Gartner CFO Survey Reveals That 62% of CFOs Plan SG&A Cuts This Year Due to Coronavirus Related Disruptions

15.4.2020

Kateřina Kubištová

CFOs Should Follow Four Cost-Cutting Tactics

A Gartner, Inc. survey of 317 CFOs and finance leaders on March 30, 2020* revealed that due to COVID-19 62% of respondents are planning some cuts to selling, general and administrative (SG&A) budgets in their organizations this year.The survey showed that 38% percent of finance leaders don’t anticipate any cuts this year while 18% are planning to cut budgets in every category by at least 10%. They report that marketing departments are the leading function to have their budget cut by 10% or more (See Figure 1).“Across-the-board cuts to every category of SG&A spend often turn out to be short-sighted,” said Dennis Gannon vice president, advisory for the Gartner Finance Practice. “For example, we see evidence that the coronavirus has prompted a permanent shift to more homeworking. This transition to large scale remote working puts additional strain on the IT department. Therefore, forcing the IT infrastructure group to bear the same cost reductions as another functional area could expose your organization to new risks or negatively affect business continuity.”

Figure 1: Which SG&A functions will likely have their budget cut by more than 10% in 2020?

Source: Gartner (April, 2020)

Gartner experts recommend CFOs follow four cost management tactics:

Think big

CFOs should consider more than simply reducing headcount or making across the board cuts. Gartner research shows that leading companies consolidate their products and services into 24% fewer lines of business, building on the foundation of a narrower industry footprint.“Where there is excess scope in their organization’s product or service portfolios, the hidden costs of complexity drag down profitability,” said Mr. Gannon. “The best CFOs will use COVID-19 as the catalyst to derive significant operating leverage from their most profitable lines of business without destroying value.”

Involve the businessHard choices and cost-cutting initiatives cannot be entirely led by the finance team. Business and functional leaders have greater understanding of their own departments and are therefore better positioned to identify the most effective cost-saving opportunities“To facilitate this, CFOs and their teams should assign a business leader to every significant cash-based cost item on the P&L,” said Mr. Gannon. “The business leader should then assemble operational, financial and process design expertise to develop and enact real cash savings strategies in their area.”

Establish new leading indicators

To anticipate the extent of the slowdown caused by COVID-19 and its impact on their organization, CFOs should continuously monitor economic indicators to identify changes in the business cycle.

“Link trends in external market and customer data to internal business performance and KPIs,” said Mr. Gannon. “The organizations that will come out of this crisis in leadership positions are those that quickly move resources to emerging areas of opportunity while competitors are still ducking for cover.”

Create a recurring headwind and tailwind cost report

Set up a recurring report for business leaders to capture performance headwinds and tailwinds by naming and quantifying the uncertainties in the external environment arising due to COVID-19. This will highlight the full financial implications of the pandemic and ensure a collective focus on the right indicators.

“CFOs should charge their forecast owners with producing this type of report,” said Mr. Gannon. “This will help ensure that they understand what external factors might impede or aid business performance and prepare accordingly.”

Gartner clients can read more in CFO Actions in Response to COVID-19: Week of 30 March 2020.

Non clients can read more here and find a selection of coronavirus-related resources here.

*About Gartner CFO Cohorts

In response to urgent CFO demand, Gartner Finance is holding weekly CFO cohorts as a forum for CFOs to discuss emerging COVID-19-related areas of concern and what actions they are taking or not taking. The findings in this release are from a poll of CFOs and their direct reports leading up to the second cohort, hosted Monday, March 30.

About the Gartner Finance Practice

The Gartner Finance practice helps senior finance executives meet their top priorities. Gartner offers a unique breadth and depth of content to support clients’ individual success and deliver on key initiatives that cut across finance functions to drive business impact. Learn more at //www.gartner.com/en/finance/finance-leaders.

About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities today and build the successful organizations of tomorrow.

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