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THE CFO: FROM FINANCE TO TALENT

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THE CFO: FROM FINANCE TO TALENT

By Liam Butler, VP Sales EMEA at SumTotal

Against a backdrop of spending squeezes, technical innovation and massive changes in organisational cultures and employee expectations, it is increasingly falling to the Chief Financial Officer (CFO) to strike the perfect balance between people and investment.

The role of the CFO has changed dramatically in recent years. Now, in addition to financial reporting, CFOs are also responsible for performance acceleration, driving analysis and providing the perspective and insights needed to link corporate strategy to execution.

CFOs must demonstrate a deep understanding of how organisations invest their resources to achieve business goals and improve organisational capabilities. Given that human capital represents a company’s biggest investment, increasingly CFOs are finding themselves having to not only quantify what’s being spent on training, development and talent management, but also assess how learning and development (L&D) initiatives translate into value for the enterprise.

HR and Finance: working together

Many organisations are now drawing on the strong financial modelling and analytical skills of the CFO for talent management and acquisition. CFOs are often able to use these skills to help the organisation drive a more effective HR strategy.

In a recent EY CFO report, 80 per cent of finance and HR professionals surveyed said their relationship is becoming more collaborative. The report goes on to suggest that more engagement from the CFO in HR matters leads to increased corporate and HR performance, higher growth and improvements in employee engagement and productivity.

The vast majority of CFOs view human capital as a key value driver and central factor in their company’s ability to achieve outcomes that drive shareholder value. In the UK alone, businesses currently invest over £40 billion a year on formal training, and that’s without taking into account the additional time and resources UK firms will commit to addressing the skills challenges that lay ahead, such as Brexit.

Driving change

With Brexit on the horizon, harnessing the CFO skill set for HR strategy is taking on a new importance.Almost half of CFOs surveyed in the CFO Survey: 2017 Q2 predict hiring will decrease over the next 12 months.  Sound, informed decisions on budget priorities and allocation for maximum L&D ROI will be crucial.

In addition to political uncertainty, changing workforce trends are also driving organisations to redesign themselves. The gap in digital and highly skilled sectors (70% of organisations cite ‘capability gaps’ as one of their top five challenges according to a SumTotal whitepaper), flatter work hierarchies and the management of Millennials mean businesses are moving from traditional, functional structures to focus more on interconnected, flexible teams built around specific projects.  Millennials are taking on more responsibility in the workplace and organisations need to address their expectations.This includes providing the accelerated development opportunities that more than two-thirds of Millennials say an employer will need to have in place in order for them to stay –all the while ensuring that funds directed to them are well placed.

More activity in HR

More than two thirds of CFOs now take an active role in recruitment and talent management. For example, some finance departments are now closely monitoring the acquisition of key hires, their performance after three months and the return on investment each hire has contributed to the business. Finance is also working closely with HR to better understand where cost can be saved through reducing employee churn. Often, promoting talent from within is a good way to reduce employee churn and can often be more beneficial to the company than hiring someone new. This is particularly true for strategic, high level jobs.

By hiring from within, employee retention is improved, which leads to greater workforce stability and productivity – and an enhanced talent pipeline. Plus, a step-up in retention rates generates expense reductions in other areas – like the recruitment and induction cost associated with buying in talent and skills.

Quantification – a job for the CFO

According to the Chartered Institute of Personnel and Development, poor quality people management costs UK businesses £84 billion a year in workforce disengagement, performance and productivity.Calculating the true cost of talent management is not as straightforward as simply monitoring L&D spend against budget.

CFOs are aware that a company’s largest expense is often its people. Therefore, the performance of the workforce is critical for operations and results. Now, more than ever, understanding and maximising training ROI is a focus for CFOs.

As finance’s role in HR evolves, it will need to take into consideration the hidden expenditure related to training. The cost of learning expenditure per-head can at least double –if not quadruple – once all associated indirect costs are factored in. These indirect, variable costs include loss of productivity when employees undertake training and wasted training investments – for example, when employees fail to attend a scheduled training event on the day due to illness or workplace demands.

The key to effective L&D is for finance to work closely with training partners and HR to develop appropriate metrics to monitor and measure the efficacy of learning and development programmes. Going beyond merely tracking costs, the CFO can understand when to further invest or withdraw budget. It is up to HR departments to capitalise on this wealth of knowledge to make the most beneficial decisions for the company and the workforce.

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UK might need negative rates if recovery disappoints – BoE’s Vlieghe

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UK might need negative rates if recovery disappoints - BoE's Vlieghe 1

By David Milliken and William Schomberg

LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.

Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.

Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.

Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.

“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.

“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.

Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.

Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.

Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.

Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.

Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”

“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.

By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”

Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.

“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.

($1 = 0.7146 pounds)

(Reporting by David Milliken; Editing by William Schomberg)

 

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UK economy shows signs of stabilisation after new lockdown hit

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UK economy shows signs of stabilisation after new lockdown hit 2

By William Schomberg and David Milliken

LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.

The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.

A separate survey of households showed consumers at their most confident since the pandemic began.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.

Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.

Official data for January underscored the impact of the latest lockdown on retailers.

Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.

“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.

The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.

BORROWING SURGE SLOWED IN JANUARY

There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.

Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.

That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.

The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.

Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.

“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.

Some economists expect higher taxes sooner rather than later.

“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.

Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.

The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.

IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”

However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.

Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”

($1 = 0.7160 pounds)

(Editing by Angus MacSwan and Timothy Heritage)

 

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 3

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)

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