Finance departments are digging in to “do more with less” this year, amid a rather sudden overall shift in corporate focus.
Organization-wide, in 2023 growth was companies’ top overall finance priority. Now, though, cost containment and cash flow optimization have surged to the forefront, according to The Hackett Group’s latest Finance Key Issues research, titled “The CFO Agenda.”
For finance operations — traditionally seen more as cost centers than profit centers — it’s hardly the first time they’ve been asked to tighten their belts. Based on input from more than 375 corporate executives, finance departments this year will have a 5% greater total workload than they did last year
At the same time, both finance staff (full-time equivalent employees) and finance operating budgets are projected to fall by 1%, creating what Hackett calls 6% “gaps” in both productivity and efficiency.
Those perceived gaps were even larger heading into 2023, but that can’t be much of a relief for hard-working staff.
“Finance leaders will face significant operational challenges in 2024,” said Hackett principal Tom Willman. “While the projected productivity and efficiency gaps have shrunk somewhat since last year, down from 9% and 10% respectively, they are still significant.”
He added, “Finance must take a deliberate, sustainable approach to cost optimization rather than one-off belt-tightening, and develop new ways to reduce costs.”
Even so, diminishing returns may be expected following successful cost-cutting efforts. Hackett reported that in 2023, after two years of stellar organization-wide cost reductions, enterprises’ selling, general and administrative (SG&A) costs rose as a percentage of revenue for 42% of the largest companies in North America, and outpaced inflation at 14% of all companies.
Willman advised finance organizations, for their part, to explore generative AI technologies, claiming they could enable up to 40% reductions in SG&A costs and staffing over the next five to seven years. “Now is the time to be planting the seeds for this potential paradigm shift in delivery model and cost structure,” he said.
However, spending on finance technology is expected to rise by only 2% this year, down from last year’s 5% expected increase, according to research results.
Hackett’s research report noted that finance organizations have invested heavily in core, emerging, and data technologies without necessarily seeing the benefits they expected.
“A more moderate level of spending may reflect increased enterprise focus on realizing greater value from existing investments — for example, bringing current tools to scale,” Hackett wrote.
Safeguard the Cash
Given the current economic pressures, it’s not surprising that for most companies, strategies for protecting and improving margins have hurtled ahead of growth strategies on the priority list.
For 2024, for research participants the top two priorities are (1) cost management and optimization, and (2) cash flow performance, liquidity, and working capital.
Hackett pointed out that there’s a clear potential for many organizations to improve in these areas. In a 2023 analysis, what it calls “digital world-class finance organizations” (defined as those in the top quartile in both business value and operational excellence) ran at a 47% lower cost than their peer group.
Finance groups were confident they’ll be able to achieve their most important priorities – 86% of those surveyed said so with respect to managing and optimizing costs, and 76% said so regarding cash flow performance, liquidity, and working capital.
However, for the next-highest 2024 priority — timely, complete, reliable data insights and actionable analytics – only 56% of research participants were confident of meeting objectives