking employees are leaving because of pay or competing offers or stuff like this. Employees were saying that a sense of belonging and a sense of a future were much more important in that decision, in that “should I stay or should I go?” decision.
And this is an area where we’re seeing a lot of people think about “What do we do with succession planning, leadership development,” other kinds of things that traditionally mid-sized companies have underinvested in. They are doing that in order to improve retention. And they are also working on the diversity, equity, and inclusion issues again with that sense of belonging: “Is this a place where I fit, is this a place where I want to spend my next two years, three years, five years,” or “Hey, should I just take the money and run?”
POC: So would it be fair to say that not only are they seeing talent as a risk, but they are seeing culture as a strategic area to focus on?
TS: Some are. Yeah. And they should be. I think that the strong sense about diversity that was driven a couple of years ago has expanded into a larger question of belonging and feeling that I have got a voice in the company and also that the company listens to my voice.
So those are really important parts of culture. And another important part of culture is the sense that “I can grow here, I can learn, grow, there is a path for me.”
I remember talking to one person at a brewery in Denver who was talking about how the absolutely critical aspect for keeping employees there was career paths, whether it might be somebody who was just starting out pulling beers but wanted to get from behind the bar into the office or wanted to become a store manager or something like this. A sense of a future and a career path is a really important piece that also, by the way, changes culture.
POC: So there’s a little bit of a contradiction here, it would seem. Companies are worried about how much is it going to cost me to keep talent or to attract talent, yet it doesn’t seem that money is the great driver for people in terms of whether they are staying in a job or whether they’re taking a job.
If employees or potential employees are concerned about having their career path, having a sense of belonging, a place where they feel good being there, they feel good about what they do — how do we reconcile that difference?
TS: Money has classically been described as a hygiene factor. It’s got to be enough to make people come, it’s got to be enough to make it worth people staying but it isn’t the deciding factor. The deciding factor is always these other things, the things that say…that make you open to the blandishments from other people or the competing opportunities.
In a pre-Covid labor market, you were competing with other employers. Now in many cases because of the things that people have learned about themselves, you may be competing with other life choices. “I want to be flexible, I want to work from home, I only want to work three days a week, I don’t want to be doing this, that, and the other.” So you’re competing not just with “what’s your pay and benefits package?” but “what’s my life package?” and that may be changing the equation for some people.
POC: And that’s not true just of middle market companies, that’s true for all companies. But it occurs to me that perhaps for people that are looking for that sense of belonging, that sense of feeling good about where they are, middle market companies might have an advantage because of their size.
TS: That’s a mixed blessing, it’s interesting. Because again in these roundtable conversations one of the themes that at Achieve Next we are constantly hearing is, “I can’t compete. I’m here in Dayton, Ohio, now that people can work from home, I can’t compete with these guys from San Francisco with their big pay packages or these guys from New York and they are coming in and poaching my people.”
And the other theme we hear is “but we can offer a better quality of life. We can offer more flexibility, we can offer more personal attention. We don’t have to be as rigid and bureaucratic about things like this.” And that’s their secret sauce as a competitive advantage in this talent market. And that can not only be the personal attention to flexibility and the design of work but it can also be that the CEO not only knows your name but might know the name of your dog.
POC: It’s interesting because people have always said, “Well, our most important asset is our employees.” And maybe now it’s really, really true, maybe now we’re going to see more companies really honor that idea. But regardless of whether they have always honored that or not, there still are other issues that they have to think about as well.
So what are some of the other things that should be top of mind for the C-suite in the middle market as they look to compete and grow?
TS: There are a couple of them that are emerging. One of them is fairly familiar, which is what’s going on with supply chains and supply chain disruptions. And this is something that hits middle market companies particularly strongly because a lot of middle market companies are the tier one and tier two suppliers to great big companies.
Related to that is the digital transformation of supply chains, of digital payments, of all of the stuff that goes on in these supply chains to give you greater visibility and greater transparency.
POC: What else? So, first is talent.
TS: Yes, talent, talent, talent.
POC: Out of the top five, talent is the answer to the top three?
TS: Yes. Absolutely.
POC: Okay and supply chain. So maybe what’s number five?
TS: Supply chain and costs generally. So again, I think at the beginning of the year, yes inflation was high but you didn’t think that it was going to be as high as long as it is. So costs in general, those include the cost of talent but they also include the cost of fuel, the cost of raw materials, the cost of components.
