The word “cost” can be traced back, at least partly, to a Latin phrase meaning “to stand firm.” That is the challenge facing companies today amid a storm of destabilizing crises. Chronic inflation, high-interest rates, and labor shortages are stoking concern. Virtually every business stands in the shadow of today’s macroeconomic uncertainty, and leaders are looking for ways to weather the storm while investing in their future. In doing so, they realize they must cut costs — and that there isn’t a moment to lose. The message is clear, and they must act now to stand firm.
Ensuring operational efficiency and effectiveness are top agenda items for C-suites but the macroeconomic landscape is riddled with obstacles that must be carefully balanced, particularly by CFOs spearheading their company’s cost excellence strategy. In the U.S., overall economic indicators appear sound, but weak growth and three recent bank failures have unleashed doubts. In Europe, insolvencies are increasing at the fastest rate since 2015. Globally, interest rate hikes have made new projects and investments more expensive and ROI harder to generate. Central banks aiming for that elusive “soft landing” haven’t yet banished the threat of recession, which would significantly dampen demand.
But that isn’t the end of the story, and C-suites need not be resigned to threats posed by insurmountable challenges. Embedded in these obstacles lies a golden opportunity, with clear financial benefits.
Therefore, CFOs must play a critical role in developing nuanced strategies to stay competitive. The peanut butter approach, where cuts are spread uniformly regardless of business necessity, can undermine an important goal: future-proofing an organization through innovation.
Companies must think tactically about the capabilities they will need to be successful for years to come. Too few firms have mastered this approach, but those that do achieve growth and TSR are four times higher than peers, according to BCG research. The key is positioning these strategies correctly. Cost reductions should not be made defensively but as an offensive play to reimagine an organization.
To free up the capital required to sustain competitive growth, CFOs must seize this moment to fundamentally rethink cost structures, capital expenditure, and net working capital. This isn’t just about layoffs, which some companies have resorted to, but despite perceptions, data does not indicate widespread headcount reduction. In fact, in the U.K., more leaders we surveyed say they will increase headcount this year as opposed to lowering it. Attracting and retaining talent is as critical a challenge as ever.
There is also great potential in taking a fresh look at an organization’s operations and embracing technology. CFOs should, for example, take stock of buffers built during the pandemic when supply chains were volatile. Many companies added inventories and capacities that may not be needed today. And so, leaders must urgently uncover where excess capacity and expenditure can be reduced, and artificial intelligence is an invaluable tool for this. AI enables organizations to consider a wide range of real-time variables, from nearby competitor prices to social media trends, while also harnessing the technology’s predictive power to streamline supply chains.
A new class of winners and losers is emerging — underscoring the necessity for CFOs to act fast. Cost excellence is an urgent imperative, and every day that leaders wait to revisit their costs is a day they fall behind. Tight competition for talent and breakneck advances in technology such as GenAI mean the laggards may never catch up.
With the right expertise and investment, though, CFOs have a unique opportunity to help chart a course for a more prosperous future — sowing the seeds of tomorrow’s success from today’s uncertainty. Doing so will drive massive value for shareholders, customers, and employees. Whether they answer the call remains to be seen.
Gideon Walter is a managing director, senior partner, and North America functional practice area team leader at BCG and Mai-Britt Poulsen is a managing director, senior partner, and head of BCG for the UK, Netherlands, and Belgium.