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Navigating Economic Volatility: Insights from CFOs

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In today’s dynamic business landscape, economic volatility has become an ever-present challenge, impacting organizations across industries. Chief Financial Officers (CFOs) play a critical role in steering their companies through these uncertain times. McKinsey & Company’s newest survey of CFOs sheds light on how financial leaders are adapting and strategizing in the face of economic headwinds. 

The Reality of Volatility

The survey finds that economic volatility and inflation are the top concerns among CFOs, posing significant threats to company growth. In a world characterized by unpredictability, a staggering 57% of CFOs reported high volatility in their businesses’ performance, with little expectation of stability in the near future. The rise in inflation has added to the complexity, becoming the top-cited threat to growth, with 58% of CFOs expressing concern.

Adapting, Not Hunkering Down

Despite the challenges, CFOs are not passively weathering the storm. They are taking proactive steps to tackle the uncertainties. The survey reveals that finance leaders are adjusting their priorities, focusing on performance, productivity, and managing operational value drivers and key performance indicators (KPIs). CFOs recognize the need to be agile and responsive to changing circumstances.

Strategies for Managing Volatility

To manage the volatile economic environment, CFOs are adopting specific strategies. The survey shows that raising prices to ensure margins is a top approach, even though passing on higher costs poses difficulties. Furthermore, CFOs are reallocating investments across their organization’s portfolio and reducing exposure to fixed costs to enhance flexibility.

Operational Practices for Success

CFOs are also engaging in operational practices to navigate volatility successfully. They are increasing their own participation in business decision-making, making it a top priority. Additionally, CFOs recognize the importance of frequent cash flow analysis and short-term budgeting to stay on top of financial performance. By proactively managing these areas, CFOs can make informed decisions amidst the uncertain economic landscape.

Shifting Priorities for Finance Organizations

The survey reveals changes in finance organizations’ priorities for the next year. CFOs are now placing a greater focus on operational value drivers, KPI management, cash management, and capital structure. These areas are deemed vital to actively drive value for their companies. In contrast, other priorities, such as strategic planning and risk management, have decreased in importance, reflecting the need for adaptability in today’s volatile market.

Economic volatility remains an ongoing challenge for organizations, but CFOs are leading the charge with resilience and adaptability. By adjusting priorities, adopting proactive strategies, and focusing on operational practices, these financial leaders are guiding their companies through uncertain times and positioning them for success in the face of volatility.

More from our FP&A Done Right Series:

No, Artificial Intelligence Will Not Replace Finance Jobs

Annual Planning Versus Continuous Planning

Professional Services Firms Need Future-Ready Forecasting

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The Role of CFOs in Building Financial Resilience

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In today’s dynamic and unpredictable business landscape, financial resilience has become a top priority for organizations. Among the key drivers behind this resilience are CFOs, who play a critical role in navigating uncertainties, forecasting cash positions, and ensuring long-term stability. This blog post explores the significance of CFOs in building financial resilience and highlights their strategic role in adapting to changing market conditions.

Understanding the Importance of Financial Resilience

Financial resilience refers to an organization’s ability to withstand and recover from financial disruptions, economic downturns, or unexpected events. It encompasses the capacity to adapt, respond, and thrive in the face of uncertainty. CFOs, as key members of the executive team, are responsible for forecasting cash positions, managing working capital, and ensuring the financial health of the company. They act as strategic partners to the CEO and board, translating financial data into actionable insights to support decision-making.

Proactive Cash Flow Management

One of the primary responsibilities of CFOs is to monitor and manage cash flow effectively. By implementing robust cash flow forecasting models, CFOs can identify potential risks, plan for contingencies, and allocate resources optimally. They work closely with other departments to align financial goals with operational strategies, ensuring a disciplined approach to working capital management. CFOs leverage financial data, market trends, and scenario planning to make informed decisions and adapt the organization’s cash blueprint to changing circumstances.

