While CFOs’ continued effort in cost cutting doesn’t come as a surprise, real estate is one of the most targeted expenses this year, said Gartner recently.
According to the results of a Gartner survey of 103 CFOs and senior finance leaders taken at the end of May, CFOs will scale back spending by 4% to 11% across their selling, general, and administrative expenses (SG&A) functions for 2020.
“Our latest data shows that CFOs are planning for multiyear impacts to their financial plans as a result of the pandemic,” said Alexander Bant, practice vice president, research, for the Gartner Finance practice. “It’s notable that real estate topped CFOs’ lists for planned cuts to next year’s budgets, suggesting remote work is here to stay and some level of downsizing is expected.”
How CFOs go about cost reduction
CFOs indicated that marketing budgets have already been cut by 14% on average against their original 2020 plans, with plans for additional 11% cutback in the remainder of 2020, resulting in a 25% spend reduction for the year, Gartner pointed out.
Real estate budgets have already been cut 7% on average, with plans for an additional 8% reduction in 2020, the research firm said.
Beyond heavy cuts to marketing and real estate, Gartner’s data revealed broad and significant cuts of 5% or more already this year to functional budgets including: HR, finance, sales, R&D, IT, communications, and supply chain.
In addition, CFOs are projecting more cost cuts this year of 5% or more to HR, sales, supply chain, finance, IT, and communications in the remainder of the year, Gartner noted.
CFOs are not yet sure when they will need as many staff recruiting, selling, implementing IT projects, or supporting transaction processing, according to Bant, adding that this is putting budget pressure on HR, sales, IT, and finance in the near-term.
As CFOs look out to 2021, they do forecast normalisation in revenues for many industries, Bant pointed out.
“However, most CFOs have told us that the pandemic has illuminated new and more efficient ways of working and they will use this as an opportunity to right-size spend in SG&A functions for 2021,” he observed.
2021: Real Estate hit hardest while IT and sales see growth
While all SG&A categories are expected to see reduced spending for 2020, 2021 shows a more bifurcated picture, according to Garter.
While real estate will be the most targeted expense in 2021 with a 3.4% reduction versus original budget plans for next year, marketing will see a 1.8% reduction and procurement, legal, HR and finance experience cuts between 1.6% and .6% in 2021, survey results indicate.
However, there are two costs where CFOs expect to increase spend in 2021: IT and sales.
CFOs are expected to increase spending in IT by .8% and sales by 1.6% in their 2021 budgets, Gartner said.
‘Expanding IT and sales budgets means that CFOs are investing for the next phase of growth,” Bant noted. “We see technology investments enabling remote work, new ways to reach customers, and enhanced efficiency.”
In addition, sales budget growth indicates that expected revenues will start to recover, and CFOs will need to add headcount to support net-new business in 2021, he estimated.
“CFOs are no longer expecting a long contractionary period with multiple quarters of consistent declining revenues, though there will be some costs that continue to remain at bay in 2021,” Bant said.