Labor shortages creep into chief executives' top concerns
Ask local business executives about Columbus and you might think you're talking to the chamber of commerce or the convention and visitors bureau. Those who run companies here are ambassadors for the area's advantages while also not at a loss to say what could make it better.
And we did ask in the 2015 Central Ohio CEO Survey, administered for a fifth straight year in a partnership between Capital University's School of Management and Leadership and Columbus CEO.
As key economic indicators return to pre-recession levels, how has the recovery affected area leader perceptions of the greatest trials and opportunities facing their businesses, and what are their expectations for organizational performance in the next 12 months? Our findings reveal a shift in the business challenges most salient to local CEOs.
Area CEOs continue to view the Columbus business climate through a favorable lens. Since we began the survey shortly after the end of the 2007-2009 recession, area C-levels have proven to be a consistently optimistic cohort. Unswervingly confident in the resilience of the Columbus metro economy and their businesses, the majority of our respondents have predicted local economic gains and increasing organizational revenues and profits over the past several years. Yet in the first three survey administrations (2011-13), local CEOs also consistently named "the current economic climate" as the top business challenge facing local organizations.
Now over 95 percent of participating C-levels predict the area's economy will remain stable or improve in the year ahead, and most expect their company's revenue, profits, and productivity to continue to rise.
For the first time in the survey's history, labor availability earned the top spot on the list of business challenges facing local organizations, as the Columbus MSA unemployment rate dropped below 4 percent.
And more local leaders name improving public school education as the single most important change that would improve the city's business climate, above changing the business tax structure, and increasing financial incentives for businesses.
Ninety percent of the businesses represented in our survey results have resided in Columbus for over ten years. Central Ohio's favorable cost of living, centrality to related enterprises, and access to logistics and distribution channels continue to make central Ohio an attractive location for businesses, according to our survey respondents.
Further, more than 50 percent of local CEOs note that both the affordable cost of living and the area's family-friendly environment contribute valuably to the quality of life in Columbus.Drilling Down on the Economic Outlook
According to the Brookings Institution's July 2015 Metro Monitor, Columbus ranks 12th among the nation's largest 100 metropolitan areas for overall economic performance throughout the recession and recovery time period ending in the first quarter of 2015. This measure tracks the performance of the biggest U.S. metropolitan areas on changes in jobs, unemployment, total output, and house prices. The August 2015 unadjusted unemployment rate for the Columbus MSA was 3.6 percent, down from 4.8 percent one year ago, and below national (5.1 percent) and statewide (4.5 percent) levels.
It's not surprising, then, that nearly 70 percent of our CEO respondents say that they have observed recent improvement in the economic environment. Most expect the positive local economic gains to continue, with two-thirds forecasting ongoing improvement in the Columbus MSA economy over the next 12 months. Another 30 percent expect no change in the local economy, and just 3.5 percent foresee a decline in the year ahead.
This continued optimism extends to the national economy as well, with about 44 percent of area C-levels expecting continued gains in the domestic economy, and an equal number expecting no change. However, local executives continue to express greater unease about the global economic outlook. While about the same proportion as last year foresee a stable global landscape (40.2 percent), just over 37 percent expect global economic decline in the year ahead. Only about 17 percent expect the international economy to improve over the next twelve months, the smallest proportion predicting global economic growth in the survey's five-year history.Changing Organizational Challenges
One notable shift in survey findings since the inaugural Central Ohio CEO Survey five years ago has been a change in the top challenge facing local businesses, as reported by their chief executives. Over the first three years of the survey's administration in the immediate aftermath of the recession (2011-2013), area CEOs consistently reported that the economic climate was the top business challenge facing their organizations. But in 2014, more CEOs identified changing customer needs and expectations and healthcare reform than the economic environment as their most significant business challenge.
This year, with the Columbus MSA unemployment rate below what most experts consider full employment, labor availability grabbed the number one spot in local C-level ratings of the top obstacle facing their businesses. Nearly a quarter of survey respondents selected labor availability as their organization's top business challenge in 2015, up from 14.1 percent in 2014.
Concerns about quantity aside, Columbus executives continue to say that they are satisfied with the quality of the area's labor force. Over 90 percent rate the overall quality of the Columbus workforce as adequate (53.9 percent) or high (36.7 percent), suggesting that central Ohio's tight labor market may be a more significant cause of the labor availability challenge than the caliber of the workforce.
Area leaders also continue to rate changing customer needs and expectations (20.9 percent), and the economic climate (13.6 percent) among their organization's top challenges. Healthcare reform fell from its second place ranking in 2014's top business challenges, to fifth, with 7.7 percent calling it their top organizational challenge.
Asked to distinguish between the top challenge facing their businesses and their most significant challenges as CEO or president, over half of respondents (51.4 percent) said sustaining a competitive advantage was among the top three challenges in their executive role. Attracting and retaining good employees (43.3 percent), and developing leaders (35.9 percent) round out the top three CEO challenges cited in the poll, reiterating local leader concerns around labor availability.
