Cutting costs to drive growth – CFO Survey 2012

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High value cost transformation strategies such as procurement and supply chain are pivotal for businesses to continue to thrive in the current economic climate.Whilst cutting costs and driving growth were unsurprisingly listed as the main priorities for 2012, supply risk has also moved up the agenda. This is due to an increasingly globalised supply chain and a series of high profile disasters affecting numerous sectors.More and more businesses are turning to their finance leaders to drive company growth and protect business from the volatile economic climate. This survey provides an insight into the minds of some of the world’s leading CFOs and will help you decide which areas to focus on in 2012.Survey Respondent Overview
This survey was conducted during the Economist’s “CFO Summit 2012: New Frontiers in Finance” event which brought together 150 Chief Financial Officers, Finance Directors and other senior finance executives to discuss the trends that will shape the CFO agenda.Slow Economic Growth and Destabilisation
A poll conducted during the CFO Summit 2012 revealed that the majority of attendees believed Greece would leave the Eurozone. The ramifications of such an event would be felt across numerous sectors and it is no surprise that 38 per cent  of respondents singled out the destabilisation of the Eurozone as their most pressing concern for the upcoming year. Only slow economic growth worried finance leaders more (45 per cent).It is worth noting that most respondents are based in the Eurozone and surrounding countries. CFOs with operations based in Asia and parts of Eastern Europe said that they expected positive growth to continue.Slow growth is a concern across all industry sectors and is linked to the destabilisation of the Eurozone.  The uncertainty caused by this situation increases the need for effective risk management and supply chain strategy.Supply ChainWhen asked which aspect of supply risk they were most concerned about finance professionals highlighted price risk and volatility, followed by reputation risk and security of supply.Price Risk and Volatility2011 saw several commodities reach record levels in the early part of the year before dropping sharply in the latter half. The Economist dollar all-items index, which excludes oil and precious metals, ended the year at its lowest level since September 2010 and 23 per cent off its peak in February 2011. Bumper harvests in cereals, sugars and oils, coupled with falling demand, led to a drop in food prices (the food-price index fell by around 15 per cent from its 2011 high). The prices of industrial raw materials, meanwhile, suffered because of concerns about the debt crisis in the euro area.Reputation RiskDespite many companies having stringent procedures in place to manage their own reputations, few have similar programmes aimed at their suppliers. Corporate responsibility, child labour, bribery and environmental compliance regulations are all areas which businesses need to consider when selecting suppliers. Reputation risk can be managed through supplier surveys, which are carried out to identify high risk suppliers. Supplier management programmes can also be put in place to further minimise potential risks.Security of SupplyThe global nature of today’s business environment means supply chains often span across various sectors, this reduces supplier visibility and consequently increases hidden risks. Supply risk can range from the breakdown of supply chains to supplier failure. Facing the Challenges of 2012
Limited opportunities and economic turbulence have put finance leaders in a unique position within their organisations where they are expected to provide both stability and growth. In this context reducing expenditure is an essential part of any successful company’s 2012 strategy. The current climate does not favour sales growth, but does open up new opportunities for CFOs to examine operating costs. Several respondents highlighted the need for businesses to strike a balance between cost reduction and innovation. Kodak is an example of the potential danger of resting on your laurels and not innovating in a harsh environment. By failing to embrace digital technology and adapt to the changing market place, Kodak went into administration. Companies such as Apple have shown that constant innovation is an effective way to stay ahead of the competition in an increasingly crowded market.Areas to focus on in 2012Organisational change and procurement were cited as the main opportunities for companies to cut costs in 2012. With most CFOs worried about growth opportunities and economic stability, effective procurement will prove a key driver of growth in 2012.  When asked if they believed additional savings could be made through procurement, 81 per cent of respondents said yes. An additional 65 per cent identified supply chain and logistics as an area which would allow for effective cost reduction.Looking AheadThe current economic climate has seen companies turn to their CFOs and finance leaders to drive business growth. In this context it is difficult to understate the importance of effective cost transformation and supply chain management.The Key Implications:1. A difficult economic climate and low growth predictions have reinforced the need for effective cost saving initiatives to drive growth.2. A globalised supply chain means globalised risk. Businesses must choose their suppliers carefully and put in place effective contingency plans.3. Finance leaders are playing an increasingly pivotal role in the success of their companies.

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