Embracing Technology and Automation

Digital transformation has revolutionized the finance function, offering CFOs unprecedented opportunities to enhance financial resilience. By leveraging advanced technologies, such as artificial intelligence and automation, CFOs can streamline financial processes, improve efficiency, and reduce manual errors. Automated systems provide real-time visibility into cash flows, accounts receivable, and financial performance, enabling CFOs to make data-driven decisions and take proactive measures to mitigate risks. Embracing technology not only optimizes financial operations but also frees up valuable resources, allowing finance teams to focus on strategic initiatives that drive long-term growth.

Strategic Partnerships and Stakeholder Communication

CFOs serve as a bridge between the finance function and other key stakeholders, including shareholders, investors, and the board of directors. Effective communication and collaboration with these stakeholders are essential for building financial resilience. CFOs provide transparent and timely financial reporting, highlighting the organization’s financial position, risks, and mitigation strategies. They play a pivotal role in developing and executing strategies that align financial objectives with broader business goals. By forging strong relationships with stakeholders, CFOs build trust, instill confidence, and secure support for initiatives aimed at strengthening financial resilience.

In an era of unprecedented disruptions and economic volatility, CFOs play a crucial role in building financial resilience. By proactively managing cash flow, leveraging technology and automation, and fostering strategic partnerships, CFOs can navigate uncertainties, adapt to changing market conditions, and position their organizations for long-term success. Their strategic agility and financial acumen are indispensable in driving financial resilience and ensuring sustainable growth.

Learn more about building financial resilience. Download the white paper, Financial Resilience 101: How CFOs are Shifting to a New Cash Blueprint.

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No, Artificial Intelligence Will Not Replace Finance Jobs

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This is an excerpt from a blog post from our partner Workday Adaptive Planning. It is a recent discussion between Workday’s Terrance Wampler and Stanford Professor Erik Brynjolfsson, explaining why CFOs are well-positioned to lead the AI revolution using a human-centered approach to artificial intelligence.

Erik Brynjolfsson, a professor at the Stanford Digital Economy Lab, has some advice for finance professionals concerned about whether artificial intelligence (AI) will replace their jobs: “AI is not going to replace CFOs. It is going to replace CFOs who don’t use AI with those who do.”

I [Terrance Wampler] had a great discussion with Professor Brynjolfsson recently at the Workday Future of Intelligent Finance Tour in San Francisco. The event—hosted in partnership with American Institute of Certified Public Accountants-Chartered Institute of Management Accountants (AICPA-CIMA) and Accenture—was designed to help finance and IT professionals leverage AI, machine learning (ML), and other advanced technologies to accelerate their journey to becoming finance futurists.

Brynjolfsson, who also serves as a senior fellow at Stanford’s Institute for Human-Centered AI, gave attendees a crash course on how AI will reshape the future of finance as we know it. Having just come from a visit to Washington, D.C., to brief the White House and the Council of Economic Advisors on the impact of AI, Brynjolfsson has a front-row seat to the potential for AI to change workforce dynamics. 

“In the early stages of AI, we knew that low-skilled labor would be impacted,” he told me. “As the technology has progressed, we’re seeing that professional workers—CFOs, accountants, lawyers, doctors—are going to be very much affected. Affected doesn’t mean automated. It doesn’t mean replaced. Rather, AI is going to augment your abilities and give you the freedom to do new things.” 

I couldn’t agree more with that positive assessment, which is why we’re investing so heavily in generative AI as the innovation engine for Workday Enterprise Management Cloud. As the group general manager for Workday’s suite of solutions for the office of the CFO, I see generative AI as an enabler of finance’s dual role as value protector and value creator.

Value protection tasks such as internal audit, risk management, and regulatory compliance can benefit from AI’s ability to comb through vast amounts of data to detect and surface anomalies before they destroy a company’s value or market reputation. Large language models (LLMs) can be trained to stay updated on the latest financial regulations, ensuring that compliance is always up to date. They can also assist in risk management by identifying patterns in data that might signify potential risks and by building robust risk models that consider a wide array of factors.

