DigitalCFO Newsroom | 28 July 2022
Now with inflation surging and pandemic-related stimulus spending declining, the year ahead promises more of the same: a steady dose of volatility.
CFOs were already navigating a laundry list of high-stakes growth challenges heading into 2022. Now with inflation surging and pandemic-related stimulus spending declining, the year ahead promises more of the same: a steady dose of volatility. And while new variants of COVID-19 are a concern, CFOs are also grappling with the resulting near-term threats to their growth agenda—fluctuating commodity prices, labor shortages and supply chain woes—while also making plans to capitalize on longer-term growth strategies like digital transformation and ESG.
PWC’s latest Pulse Survey results found that—far more than any other business function, including the CHRO—CFOs are focused on hiring and retaining talent and reevaluating pricing strategies as the keys to their company’s ability to grow in the year ahead (83% and 59% respectively, versus an average of 77% and 49% for all executives). Still, CFOs aren’t optimistic that talent shortages will ease by the end of 2022: only 23% think that’s likely, compared with 31% of all executives. These internal labor pressures converging with external concerns around increasing input costs mean that CFOs will continue to be in the spotlight as they assess and navigate the collective impact of these issues on the bottom line.
Underscoring the expanding influence of the CFO across the enterprise, other top growth levers cited by finance leaders include increasing agility to better operate in a turbulent business environment (53%), improving supply chain resilience (51%) and capitalizing on digital transformation initiatives (49%)—a high-growth opportunity that has exploded following the pandemic.
Pricing To Protect Profitability
Accelerated by a triple threat of Omicron, rising inflation and changing customer demand, finding ways to quickly address the converging economics of these challenges has become more urgent for CFOs looking to maintain or increase margin. Not surprisingly, 53% of CFOs plan to revisit pricing strategies to offset increasing labor and input costs as well as the rising cost of capital.
But raising prices isn’t the only solution for sustaining growth. To keep pace with customer demand while keeping costs low, 48% of CFOs plan to double down on digital transformation efforts to deliver both near-term operating efficiencies and long-term top-line growth. Forty-three percent plan to invest in automation as a strategic solution to offset increased labor costs and supply chain constraints, which another 37% say is also a priority for the next 12 months. The key to all of these? CFOs are prioritizing investments in digital upskilling and capabilities in data analytics, artificial intelligence and cloud to improve cost structure, reinvigorate the workforce and drive company revenue strategies.
In the face of these increasingly complex business challenges that threaten profitability, it will be more important than ever for CFOs to partner with other business functions. By promoting alignment among siloed business functions and establishing new collaboration ecosystems, CFOs can stand out as strategic business leaders who not only help their organizations tackle today’s challenges but drive innovative solutions to capitalize on tomorrow’s opportunities.
Transforming Finance To Weather The Unexpected
The last two years taught CFOs that the world is volatile—and it’s only growing more so. Priorities have shifted with whiplash speed and planning timeframes for complex business decisions are contracting from months to mere weeks.
Finance leaders recognize that they need tools to improve financial forecasts and stay ahead of staffing needs, production schedules and other rapidly evolving business activities. In fact, 48% of CFOs say they’re prioritizing investments in predictive models and scenario analysis capabilities to produce better and faster insights and improve decision-making that generates growth.
With an intense pace of change here to stay, CFOs are also looking to unlock value for their companies through digital innovation initiatives designed to keep up with changing customer and workforce needs. Nearly 40% plan to use automation to streamline transactional processes and enable strategic, actionable insights, freeing up employee time for more challenging business issues. Some CFOs (17%) report that they’re also planning to move finance to the cloud.
As the world moves beyond the pandemic, CFOs recognize that business models have fundamentally changed—and with them, the role of the finance function. CFOs are leading the charge toward growth, so having the right tools to facilitate agile, data-driven decision-making and shape business strategy will be critical. With demand drivers also becoming more volatile, strategic CFOs are redoubling their efforts to position finance as a nimble business partner that can work in lockstep with other business functions, from HR to IT, to tackle challenging issues—a top priority cited by half of survey respondents.
Building Momentum On The Journey To Net Zero
With stakeholders across the business spectrum viewing ESG and sustainability strategies as a window into a company’s future, many companies have made net zero commitments. While demonstrating measurable progress on ESG issues has become more important than ever to the C-suite, CFOs report that their companies are at mixed stages of operationalizing their ESG plans. A quarter say their organizations have performed an inventory of their carbon emissions and another 30% have set their sustainability priorities, but a third say they haven’t started developing their strategy at all.
In fact, only 34% of CFOs say that championing ESG issues is very important to their company’s ability to grow this year, compared with 43% of all executives. This disconnect may reflect the competing priorities finance chiefs face as they juggle near-term cost and talent pressures before tackling longer-term strategies like ESG.
But even when dealing with immediate challenges, it will be important for CFOs to keep an eye on evolving ESG concerns. Finance leaders can play a unique role in helping their companies take action on their ESG commitments. And with the SEC expected to announce new, potentially mandatory climate and human capital disclosure rules this year, CFOs can get ahead of these requirements by developing consistent and cohesive reporting architecture that not only holds the business accountable but also embeds net zero and ESG goals into the broader business strategy.