CFOs who succeed in driving long-term sustainable growth for their companies view critical business issues differently from their peers, enabling them to accelerate through times of uncertainty and further cement competitive advantage.
The best CFOs spend less time worrying about ‘seeing around the corner’ and more time focused on understanding the multiple corners
“In studying the track record of the most successful companies, we found that times of uncertainty often provided the platform for their long-term outperformance,” said Mark Wiedemer, Group Vice President, Gartner, during the opening keynote of Gartner CFO & Finance Executive Conference in Washington, D.C. “These companies had CFOs who viewed adversity as an opportunity to accelerate their growth plans, rather than hunker down in a defensive crouch.”
Gartner research has identified a rare breed of company able to achieve consistent growth, effectively manage costs and expand margins over a full economic cycle. Only 61 companies out of the S&P Global 1200 achieved this feat. These “efficient growth” companies rewarded shareholders with 7% more return than peers during this time.
“Why did some companies use adversity to accelerate performance, while the same exact challenge caused their peers to suffer?” said Wiedemer. “We found that the winning companies operate from a different playbook, driven in large part by how their CFOs view the economy and their own businesses.”
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Uncertainty as opportunity
The first key differentiator of CFOs from efficient growth companies is their willingness to use uncertainty as an opportunity to accelerate growth initiatives, rather than focus solely on defensive measures.
“The theme that caught our eye in distinguishing efficient growth companies from their peers was timing,” said Wiedemer. “The leading companies of today were not always superior performers. In fact, our data shows that their divergence from peers really began during and directly after the Great Recession. Some companies were able to accelerate during this challenging time, while most companies stalled or stumbled.”
Efficient growth CFOs instead look for opportunities to accelerate growth initiatives in the face of challenges
With conflicting signals driving economic uncertainty today, typical CFO responses are to enter “wait and see” mode or revert to classic defensive cost-cutting measures. Gartner research on cost management indicates that 70% of organizations today are undergoing some type of cost-cutting measure.
“The instinct to apply the brakes during times of uncertainty is natural, but is ultimately a foil to long-term success,” said Wiedemer. “Efficient growth CFOs instead look for opportunities to accelerate growth initiatives in the face of challenges, whether it is a looming recession, changing consumer behavior or a new competitive threat.”
Learn more: Achieve Efficient Grow
Rethink the business cycle
The second characteristic of CFOs who achieve efficient growth is their differentiated view of the business cycle. While most companies operate within a two-dimensional, “boom” or “bust” mentality, leading CFOs take a more nuanced view of the business cycle.
Efficient growth CFOs see the business cycle as consisting of four distinct phases: Stable growth, softening growth, transition to recession and trough, which is then followed by a new phase of stable growth. A second key insight is the recognition that different business units within a company may be experiencing different phases of the cycle at the same time. This different vantage point enables them to identify and plan for not just the next phase, but two phases ahead.
“The best CFOs spend less time worrying about ‘seeing around the corner’ and more time focused on understanding the multiple corners of their business,” said Wiedemer. “It’s no coincidence that we have found that the most personally effective CFOs spend more of their time connecting with their sales leaders and in conversation with their customers.”
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Focus on scale, not scope
The final mental model that these CFOs rely upon is how they view their own businesses. They understand that not all growth is created equal, and that the costs that enable healthy growth must be built into strategic plans and protected. The way they achieve this is by favoring scale over scope, which for efficient growth companies surfaces in three key areas of their business:
- Fewer industries: Compared to peers, efficient growth companies operate in 20% fewer industries within their portfolios. They identify the industries where they can maintain a knowledge, technology and competitive advantage, and then extend those advantages with more investment.
- Fewer business lines: Efficient growth companies have consolidated their businesses into 24% fewer lines of business. As they focus on fewer lines of business, they benefit from better operating leverage and use growth to drive down operating costs.
- More revenue from fewer geographies: These companies are also more intentional about where they do business. They derive 20% more revenue from their largest geography compared to peers, making smarter bets about the best geographies to acquire and protect customer relationships.
“CFOs see costs that enable scale-based plays as positive differentiators and unique opportunities,” said Wiedemer. “This approach enables them to reinforce competitive advantages over the long run.”