AI can also help drive value creation, whether that’s automating routine tasks to drive cost savings or enabling top-line growth. LLMs, for example, can help predict customer behavior, create more accurate forecasts, and improve scenario modeling by processing a large volume of data and considering a multitude of variables. Augmenting the capabilities of financial planning and analysis (FP&A) teams would allow them to prepare for a wider range of potential outcomes, making planning more resilient and adaptable to changing market conditions. 

Thanks to productivity gains like these, Brynjolfsson predicts that generative AI will be bigger than any of the technologies we’ve used over the last 10 years. He provided an example from new research he led on how generative AI is boosting call center productivity. 

“A couple of years ago, we teamed up with a company and a couple of Stanford professors and graduates to start a company that helps call centers do a better job,” he said. “And what we found was that the operators who used the AI model were dramatically more productive and more successful than the ones who didn’t, with the least skilled operators 35% more productive.” 

Brynjolfsson went on to explain that the model learned from the most successful operators, listening in on their conversations and identifying phrases or suggestions that improved customer sentiment. The model then passed on those skills to the newest operators. “That’s the kind of tacit knowledge that was previously really hard to automate.”

Generative AI and the CFO Role

Gartner analysts recently noted that CFOs are best positioned to help lead the implementation of generative AI in corporations because they have more insight into opportunities to leverage the technology to reduce costs, improve productivity, and increase revenue streams. “The CFO should be on the frontier of the AI revolution,” Brynjolfsson said. “CFOs understand how to work with unstructured and structured data and do sophisticated analyses on that data, which is why they can make such a big impact.” 

Brynjolfsson also sees human resources teams benefiting. “I did an estimate a few years ago and found that the value of human capital in the U.S. economy is a little over $200 trillion—10 times the value of the gross domestic product (GDP). But the problem with human capital is it’s very poorly measured and understood,” he said. “There are a lot of soft intangibles in there. AI’s large language models can do a lot to capture and understand the value of your human capital.” 

Given AI’s power to disrupt the economy, I asked Brynjolfsson about his take on the mood in Washington around regulating AI.

“I came away from my trip really impressed with how up to speed the government officials I met with were on generative AI,” he noted. “They understand that there’s a tidal wave coming that will be bigger than the impact of the pandemic on remote work, and they are taking it very seriously.” 

Brynjolfsson closed out our chat on a positive note, predicting that AI could potentially double the productivity rate currently estimated by the Congressional Budget Office over the next decade. He also sees AI giving us more resources to address challenges we face on the healthcare front, such as cancer, and on the educational front, such as personalized education. The reason is AI’s ability to unlock human potential versus just seeing it as cost-saving automation. 

“Any one of you who has tried to call an automated voice response system knows it can be very frustrating, especially when there’s a long tail of questions that we ask that aren’t common,” he said. “We humans are much better at dealing with exceptions than machines, so a good partnership is where AI can answer common questions and humans can deal with exceptions. AI has a much higher upside in terms of creating additional value than simply trying to take costs out.” 


Read the full blog post on the Workday blog.

More from our FP&A Done Right Series:

Professional Services Firms Need Future-Ready Forecasting

Enterprise Planning Helps Professional Services Firms Adapt to Changes

FP&A Done Right: Trends in Accounting and Finance

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FP&A Done Right: CFOs See a Bright Future for the Remainder of 2021

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This is a guest blog post from our partner Workday Adaptive Planning, examining trends and data presented in a PwC Pulse Survey of finance leaders.

As CFOs look ahead to the remainder of 2021 and beyond, a new survey finds them increasingly optimistic about their organization’s economic prospects.

They are interested in the growth of the digital economy, lasting shifts in consumer behavior, and the prevalence of work-from-home arrangements. Finance leaders are also looking to grow their influence within their companies and are keen to learn how to navigate staffing challenges.

