McKinsey CFO Pulse Survey: Financial leaders’ priorities have shifted
This article is written by Andy Campbell, FinancialForce Global Solution Evangelist. Andy is laser-focused on helping customers leverage cloud-based technology to react faster, run smarter, and grow through disruption. Get his insights here on the shifting priorities of CFOs as highlighted in a recent McKinsey & Company survey.
McKinsey & Company, one of the world’s leading management consultancy firms, has recently published a survey highlighting how Chief Financial Officers’ (CFOs) priorities have changed in the past year. Titled Into the storm: CFOs pivot to managing financial headwinds, the study reveals that CFOs have been shifting their priorities amidst global economic uncertainty, and doing so in an interesting way.
The survey revealed that the priorities for CFOs and other financial leaders have changed significantly over time. In previous years the key areas of focus were Performance Management (55% of respondents) and Strategic Leadership (51%) however both of these priorities have reduced to about 30% in the past year. In response, there has been a big shift with the subject of Pricing now assuming the top slot. In previous years this area hardly registered at all, being a priority for less than 10% of respondents. However, in 2022 this increased dramatically and was now the most important area with over 40% of CFOs spending time on pricing the company’s products and services in 2022.
There are two major takeaways from this survey. First, the fact that financial leaders are now actively involved in pricing is fascinating. Historically, this is an activity where CFOs had little interest, however finance leaders spent more time on the pricing of products and services during the last 12 months than any other activity. The reason behind this transition is probably explained by the difficult economic environment that we are currently experiencing and the need for most companies to ‘pivot to profitability’. Winning new business and increasing revenues is obviously beneficial, but it is critical that the won business is actually profitable. It is vital that the amount that you charge accurately reflects the cost of both successfully winning and then delivering/servicing this work. Only then can you ensure that your profitability and margin targets can be achieved.
For example, if a services business is producing an estimate for a client they obviously need to ensure that the scope of work is correct and the proposal is offered at a competitive price point. However, it is important that the correct resource is used to deliver the project, and at the right billable rate otherwise target margins may be missed. Similarly, the impact of offering discounts needs to be correctly calculated, and the cost of expenses accurately applied. And it goes without saying that once the contract has been won and a contract is being serviced, then the real cost to serve the customer is being taken into consideration to ensure that margins do not erode. Leading service companies will evaluate the actual lifetime value realised from a specific customer and take this into account when qualifying whether to bid for new work or not. They will use this to revise pricing strategies to ensure that margins targets are achieved, or to opt-out from the opportunity. In a tight economic climate, it is understandable that CFOs want to have good visibility into the impact of pricing.
Secondly, this change in emphasis has seen a move away from performance management and strategic leadership, which are no longer the biggest areas of focus for financial leaders. As part of the ‘pivot to profit’, CFOs are increasingly thinking about the short-term, as they are looking at the immediate requirements in terms of cash. Less time is being spent on longer-term activities such as strategic leadership and value, and more on tactical initiatives, such as ensuring good cashflow forecasting. To achieve this, businesses need to balance revenue forecasts from multiple diverse revenue streams (including managed services and subscriptions), to accurately predict income, and have good visibility and tight control over costs. Financial leaders need to implement seamless processes which will reduce revenue leakage and provide a common source of data for the business.
If you’re a CFO struggling with headwinds in your industry or professional services organization, here are two concrete steps you can take now to not only weather the storm but come out stronger on the other side:
- Thoroughly review your services estimating process. Are you able to provide service estimates quickly and efficiently that are also competitive and profitable?
- Establish how quickly you can automatically generate an accurate cashflow forecast for the whole business. If you can’t produce one easily, every day, then your visibility into the financial performance of the business will be compromised.