So the CFOs, as they are looking forward to the second half of the year, are thinking, “gee, there are a bunch of things that in my budget for the last 10 years I haven’t had to think about making dramatic adjustments into. Take last year’s number, add two percent, it’ll be good enough.”
But these cost questions have changed, the equations have changed, the numbers have changed. And they have changed in spotty ways, you know. Nickel is way up but some other things are not so up. So, re-looking at the costs is a big issue for them. That is the third big question after talent and supply chains.
POC: It’s interesting because talent is in some ways part of a supply chain issue.
TS: Well, you know, part of the point there is that in many cases with mid-sized companies, they have been able to use personal contact in lieu of process. I can walk down the hall and I can talk to you, I don’t need a process. As the pandemic sent everybody home a lot of companies thought, “you know, we need to organize this. We need a little process. Now we can’t just count on going down the hall and saying `hey Patricia, what have you got on X?’”
The same thing is happening with talent. We just have to build a little more process. Now these are mid-sized companies. They hate bureaucracy, their competitive advantage is agility and flexibility. But you need more structure, and talent is one of those areas where if you start putting a little more structure around your processes you can get a lot of benefit pretty quickly.
POC: Is there anything else you would say middle market companies are focusing on vis-a-vis strategy; should be focusing on?
TS: There’s both an “are” and a “should.” And this is something you and I both know a lot about, which is customer experience. One of the things at Achieve Next that we do is we do a lot of sales training and sales and relationship building.
And we also ask a bunch of questions about customer experience and about the alignment of the employee experience and the customer experience because, particularly in service businesses, employees deliver that experience.
This year, we looked at the companies that had grown 10 percent or more in revenue versus the rest and there was a really interesting difference there. The fast growers were 25 percent more likely to say that they had a formal customer experience process than everybody else. So it was a clear indication that this is paying benefits.
When you ask the question broadly ‘is this important?’ they say ‘yes, it is important.’ But the ones who not only say that it’s important but then have acted on it also turn out to be the ones that are growing faster. So, this something that we identify both as a need but also as an opportunity.
POC: In summary, what would your guess be about what the next quarter, or the next two or three quarters, looks like for the middle market? You’ve worked in the middle market in a lot of perspectives, you’ve looked at it from a lot of different ways — what are the people telling you?
TS: Whenever I try to forecast something I know that my crystal ball is clouded. But let me tell you just a couple of things that I’m hearing. Remember I said at the beginning of the year, people said that they were expecting a really strong 2022?
They are still expecting a strong 2022 but a few conversations I’m having are people are looking to the second half of the year and saying it’s maybe going to be a bit tougher. These cost issues are going to be a little bit tougher. I’m not sure about how strongly demand is going to be holding up.
The CFOs that I am talking about have a plan B budget, or a plan B forecast, in which the second half of the year is somewhat tougher sledding than the first half is. Now we have asked them, “Right now, the first quarter is pretty much over and done. Are you on plan and feeling good; On plan and nervous; or are you ahead of plan? Are you close to plan and nervous? Or are you below plan?”
And most people say that they are either on plan and feeling good, or ahead of plan. But there’s a number saying “yeah, but if you ask me that question in September, I’m not quite so sure what my answer is going to be.” So they are seeing some headwinds coming up.
POC: Maybe a little tempered expectation but still expectations for a strong year?
TS: Yes, yeah. And again, there is a whole lot of uncertainty out there between Ukraine and Covid and everything else. Who knows? But right now they are feeling good.
POC: Tom, where can people find out more about this survey?
TS: The website is www.achievenext.com. It is our 2022 CFO, CHRO sentiment study, the title of which is “Building the Road Toward Sustainable Growth.” And let’s hope that that’s what we see.
POC: Let’s hope indeed. Tom, thanks so much for telling us about the Achieve Next Sentiment Study and for joining us today on This is Capitalism.
TS: Thank you.
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About Patricia O’Connell: Patricia O’Connell serves as Editor in Chief of “This Is Capitalism,” a content site sponsored by Stephens Inc., and is host of the site’s podcast series, “CEO Stories.” Patricia, a former editor at BusinessWeek and a New York Times best-selling author, brings her experience as a journalist and her passion for storytelling to “This Is Capitalism.”