Digital Transformation » The CFO’s dilemma: How to cut OpEx and drive growth

The CFO’s dilemma: How to cut OpEx and drive growth

It has long been a quandary for financial leaders but, as Jared Hyatt reveals, thanks to new transformative technology the answer is simple – embrace AI and automate

As businesses continue to embrace the transformative power of artificial intelligence (AI), a clear strategic opportunity has developed for CFOs to adopt this new technology to combat the persistent inflationary pressures on their bottom line, delivering an immediate return on investment (ROI) and reducing operational expenses (OpEx).

As highlighted by McKinsey, Generative AI, which involves using machine learning algorithms to create new content such as text, images, or videos, has the potential to automate processes, improve customer experiences and streamline operations to help drive new efficiencies and create new value across business.

According to a recent report by PwC, companies that implement AI technology have the potential to increase their profitability by 38% by 2035.

However, CFOs need to be cautious in their approach to AI adoption, as not all use cases will deliver a positive ROI or reduce OpEx.

To reap the benefits of generative AI, CFOs must identify and prioritise the most impactful use cases that align with their business objectives, focusing on the tasks and teams which can make the most impact from day one and drive instant improvements to the bottom line.

Identifying the right use cases is key to success

By successfully identifying the right areas of their operations to leverage generative AI across their workplace tools, companies can increase their productivity, reduce their OpEx and gain the competitive advantage that is more important than ever in today’s volatile economic environment.

One obvious use case that CFOs should consider is the automation of customer service processes.

Generative AI technology can be used to create chatbots that can answer customer queries and provide support 24/7, reducing the need for human customer service representatives and reducing operational costs. This not only saves money but also improves customer satisfaction by providing faster and more convenient service.

Another use case is the generation of personalised content. With generative AI technology, businesses can create tailored marketing messages and product recommendations that resonate with individual customers.

This can increase conversion rates and drive revenue growth while reducing the costs associated with traditional marketing methods. CFOs can also leverage generative AI to optimise their supply chain operations.

By using machine learning algorithms to predict demand and optimise inventory levels, businesses can reduce waste and improve efficiency, resulting in significant cost savings.

The big opportunity: Optimising your indirect spend

There is also an important area, often overlooked by CFOs, where the power of AI can deliver immediate bottom-line savings – a company’s indirect spend.

The amount of indirect spend is typically around 20% to 40% of revenue, and is usually classified as Selling, General and Administrative expenses (SG&A). For a typical Global 2000 corporation, this can amount to costs that run into billions of dollars.

However, numerous organisations make the incorrect assumption that they have their indirect spend well-managed, when in reality the situation may be quite different.

Globality’s 2023 research for CFOs found 82% of procurement leaders say their indirect spend is not well managed during the sourcing process, leaving substantial cost savings on the table.

Leading global companies like BT and Santander are already using advanced AI sourcing tools such as Globality to avoid overbuying and saving 10-20% on their billions of dollars of indirect spend.

A perfect match: generative AI and autonomous sourcing

When Generative AI meets autonomous sourcing, the use cases are compelling and it can transform indirect procurement by automating processes, providing insights, and improving decision-making.

If CFOs work closely with their technology teams to identify the most impactful use cases and develop a clear roadmap for implementation, they can realise substantial cost savings from day one, ensuring that all third-party spend is tendered fairly, competitively, and transparently.

Autonomous sourcing also supports the tendering process, comparing proposals and driving negotiations, while at the same time implementing appropriate guardrails and policies to maintain full organisational compliance and risk management.

As a result, CFOs now have visibility and control of indirect procurement. They can be much more confident that they are buying the right goods and services at fair market prices.

And if line-of-business managers are freed from unwieldy procurement processes and empowered instead with user-friendly, self-serve sourcing technology, they are highly likely to embrace this new way of working with enthusiasm.

Our survey found that  85% of procurement leaders believe business users would comply with procurement processes if their companies offered intuitive self-service technology.

Equipping your teams to do more with less

An intelligent and intuitive technology solution would also help address the issue of shadow procurement and free up sourcing teams from transactional work.

By automating these low-value manual processes, they can shift their focus to high-value strategic tasks, such as supplier collaboration and improving the function’s operational excellence. This shift will greatly contribute to driving the much-needed growth across the business.

Alternatively, if headcount reductions are required as a result of the ongoing uncertain economic circumstances, this intelligent automation of your company buying model means that leaner teams can not only still accomplish the same workload, but actually more, due to the use of smart, innovative technology.

In conclusion, CFOs should prioritise the adoption of generative AI technology use cases, such as autonomous sourcing, that deliver a positive ROI, reduce operational expenses and drive new productivity.

As Accenture recently revealed, nearly three-fourths (73%) of companies are prioritising AI over all other digital investments and with the immediate focus on improving operational resilience to position their businesses for long-term success in what is still an unprecedented economic environment.

Jared Hyatt is CFO of Globality, the market leader in autonomous sourcing.

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