The real issues keeping CFOs up at night
Deloitte recently published an article in the WSJ highlighting 10 Issues that are keeping CFOs up at night.
Whilst the Deloitte list highlights some of the important issues, we’ve reached out to our own network (of client teams and readers) and come up with five additional issues that are most likely to make their way to the top of the CFO’s agenda over the second half of 2014.
The growing importance of Big Data
You may have seen this point included in the original article however, there is certainly more ground to cover here. Insight contributed by two FTSE 250 CFOs at a recent FD conference suggests that Big Data is now a major concern for all board members. Utilising the vast amount of information generated by businesses is now recognised as a key way of driving competitive advantage; through product development, marketing, customer service and - more importantly to the CFO - cost management. Executives are increasingly under pressure to turn masses of data into credible information and insight to help drive fact-based decision making – and this is not an easy task.
This is further demonstrated by a recent article in The Financial Times around the rise of the Chief Data Officer in large organisations. Such is the importance of effective data utilisation that we are beginning to see a shift towards these “digerati” executives becoming the first choice for tomorrow’s CEO roles.
Similar to the adoption of Big Data as a strategic tool, technology advancements are also increasingly important to the modern CFO. They must not only recognise the importance of keeping ahead of emerging technologies in the financial space, but also for the whole business. Advancements in technology have the ability to dramatically reduce operating costs, and those CFOs who fail to take advantage of this are in danger of missing out on a large opportunity to gain a competitive advantage and drive margin improvement.
However, a survey by KPMG published in 2013 showed that over 70% of CFOs still see technology as a major risk to meeting targets; suggesting that many CFOs still feel underequipped - a worrying statistic.
Identifying profit improvement opportunities
Profit improvement will always be near the top of the CFOs’ agenda. The CFO is inherently financially driven, no matter how diverse the role has become in recent years. However, the tried and tested methods of shoring up profits with job cuts and cost reduction programmes are no longer possible in the majority of organisations who, following the financial crisis, are much leaner than they have been in over a decade. Many CFOs are beginning to look outside the traditional channels of profit improvement and are recognising the potential of the supply base as a key source of profit improvement (and it’s easy to see why). Today’s typical corporation (according to our research into 2,000 global companies) spends a mere 12.5% of revenues on their staff, compared to the 70% of revenues they now spend with suppliers. Based on these figures the average CFO would only need to reduce their non-labour costs by 1% to see an improvement in EBITDA by 4.1%. For some industries – such as retail –this figure rises to over 10%. That’s an impressive opportunity for profit improvement.
Driving out value from the supply baseToday’s CFOs are constantly under pressure to find new ways to improve the bottom line, and drive growth. Cash-strapped CFOs are increasingly looking for ideas that don’t cost the earth to implement, but have the potential to generate large returns on their investment. So, where better to start than the significant pool of external supply that now sits around their business. Collaborating with suppliers can provide a number of opportunities for the savvy CFO, such as:
- Driving innovation: Leveraging their investment into R&D and new product/service development.
- Access to specialist expertise: Suppliers are usually specialists in their field, often attracting the best talent and training their existing team to be the best.
- Supporting growth: Whether locally or internationally, effectively embedding suppliers into your corporate strategy only adds to the brainpower feeding into potential expansionary opportunities – which is particularly valuable in new market expansion.
- Improving control – Engaging with suppliers can allow more control, and a deeper understanding of, the supply chain; allowing CFO’s more transparency as to where the risks, and accountabilities lie.
Risk managementJust when we thought that supply chain scandals were a thing of the past, they seem to have reared their ugly head once more. From a supplier-made faulty part leading to one of the biggest recalls in history at GM, to the “Swansea Stitcher” reminding customers of the poor working conditions enforced by suppliers to high-street retailers. For most CFOs these supply chain related scandals fall firmly under their remit; either because the procurement and supply chain functions sit under finance; or simply because these scandals have an opportunity to significantly damage revenues, both in the short and long-term.
This certainly raises some important questions for CFOs around their future strategies for supplier management.
What are your thoughts on the above? Are these issues on the top of your agenda? What else would you add to the list? Use the comment box below to add your suggestions.