In today’s marketplace, ever-present change and uncertainty are challenging businesses, growth and future developments. The CFO sits at the heart of decision-making and is often the go-to chief that companies look to for direction. A strong CFO instils a sense of reassurance in colleagues, investors and suppliers, and steers the company through times of turmoil. Alongside this, the CFO must balance safeguarding their organisation’s financial health and identifying fresh opportunities for company growth, ensuring its long-term sustainability. And, whilst reacting swiftly to market volatility is tempting, and sometimes beneficial, a strategic mindset is a prerequisite for managing uncertainty.
Here, we explore three key strategies for any CFO navigating the ever-changing business landscape.
Adapting financial plans to manage market conditions
Firstly, CFOs must understand the lay of the land and prevailing economic conditions. But how should you budget with so much unpredictability?
According to McKinsey Senior Partner and Global Co-leader of Strategy & Corporate Finance Practice, Andy West, the more granular detail you can give in your budget, the more transparent the risks and the better informed you’ll be. He recommends decoupling inflation and supply chain risks in price and volume so you can better react to more volatile inputs and not have them integrated into outputs and assumptions like “total revenue” per department.
When thinking about budgeting, consider expanding metrics to incorporate both financial and operating-driven metrics. When supply chains are rocked or energy becomes more expensive, baking in operating costs means that growth targets will be more realistic and achievable. As operating costs fluctuate, it’s no longer as simple as saying that you can predict 10% more growth for 10% more investment.
Another tool is implementing a shorter budget cycle to help manage for market changes and reallocate resources more effectively: as an alternative to annual budgeting, budget quarterly. For bigger firms, this will be standard practice but well worth considering for all firms, irrespective of size.
Implementing cost-saving measures without stifling growth
Sometimes it can feel like walking on a tightrope. How can you reduce costs without harming the business? The key here is to take a measured approach: don’t treat cost-cutting as a one-off, short-term measure. If you aim to waste nothing, you should constantly look at ways to drive efficiency and create a lean organisation that does a few things well, not a multitude of things in a mediocre way. If you take a one-off approach to cost-cutting and do so reactively, you risk damaging or sacrificing entirely, important investments.
A 2023 article from Harvard Business Review recommends various strategies which help to cut costs as well as strengthen the business. For example, connecting costs to outcomes involves breaking down departmental silos so that all costs are transparent and attributable to growth. Every employee should be able to suggest ways in which to cut costs, without it affecting the core areas of a business’s product or service offering.
Simplifying the business should mean that you look holistically at all activities and operations at a systems level and resist the baggage of past decisions and sunk costs. Ask yourself the question – how would a new competitor compete? Other cost-cutting strategies to employ include refreshing the value chain without having to hamper it with large drawn-out technology programmes. Instead, it can be more cost-effective to automate on top or in the place of existing tools rather than overhauling every process, end-to-end. Creating a “digital factory” to digitise capabilities with quick sprints can bring in savings more rapidly and successfully.
Looking at what the business does well and what you can outsource will reshape your organisation’s entire co-system and help you streamline, at the same time as tapping into your partners’ greater scale in other areas. For example, what sort of marketing department do you need? Marketing today requires specialists across multiple areas – from content creation and curation to brand development, research and data science. Outsourcing this capability entirely can be highly effective, or you could look at a blend of internal and external expertise. The focus should be on flexibility to combine talent, resources and cost management, and there won’t be a ‘one size fits all’ model.
Communicate effectively with your stakeholders.
As you seek to understand and react to the ever-changing market landscape, budget more frequently and implement a holistic and strategic approach to cost management, there is one final piece in the puzzle that’s non-negotiable: regular, clear and honest communication with stakeholders.
Clear, accurate and regular reporting goes some way in ensuring that stakeholders can see the direction of the company as well as addressing issues and highlighting where performance can be improved.
Regular communication, coupled with collaboration not only gives stakeholders the information they need to feel included but also the agency to act and improve. Effective communication will make you a more respected leader and a stronger CFO, both in times of prosperity and turbulence.
At The Siena Partnership, we work with our clients to recruit top finance professionals who can guide their organisations through complex economic challenges. If you’d like to continue the conversation with our finance experts, Mike Faull and Jake Bush, contact us here: mike@thesienapartnership.com, jake@thesienapartnership.com