8 min read
6 Feb 2024
8 min read
6 Feb 2024
From the Covid pandemic to geopolitical risk, it’s fair to say the last few years have brought more than their fair share of challenges for global businesses. So, which topics are top of mind for CFOs and finance leaders as 2024 begins? And how has this picture changed in the last 12 months?
From the risk of recession to the backlash against ESG, here are five key trends and priorities that CFOs will be focusing on in the year ahead:
Rene Ho, CFO of Taulia, identifies “Interest rates, political instability, potential recession” as three items that are currently top of mind for CFOs around the world – and these are all certainly themes that have characterized the business landscape for the last year.
In late 2022, Taulia surveyed 550 CFOs and financial decision-makers in the US, UK, Germany, and Singapore about their top concerns for 2023. Given the record inflation rates that had been seen months earlier in the UK and the US, it was no surprise that inflation was looming large, with 42% of respondents highlighting the issue as their biggest concern.
The survey also found that CFOs were taking a number of actions to mitigate the impact of a possible recession, including cost- cutting (39%), implementing automation technology (37%), and implementing supply chain management technology (37%).
In reality, inflation subsided somewhat as 2023 progressed, with the OECD predicting that inflation in the US will fall to 2.8% in 2024. But the risk of economic uncertainty and recession remains – and as Thomas Mehlkopf, General Manager and Head of Working Capital Management CoE at SAP, points out, “Given the recessionary environment, almost all companies have a huge pressure to improve the bottom line.”
While managing costs is an important consideration in the current climate, CFOs are also setting their sights on growth. Our research found that 83% of CFOs were increasing their budgets for 2023, with almost half (48%) planning to invest more in IT infrastructure. Investment was also planned in areas such as employee training and development (39%) and data management technology (38%).
Fast forward to today, and CFOs are continuing to focus on investing in growth and digital transformation. While many are paying close attention to emerging technologies such as generative AI and machine learning, gaining more control over cash flows is a recurring theme.
As Mehlkopf points out: “There are quite a few companies that still don’t have a centralized view on their cash flow, or the ability to plan their liquidity. We see that due to current pressures, many companies are investing in tools to support transparency and planning.”
For Simon Neville, former Group Treasurer of Reckitt Benckiser Group and Centrica, “security of global supply chains and supplier relationships” are among the key CFO priorities for 2024.
Supply chain challenges were a recurring theme during the pandemic, with the global chip shortage and the Russia-Ukraine conflict contributing to the disruptions experienced in recent years. Unsurprisingly , 30% of CFOs predicted supply chain disruption as their greatest business challenge for 2023.
Against this backdrop, it’s no surprise that companies have been focusing on reviewing their sourcing strategies and exploring options such as reshoring and nearshoring as a risk management strategy. In the US, our research found that over half of businesses were looking to reshore/nearshore in 2023.
For some companies, the threat of supply chain disruption has become less pressing in recent months: a report by Dun & Bradstreet found that only 16% of business leaders cited supply chain disruption as a major threat in the coming year.
Nevertheless, S&P Global warned in November that there are “significant risks” concerning the supply chain industry outlook for 2024 – and in the meantime, companies are continuing to step up their efforts to work with suppliers closer to their production sites.
Working capital management is a universal concern for CFOs, with almost all respondents to our 2022 survey reporting that working capital was important to their firm’s overall allocation strategy. Fifty- five percent of those surveyed said that they had adopted inventory management solutions, while half had deployed early payment programs.
The importance of working capital is unlikely to have abated in the last year: rising interest rates in 2023 increased the pressure for companies to free up cash, while the largest UK companies experienced worsening performance across working capital metrics, according to research by The Hackett Group.
“While working capital might not have been a focus for many companies during the recent years of very low interest rates, this has completely changed,” comments Mehlkopf. “Companies have had to pile up stocks again given recent supply chain shocks. Moreover, access to liquidity has become significantly more expensive.”
Where sustainability and ESG are concerned, companies are increasingly having to balance competing priorities. In our 2022 survey, 32% of respondents said improving ESG credentials was their greatest business opportunity in the coming year – but for 61%, the macroeconomic environment meant that ESG efforts were being deprioritized.
Over the last year, the conversation about ESG has become even more polarized. On the one hand, regulatory developments such as the European Commission’s Corporate Sustainability Reporting Directive (CSRD) are ramping up the pressure on companies to provide more scrutiny over their ESG disclosures.
But as a blog post by the Harvard Law School Forum on Corporate Governance noted, there has also been some evidence of a backlash against ESG practices, including the Supreme Court’s June 2023 ruling against the use of race in college admissions.
Nevertheless, ESG and sustainability continue to be a major focus for businesses. The August 2023 PwC Pulse Survey found that 37% of CFOs saw climate change as a serious or moderate risk for their companies – and research published by deVere Group found that 56% of investors were planning to increase their allocations to ESG investments in 2024.
To find out more, read the full report: Charting CFO paths: 2023-24 insights report
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Working capital – or current assets minus current liabilities – is an indicator of a business’s short-term liquidity.