A PwC Pulse Survey of 182 finance leaders from Fortune 1000 and private companies, along with other C-suite executives, finds many CFOs pivoting from a defensive posture to expecting a boost from shifts spurred by the COVID-19 pandemic.

Mostly sunny outlook

As the pandemic accelerated trends on a large scale and enterprises sought to adapt to ever-changing realities over the past year, CFOs are looking to increase their influence within their company—and doing so more efficiently.

CFOs’ top priority for the finance function in 2021 is to establish finance as the business partner across the enterprise (47%). While driving deeper collaboration among functional business partners isn’t a new goal for finance, the pandemic has been a catalyst to expand the level and access of these partnerships. CFOs’ second-highest priority is automating processes using intelligent automation (41%).

In the meantime, economic optimism is high. Nearly half (46%) of respondents polled in March 2021 anticipate high growth from the rise of the digital economy, while 36% predict moderate growth. They also expect high growth from pandemic-related changes in consumer behavior (34%) and the work-from-home trend (21%). When it comes to their views of the U.S. economic recovery, a whopping 81% of CFOs express optimism, a higher percentage than other C-suite leaders (76%) polled.

CFOs are also hopeful about their own company’s performance, with 87% of them forecasting growth over the next 12 months—a significant leap from positive poll responses in September (25%) and October (28%). Now, the pessimists are in the minority, with only 4% expecting lower revenue, down from more than half (51%) who held that outlook six months ago.

Yet the optimistic sentiment is tempered by an increasingly challenging regulatory environment (31%), tensions between Washington and Beijing (27%), and global trade and tax policy (26%). Nearly a quarter of respondents (23%) identify inflation as a high risk.

Finance leaders driving change

Finance leaders are thinking about more than just balance sheets, with top priorities including such considerations as advancing goals for diversity and inclusion (D&I), increasing investment in compliance functions, and revising enterprise risk management practices.

With an eye on the future, CFOs are thinking about hiring, developing, and diversifying their workforce—even as 93% identified the availability of talented job candidates as critical. More than 60% of CFOs say their organization plans to boost D&I training, and 51% anticipate an increase in reporting D&I data to internal stakeholders.

While the economic impacts of the past year had a high profile, the pandemic also took its toll on employees’ well-being, emphasized the importance of mental health, and brought to the forefront environmental, social, and governance (ESG) issues. Against a backdrop of the U.S. recovering from the crisis, 69% of CFOs identify better reporting of ESG issues among their top two priorities—recognizing that those factors and related disclosures will continue to receive more attention from investors, customers, employees, and other stakeholders in the future.

The evolving business considerations around ESG factors have also created the need for a way to measure and manage them. Most CFOs acknowledge the challenge, with 68% saying that identifying frameworks, material issues, and metrics to focus on are a priority. The shift comes as large institutional investors and the Securities and Exchange Commission have sought to improve disclosures from companies.

Looking at internal processes, CFOs also cite the following as priorities: communicating to the board and audit committees on progress (63%); implementing technology, processes, and controls around reporting (63%); and establishing ownership of ESG reporting (62%).

CFOs say producing investor-grade ESG information (60%) and demonstrating value to stakeholders through ESG reporting (60%) are among their top concerns, while identifying appropriate talent to build and maintain their company’s ESG reporting programs is cited by 58% of respondents.

Finance leaders are confident in the U.S. economic recovery and more so in their own organization’s prospects for the coming year, but they are also aware that the road map requires organizational adjustments in a variety of areas. Uniquely positioned to provide enterprise leadership, CFOs have recognized the growing importance of working across departments, utilizing technology to improve efficiency, establishing and developing nonfinancial metrics, and hiring and retaining talented employees.

This blog post was originally published on the Workday Adaptive Planning blog.

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FP&A Done Right: How CFOs Can Lead in Today’s Challenging Environment

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This is a guest blog post from our partner Workday Adaptive Planning, written by Steve Dunne. It is the second in a series looking at macro trends in the economy. This post explains how the CFO can play a strategic role in today’s uncertain business environment.

