cost optimization in finance; Next-Gen IA
cost optimization in finance; Next-Gen IA

A New Playbook: Responding to Slower Growth, Changing Customer Behaviors

Jim DeLoach, Managing Director Host, The Protiviti View

Slowing growth and changing customer behaviors require an orchestrated response inside the organization. The CFO is best equipped to take the lead.

At a glance

The big picture: Slowing growth and changing customer behaviors require an orchestrated response inside the organization. The CFO is best equipped to take the podium and raise the baton.

Why it matters: The finance organization possesses the data, tools, planning and analysis capabilities, and risk mindset required to assess the company’s options for responding to slowing growth and the likely impact of each.

The bottom line: CFOs need to ask these four questions:

  1. Do we have the right tools?
  2. Can we access the data we need?
  3. Are we tracking changing customer behaviors and market conditions frequently enough?
  4. Are our analyses precise enough?

Go deeper: Read more below.

Global growth is expected to decline by 15% in 2023, with advanced economies expected to take the biggest hit. GDP in the United States, for example, declined 60% in 2022 and retail sales are slowing so far in 2023.

Slowing growth and changing customer behaviors require an orchestrated response inside the organization. No business leader is better equipped than the CFO to take the podium and raise the baton. Changing markets present opportunities to lead.

The finance organization possesses the data, tools, planning and analysis capabilities, and risk mindset required to assess two critical areas:

  • The company’s entire portfolio of potential strategic responses to slowing growth; and
  • Each potential action’s likely impact across multiple dimensions, including cash flow, working capital, profitability, time and risk.

No single response is likely to do the trick, so finance teams need to ensure that capital and operating plan adjustments, reshuffled product and service mixes, sales promotions, cost rationalizations, new investments, and other moves are made — and forecasted — in complementary ways.

The CFO does not need to have all of the answers for these various responses to pay off, but they do need to ask the right questions about customer behaviors, market conditions, Fed policymaking and rates, geopolitical risks, and the company’s responses to those challenges. Doing so can be more difficult than coming up with answers, especially for CFOs who have experienced consistently low interest rates and docile economic conditions for most of their careers. The playbook for dealing with a downturn and higher interest rates will differ from the game plans deployed in the brief pandemic recession. Furthermore, the global financial crisis was precipitated by entirely different drivers than the current inflationary environment.

While each company will settle on a unique plan for adapting to slower growth, the primary components of the CFO’s role in this process are consistent across organizations and industries. First, finance leaders need to assess how short-term decisions affect the organization’s ability to meet long-term strategic goals. Some goals may need to be refined, but short-term responses should support the achievement of strategic goals even when they are modified so that the organization is in a position of strength when the economy rebounds.

Second, CFOs should operate like investment portfolio managers as they assess the risks and rewards of potential responses. What are the implications of adjusting capital and operating plans, rationalizing product categories, enhancing service offerings, or promoting products and services that sell better during downturns? For example, if the sales and marketing team sees an opportunity to expand into a new territory, how well — and when — might that bet pay off?

As different business groups propose ideas to optimize costs and improve efficiency and profitability, it is up to the CFO to evaluate the returns on those investments based on forward-looking growth scenarios. To make these determinations quickly and accurately, CFOs should ask the following four questions — about each proposal as well as about the company’s capabilities and the ways in which different customer segments are responding to slower growth in different markets.

Do we have the right tools?

Most finance groups can pull profitability reports directly from their ERP systems. Measuring profitability trends against cost standards helps finance teams evaluate which changes to product mixes are likely to yield benefits in a slow-growth environment. Finance groups with mature automation capabilities can design and put in motion technology investment roadmaps that address how discrete business intelligence, forecasting, planning and analysis, and process mining tools (including those augmented by artificial intelligence) work in concert. These finance teams can run additional, more advanced analyses of trends and scenarios focused on profitability, liquidity, cash flow, sourcing costs, sales and more. Finance groups whose automation and data analysis maturity lags should recognize that many cloud-based BI and FP&A tools can be activated quickly, without time-consuming implementations.

Can we access the data we need?

Even the most advanced planning and analysis tools are only as effective as the data that fuels them. The universe of data that finance groups need to analyze growth and customer trends has expanded massively in recent years. Churning out effective growth projections and adjustment scenarios requires data inputs from groups inside the organization (for example, sales and marketing, operations, supply chain, procurement, and HR). It also requires data from beyond the company’s four walls. For example, volatile inflation trends have injected substantial variability into the cost of raw materials, talent, logistics, utilities and more. Companies that do not sell directly to end customers must rely on their distributors and other value chain partners for data related to changing customer behaviors.

Are we tracking changing customer behaviors and market conditions frequently enough?

The global pandemic and subsequent disruptions drove finance groups to make planning capabilities more data-driven and real-time in nature. Advanced tools, robust finance-IT collaboration and hard work helped these efforts succeed. Next-generation forecasts leverage more internal and external data sets to generate key business indicators with deeper visibility into sales, customer relationships, delivery streams and profitability. FP&A activities now bleed into contingency planning. Cash flow planning has become more dynamic. The current economic environment requires these advanced analyses and forecasts to be conducted more frequently to enable more timely corrective decision-making and actions.

Are our analyses precise enough?

Customer behaviors can vary wildly during downturns. Consumers in harder-hit regions and cities may pull back on spending while continuing to shell out for higher-end items. In other locations, demand for basic brands may surge as consumers cut back on premium products. B2B buyers make similar adjustments. For example, new software-as-a-service licenses of $7,500 a month may become more feasible than implementing a $500,000 on-premises package, and the same logic may also impact lease-vs.-buy considerations for other products as well. Capital spending adjustments in some companies may delay purchases of new elevators or manufacturing equipment, while creating new opportunities to upsell or expand maintenance and related services. These and other customer trends require targeted analyses of specific customer segments and micro markets.

Answering these four questions in the affirmative requires ample cross-functional collaboration. To support the execution of successful sales promotions, finance leaders should help sales and marketing teams understand the projected benefits, costs and risks. Managing working capital and liquidity risks requires huddling with corporate treasury teams. Profit-minded adjustments to sourcing and logistics requires up-front planning with procurement and supply chain leaders. Adjusting the organization’s tax footprint requires alignment between finance and tax functions.

And there’s no question that fostering open communications and proactive collaborations with all finance stakeholders paves the way for the efficient flow of data into finance, FP&A and BI applications. The insights and analyses these tools churn out will help CFOs conduct a coordinated response to slowing growth and changing customer behaviors.

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