The juggling act that must be done to maximize cost-cutting while not abandoning growth initiatives is proving to be difficult for finance chiefs. “CFOs have positioned themselves decisively in defense mode,” according to a recent survey from U.S. Bank.
“With the end of the low-cost capital era and inflation still uncomfortably high in some parts of the economy, finance leaders are taking control by driving efficiencies in their organizations,” said Stephen Philipson, U.S. Bank’s head of global markets and specialized finance.
The survey of more than 1,400 finance leaders found the top two priorities for finance leaders are cost controls within the finance function, which is up from the eighth highest priority in 2021, and cost controls across the entire business.
More than half said they struggle to properly cut costs while simultaneously allocating towards growth. Meanwhile, driving revenue growth has been de-prioritized compared with 2021, when it was a top priority.
Talent Risks and Inflation
While many companies have high growth ambitions going into the new year now that recession fears have subsided, their executive leadership still has plenty of risks to manage before they go all-in on growth. According to U.S. Bank, nearly half (43%) of all leadership surveyed said talent shortages are the top risk CFOs and their teams face. The pace of technology change (40%), high inflation (38%), and cybersecurity attacks (30%) were among the other most frequently chosen answers.
To remedy these risks, leaders are pushing toward technology integration while also trying to identify what they will need from employees in the future. Forty-three percent of finance leaders said they’d be assessing future skills requirements, alongside 42% who said they’d be exploring opportunities to automate manual processes.
To improve the workforce's morale and mitigate talent risk, nearly 38% of those surveyed said they’d be reviewing salaries and other employee benefits. However, finance chiefs have very low confidence that their efforts will make an impact. Only 8% are highly confident they can manage the risks associated with talent shortages.
Combating inflation, a pestering cost inflator that has impacted companies of all sizes, is also an area of focus. Half of those surveyed said they are identifying opportunities to cut costs and 39% of leaders are evaluating the credit risk of major customers and conducting more scenario planning to combat inflation’s impact.
Innovation Initiatives Slow
According to the data, business leaders appear to be more focused on preserving the fundamentals of their business practices. Rather than search for new areas of business growth and innovation, an activity that 42% of business leaders said they were doing in 2021, many have their sights set elsewhere. Only 26% of finance leaders in this newest survey said their companies are evaluating new business models.
Finance’s collaboration with other areas of the organization may be taking a hit, too. Only about one-fourth (23%) of all respondents said they were generating insights for other business areas. In 2021, nearly 39% said they were doing so.
“Finance has to be the source of truth when it comes to data and analytics,” Kent Ratzlaff, executive vice president of finance at Niagara Bottling, told surveyors. “We have 50 plants in the U.S., and they all need to think the same way about data. The plants must focus on making bottles and leave the data to finance. In any case, finance publishes operational data to the world, and our internal view on data must reflect this.”
Environmental, social, and governance (ESG), an area heavily politicized and scrutinized, has become so ambiguous that leaders are beginning to lose focus. Just over half of business leaders said they’re clear on ESG’s role in their company, down 23% from two years ago. Less than two-thirds of business leaders surveyed said finance should play an important role in their organization’s ESG initiatives.
According to the data, only one-quarter of businesses are assessing climate change’s impact on supply chains, which 45% of business leaders were focused on in 2021. Twenty-four percent of companies are looking at the environmental credentials of third-party suppliers today, a practice that half (50%) of organizations told U.S. Bank they were following in 2021.