A global financial downturn is on the horizon, driven by high inflation, the Russia-Ukraine war, volatility in energy markets, and supply chain disruptions. In the KPMG 2022 U.S. CEO Outlook (released in Q4’22), 91 percent of U.S. CEOs are convinced we are heading toward a recession in the next 12 months.1 Opinions differ about the severity and length of the recession, with only a third of the U.S. CEOs (34 percent) believing that it will be mild and short.
Additionally, U.S. inflation is at its highest rate in 40 years.2 Inflation rates are expected to remain elevated for much of the year, and the Federal Reserve is raising rates at the fastest pace since the 1990s.3
All this means the CFO needs to take a proactive role as the leader of business sustainability and transformation efforts. Facing the prospects of a significant downturn this year or the next, the CFO needs to ‘play offense’ and start thinking today about cost optimization, including clearly defined goals and individual assignments to help ensure accountability, while still supporting long-term strategies for future growth that align the company's core value drivers with business process.
What CFOs need to consider
While developing an effective response to today’s economic challenges, CFOs can consider actions in two areas that can help support a leaner, more cost-efficient finance function without sacrificing capabilities:
Process and technology efficiency
Building and adhering to global process standards, leveraging off the shelf technology, and applying rigorous performance management can significantly reduce cost in an expedited manner. This includes eliminating duplicate processes and policies that are nice to have, but not critical for finance operations, and identifying efficiency losses due to process variability.
Data-driven insights should be the foundation for rapid cost optimization. Up-to-date technologies can enable finance teams to triage short- and long-term actions and help identify new automation opportunities for accounting functions and reports.
Potential savings: According to KPMG research, moving a finance organization from the bottom quartile to the median in terms of operational costs as a percentage of revenue can translate into potential savings of $5 million for a $1 billion revenue company.
Optimizing the distribution of your workforce can also lead to significant cost savings. This includes rationalizing management layers and reducing corresponding office space. Finance leaders can review which skills and how many employees are critical to achieving business goals and reset performance expectations at both the individual and departmental level. Roles and reporting lines can be redesigned and streamlined based on spans-and-layers analysis. In addition, finance leaders can leverage off-shore resources and outsource operational activities where possible.
Potential savings: KPMG research suggests that improving from the bottom quartile to mean of finance operational costs per FTE can translate into potential savings of around $7 million for a 100-FTEs finance function.
1.Source: “KPMG 2022 U.S. CEO Outlook”
2.Source: “The hottest U.S. inflation in 40 years shows little sign of cooling off,” MarketWatch, September 13, 2022
3.Source: “Federal Funds Rate History 1990 to 2022,” Forbes Advisor, September 21, 2022