TORONTO & CALGARY, Alberta--()--In recent weeks, both Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have made pointed statements to Canada’s private sector, urging it to give the economy a boost by investing in growth. Both have argued that the federal and provincial governments have stimulated the economy through tax reductions and policy incentives, and the ball is now in corporate Canada’s court.
“It also clearly shows that CFOs and financial executives have embraced a strategic approach in their contribution to their organization’s growth objectives.”
The good news is that Canadian businesses are not standing still. A new research study, released today by the Canadian Financial Executives Research Foundation (CFERF), the research arm of Financial Executives International (FEI Canada), indicates that Canada’s financial executives are hearing these calls to action, placing growth high on their corporate agendas and rolling up their sleeves to get started. The study is sponsored by Grant Thornton LLP.
The report, Growth strategy: Perspectives from financial executives, reveals that growth is overwhelmingly important to Canadian businesses, with 93% identifying it as a priority and nearly six in ten executives saying it is an “extremely high” priority. More than half (53%) are already executing a growth strategy, and 44% are currently working on a strategic plan for growth.
“This study confirms that Canadian companies are optimistic for the future of our economy and busy preparing for the next stage of growth,” says Michael Conway, Chief Executive and National President of FEI Canada. “It also clearly shows that CFOs and financial executives have embraced a strategic approach in their contribution to their organization’s growth objectives.”
Canadian financial executives optimistic about growth, but constrained by external and internal challenges
According to the study, almost three-quarters of respondents are either optimistic or very optimistic about their growth opportunities for the coming year. More than half are more optimistic about growth than two years ago.
“This is great news for the Canadian economy,” says Bill Brushett, Grant Thornton’s National Clients and Services Partner. “But if Canadian businesses are to produce long-term, strategic growth and help strengthen the recovery of the economy as a whole, companies must look at growth holistically and manage their growth in a strategic way.”
Indeed, while desire and optimism for growth are high, Canadian financial executives perceive a number of internal and external factors that are impacting their growth strategy. The majority of respondents cited increasing pressure (i.e. price, product) from existing competitors (69%) and current economic conditions (58%) as significant external challenges to growth. Others include increasing customer expectations (49%), technological change (35%), competition from new market entrants (33%), and regulatory change (27%).
Interestingly, despite the tax and policy initiatives outlined by Flaherty and Carney, a significant number of financial executives cited other structural challenges such as lack of availability of financing (31%) and regulations and red tape (26%) as barriers to their company’s growth.
“As other CFERF studies have previously demonstrated, Growth strategy: Perspectives from financial executives shows that obstacles remain in the way of growth”, added Michael Conway, “many coming from inefficient regulatory and compliance demands. To help reduce these demands, FEI Canada has called upon the Finance Minister to proceed with tax simplification.”
Regarding challenges within their organization, respondents identified the inability to support growth with existing organizational infrastructure/systems (55%), leadership capacity to drive and respond to market changes (39%), and reluctance to take on new debt (21%) as the top internal barriers to realizing their organization’s growth goals.
Canadian companies missing the boat on international growth opportunities
Although Canadian financial executives are placing a high level of importance on growth, many (32%) say they aren’t seeking opportunities beyond our borders. Of those looking to new international markets, almost one-third of respondents are planning to expand into the United States, but only 17% are looking at China and Asia Pacific, 13% to South and Central America, and 12% to Europe.
“We are surprised to see how few Canadian companies are looking to grow their business outside North America,” says Mr. Brushett. “This is a major concern and can only serve to limit opportunities for growth—especially when you look to the increasingly strategic importance of markets in Asia and South America. Instead of continuing to pursue conservative domestic growth strategies, Canadian companies would do well to explore international growth options or risk getting left behind.”
The study also found that private companies are more likely to focus on domestic expansion, while public companies are more likely to expand into the United States, and South and Central America. Companies that experienced the highest rate of growth last year are the most likely to be setting up operations in new geographic markets, compared with those companies that reported modest growth last year.
Companies urged to take a holistic approach to growth
The report encourages companies to explore many avenues and definitions of growth, and stresses that within the current economic climate, growth for the sake of growth—and that only takes traditional metrics like revenue into account—will not sustain long-term success. According to the report, “there are many ways to achieve growth, and the most successful companies understand that they can pursue multiple channels as part of an overall integrated strategy.”
Canadian companies cite many reasons for their recent growth, including launching a new product or service (51%), investing in training and development (39%), opening up new markets (35%), reorganizing for growth (33%), engaging in mergers and acquisitions (26%), and process improvement (21%).
“Canadian financial executives seem to recognize that there are many ways to achieve growth, and our research found that the most successful companies plan for growth in a holistic way,” says Grant Thornton Partner and national leader of Privately Held Business, John Harris. “Businesses must approach growth as a conscious decision. Although it may sound obvious, companies that focus on planning for growth have the biggest rates of growth. But in a struggling economy, some companies are just trying to keep their heads above water, instead of managing for the future and charting their growth.”
Underutilized risk management practices place Canadian companies in jeopardy
Worryingly, only 18% of survey respondents said they had a fully implemented Enterprise Risk Management (ERM) process to ensure opportunities and threats to growth were identified, both strategically and operationally. Only one in 10 survey respondents had implemented an ERM process at the strategic level. Only 39% of survey respondents said they relied on an informal risk management process in their organization. In addition, when respondents were asked how they evaluate which growth opportunities to pursue, only one-quarter conducted a formal risk analysis.
“Effective risk management must address potential opportunities and threats to all aspects of a growing business, including leadership, operational, financial, political and geographic risk,” says John Harris. “With an effective enterprise risk management program in place, a growing company is better prepared to address potential opportunities and challenges that may present themselves internally and from external market forces. Otherwise the company could be exposed without a safety net.”
Media invited to attend breakfast events in Calgary, Vancouver, Edmonton, Toronto and Mississauga Toronto
Join FEI Canada and Grant Thornton in person for regional breakfast presentations on the report findings and how companies can achieve holistic growth in Calgary (October 25), Vancouver (October 30), Edmonton (November 2), Toronto (November 6), and Mississauga (November 9). More information is available at http://www.feicanada.org/page/events/national-breakfast-seminar-series.
About Growth strategy: Perspectives from financial executives
Growth strategy: Perspectives from financial executives attempts to better understand how Canadian organizations define and pursue growth. In particular, the research seeks to understand whether organizations are just looking at financial measures, like revenue and profitability, or taking a more holistic approach. The report is based on the results of an online survey that took place between May 23-June 15, 2012 and polled 163 financial executives from both public and private companies across industries and sectors. These results were expanded with insights gathered during an executive research forum held simultaneously in Toronto and Vancouver on June 14, 2012. For a copy of the full report, please visit our website.
The Canadian Financial Executives Research Foundation (CFERF) is the non-profit research institute of Financial Executives International Canada (FEI Canada). The foundation’s mandate is to advance the profession and practices of financial management through research. CFERF undertakes objective research projects relevant to the needs of Canada’s senior financial executives in working toward the advancement of corporate efficiency in Canada.
Financial Executives International Canada (FEI Canada) is the all industry professional membership association for senior financial executives. With eleven chapters across Canada and more than 1,800 members, FEI Canada provides professional development, thought leadership and advocacy services to its members. The association membership, which consists of Chief Financial Officers, Audit Committee Directors and senior executives in the Finance, Controller, Treasury and Taxation functions, represents a significant number of Canada’s leading and most influential corporations. www.feicanada.org
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide. www.grantthornton.ca