CEO Confidence Index: a time of doubt and hesitation?

AFTER CLIMBING STEADILY for many months, CEO Confidence dipped in February. The most frequently cited explanation was continued global competitive pressures. Partly in response to that, 58 percent of CEOs believe they will not be able to increase prices on their goods and services this year or will actually have to cut prices. That compares with 42 percent who hope to make price hikes stick.

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The broadest indicator, the CEO Confidence Index, sagged to 163.4, from 171.9 the previous month, a decline of almost 5 percent. (See top chart.) It is the sharpest decline in CEO Confidence since early 2003 during the buildup to the Iraq war. Some 182 readers responded.

Future Confidence also declined, from 167.7 to 158.1 and Current Confidence eased from 178.2 to 171.3. All other elements of the CEO Confidence Index (business conditions, investment confidence and employment confidence) declined as well. (See www.chiefexecutive.net for full results.)

Competition, particularly from Asia, clearly weighed on the minds of many CEOs. "Prices are being driven down by the competition from China," said Cheryl Merchant, president and CEO of Hope Global, a textile company based in Cumberland. R.I. "'Meet the target price or lose the business' is the new mantra."

Several readers who declined to be identified were even more stinging in describing the pressures on them. "The Fortune 500 have driven all their suppliers to distraction with ever-increasing demands for more for less, with Six Sigma expectations of further reductions in price," said one respondent. "At some point, maybe now, there is nothing left to give. Whole companies are moving to the Orient to take advantage of 30-cent-an-hour labor rates. All we will have left is lawyers, doctors and the fast-food industry."

One CEO noted that however painful these pressures are for leaders of smaller and medium-sized companies, the American consumer is a huge beneficiary. "We compete in a world economy," wrote Damel T. Ariens, CEO of Ariens Company, a privately held lawn maintenance equipment manufacturer in Brillion. Wis. "Prices, relative values and quality will continue to provide consumers in North America with the best value, best quality and lowest prices."

But that means the vast majority of CEOs will have to increase quality even if they're not able to raise prices. (See charts, middle and below.) "We see continued pricing pressure across the board." wrote Craig Duchossois, CEO of Duchossois Industries in Elmhurst. III., a privately held manufacturing concern. "Quality improvements and cost reduction programs from our perspective are now embedded in the organization as we strive for increased margins internally." In other words, to make money, companies have to continue taking costs out of their internal operations.

The commitment to sustained improvement must be deeply ingrained, many readers said. "Continual improvement in the quality of our services is a key aspect of our organizational culture and behavior, regardless of the specific return we might be able to garner in the marketplace," wrote Dennis M. King, chairman of Harley Ellis, a privately held architectural and engineering services company in Southfield. Mich.

The key question, looking into the future, is whether February's decline reflects just momentary doubt and hesitation or is the beginning of a longer-term shift in psychology in the corner office.

Bonus Questions

Do you believe that in 2004 you will:

Maintain prices at existing levels        50%
Raise prices for your product or service  41.76%
Decrease prices                            8.24%

Note: Table made from pie chart.

Regardless of the answer to the previous question, do you believe the
quality of your product or service will:

Remain the same  31.3%
Increase         67%
Decrease          1.6%

Note: Table made from pie chart.