In the face of volatility, CFOs—and their organizations—adapt

As inflation and economic volatility pose mounting threats to company growth, CFOs report high volatility in their own business’s performance—and little expectation that performance will stabilize in the near term. Yet in our latest CFO pulse survey,¹ The survey, conducted online and by telephone, was in the field from April 1 to May 4, 2023, and garnered responses from 137 financial leaders of companies in 36 countries; 68 are CFOs of companies, 68 are CFOs of business units or regions, and one is a direct report of the CFO. For the purposes of the article, we will refer to all respondents as CFOs. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP. respondents say they’re adapting, not hunkering down. The results suggest that finance leaders are taking proactive steps in the face of economic headwinds and enterprise risk. Since our previous survey on the topic, CFOs say they have adjusted their own priorities with performance and productivity in mind. And in the months ahead, they plan to refocus the finance organization on managing operational value drivers and key performance indicators (KPIs).

CFOs continue to report a positive outlook on industry growth and investment, as they did in Q3 2022. More than half of finance leaders are still optimistic about their industries’ rate of growth in the next year, and 57 percent expect higher levels of investment (in capital expenditures, R&D, and marketing, for instance) at their companies.

That determination is particularly notable because surveyed CFOs overwhelmingly report high volatility in their companies’ business performance. Fifty-seven percent of them believe that company performance has been more volatile over the past 12 months. While the largest percentage of CFOs (51 percent) expect similar volatility in the next 12 months, another 36 percent expect more volatility over that time.

The results confirm that inflation still matters as a risk to company growth. CFOs ranked inflation as a top two risk in our Q3 2022 survey, and in our latest survey the percentage saying so has grown dramatically—from 33 to 58 percent, making it the top-cited threat to growth. Meanwhile, concerns over increased economic volatility and weak demand have also grown. And related to inflation, CFOs rate three issues—the inability to pass on higher costs to customers, suppliers’ price hikes, and falling demand—as the macroeconomic factors that most affect their companies.¹Respondents were asked to rank the macroeconomic impacts that have had the most significant effects on their companies in the past 12 months, out of seven potential options. The largest percentages chose inability to pass on higher costs (66 percent), disproportionate price hikes from suppliers (64 percent), and falling demand (50 percent).

To help manage a volatile macroeconomic environment, more than half of surveyed CFOs identify one of two strategies as having the greatest impact. Nearly two-thirds of respondents rank raising prices to ensure margins as a top strategy, despite the trouble they report in passing on higher costs, and 52 percent identify reducing the company’s exposure to fixed costs.

When asked about the operational practices that are most useful in managing volatility, CFO respondents tend to identify methods in which they engage more proactively in business operations. The largest share, 72 percent, cite increasing their own participation in business decision making, followed by 64 percent who rank increasing the frequency of cash flow analysis and short-term budgeting. By contrast, much smaller shares cite increasing the frequency of risk committee meetings and designating a colleague to focus on risk management as the most helpful practices.

Along with evolving risks, surveyed CFOs report another notable shift since our earlier survey: they’re focusing on different activities and areas. Respondents report that they tended to spend most of their time in the past year on cost and productivity management as well as performance management, both areas of greater focus than in the past survey. And despite generally low M&A activity, CFOs report that they are nearly twice as likely to spend much of their time on M&A activities, including postmerger integrations. Meanwhile, pricing has become a much lower priority.

Finally, respondents report some changes in their finance organizations’ priorities for the year ahead. CFOs report an increased focus on operational value drivers and management of KPIs, as well as on cash management and capital structure—an important way that finance leaders actively drive value for their companies. Notably, each of the other priorities we tested have decreased in importance since Q3 2022.

The past year has been fraught with volatility, and the overwhelming majority of CFOs we surveyed believe the next 12 months will be just as challenging—or even more so. Yet these leaders are adapting, not retreating. Even in the face of volatility, CFOs are staying positive on investment and growth.