Finance executives are increasingly taking a defensive posture that has them eyeing cost cuts and greater efficiencies—in their own departments as well as their companies as a whole—while demoting growth as a priority, a new U.S. Bank report finds.
The U.S. Bank survey of more than 1,400 senior finance leaders (about 60% of whom work at firms with less than $1 billion in revenue) was conducted this spring as the economic picture was broadly bright, with growth accelerating and the job market staying on a roll. But, said U.S. Bank Senior Executive Vice President and Head of Global Markets and Specialized Finance Stephen Philipson, it’s clear CFOs and their lieutenants were looking well beyond those cozy conditions.
“There are clearly concerns about where revenue growth is going to come from,” Philipson said. “So you get a focus on expenses.”
Executives’ shift into what the U.S. Bank team calls “defense mode” is evident in their top priorities for what remains of 2023 as well as 2024: Cutting costs and improving risk identification and mitigation account for three of the top four categories, with deploying technology in the finance function nestling between them. Those four categories were the only ones named by at least 30% of finance leaders as a priority; no other category was named by more than 23%.
It’s clear the focus for the coming quarters is inward: Mergers, acquisitions and partnerships ranked 10th on the list of priorities whereas it was fifth two years ago while those saying that revenue growth is a priority ticked up to 23% of respondents. (Two years ago, the latter figure was 35%.) One possible contributor to this shift: Executives are even more concerned than last year about their top risks—talent shortage, the pace of technological change and high inflation—but also have grown less confident in their abilities to balance cost-cutting with growth investments. Philipson raised companies’ diminishing ability to push through price increases as one driver of that anxiety.
But, Philipson added, these attitudes may also reflect the work companies have in recent years put into their supply chains and sales teams; there’s a case to be made that many of those efforts are paying off, and now is the time to turn inward and score some small wins.
Industrial products and manufacturing leaders responding to U.S. Bank’s researchers broadly mirrored the wider group, although they were significantly more cautious about interest-rate risk—30% named that a top risk versus 23% of the 1,400-plus total—as well as regulatory changes (32% versus 25%).
The main findings from the U.S. Bank study build on the caution that was surfacing from the bank’s report a year ago after the Federal Reserve had begun to lift interest rates. Then, executives were shifting more of their attention to managing risk and expenses and de-emphasizing growth. Twelve months on, economic growth has been stronger than expected in the fall of 2022 but the cost of credit has risen higher still and the effects of the Fed’s early hikes are becoming more apparent with consumers and businesses.
Other recent surveys have shown CFOs to be more positive in their outlook: A Grant Thornton report from August said companies, buoyed by rising confidence, were ‘doggedly’ investing in growth initiatives while Deloitte’s latest CFO Signals report showed a significant bump in optimism about the prospects for businesses and the broader economy.
Nor is capital spending drying up: Respondents to Deloitte’s poll said their Q3 capex was on track to top last year’s by an average of 6.2% and a new study jointly run by Duke University's Fuqua School of Business and the Federal Reserve banks of Richmond and Atlanta showed more CFOs are planning to invest in land, buildings or equipment than six months ago. However, Philipson noted that capex is often a lagging indicator and that he expects more companies to pull back on spending as they turn their focus inward.
Among the other takeaways from the new U.S. Bank report include:
- Technology is both a source of optimism and frustration. Investing in artificial intelligence, analytics and cloud services is seen as the best way to generate cost savings but reluctance/resistance to change and the absence of a broader strategy are frequent hangups. “There’s a table-stakes aspect to investing in AI and other technologies,” Philipson said. “You have to commit some capital but, yes, there will be misses.”
- Layoffs are not a serious option for more than four out of five finance leaders. While 40% of survey respondents two years ago said they were thinking of cutting staff, only 19% of them are considering that option this fall.