Optimising financial processes

Posted on:

CFOs play defense: Cost cutting is being prioritized over growth

A recent survey caught my eye in an article by Chris Gaetano in CFO Dive.

CFOs ranked cutting costs and driving efficiencies as their NUMBER ONE priority in the finance function, jumping from number eight in 2021 and number three in 2022.

I have certainly noticed increased focus on short term cash and cost savings and the accompanying travel bans in recent months.

This should be no surprise given the turbulence in inflation, interest rates, consumer demand, geopolitics and the knock-on impact on cash and working capital.

Reportedly, resources are shifting away from M&A and innovation towards activities with shorter term benefits and businesses are divesting non-core assets.

Worryingly, at a time where “data driven decision making” is being recognised as a key value creating strategy, it appears to be under the knife too. Less than a quarter (23%) of the executives surveyed said they are generating insights for use across the wider business, compared with 39% two years ago and 30% last year.

Despite the drive for efficiencies in both the finance function and the enterprise as a whole, technology remains a strong priority, ranking number three this year. The objective being to drive down costs through associated productivity increases and time savings.

But here is the ugly truth.

Despite our continued belief in “silver bullet thinking”, technology will not produce these results if we don’t streamline the target business process first, end to end. Much of the productivity (in both efficiency and effectiveness) is derived from this simplification. We learned this in manufacturing decades ago.

“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”

I am “pro technology”.

But I am even more pro the effective application of technology.

I have lost count of the number of technology-enabled transformations I have seen up close that did not deliver on their business case, neither in value created nor elapsed time.

Each time, in the post-mortem discussions, the same refrain is heard. “The new problems are still the old problems, and we haven’t made the savings”.

On deeper discussion, the initial expectation had been that the technology-enabled transformation would address “process issues”.

But no-one was held accountable for simplifying “the process”.

And even the wonders of Artificial Intelligence fail to evade this trap.

I heard a wonderful quote “Never try to AI yourself out of a problem you don’t understand”.

There is a very good paper written on this topic of “end to end process thinking”, and well worth a read before you embark on any automation or transformation journey designed to deliver operating efficiencies. You can get it here . . .

As CFOs search for new savings, consider the opportunity presented by Pareto.

  • Apply the Pareto Principle (80/20 Rule) to everything you do.
  • Avoid boiling the ocean.
  • Balance strategic projects with short term value creating (revenue, cash, cost, balance sheet improving) activities.
  • Challenge yourself and your teams to deliver 80% of any projected value in 20% of less of the cycle time, cost and effort. 13 week cycles are a great challenge.

Chris Gaetano’s source article is a brief but important read and you can read it here . . .

Thanks for reading . . .