CFOs juggle costs as they maintain confidence

Inflation and the need for digitalization are among the most significant burdens that CFOs face as they attempt to keep costs under control.

The inflation burden is illustrated by a rise of eight percentage points over the previous quarter in the portion of finance leaders who ranked raw materials as one of their three biggest challenges. At the same time, though, 37% identified materials costs as an area for potential cost cuts — perhaps showing optimism that inflation may finally subside in the coming months.

Meanwhile, there’s significant cost associated with efforts to upgrade technology to create operational improvements and efficiency throughout organizations across the industry spectrum. The portion of respondents who either are using generative AI or exploring potential uses rose to an all-time high of 94% in the Q2 survey. Deployment of generative AI to assist with numerous tasks — especially cybersecurity and risk management — grew substantially compared with the previous quarter.

As CFOs work to take advantage of these emerging capabilities, it’s no surprise that they rate technology upgrades as their biggest challenge. The No. 2 challenge is cybersecurity risks, as organizations work to minimize the vulnerabilities associated with new digital platforms and technologies. Aligned with these challenges, the survey’s top two areas for expense increases for the next 12 months are IT/digital transformation (64%), and cyber risk/security (62%). In the history of the survey, these two percentages have never been higher.

“Cybersecurity is a risk that everybody has to address,” Notarangelo said. “There’s a lot of focus on it in the public markets given the recent SEC cybersecurity rules, and given some of the big breaches of the past few years, cybersecurity has been a continual focal point for all companies.”

Meanwhile, AI adoption also may be responsible for expenses rising in another area. Over the past three quarters, expected expense increases for real estate and facilities have been significantly higher than in the previous three quarters.

Especially after the crippling post-pandemic talent shortages of the past few years, CFOs clearly understand the importance of maintaining staffing levels that will enable them to deliver on their strategic goals. Fifty-eight percent of finance leaders said attracting and retaining key talent is a human capital priority for the next 12 months, ranking these staffing activities as their top human capital priority.

However, funding for staffing can be a challenge when so many other costs are rising. Finance leaders say their top challenge for bringing in talent is budget limitations. HR leaders, meanwhile, say in a recent Grant Thornton survey of more than 500 respondents that a limited talent pool is the top hiring challenge. When the talent pool is limited, it often takes a bigger financial commitment to recruit the right people.

HR leaders also cite financial reasons (benefits, bonuses and base pay) as the top three reasons that people stay at their organizations.

“When it comes to human capital costs, CFOs seem to be saying, ‘I haven’t got the budget to spend that much as costs rise elsewhere,’“ Melville said.

CFOs seem overwhelmingly satisfied with the performance of their HR functions. Ninety-one percent of finance leaders said their organization has a solid talent strategy in place to deliver on business goals, and 89% said their technology platforms allow employees to maximize their output and efficiency.

The good news for CFOs is that they’re largely driving substantial growth with their well-planned strategies and attention to controlling costs.

A record-high 11% of survey respondents expect their organizations’ net profit to grow by more than 20% over the next year, and half predicted growth of at least 6%.

As finance leaders continue to move their organizations forward, the following actions may help them reach their goals:

• Continue pursuing digital transformation. Technology can come with a substantial upfront price, but implementation can lead to improved operations and lower costs in the future. Forward-thinking finance leaders with healthy long-term goals will reap the benefits of digital upgrades.
• Invest in sales and marketing. Organizations have ramped up their marketing efforts and are investing in sales and marketing to generate top-line growth. Whether consumer demand remains strong or weakens, shrewd marketing investments can lead to gains in market share. 
• Be judicious about human capital spending. It’s still difficult for leaders in certain industries (healthcare and manufacturing, for example) to hire employees for certain roles. For other industries where the post-pandemic people shortage is waning, CFOs may be able to trim their human capital spending as they look to control costs.
• Find savings in the supply chain. The days of taking desperate measures to secure raw materials are gone. The portion of CFOs who ranked supply chain as one of their top three challenges plummeted to 19%, an all-time low in the survey. The improved availability of supplies makes this a potential area for cost savings.

It may take a lot of paddling below the surface to reach those goals, and no one may ever know just how much effort is required. But the results will speak for themselves.