June 11, 2019
June 11, 2019
Contributor: Justin Lavelle
At Gartner CFO & Finance Executive Conference, Gartner expert Tim Raiswell explains how a CFOs cost management style can significantly impact shareholder returns.
While it’s true that CFOs can’t control all of their company’s cost structure, Gartner research shows that their behavior — the way they proactively approach cost allocation and management and remove activities that drag down earnings — can have a tangible impact on shareholder returns and contribute to sustained value-creating growth.
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“CFOs are operating in a challenging environment where costs have outpaced revenue since 2013,” said Tim Raiswell, Gartner VP Analyst, during the Gartner CFO & Finance Executive Conference in Washington, D.C. “The positive news is that CFOs have greater control of the situation than they might think, and choosing to eliminate negative cost management practices, while employing positive ones, can have a significant impact on the bottom line. This is exactly where we see the best CFOs distinguish themselves.”
Companies typically approach growth by focusing on one of three things:
Gartner research showed the average shareholder return among companies that employed a balanced approach was 7% higher than peers. But what role does the CFO play in effectively managing the cost piece of the balanced approach?
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It's not uncommon for CFOs to have a knee-jerk reaction to cost management when threats such as recession loom, but Gartner research showed widespread missteps in cost management — often resulting in resources being diverted away from smart growth plays. In fact, many of the companies studied by Gartner exhibited at least one cost mistake that negatively impacted company performance.
“When looking at cost management behaviors, CFOs can start from the maxim: ‘first do no harm,’” said Raiswell. “Unfortunately our data shows that 93% of CFOs are exhibiting cost management behaviors that actually harm their businesses. Identifying and correcting these behaviors should be a first-order priority.”
The three key cost mistakes are:
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“Insuring that finance initiatives don’t harm the business is a great place to start, but elite cost cutters use simple, repeatable strategies that reroute underperforming capital to the right projects,” said Raiswell. “The key differentiator we found when studying companies with the best long-term performance was a continuous effort to ensure that funding moved from losing to winning projects.”
Gartner identified three key positive cost management behaviors that directly contributed to healthy, long-term growth:
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Recommended resources for Gartner clients*:
Five Critical Cost Management Tactics for Finance Executives.
*Note that some documents may not be available to all Gartner clients.