CEOs and CFOs Are Misaligned on Strategy, Growth

Can companies afford to have competing priorities in the C-suite?
Kris Timmermans and Don SchulmanJune 27, 2016

A perception gap exists between CEOs and CFOs that doesn’t bode well for companies.  According to an in-depth study from Accenture, there’s a disconnect between CEOs and CFOs regarding how to tackle problems related to profitability and growth.

Opinion_Bug7CEOs (35%) are more likely than CFOs (19%) to say that leadership has the right initiatives in place to achieve cost-reduction goals, presenting a sizable variance that shows a majority of executives who are not confident that they have identified the right initiatives.

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Further, they also disagree on the purpose of cost-management activities. CFOs say that companies need to improve competitive advantage, while CEOs say they must prioritize simplification and increase flexibility in their organization to become more responsive to market changes.

Of the online survey of 682 senior executives across 13 industries who responded to the survey, 54% of them were C-level (CEO, CFO, or COO), 16% were the regional or business unit CEO, CFO, or COO, and the remainder are their direct reports in companies with revenues of at least $1 billion. Respondents were located in nine geographies, including ASEAN (Indonesia, Malaysia, Singapore, Thailand and Vietnam), Brazil, China, France, Germany, Italy, Japan, North America and the United Kingdom.

Accenture-CFO-CEO-Opposing-Views-Managing-CostsThe survey revealed that CFOs worry that businesses are losing the benefits of cost-reduction programs when savings are reinvested. They think CEOs overestimate their company’s effectiveness at re-allocating resources in a way that drives value for the organization. Seventy percent of CEOs say the return on reinvested cost savings is formally evaluated by management, yet only 49% of CFOs from the same companies agree.

Caught Between Wall Street and the CEO

Why the significant difference in perspective and priorities among CEOs and CFOs? One explanation is that CFOs are caught between the competing pressures of Wall Street and the CEO.

It is also true that the CFO tends to be closer than the CEO to such processes as budgeting, strategy, and annual planning. This data orientation that CFOs bring to the table is not always fully valued by the CEO and other C-suite executives, who tend to be more visionary in nature. Industry analysts refer to the growing divide as a “gravity of tension” that has been increasing in the C-suite, with potentially serious consequences.

Driving Profitable, Sustainable Growth

A focused management vision and direction is one of the key factors that helps companies grow. To drive profitable, sustainable growth, the entire C-suite must identify and agree on activities that drive value, remove non-value-adding costs, and reinvest those savings into initiatives that improve competitiveness. Those who fail to master this practice risk becoming obsolete. Since 2000, 52% of the companies in the Fortune 500 have gone bankrupt, been acquired, or ceased to exist. This is largely because of the disruption of traditional industry models and the failure of these companies to adapt by becoming leaner, building the capabilities needed to be competitive, and staying focused in their fight to compete.

Currently only 36% of the C-suite strongly agrees that their reinvestment priorities are aligned to business strategy, as do only 25% of vice presidents. From department to department, senior management lobbies for resources to fuel their programs, regardless of whether they align to overarching business strategy. When resources are spread across the organization, they yield smaller growth. Leadership must instead lead and prioritize investments, selecting two or three game-changing initiatives.

Mondelez International, a multi-national confectionary, food and beverage company is delivering savings through a zero-based budgeting management technique that has also driven a long-term, companywide cultural change to help control indirect costs. The company has been intensely focused on embedding cost consciousness into its culture, with efficiency savings reinvested in agreed-upon growth initiatives. As a result, the company has benefited from improved visibility into spending, new budgeting processes,. and accountability for cost management. The change management program produced rapid savings of $350 million in 2014, with $1 billion expected over three years.

Digital Tops the List

One thing executives agree on is the importance of investing in digital to sustain cost management and to help drive growth.  The most common response (54%) for reinvesting cost savings is digital technology. Using digital platforms and technologies, companies can automate traditional processes to increase operational efficiency and build agility to help them manage future disruption. Too, businesses that commit to building digital capabilities can accelerate innovation and improve the customer experience, which contribute to growth.

The fact that CEOs and CFOs agree on the importance of digital business capabilities is a good place to start when building consensus in the C-suite. Companies can earmark digital projects as one of the main initiatives to spur growth and cascade the initiative throughout the organizations. Companies that succeed in digital endeavors will be best positioned to compete in consistently disrupted markets and industries.

Don Schulman serves as the senior managing director, functional excellence and integration consulting at Accenture. Kris Timmermans is the senior managing director for strategy operations strategy at the consulting firm.