How finance leaders and boards can fuel resiliency

How finance leaders and boards can fuel resiliency

There are fundamental ways to build resilience into your organization and capitalize on opportunities that lay ahead.

In brief
  • Gen Z is having an outsized influence as employees and consumers, requiring forward-thinking companies to be more intentional, transparent and sustainable.
  • EY research shows that cash management is strongly correlated with an ability to avoid economic headwinds or recover from them more rapidly and effectively.
  • CFOs face paradoxes that tear them in different directions; opportunities to learn and grow will position their companies for success.

Today’s business environment is testing companies on a number of fronts: persistently elevated inflation, historically high supply chain strain, continuing employee turnover and other internal cost pressures. Resiliency is the solution. Or as Charles Darwin put it: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

In a June 2023 webcast, we discussed three topics that are crucial for resiliency — and extremely relevant to finance leaders and boards. Guided by new research, EY leaders revealed how societal changes drive business transformation, how to enable operational adaptability through cash management and how CFOs guide their organizations confidently into the future. Here’s what we learned.

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Generational shifts: the catalyst for reimagining the business

A generation is a group of people that form a kinship through shared events that shape the society they grew up in and forms the societal norms that shape their values, behaviors and beliefs. While all generations are important and each brings their own unique value to the world and to the workforce, societal change is mostly driven by the youth. Right now, that is Gen Z, and they will be crucial to understand to proactively prepare for oncoming shifts that will reshape customer and employee experiences, says Marcie Merriman, EY Americas Cultural Insights & Customer Strategy Leader.

“Gen Z is just 17% of the world’s population, but they’re outpunching their weight in influence,” Merriman says. “They can act as a beacon, helping companies understand what consumers and employees of all ages will come to expect.”

Five generational themes are emerging for Gen Z — and will shape many aspects of the business landscape going forward, from digital transformation to environmental, social and governance (ESG) topics:

  1. Ubiquitous technology. Gen Z members are true natives who have never known a world without instant access to information. How well does your workplace accommodate them? In our research, 70% of Gen Z members said they’d switch jobs for one that gave them the tools and resources to be more productive.
  2. Health matters. They are acutely aware of the impact of stress and anxiety, and they want to address it. That’s fueling a rise in platforms addressing mental health, as well as discussions in workplaces around empathetic leadership and the types of benefits offered.
  3. Inclusivity and transparency. For this generation of skeptics, authentic connections and transparency are critical attributes. In our research, 92% said authenticity is important, and they want it as consumers and employees. Companies must match this with transparency.
  4. Intentional consumers and employees. Gen Z is financially pragmatic and will push businesses to be more ethical and sustainable. “They’re rethinking how they use their time and what their values are,” Merriman says. “Not how much they make or the size of their house but the quality of their lives and the impact they can have on the world.”
  5. Multiple economic pathways. Earlier generations may have viewed having a second job as a sense of failure. But, eager to question established models, Gen Z sees maintaining multiple sources of income as a way to get ahead and hedge their bets amid uncertainty. Organizations that help enable them and their changing needs related to this shift will win.
Sources: EY 2021 Gen Z Segmentation Study; EY 2022 Gen Z Success and Work Study; EY analysis.

Cash management as a driver for operational resilience

Understanding generations is critical for building resilience into strategies targeting recruits, consumers and growth — all of which typically require investment. The turbulence in today’s business landscape highlights the need for effective cash management, says Peter Kingma, EY Americas Working Capital Consulting Services Leader.

Kingma cited a proprietary EY resiliency index that examined about 5,000 global companies finding the correlation between healthy cash management and metrics like total shareholder return. Those businesses that have a strong cash position relative to their peers are 21% more likely to prevent downturns in the first place due to the indirect benefits of a cash-conscious culture. And when disruptions do occur and value is declining, they are 25% more likely to respond faster than their peers and 2% more likely overall to recover in a better position.

“Industry leaders in both cash management and resiliency successfully link core business operations to financial performance through investment, data and culture,” Kingma says. “There are winners coming out of this economy, and the nuance here is to determine where you are relative to peers and your sector in cash management, then identify and pick opportunities to improve relative to your position.”

Such opportunities include:

  • Establish a cash leadership office. This will ensure that liquidity and operational efficiency are routinely monitored, improved and sustained. You may be surprised how few people in an organization understand the impact of their decisions on balance sheets — for instance, a salesperson who agrees to certain service levels. As a senior leader, are you aware of all the decision rights?
  • Don’t let a crisis go to waste. If you’re in a strong capital and cash position, you’ve got a better chance to take market share during an economic downturn. It’s incumbent upon finance executives to provide the data view that can facilitate informed trade-offs.
  • Ask the tough questions. Challenge company leaders to pursue self-disruption to compete and thrive. Explore different options for meeting strategic goals in today’s choppy markets. Boards should be thinking about these topics, as well as helping to drive scenario planning.
  • Engage your talent. Connect talent needs to long-term strategic objectives amid cost management challenges.
Source: EY-Parthenon analysis.

Risks and opportunities for the CFO and the finance function

The cash management discussion highlights the need for finance data for impactful decision-making. This is one of several components of the CFO role, which is continually evolving, says Dana Bober, EY Americas Financial Accounting Advisory Services Leader. In a poll, webcast participants showed the delicate balance of priorities.

Cfo pressing issues poll

Bober discussed three areas that CFOs are prioritizing, as revealed in recent research and early insights from our 2023 DNA of the CFO survey:

  • Demonstrating sustainable value through ESG and nonfinancial reporting
  • Leveraging investments in data and technology to drive value
  • Driving cultural change, employee engagement and re-skilling for the digital journey

Our research reflects some inherent paradoxes that CFOs face:

  1. Balancing short- and long-term priorities. In the 2022 EY Global Corporate Reporting and Institutional Investor Survey, 78% of investors surveyed think companies should make investments that address ESG issues even if that decision reduces profits in the short term. But 50% of finance leaders surveyed say they face short-term earnings pressure from investors, which impedes their longer-term investments in sustainability. This duality exists within technology as well. Building alignment and exerting influence over decision-making is critical to achieving success amid these tensions.
  2. Adding value — without a transformation? In our survey, 85% of finance leaders surveyed admit that they don’t currently have a “best-in-class” finance function, yet only 14% plan to pursue a bold transformation. While fewer finance leaders are pursuing a bold transformation agenda, those that focus on driving value are embracing different priorities and new technologies and creating a potential roadmap for ambitious finance transformation.
  3. Acquiring broader, nontechnical skills. Traditional finance skills alone don’t equip leaders with all the attributes needed for the CFO role today. Driving leadership development pays off, which includes gaining exposure to other functions and focusing on people-related issues like emotional intelligence. It allows for the finance function to fulfill its strategic remit, provides the ability for CFOs to achieve their career ambitions and at the same time develops the next generation of CFOs.
Sources: 2022 EY Corporate Reporting and Institutional Investor Survey; 2023 EY DNA of the CFO Surve

Summary 

Within finance, there can be a tenuous balance between proactively positioning companies for the long term and reacting to short-term needs. Resiliency provides a solid foundation for that balance while increasing investor confidence.

To listen to the entire broadcast, click here.

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