The functions of the Chief Financial Officer go beyond balancing the books and comparing inflows and outflows. Increasingly, the CFO has become a crucial partner in determining the direction of the firm, especially in terms of what it invests in and how soon it realizes returns.
Weaker economies, trade conflicts, forex fluctuations, evolving technologies. If you are a CFO, it’s likely you will fret about these challenges in 2020 – if you have not started already.
The International Monetary Fund (IMF) estimates that global growth would decelerate to 3.0 percent in 2019, the lowest since 2008–2009 at the height of the global financial crisis. According to IMF’s latest global economic outlook, the momentum in manufacturing activity has weakened substantially to levels not seen since the global financial crisis.
While global growth is expected to pick up to 3.4 percent in 2020 based on IMF’s forecast, downside risks remain such as the projected slowdown in China and the United States—the world’s two largest economies. Data show that China’s economic growth settled at 6 percent in the third quarter of 2019, the weakest pace in more than 27 years. In the US, results of a survey by the National Association for Business Economics predicted that real GDP growth would slow to 1.8 percent in 2020 from 2.3 percent in 2019.
A survey shows that nearly half or 48.6 percent of CFOs in the US expect the United States to enter recession by the end of 2019.
Conflict begets uncertainty
Rising trade conflict such as the one between the US and China and the United Kingdom’s exit from the European Union as well as geopolitical tensions such as the protests in Hong Kong are causing uncertainty in many economies.
CFOs are particularly nervous over the US-China trade negotiations which became a dominant issue in the global equities markets in 2019. The volatility in stock prices have restrained the capacity of companies to raise funds. It also affected business confidence and investment decisions that directly contribute to hiring activities or expansion plans of companies.
CFOs also need to address the fluctuation in the foreign exchange rate, the petroleum prices and the quick reversal in monetary policy in many countries such as the US and the EU. Interest rates determine the cost of money, while the currency movement directly affects imports and exports. Petroleum prices dictate the cost of transportation and logistics. Together, these could put pressures on the ability of companies to service their debt or adjust the salaries of their employees.
And then, there is tech
Remember Kodak, Nokia, Xerox, Blackberry Motion and movie-rental chain Blockbuster?
Apart from economic challenges mentioned above, CFOs now also look at evolving technologies that could make or unmake industries. Many companies or brands that had failed to adapt to changing technologies or moved too slowly to catch up with the competition went under overnight.
On the positive side, digital technologies could also help companies become more efficient and more competitive. CFOs who are always looking at managing costs now believe that digital technologies can help companies automate routine processes and back office functions. They can also provide companies better insights into different aspects of operations from human resources to supply chain to customer service.
Cloud technology, for one, can help companies reduce costs on hardware and facilities, not to mention print-and-paper expenses. Enterprise Resource Planning software, meanwhile, can help organizations streamline their operations and facilitate integrated functions that lead to overall efficiency. This also enables both managers and employees to become more analytical and innovative.
By considering the overall business environment and keeping up with the digital technologies, CFOs will be better equipped to help their companies become more competitive and efficient to the benefit of their shareholders and employees.