When it comes to CFO strategy, finance leaders CFOs need to move beyond short-term, reactive moves to counter inflation and identify opportunities to build long-term competitive advantages, said Gartner recently.
CFOs should shift from a focus on neutralising margin pressures to long-term strategies, including aligning costs to points of differentiation, rightsizing the supply chain and conducting ongoing pay monitoring to better adapt to changing market conditions, the advisory firm noted.
Organisations have largely picked the low-hanging fruit in responding to input price inflation, said Randeep Rathindran, research vice president in the Gartner Finance practice.
“CFOs need strategies now that both adapt to a more persistent inflationary environment than originally anticipated, while also better preparing their organizations for growth in the next economic cycle,” he advised.
After making quick, cautious responses to immediately defend margins, CFOs are seeking further steps to enable their organisations to better weather persistent inflation and use the right strategies to drive competitive advantage, Gartner said.
Key to this will be the concept of digital deflation, but beyond using technology to permanently reduce the cost of doing business, the firm added.
According to Gartner, it has identified the following three additional areas of focus when it comes to CFO strategy.
Align costs to points of differentiation. CFOs have an opportunity to use this environment to both reintroduce and reconsider costs in a manner that addresses deeper issues in their organisations that may have been undermining profitability for years.
CFOs can identify the right areas to scale costs by identifying true points of differentiation and then allocating disproportionate investment levels to them.
Investments that directly contribute to customer loyalty or assets, such as patents or proprietary technologies that support competitive advantage, are examples that warrant elevated investments now, said Rathindran.
Rightsize supply chain surface area to minimize disruptions. In the wake of initial inflation pressures, organisations sought to identify and mitigate individual supply chain disruptions.
The next step for CFOs managing supply chain related inflation concerns over the long-term is to rightsize — and likely reduce — their organisation’s supply chain surface area to limit the number of costly disruptions to which an organisation is exposed.
Organizations that do this gain a competitive advantage because they experience fewer unfamiliar, high-impact disruptions per year compared to their peers, Rathindran pointed out.
Finance and HR work together on pay monitoring. While organisations have budgeted for increased salaries this year, much of that work was likely completed at the end of 2021, which may not reflect current and evolving realties as wage inflation persists.
It’s critical for finance and HR to work together to monitor and dynamically adjust the organisation’s pay practices and total rewards strategy throughout the year.
Rathindran recommends that CFOs partner closely with the head of HR to make sure that any subsequent increases to people costs prioritise the business units and roles that generate the most value to the company, while continuing to differentiate offers from competitors.