Despite these challenges, area executives expect organizational gains in the year ahead. Three-quarters of respondents predict their companies will experience increased revenues, more than 60 percent forecast higher profits, and over 65 percent foresee productivity increases in the next 12 months. More than half also expect to increase staffing, while 48.5 percent plan to increase spending on training and development, and 77.6 percent anticipate increasing employee salaries (the majority by less than five percent).Perceptions of Columbus
Home to at least 20 Fortune 1000 company headquarters and over 300 corporate managing offices, Forbes ranks Columbus No. 11 on its list of the 2015 Best Places for Business and Careers, up from number 30 in 2014. Factors that helped earn Columbus a higher spot on the list this year include: a cost of living 4.7 percent below the national average, job growth in 2014 of 2.3 percent with projected annual job growth of 2.4 percent, and college attainment of 33.7 percent.
Columbus also recently ranked as one of Money's top 5 Best Cities for Millennials, receiving high marks for projected job growth, relatively affordable food, rent, and other necessities, with a high concentration of millennial-attractive amenities. And the Intelligent Community Forum (ICF) selected Columbus as The Intelligent Community of 2015 for its use of technology to "create high quality employment, increase citizen participation, and (become a) great place to live and work."
What do local CEOs think makes central Ohio an attractive location to do business? Nearly 75 percent agree that the area's affordable cost of living is a boon to the Columbus business environment. An educated workforce, proximity to related enterprises, and the area's logistics and distribution channels also rank among the top factors that make central Ohio an attractive location for their businesses, according to area C-levels.
Asked to name the single most important change that would improve the Columbus MSA's business climate, CEO priorities haven't altered over the past three years. Over 27 percent recommend improving public school education. Nearly a quarter call for changes to the business tax structure; 20 percent vote for increasing financial incentives for businesses such as tax abatements, fee rebates and expedited permits, and another 13 percent believe that improvements to public transportation would be advantageous to the business landscape.
The moderate cost of living also ranks as a top-three contributor to the overall quality of life in the Columbus metro area, according to 69 percent of responding C-levels. Over half (51percent) also tout the community's family-friendly environment as a hallmark of the quality of life in Columbus. Healthcare and medical facilities and resources (31.8 percent), employment opportunities (29.4 percent), a welcoming community environment (28.6 percent), and educational and entertainment resources (22 percent each) all received significant numbers of CEO nods for their valued contributions to the overall quality of life in central Ohio.
Those at the top of Columbus institutions use a variety of measures to gauge their personal and professional success. Nearly 70 percent of participating CEOs look to the success of their company as one of their top three indicators of personal success, while over 60 percent consider their impact on the lives of employees and customers. About half weigh the amount and quality of time spent with loved ones as an important measure of personal achievement. Relatively few measure personal success by their compensation (11.6 percent) or by besting their business competition (10.3 percent).
The top three measures of professional success noted by area C-levels include customer attraction and retention (84 percent), company financial measures (80.7 percent), and attraction and retention of employees (61.5 percent).
Keirsten S. Moore is an associate professor in the School of Management and Leadership at Capital University and Beckett A. Broh is Director of Diversity and Community Life at Columbus Academy.Who responded?
The majority of our 2015 respondents are CEOs (42 percent) or presidents (41.6 percent), though nearly twelve percent are executive or managing directors, and just over nine percent are managing partners.
These executives are primarily white/non-Hispanic (90.2 percent). About three percent are black or African American. Just over a quarter of the participating CEOs are under 50, but the majority (67.5 percent) is between the ages of 50 and 69. Three-quarters of our respondents are male.
More than two-thirds (68.4 percent) of the participants lead privately-held companies, and 22.5 percent direct nonprofit organizations. Only 3.7 percent of those participating represent publicly traded companies, and 2.9 percent are from public sector organizations. Female CEOs continue to be more likely than male CEOs to be at the helm of nonprofits, and private organizations are more likely to be led by men.
Of responding local leaders who run private companies, 80 percent founded, own, or both founded and own their companies. Forty six percent of respondents describe their company as a "family-owned business," which is consistent with results in past years.
Nearly 60 percent of respondents have served in the top spot with their current company for more than 10 years, and almost 70 percent have amassed greater than 10 years of chief executive experience over the course of their careers. Just over 30 percent of participating C-levels rose to their current rank from a functional background in general management. Another 12.7 percent were promoted from sales, 8.2 percent from finance, 7.8 percent each from accounting and operations, and 7.4 percent from law.
These business leaders are also well-educated: the majority has earned a graduate (45.6 percent) or bachelor's (42.8 percent) degree, although just over 10 percent have two years of college or less.
Over 90 percent of the companies represented by our senior leaders have been in the Columbus MSA for more than 10 years. Their companies reflect the industry diversification that has contributed to the adaptability of the Columbus economy, with the following industries among those represented in our results: professional services (23.4 percent), financial services (10.9 percent), human and social services (8.8 percent), construction (7.1 percent), manufacturing (6.7 percent), education (5.9 percent), real estate (4.6 percent), retail trade (4.6 percent), travel and transportation (4.2 percent), and communication (4.2percent).
More than half of the businesses surveyed (53.2 percent) record 75 percent or more of their sales in the Columbus metropolitan area, while 16.6 percent achieve less than a quarter of their sales locally.
Most participants (58.9 percent) reported 2014 business revenues below $10 million, about the same proportion as last year. Another 23.3 percent had revenues between $10 million and $50 million.
Only about two percent of businesses in our survey exceeded $1 billion in revenue last year. Nearly 90 percent forecast steady or increasing revenues over the next twelve months.
Over half of respondents expect their staffing levels to increase in the year ahead.
If you are a CEO who didn't receive the survey this year and would like to participate in 2016, please complete a request at capital.edu/ceo-survey.