EY Center for Executive Leadership CFO Roundtable – April 2022

More than 50% of the CFOS said they evaluate and quantify benefits of digital investments through KPIs and with rigor, but only a few formally measure a return on digital investment.

Driving returns on digital investment

To that end, CFOs continue to play an important role in driving the return on digital investments. Both digital leaders said one of the most important things a CFO can do is to create oxygen for investments and secure the support of the C-Suite for digital projects.  In addition, digital investments are moving from capital expenditure to operational expenses and CFOs can provide greater cost visibility on this transition to the C-suite and impact on key metrics, such as Earnings Per Share.

CFOs also need to help others on the C-suite understand that digital investments have a different investment horizon. George said that some leadership teams still have the mindset that they want to “see a fixed result, at a fixed date and at a fixed cost. That’s very hard when you are  trying to mix certainty with going fast, what’s important is to establish a trade-off, do I need to be more agile and quick versus spend a certain amount.”

Added Pat Grismer, EY CFO in Residence, said, “investments in technology sometimes require a leap of faith. Management teams and board members view rich digital platforms as table stakes and there is less of a need to build an explicit business case,” he said. To that end, companies need to consider the long-term view that, if done properly, a digital investment will result in increased revenue and reduced cost.

CFOs should be curious about digital

Tabah also said CFOs need to be curious about digital projects. “I want curiosity from my CFO on what transformation means and on what digital means. They don’t have to be an expert, but I want them to be dangerous enough to ask the right questions to understand what the transformation will mean for the organization.” In fact, Tabah said may want to add consider adding the title chief future officer as well.  

George added that CFOs need to work with the digital team to establish a strong data foundation that will provide executives with accurate information that reflects “the ground truth,” not something that’s been massaged for a power point presentation. 

Geopolitical uncertainty

After the discussion on digital investments, EY Chief Economist Greg Daco talked about the implications the war in Ukraine will have on the global economy. The executives were split on which scenario they believe to be more likely: either a negotiated stand-down or Cold War II. Either scenario, however, would result in a stalemate that would lead to continued economic uncertainty and further strain global supply chains that had just begun to emerge from the disruption of the COVID-19 pandemic. 

Inflationary and macroeconomic outlook

Combined with the inflationary forces already in motion, the executives said they expect inflation to continue through the year.  CFOs discussed that some sectors may see continue inflationary pressures in the second half of the year, driving by continue economic momentum. While some believed that higher inflation would continue, others noted that they thought the worst was over. Unlike in past years, Daco also said that the central banks in the US and Europe would act in concert to against inflation this year. This would likely result in higher interest rates, though it was still too early to determine the long-term impact on inflation. When planning budgets for 2023, more than 50% said they expected inflation to run between 4-5%.

CFO views on recession

The CFOs also briefly touched on the likelihood of recession.  70% of them believe the probability of a recession in the next 12 months is 50% or more, while only less than 10% said they considered the risk of a recession to be less than 20%.

A new era of globalization

Some of the executives also wondered about the future of globalization, specifically, the role global supply chains play in many existing corporate operating models. Daco noted that the trend toward rethinking existing supply chains started during the pandemic and is now being exacerbated by the events in Europe.

To that end, the financial executives believe more companies will try build in greater resilience in supply chains, balancing out cost by moving production to the original country or moving the supply chain closer to the final consumer. “We’re moving from just in time, to just in case,” he said.  This new era of supply chain resilience will likely emphasize creating closer ties with stronger, more trusted partners.