How the coronavirus pandemic turns the spotlight on CFOs

The coronavirus pandemic has caught the business world off guard. Corporate leaders in Switzerland had not foreseen a shock that could have such a significant and visible impact on their businesses. Within a short time, they had to adjust their outlook to the new, difficult reality: one of the worst global crises in history. Previously high-performing businesses now faced an existential threat in which survival or bankruptcy was in play. For this reason, many companies announced drastic measures to fight the economic implications of the coronavirus pandemic – a fight that continues despite the recent announcements that effective vaccines are now available.

Cutting costs due to the pandemic

In response to the pandemic most companies in Switzerland have planned or implemented already additional cost-cutting measures. Deloitte’s most recent CFO survey shows that 70 per cent of CFOs stated that their business has set new cost reduction goals. Among the most frequently cited measures, CFOs mentioned cuts in discretionary spending (including travel, meetings, and marketing), reductions in accumulated overtime and holiday balances, and introduction of short-time working. The choice of those measures is not surprising as companies can implement them relatively quickly. However, other measures include some more far-reaching ones, such as deferring the payment of bills. Especially this measure shows just how severe the consequences of the coronavirus pandemic are for some companies.

In general, businesses and their CFOs can make decisions about two kinds of costs: the costs of running the business and the costs of changing the business. While the first kind refers to the smooth operation of a business and maintaining its existence in the short term, the second kind relates to developing the business so that it survives in the long term. In recent decades, challenges such as technological change, globalisation, and responding to crises (e.g., the financial crisis), have disproportionately increased the amounts spent by corporates on changing the business. Typically, this involves large, capital-intensive investments and CFOs have struggled to justify their decisions and demonstrate the effectiveness of their spending on this cost type.

Turning the spotlight on CFOs

The coronavirus pandemic has further accelerated this trend. We see CFOs planning to spend more on changing the business than they have ever done before. As Deloitte’s CFO survey has shown, the measures that Swiss CFOs have taken so far fall primarily into the category of running the business (for example, cuts to discretionary spending). However, measures related to changing the business are mostly outstanding or only partially implemented. For instance, some Swiss companies are contemplating large investments in IT as part of their digital transformation or changes to their real estate footprint.

The cost reduction agenda has turned the spotlight firmly on CFOs and a need to make transparent decisions with clear accountability. CFOs have to make choices with respect to the following three questions:

1. What is the business case? CFOs need to identify all potential measures and prioritise the ones with the highest value and likelihood of success. 
2. Do certain measures disrupt other programmes? CFOs have to take into account the consequences of each cost measure on the business as a whole and its capital flows. This aspect is crucial as capital (re-)allocation can drive or hamper value creation in the future. 
3. How does the company implement the measures? CFOs need to closely monitor the implementation of the measures and determine if intervention is needed where value is not being realised quickly enough.

Refine scenario models, explore alternative outcomes, and shift quickly toward re-growth

The crisis is likely to trigger a series of questions for business leaders: How much more will the crisis impact our business? When will the vaccine against COVID-19 be available on a large scale? What are the long-term implications on the Swiss economy and global markets? The answers to these open questions will directly affect CFOs’ scope and the length of time that strict cost management must remain in place, making it a moving target. CFOs may be obliged to explore more extreme measures in order to survive.

Sustained cost management measures are a tool that can help organisations survive crises. However, they can also have a demoralising effect on the workforce and therefore CFOs should avoid multiple phases of cost cutting. Effective CFOs will seek to refine their scenario models, explore alternative outcomes on a continuous basis and be willing to shift quickly toward a re-growth strategy when the time comes. The announcement of a vaccine offers cautious hope that many businesses will be able to transition to a new phase of business oriented towards recovery and growth. Successful CFOs will be quick to react to these early signals by changing the measures they have in place and setting new performance targets.