The CFO imperative: How to safeguard company performance in challenging times

By Stephan Hartmann and Milko Teofilov

Rising interest rates, supply chain disruption, volatile geopolitics – these are tough times for many businesses. Often seen as the last resort for securing or restoring corporate performance, CFOs now face several serious challenges: Can they flexibly manage costs to safeguard performance? What measures do they need to take? And how should these be implemented?

There are no simple answers to these questions. But in a recent survey, Roland Berger gathered a range of insights to help businesses to navigate the uncertainty. End of 2022, we asked 42 CFOs and finance executives their thoughts on the status quo, how they are handling challenges, and their expectations for the coming year. The majority of the companies represented are headquartered in Switzerland and cover a variety of sectors including industrials, pharmaceuticals and healthcare, energy, automotive, consumer goods, and financial services.

Several results stand out. Most respondents expect the current economic situation to either stay unchanged or worsen in the next 12 months. This view does vary across industries, however, with the pharmaceuticals and healthcare sector adopting a more neutral to positive outlook. Nevertheless, many CFOs are focusing heavily on cost- and profit-centric measures. They also want to prepare better for the future by investing in analytics and attracting the right talent.

Uncertainty is here to stay

Behind these headlines are plenty of valuable and revealing details. With inflation still high and geopolitical uncertainty prevalent, it’s perhaps no surprise that 59% of the CFOs we surveyed expect the business situation to deteriorate. A third anticipate no change and just 7% think things will improve this year.

The outlook for the coming year varies per sector. Most respondents from energy and utility companies, for instance, expect the business situation to deteriorate, whereas the majority of CFOs at pharmaceuticals and healthcare companies say things will either stay the same or improve. Businesses in these sectors have been less exposed to supply chain risks and are better positioned to pass on higher prices to customers.

As already indicated, just like 2022, cost surges across materials, logistics, and personnel remains the number one challenge for CFOs. These increases can only partially be passed on to customers, so the remainder must be offset internally. The seriousness of geopolitical uncertainty has abated slightly – 49% see it as highly significant, down from 63% in 2022. But rising interest rates have become a more serious issue: 46% of CFOs identified it as a highly significant challenge, versus 28% in 2022. This can affect (re-)financing ability and reduce cash flows.

How CFOs are responding

So, what does this mean for CFOs? We asked them to assess the relevance of various important measures that fall under three main categories: revenue-centered measures, including price adaptation; cost-centered measures, including actively monitoring and managing group spend; and resilience-centered measures, including strengthening supply chain resiliency.

When it comes to reducing costs, CFOs are placing serious focus on general and administrative (G&A) functions like finance, IT, and HR. Production is also a popular choice, with 41% saying they plan to reduce costs in this area (second highest). The two areas least likely to suffer cuts are marketing (36%) and R&D (24%), which are typically considered growth enablers.

To improve profitability, respondents see process standardization (a high priority for 61%), simplification of the organization (57%) and elimination of redundancies (52%) as the most important performance levers. Outsourcing (14%) and reduction of services (11%) are currently seen as the least relevant.

Room for improvement

When asked which areas they plan to improve as a response to the current challenges, CFOs named forecasting and analysis as the clear priorities. Almost three quarters of respondents (73%) cited data analytics as a high priority, followed by predictive insight generation (71%) and scenario planning (61%). Improving these areas should enable them to better identify crises early on and react proactively.

Five key implications for CFOs

Based on the results of the survey, we have identified five key implications for CFOs as the guardians of corporate performance in these turbulent times.

1. The current uncertainty affects most industries and is here to stay. An economic rebound is unlikely in the short term.
2. Supply chain problems caught companies on the wrong foot, although many have since been resolved. Passing on costs via increased prices has partially worked, but cost reductions, especially in G&A functions, are important to further safeguard profitability.
3. It takes strong leadership skills to successfully implement the necessary measures. A top-down "cost-out" ambition is not enough: CFOs must showcase leadership and transformational change to ensure the effects are sustainably visible in the balance sheet.
4. Crises will continue to occur with increasing frequency and severity. CFOs need to develop the necessary skills to detect, understand and act accordingly.
5. Companies that stress the importance of agility and can quickly adapt their business models and cost structures to changing economic conditions are best prepared for long-term success.