CFO and Technology » Cost optimisation is a critical priority for CFOs in today’s business environment

Cost optimisation is a critical priority for CFOs in today's business environment

Cost cuts may be needed but new technologies can help generate efficiencies

CFOs are facing a series of tough decisions when it comes to managing costs in today’s high-interest rate, inflationary climate.

According to recent research by software company Coupa, CFOs will have to make trade-offs between cutting costs and profit-building to remain competitive. Its survey of UK finance leaders revealed that whereas price rises (41%), higher wages (37%), and higher energy prices (32%) are the top three CFO issues today, rising wages (40%) and employee attrition (32%) will predominate over the next six to 12 months.

Moreover, about 50% of UK CFOs are concerned about meeting their payroll commitments in the face of economic uncertainty and 27% would reduce their workforces in the event of a recession. However, most CFOs agreed in the survey that redundancies would be the last option, and 77% said that workforce cuts could create long-term issues.

The survey also revealed most CFOs (76%) face increased pressure from other company leaders to make sacrifices for immediate relief without considering the long-term impacts, and it stressed that finance leaders must ensure that their voices are heard at the top of the table.

Cost strategies

Interestingly, CFOs themselves are exploring how they can boost profitability to prevent redundancies. Their top strategies here are to focus on increased digitisation (56%), increasing productivity (53%) and improving efficiency (51%). Nearly all (93%) finance leaders agreed that more automation will have beneficial consequences for their companies.

“Economic volatility calls for a strategy of managing costs intelligently, rather than hurrying to cut costs reactively. The ability to do this hinges on having a wealth of data that is accurate and timely to inform decision making,” said Tony Tiscornia, Coupa CFO in the research.

“Automation technologies allow CFOs to chart a course through the storm and emerge stronger. With a potential recession on the way, it is absolutely critical that CFOs optimise for financial health by equipping their organisation to respond faster and more strategically to disruption.”

According to Jason Dess, senior managing director, global CFO and enterprise value lead at Accenture, business costs, such as wages, have become a major issue for many CFOs, but this does vary from industry to industry.

Whereas layoffs are being declared in high-tech industries, the oil and gas sector, which is generating large profits, is more focused on building resilience and moving to new types of energy such as renewables.

“Most CFOs still view labour costs as just one element of the wider picture and they are now increasingly looking at how they can drive value by maximising efficiency and profitability. Making a business more efficient can have multiple cost benefits,” he says, pointing out that CFOs are now more focused on leveraging technology to achieve a better insight into their businesses in areas like spend management. “In today’s economic environment, organisations worldwide are considering how they can adopt technology, transition their businesses and operate in a different way.”

Dess agrees CFOs are looking more closely at the labour resources they deploy within their own functions and across their businesses. “It is the case that traditional accounting skills are no longer needed as much and there may be a stronger need for macro-economists within the finance function,” he says.

“However, today’s CFOs are also expected to play a bigger transformative role in their companies and are much more engaged across the board in terms of the types of talent and skills required to move the whole business forward – effectively, the talent needed for the future.”

Use of new technology

Dess notes that when looking at total enterprise reinvention, and the deployment of new technologies such as the cloud, CFOs need resources that understand that technology and the role it can play in achieving business grow.

“These types of skills can be scarce – this is the case, for example, with data scientists – but they are critical skills, and they will become more widely available in the future,” he adds, pointing out that schools, colleges and universities will play a major role in educating the workforce of the future. “There has been a big shift in businesses across many industries into looking for these types of tech skills.”

Dess also identifies several new technologies that organisations are deploying today to generate cost efficiencies. “CFOs are playing a big role in the transition of their businesses and the cloud has become extremely important in terms of how it can ensure greater availability of information and data as well as access to it,” he says. “Then there is a movement to the use of automation tools that remove the need for manual process and free up valuable resources for use in other areas.”

He adds many CFOs are also turning to process investigation tools to help them identify which business processes are working well and which ones are not, and should be reconsidered, as well as performance management tools such as forecasting and scenario analysis, which can help senior leaders make more accurate and valuable predictions.

“Alternative Intelligence (AI) is much more important as well and CFOs need to leverage AI to drive future growth,” Dess says. “At the end of the day, CFOs have been tasked with reinventing the business, and this is particularly important in the face of a recession.”

“Technology will play a more important role now and we will see faster adoption of new tools – particularly those that improve business insight.”

Meanwhile, in its third quarter 2022 CFO  survey, Grant Thornton found that cost optimisation is now the biggest area of concern for CFOs  (58%), followed by workforce rationalisation (40%).

It revealed that while 58% of CFOs expect challenges in talent sourcing and retention, 43% saw headcount, compensation, and human capital costs as a key area for cuts. Nearly one-third (32%) of CFOs said they could potentially reduce their workforce in the next six months.

However, many CFOs agreed that cost optimisation may be accomplished without labour force reductions and pointed to external consulting (42%) and technology investments (41%) as potential areas for cuts.

The Grant Thornton survey also revealed that supply chains remain a challenge (41%) with many CFOs concerned about the cost of stockpiling inventory. This was followed by cash and liquidity (31%), remote working (30%), cybersecurity risks (30%) and tech upgrades (29%).

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