CFO Planning for 2023: What Finance Leaders Must Prioritize

The past three years have seen CFOs increasing efforts in digitalizing financial tools and processes. They also had to ensure operations ran smoothly amid unprecedented economic disruptions, shifts in the workforce environment, and fluctuating consumer and investor expectations. As 2022 comes to a close, what should CFOs prioritize for the coming year?

Recession

The worsening energy crisis in Europe may lead to a severe recession in 2023, according to JPMorgan. It will be the biggest economic risk CFOs have to tackle – potentially facing a slowdown in manufacturing, reduction in consumer spending, and loss of jobs.  

How CFOs manage their cash flows and reserves will impact how well the company survives during an economic downturn. Campbell Harvey, a professor of finance at Duke’s Fuqua School of Business, says, “Often when a company goes into a slowdown or a recession, they effectively have to spend the cash that they’ve got. A company that has been really wise in terms of its debt management and cash management, they can seize that opportunity. A very bad strategy is to make cuts that are relatively easy to do but damage your long-term position.” 

There are finance leaders who are on the same page as Harvey, like Bill Betz, CFO of NXP Semiconductors NV. When asked how he is preparing for a recession, he says, “It’s all around protecting our free cash flow. Our actions would potentially include reducing variable compensation, discretionary spending, and noncritical capex.” 

CFOs are also ramping up scenario planning initiatives. According to CFO of Shell PLC, Sinead Gorman, the company is stress testing each investment in high scenario, low scenario, and base scenario environments, “and that allows us to be prepared.],” she says. This is in line with our findings in the CFO Investments 2022 report, where 69% of surveyed CFOs are cultivating organizational resilience by investing in rolling forecast tools and scenario planning.  

Business Intelligence

High-quality data is essential for forecasting and scenario planning – this is where business intelligence (BI) comes in. Findings in the CFO Investments 2022 report support this, with 53% of CFOs citing the need for advanced BI tools for better data-based forecasting, and 68% of finance leaders investing between €100,000 to €500,000 of their annual budget in BI. Here’s how BI is utilized in:  

• Planning and analysis: BI dashboards collate historical and real-time data to provide insights on business trends, cash flow, scenario modeling, and variance analyses, to help finance teams compare current performance with what was forecasted. SKF, a Sweden-based global manufacturer, implemented BI as a solution to solve product demand forecasting challenges. They no longer had to rely on outdated Excel spreadsheets as BI allowed them to centralize data assets and improve forecasting efforts between departments.

In addition, BI is a game changer when it comes to:  

• Customer retention: BI gives a comprehensive view of a company’s customer data and financial performance. This is especially important in the financial services industry when it comes to customer retention. For instance, American Express utilized BI to produce new products and offers to customers, as well as protect them from credit card fraud.  
• Financial efficiency: Finance leaders can tap into important business insights using BI platforms to make strategic decisions on the company’s short-term and long-term financial needs. For example, international cement company Cementos Argos invested in an entire business analytics center and hired business analysts to harness BI to streamline decision-making and finance processes. With BI, the company applied BI to gain insights into customer behavior which yielded higher profits.   

Environmental, social, and governance (ESG)

Sustainability continues to be a focus area for finance leaders, as investors, shareholders, and consumers take a company’s ESG initiatives into consideration when making purchasing decisions. ESG compliance is a new responsibility for the CFO and has transformed their role from pure finance leader to a more strategic business partner in their organizations.  

Interestingly, there seems to be a disconnect between how organizations perceive their CFO’s duties towards ESG, and how CFOs view themselves in that area. According to this study by Anaplan and Deloitte, 78% CFOs expressed weakness in addressing ESG initiatives, even though 91% of organizations named it one of their CFO’s top three successes. 

Although 53% of CFOs are keen to make long-term investments in ESG, they face difficulty making finance operations greener due to inconsistent ESG reporting frameworks. A solution has been tabled by the EU in the form of the Corporate Sustainability Reporting Directive (CSRD), which is expected to roll out in October 2022. The directive is part of the larger Sustainable Finance package which aims to channel private investments to transition to a climate-neutral economy. European CFOs will be pressured to produce more regular ESG reports as the directive applies to more companies operating in EU-regulated markets.