Does UK plc have a balance sheet problem? The rationale for business transformation has been strengthened by Covid-19, but CFOs in the UK are stalling at the start line, held back by assets that are no longer delivering.
Across the economy, the pandemic appears to have accelerated structural change rather than changed its direction. To take one example, the shift to digital has leapt forward, courtesy of an economy that moved largely online during the crisis. E-commerce accounted for more than a third of retail sales during 2020, while government data suggests that 47% of Britons worked from home.
These figures are likely to drop back, but not to pre-pandemic levels. Even before the crisis, Brexit and climate change were just two of the drivers reshaping how the economy works. Businesses are finding that their core assets are underperforming, leading to urgent calls for investment in new business models.
The challenge is that few CFOs have sufficient fiscal headroom to make investments without first rationalising in areas that are no longer achieving. At worst, CFOs that are slow to optimise their enterprise’s portfolio risk missing out as the economy bounces back from the depths of the crisis.
Yet Accenture’s research suggests many CFOs in the UK are worried that this is the position they are in. Just one in four UK CFOs (24%) cite divestment (and M&A) as an area where they have been able to make a significant impact over the past two years. Around three in 10 (28%) admit that widescale transformation is an area where they have been unable to make the impact they would have liked.
There is also little immediate prospect of improvement. Just 16% of UK CFOs say the finance function is engaged in meaningful pursuit of divestment and M&A activity. This will inevitably hold back businesses as they seek to pivot to the business models and activities that offer the most attractive opportunities.
Nor, in many cases, is finance necessarily engaging with the operational adjustments required for the changing landscape. Seven in 10 (68%) CFOs in the UK concede their business is not ready for a widespread shift to digital currencies in the global economy.
There may still be time to change gear. Forecasts from the World Bank suggest that while the global economy will return to the black this year, the recovery will be slow, with 4% growth this year and 3.8% in 2022. That gives CFOs a chance to adjust.
Still, the most agile businesses have an opportunity to steal a march, and Accenture’s research suggests CFOs recognise what is at stake: three in four say finance, led by the CFO, will champion a new way of operating across the enterprise. Their challenge is to make good on that commitment and ambition.
CFOs have understandably focused on resilience during the last year. In some industries, the crisis has left businesses practically unable to trade. Across the board, the imperative has been to keep the engine running and survive above all else.
There are, however, reasons for CFOs in the UK to be optimistic about the future of their business, as well as their role in steering towards that future – assuming, that is, they can move quickly and seize new opportunities that emerge.
The IMF has forecast global growth of 5.5% over the course of 2021, representing an upgrade of 0.3 percentage points on previous forecasts. In the UK, the IMF foresees a particularly strong return to growth. Its forecast for advanced economies as a whole is growth of 4.3%, but it expects UK GDP to increase by 4.5%, ahead of the eurozone, Japan and Canada.
But are CFOs in the UK in a position to take advantage? Accenture’s research suggests that many may not be ready to fuel growth. Asked about the most impactful initiatives that they have driven over the last two years, less than half (42%) say they have been instrumental in unlocking new value. Many instead have focused, inevitably perhaps, on protecting the existing businesses and managing the impact of disruption.
Today, some CFOs are acutely aware of the need for a shift in emphasis. Almost one in four (23%) admits that they have not yet been able to fulfil their potential when it comes to the search for value. Similar numbers point to their inability to focus on enterprise growth strategies such as the development of new products or services, or M&A activity.
Now is the moment to pivot concertedly towards growth-oriented activities. Encouragingly, CFOs’ efforts to navigate volatility can serve as a foundation for a bigger shift in gear. Nine in 10 (89%) say they are using horizon scanning to identify and prepare for risk. Those same forward-looking skills can be repurposed to identify future growth opportunities.
Elsewhere, the challenge for CFOs in the UK will be to identify the tools that unlock growth. Cloud platforms are a good example, allowing businesses to scale at pace while retaining the agility required for more uncertain times. So far, just one in four (24%) is leveraging cloud to secure growth; the average across the 14 territories in Accenture’s research is slightly higher, at 27%.
New technologies will be part of the answer as CFOs anticipate new opportunities. To extend their influence, they must contribute to the more fundamental conversations enterprises are having around business model change and transformation.
Still, to dare is to do. UK CFOs will need to hold their nerve, but some remain hesitant about setting their sights on pole position. While half the UK CFOs in Accenture’s study (51%) strongly agree that they must not lose sight of efforts to realise growth, this lags behind peers in competitor markets such as the US (54%), Singapore (58%) and France (56%). Closing the gap, as growth opportunities emerge, will be crucial. Are you driving your company to unlock new value and fuel growth?