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Improvement in margins is expected in the current financial year
The Deloitte CFO Survey report highlights that in the next three years, revenue growth is the most important priority for the CFOs surveyed. Porus Doctor, Asia Pacific CFO Program Leader and Partner, Deloitte India, speaks with Urvi Shrivastav of BW Businessworld about the changing leadership pattern in today’s world, the role of technology, and the market sentiment in today’s leadership.
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The Deloitte CFO Survey report highlights industry-wide changes in the leadership perception across industries such as Financial Services, Life Sciences, etc. around economic growth. How are priorities on future resilience and growth changing? What are the major changes that can be seen in strategies adopted by CFOs?
As per the survey results, there is a divergence in the mood of the CFOs surveyed. Although 70% of the overall CFOs surveyed expect the economy to grow more than 5% in FY22, not all industries/sectors were confident of economic recovery. Economic uncertainty coupled with digital and supply chain disruptions were the key challenges identified by all the CFOs surveyed. CFOs from the Life Sciences and Health Care (LSHC) and Technology sectors have a positive outlook, but CFOs from sectors such as Telecommunications and Automotive were relatively pessimistic.
Unanimously CFOs surveyed across the sectors believe that revenue growth will be the top priority for the short term in FY22 along with the margin improvement. CFOs in industries like Financial Services and LSHC are more focused on digital transformation. Further, 47% of CFOs surveyed are now looking at M&A strategies to grow revenue. Acquisition of disruptive innovative assets to enter new growth markets has emerged as a key priority for 57% CFOs surveyed who have opted for an offensive M&A strategy.
An increasing number of CFOs are focusing on digital transformation of business, what impact is this likely going to have on other verticals in business such as new product development, etc?
Digital transformation is playing a vital role in accelerating growth, especially in the post-Covid-19 environment. Over the past few years, CFOs have consistently shown a keen interest in adopting digital technologies to spur growth. During the pandemic, this interest turned into a necessity when workplace disruption made remote working inevitable and altered market dynamics.
Our survey results indicated that the primary objective for adopting digital technologies in the finance function was to bring in efficiency in financial processes and significantly enhance the role of finance as business partners. 37% CFOs surveyed stated that upgrading technology for improving efficiency and performance for the finance team is their most important objective, whereas 30% CFOs surveyed opted for creating seamless reporting and business insights, and 27% CFOs surveyed said the business transformation was their primary objective. In the auto sector, 55% CFOs surveyed said that creating seamless reporting and business insights is the main objective of digital transformation. In the TMT industry, business transformation is the key reason for going digital, said 43% of the CFOs surveyed.
Further, the bedrock for drawing in-depth insights from analytics is the availability of high-quality data that resides within the organization. Finance systems contain a large volume of this data. 57% of the CFOs surveyed believe that the maximum return on investment came from advanced data analytics. The survey also finds that investments were being made in areas such as ERP up-gradation, migration to the cloud, and adoption of technologies in business operations and financial planning. Organizations need to ensure that they get the desired ROI on these investments, challenge the status quo, and think of newer and more agile ways of working.
During the survey, what are the key insights and findings that have transformed your own understanding of industry perception around economic growth?
As per the survey, economic uncertainty is high and 59% of the CFOs surveyed believe uncertainty will persist in the current financial year. However, CFOs surveyed are optimistic about the growth prospects of their companies. About 77% of the CFOs surveyed expect an increase in their company’s revenue. Improvement in margins is expected in the current financial year by almost 50% of the CFOs surveyed. This shows that they are prepared to handle uncertainty and look at new opportunities to help businesses grow. The uncertainty in the environment seems to be the new normal and companies are embracing it well and moving forward by focusing on digital and supply chain transformation to prepare for future growth.
What are the key priorities of CFOs as highlighted in the survey?
In the next three years, revenue growth is the most important priority for the CFOs surveyed, followed by margin improvement, digital/finance transformation, reduction in operating expenses, and supply chain transformation. Automotive, Consumer, LSHC, and TMT industry/sector CFOs have similar top five priorities. FS industry CFOs have M&A as their fifth priority instead of supply chain transformation, whereas, in the manufacturing and ENR industry/ sectors, CFOs believe an increase in CAPEX is the fourth most important priority alongside digital transformation.
In addition, we believe the following areas would require more focus from CFOs, viz. monitoring the liquidity situation and forex fluctuations; cyber security and data privacy as employees continue to work from home; ensuring agile sourcing as well as addressing new supplier risks and financial impact of duties and tariffs ; automating the process of drawing financial insights; and protecting revenue and market share in a disruptive business environment.