Even before the COVID-19 pandemic, businesses were facing a plethora of social, economic, and technological challenges, as discussed in the first article of this series. Yet change and uncertainty—while sometimes painful—can create new opportunities, as long as people and organizations have the agility to leverage change for the better.

This is particularly true for the finance function. CFOs must be prepared for both short-term and long-term uncertainty to fully understand and mitigate risk for their organization. This requires a fundamental shift: To become the strategic guide the business needs, finance leaders and their teams must embrace and accept continuous change as part of the new normal.

But how? Below are five key areas for finance leaders to explore in order to guide their businesses through persistent change.

Planning, Liquidity, and Risk Management Are Key to Finance Agility

During uncertain times, it’s difficult to forecast specific revenue and expense targets with any degree of accuracy. Businesses must be able to model rapidly changing conditions, and this demands organizational agility. Uncertainty heightens the need for more dynamic business planning based on a range of scenarios rather than traditional quarterly or annual planning cycles.

Having the ability to conduct more dynamic business planning means organizations can respond to changes and course correct to better understand the impact on top-line revenue and bottom-line expenses. For example, are customers paying on time? What are the implications of a percentage of those customers not settling invoices? Which supplier contracts need to be renegotiated based on changes in demand?

Discussing her own experience of business planning during COVID-19, Workday Senior Director of Corporate Finance Kinnari Desai says, “We were able to leverage actuals data from Workday Financial Management into our forecasts. This enabled us to see the resulting impact on the P&L and cash flow right away. All in all, we were able to speed up the process and operate 50% faster versus using spreadsheets.”

Similarly, during tough times finance functions are also well placed to help business leaders forecast cash and liquidity and identify risks with greater speed and accuracy. Many organizations have multiple sources of cash and creating a complete picture of their overall cash position and liquidity can be challenging without the right tools.

Keep Stakeholders Informed and Aligned with Key Insights

The need to make insights more accessible across an organization is heightened during times of uncertainty, and it doesn’t help when data is trapped in departmental silos or locked away in different tools and requiring time-consuming integrations. Workday research shows that over half of respondents we surveyed believe access to data within their organization is somewhat accessible but remains outdated and siloed within functional teams.

Businesses should have access to financial, workforce, and operational data together, as a single source, to answer fundamental stakeholder questions. Other C-suite leaders are increasingly looking for deeper insights from a wider range of data sources to help them make better decisions. For finance, this means having the ability to share credible insights with the wider business and, more importantly, encouraging these stakeholders to take action based on this data.

For example, finance needs to provide the business with better insights into working capital to better understand minimum cash and liquidity requirements. While the primary focus for most companies is on growing the top line while carefully managing the bottom line, this can lead businesses to take for granted routine but critical back-office activities, such as paying bills and turning receivables into cash.

Thomas Willman, principal, finance advisory global practice leader at The Hackett Group, told me, “Finance organizations must take advantage of opportunities to extend payables while still taking care of their most strategic suppliers. They must also share these insights with the wider business. It will be imperative for CFOs to put a sound plan in place to preserve cash and liberate cash that is tied up in working capital.”

Similarly, executives are looking for insights from finance on how they should manage investor expectations during periods of persistent change. This includes thoughtful and proactive communication and risk mitigation planning in advance of regularly scheduled earnings reports.

CFO Efficacy: Report from Any Location

The COVID-19 outbreak changed the rules completely in terms of how and where businesses operate. With employees now working from home, many finance functions had to consider new ways to keep delivering critical services, such as closing the books. This raised questions for finance leaders around the processes and controls required to support a remote close and the risks associated with performing “finance-as-usual” tasks outside the walls of the business.

The need for finance to embrace more efficient, dynamic ways of working pre-dates the global pandemic, yet it is now proving to be a significant catalyst for transformation. For finance, that means embracing automation and emerging technologies, such as machine learning, that can be applied to key processes. CFOs have long since been looking to reduce the time spent on processes such as closes, consolidations, reporting, and payroll—what’s happened in 2020 has now made this an imperative.

