CFOs steer a steady path through volatility

Even after a long period of sustained emphasis on technological improvement, CFOs plan to invest in technology like never before.

Nearly two-thirds (66%) of finance leaders said they expect to increase their spending on IT and digital transformation in the next year. That’s a 15-quarter high in the survey, a testament to respondents’ belief that this investment can make their organizations more effective and efficient.

“These investments have become table stakes,” said Paul Melville, Grant Thornton’s CFO Advisory Services National Managing Principal. “CFOs understand that they need these technological capabilities to be competitive.”

The survey also shows that more organizations are expanding their generative AI use into customer-facing areas. The surveys from the first and second quarters of 2024 showed generative AI being deployed for data analytics and business intelligence; financial operations and processes; and cybersecurity and risk management. In all those areas, the technology is walled off from the customer, reducing the potential of public backlash if generative AI goes awry.

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CFOs responding to the survey also indicate that they’re investing in sales and marketing at levels unmatched in 15 quarters. Fifty-six percent said they expect their sales and marketing expenses to increase in the next year, and just 7% expect them to decrease.

“This is how you gain market share,” Melville said. “CFOs are recognizing the need to have differentiation in their products and services, and they’re investing more in sales and marketing for those products as a proactive move to drive more growth and capture market spend.”

Although spending on technology, sales and marketing may help achieve the cost optimization that CFOs in this survey said they crave, it’s more difficult to identify areas where they plan to cut. In fact, 14% of respondents said they don’t plan to cut any costs — a record-high in this survey.

For the fourth straight quarter, the top area identified for potential cost cuts was human capital expenses related to employee headcount and compensation levels, which was identified by 42% of respondents. But workforce rationalization was at an all-time low in CFOs’ areas of focus after a huge drop from the previous quarter, and the percentage of respondents predicting potential layoffs fell to a five-quarter low.

Other top areas cited by CFOs for potential cost cutting were external professional consulting support and fees (40% of respondents) and vendor or supplier costs (37%).

The coming months also might represent an opportunity for a reset for businesses whose fortunes can change based on the political environment.

Sixty-one percent of respondents said it’s possible that the U.S. election results in November will lead to a change in their business strategy. Biden’s withdrawal means there will be a new administration in Washington in January, so there may be a chance for a reset regardless of whether Kamala Harris or Donald Trump wins the election.

Respondents said the election’s biggest impact on the business environment will come in its effect on the overall economy, with tax policy, regulatory policy and trade policy having lesser impacts. Corporate interest in politics is strong, as more than half (58%) of respondents said their businesses participate in political activities, with 33% involved in lobbying through industry or trade associations, 20% lobbying directly and 31% contributing to political action committees or tax-exempt 527 organizations.

CFOs have mixed views on how to invest with the election looming. Thirty-one percent are accelerating some investments in anticipation of the election, while 23% are holding off on some investments until after the election, and a plurality (46%) said the election will not affect their investment plans.

Continuing volatility seems to be the one certainty that CFOs can bank on for the next six months. Although the Federal Reserve announced a half-point interest rate decrease on Sept. 18 in an attempt to boost the economy, the long-term interest rate and economic forecast is murky.

Meanwhile, if the last two elections are any indication, the margin of the upcoming vote will be close, with the potential for destabilizing pushback from the side that doesn’t come out ahead. Nonetheless, CFOs’ confidence in their prospects for profits shows their confidence that they can get through this period unscathed.

With that in mind, here are some actions that finance leaders can take to get them through a ride that’s likely to be bumpy:

• Mind your costs. Human capital expenses were the top area cited for potential cost cuts, but companies may wish to tread lightly here as their peers aren't prioritizing workforce rationalization. Other top areas for cost cutting are consulting fees and vendor/supplier costs, with a rise in interest in cutting investments in long-term strategic initiatives.
• Digitize, digitize, digitize. Technology spending can lead to long-term cost savings. With uptake of AI extending to customer-facing areas, there are many opportunities for forward-thinking CFOs to provide improved services at a fraction of the price.
• Watch for M&A opportunities. While 54% of CFOs expect M&A volume to increase over the next six months, 67% of M&A professionals are forecasting a rise in deal volume. With reduced interest rates, this may be an opportune time to pursue inorganic growth.
• Don't sweat the election results too much. While it's important to pay attention to regulatory trends and the overall state of the economy, current businesses have just navigated through a once-in-a-century pandemic and the ensuing Great Resignation and inflation surge. They have proven they can handle disruption. It's reasonable to hope that the election won't cause as much chaos as those recent events, so take comfort in the resilience you have shown in the past while staying alert for opportunities that the future may bring.