CFOs must adapt inflation strategies.
CFOs should move beyond short-term, reactive moves to counter inflation and identify opportunities to build long-term competitive advantages, according to Gartner, Inc. CFOs should shift from a focus on neutralizing margin pressures to long-term strategies, including aligning costs to points of differentiation, rightsizing the supply chain and conducting ongoing pay monitoring to better adapt to changing market conditions.
“Organizations have largely picked the low-hanging fruit in responding to input price inflation,” said Randeep Rathindran, research vice president in the Gartner Finance practice. “CFOs need strategies now that both adapt to a more persistent inflationary environment than originally anticipated, while also better preparing their organizations for growth in the next economic cycle.”
After making quick, cautious responses to immediately defend margins, CFOs are seeking further steps, so that their organizations can better weather persistent inflation and use the right strategies to drive competitive advantage. Key to this will be the concept of digital deflation, but beyond using technology to permanently reduce the cost of doing business, Gartner experts have identified three additional areas for CFOs to focus on as they shift from short-term inflation responses to longer-term strategies:
Align Costs to Points of Differentiation – CFOs have an opportunity to use this environment to both reintroduce and reconsider costs in a manner that addresses deeper issues in their organizations that may have been undermining profitability for years. CFOs can identify the right areas to scale costs by identifying true points of differentiation and then allocating disproportionate investment levels to them. Investments that directly contribute to customer loyalty or assets, such as patents or proprietary technologies that support competitive advantage, are examples that warrant elevated investments now, according to Rathindran.
Rightsize Supply Chain Surface Area to Minimize Disruptions – In the wake of initial inflation pressures, organizations sought to identify and mitigate individual supply chain disruptions. The next step for CFOs managing supply chain related inflation concerns over the long-term is to rightsize (and likely reduce) their organization’s supply chain surface area to limit the number of costly disruptions an organization is exposed to. Rathindran said that organizations that do this gain a competitive advantage because they experience fewer unfamiliar, high-impact disruptions per year compared to their peers.
Conduct Ongoing Pay Monitoring to Continuously Adapt to Market Conditions – While organizations have budgeted for increased salaries this year, much of that work was likely completed at the end of 2021, which may not reflect current and evolving realties as wage inflation persists. It’s critical for finance and HR to work together to monitor and dynamically adjust the organization’s pay practices and total rewards strategy throughout the year. Rathindran recommends that CFOs partner closely with the head of HR to make sure that any subsequent increases to people costs prioritize the business units and roles that generate the most value to the company, while continuing to differentiate offers from competitors.
Tags: Gartner