The Hackett Group’s Willman explains, “Finance has had to transform in so many ways in 2020. What hasn’t changed is that all of this work still has to be done; what has changed is that it has to be done away from the office. Finance professionals are exploring things such as machine learning and how it can identify patterns and make recommendations that previously would have required manual intervention.”

In addition, compliance and audit don’t suddenly stop during times of crises. Finance is still required to provide effective controls to enable auditing—even if it has to be done remotely. When discussing the company’s remote close, Philippa Lawrence, chief accounting officer at Workday, says, “We asked our internal audit team to review some of the more important and impactful controls to confirm they were operating as they should. Financial controls need to operate the same remotely as they would during any quarter-end close.”

Understand Skills and Opportunity for the Future of Finance

More than half of respondents to a global Workday survey said they planned to reskill at least 50% of their workforce by 2024 to contend with the changing world of work. Today, how will the plethora of macro-challenges to global business further intensify this conversation? How will the emergence of machine learning and other data-driven technologies influence how business leaders—including the CFO—reskill or upskill talent for their organization?

We are at the crossroads of a technology and people transformation. Finance has traditionally been stuck in the role of gatekeeper, intrinsically bound to manual transaction processing and tied to systems that prevent it from becoming a strategic guide to the business. Now, with the global appetite for automation and the technological capability in place, finance should seek to transform.

And this should be viewed as an opportunity for finance, rather than a threat from the rise of the robots, as long as AI is used in a way that continues to put people first. A poll of 375 executives by MIT Technology Review Insights revealed that “pandemic preparedness will speed up AI deployment and accelerate the pace of AI innovation in high-risk job categories, causing both ‘job-positive’ and ‘job-negative’ effects.”

Finance is well-placed to cast aside legacy technology challenges and develop the skills of its existing workforce to benefit from emerging technologies. Now may be the optimal time to drive this transformation.

Collaborate and Communicate to Build Trust and Integrity

According to Deloitte, in the article “COVID-19: Maintaining Customer Loyalty and Trust During Times of Uncertainty,” consumers—whether purchasing for themselves or for their organization—increasingly want to buy from companies that demonstrate integrity in how they treat their employees, their customers, and the environment. These consumers seek trust, honesty, transparency, equality, and a better overall experience.

Blake Morgan, author and customer experience futurist, wrote in Forbes, “An amazing customer experience is one of the biggest competitive advantages a company can have. Instead of competing on price, more than two-thirds of companies now compete mostly on the basis of customer experience.” And, based on Edelman’s analysis of stock prices in 2018, high-trust companies beat the rest of their sector by 5% on average.

For businesses, this is often about making bold internal changes and committing to operating differently. It’s about being open and transparent, as well as being able to pivot and adapt to meet customers’ changing needs. Finance has its own part in this journey toward trust and transparency by delivering real-time data from a variety of sources and delivering these insights to the rest of the organization to drive collaboration and better decision-making.

Large businesses are being asked by stakeholders to stop merely promising to put purpose over profit, and instead make trust an organic value ingrained within their organization. This requires the right technology and processes to enable these businesses to track and analyze the data, then deliver it — whether financial, legal, or compliance—to key constituents in order to be held accountable.

Focusing on the right areas will be absolutely key for finance leaders as the world starts to spin again. Making agility a priority, while arming the organization with the right insights to make better decisions and understanding how finance will deliver what the business needs — potentially from any location — will also be paramount. All of these factors exist alongside a heightened need for brand trust and transparency — something which the finance function will play a key role in delivering.

This blog post was originally published by Workday Adaptive Planning and appeared here.

Read more guest blog posts from Workday Adaptive Planning:

FP&A Done Right: 3 Steps to Help you Plan for What’s Coming

FP&A Done Right: Reforecasting in a COVID-19 World – Best Practices you can Implement Now

FP&A Done Right: FP&A Tips for Scenario Modeling During COVID-19

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