Corporate finance departments are getting back to basics this year, with a pronounced shift in focus toward controlling costs, new research suggests.
Finance chiefs’ single top priority at present is cost control within the finance function, according to a U.S. Bank survey of 1,420 senior finance professionals. That was a higher priority than keeping costs in check across the entire business, which ranked as the second concern.
More than a third (38%) of those surveyed said they’re prioritizing cost-cutting in their departments. In a similar survey by the bank in 2021, that was way down finance professionals’ list of focus areas, coming in eighth.
Business-wide, 33% of this year’s survey participants cited cost controls as a priority.
In a notable contrast to the rise of cost controls on CFOs’ agendas, driving revenue growth, the second-highest priority in 2021, ranked only fifth this year.
The heightened focus on costs is a starkly conservative trend, forced on many companies by prevailing economic conditions. “CFOs have positioned themselves decisively in defense mode,” said Steven Philipson, head of global markets and specialized finance for 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.”
But why do finance executives rate cost controls within finance as a higher priority than organization-wide cost efficiencies? It’s not only because the finance function reports directly to the finance chief. “CFOs cannot ask other business functions to trim spending with authority if they do not lead by example,” the bank’s survey report said.
Finance executives are aware, of course, that they need to balance the focus on efficiencies with investments aimed at business growth. However, more than half (56%) of the survey respondents said they are struggling to achieve that balance, up from 46% two years ago.
No Time for Innovation
The greater efforts being expended to keep costs in check seem to be causing finance to throttle back on more innovative activities.
“CFOs cannot ask other business functions to trim spending with authority if they do not lead by example.”
U.S. Bank CFO Insights Report
For example, the survey report said, just 26% of survey participants said they’re evaluating new business models, compared with 42% two years ago. Also, just 23% of them are generating insights for use across the wider business, versus 39% in 2021. And while 38% of finance executives were engaged in revamping capital-allocation processes two years ago, just 27% are doing so now.
Naturally, finance departments are looking to technology to be the leading factor in generating cost efficiencies.
In fact, according to the survey report, 54% of finance executives said artificial intelligence could completely redefine how the finance function operates. On the other hand, “Enterprise software such as ERP and blockchain are second-tier priorities, and there is currently little appetite to explore quantum computing, the metaverse, and cryptocurrencies.”
Meanwhile, reducing headcount has fallen out of favor as a cost-cutting strategy. Whereas two years ago 40% of finance leaders said they were planning workforce reductions, just 19% said the same this year.