CFOs' biggest concerns are a second wave of coronavirus and a global economic downturn, according to PwC’s sixth COVID-19 CFO Pulse Survey, released Monday. In light of these concerns, finance leaders are figuring out how to create sustainable business models that can adapt to a range of potential challenges.
Having already made the necessary financial decisions to maintain operations in the short term, businesses are now pivoting towards revenue generation, PwC found. At the same time, nearly four in five respondents are considering implementing cost containment.
Also on Monday, a new Gartner survey revealed CFOs will continue scaling back spending by 4-11% across their selling, general, and administrative expenses (SG&A) functions for 2020.
The ability for businesses to return to pre-COVID revenue levels is predicated on how they can adapt and be agile in this new environment, PwC said. 63% of respondents anticipate changes in product and service offerings will be most important to rebuilding or enhancing their revenue streams. Other revenue growth opportunities include changes to pricing strategies (41%), distribution channels (36%), talent (34%), customer segments (34%), deals (31%), new markets (26%) and the supply chain (25%).
"Nimble businesses, able to adapt their existing business models to retain existing customers and identify new ones, will succeed" Amity Millhiser, PwC US Vice Chair and Chief Clients Officer, said. "With rebuilding revenue [becoming more important], businesses must listen to their customers, innovate products and services, and offer a new experience rooted in technology."
Millhiser said, despite the focus on innovation and expansion, CFOs are nonetheless "absolutely" focused on scaling back.
"Seventy-nine percent of the CFOs still are planning to take aggressive cost containment measures," she said in an interview with CFO Dive. "When we say nimbleness and agility, we're talking about controlling costs, liquidity preservation, and scenario planning. Cost containment is always top of mind."
"Though cost containment is crucial to survival and maintaining liquidity, companies won't emerge strong just because they’re controlling costs," Millhiser said. "They should avoid cutting customer experience spending. They need to keep people safe, but also regrow and build the business over the long term."
PwC's findings show that both innovation and cost containment are vital for thriving post-pandemic. "CFOs are on the front line of this," Millhiser said. "They're balancing what’s affordable with strategy. They’re asking whether ongoing projects are mission-critical or not."
Gartner's survey findings mirrored those of PwC, as it pertains to CFO frugality. "Our latest data shows that CFOs are planning for multi-year impacts to their financial plans as a result of the pandemic," Alexander Bant, VP of research for the Gartner Finance practice told CFO Dive in an interview. "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."
CFOs indicated an average of 14% cuts to marketing budgets 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.
Real estate budgets have already been cut 7% on average, with plans for an additional 8% reduction in 2020. Real Estate was also the most targeted expense in 2021 with a 3.4% reduction versus original budget plans for next year, the survey found. "CFOs we're talking to are still in real estate footprint assessment mode, and most of their leases aren't up for negotiation for many months, quarters, or even years," Bant said.
Additionally, CFOs project at least 5% cost cuts to HR, Sales, Supply Chain, Finance, IT and Communications in the remainder of the year.
"CFOs are not yet sure when they will need as many staff recruiting, selling, implementing IT projects, or supporting transaction processing. This is putting budget pressure on HR, Sales, IT, and Finance in the near-term," Bant said. "Most CFOs say COVID-19 has illuminated more efficient ways of working, and they will use this as an opportunity to right-size spend in SG&A functions for 2021."
"Most of the CFOs we've talked to are still keeping the low hanging fruit at bay, meaning they are reducing expenses that don’t directly align to this year’s sales growth,” Bant said. "They're not fully zero-basing growth bets, but are asking everyone to take a hard look at how growth bets tie to corporate objectives, and keep pace with how customers are changing and how likely the customer is to come back once the economy turns around."
Gartner's finance practice has been coaching CFOs on removing anchors that can typically hold businesses back from driving faster growth bets, Bant said. "Removing unnecessary red tape, removing short-term incentives, and keeping organizational focus on just a few major growth bets rather than a smattering, are all key."