Business Pulse

the Top 10 risks and opportunities in 2013:
the CFO perspective

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Our Business Pulse report identified and explored the top 10 risks and opportunities facing companies around the world.

Top 10 list of risks
and opportunities

EY - Top 10 list of risks and opportunities

We surveyed 641 senior executives from more than 20 countries and across a wide range of sectors. Survey respondents ranked risks and opportunities in terms of the importance for their business.

We have presented a snapshot of the current top 10 risks and opportunities for global businesses as radar. At the center of the radar are the risks and opportunities that our survey respondents felt were having the biggest impact on major organizations worldwide. Arrows indicate the extent to which the ranking is expected to increase, decrease or remain the same between 2013 and 2015.

Implications for CFOs

A "new normal" of low growth and pronounced volatility is intensifying pricing pressure.

Most CFOs now accept that the duration of the downturn is uncertain. In developed markets, there is little or no organic growth expected. Profits everywhere are under pressure, and further squeezed by the strength of both low-cost competition and online rivals, which have made brand-driven price premiums hard to sustain.

Alongside this, high wages and input costs, as well as significant new regulatory burdens on various sectors, mean that the pressure on pricing will affect profit unless companies take firm action.

In addition, volatility is now a fact of business life. Commodity price volatility has been particularly acute, but the worst might now be behind us. Instability in currency pricing and interest rates remain a key risk. This ongoing volatility affects pricing power, and means that CFOs must work extremely hard to consider how changes to underlying assumptions might affect overall profitability.

Pricing pressure demands further rounds of cost cutting

Five years into the global economic crisis, CFOs and their business colleagues have already implemented the most obvious cost cutting measures. That poses a critical risk because companies have already made the quick wins that were available to them and so they face the need to make deeper cuts, while protecting company performance.

Yet improving efficiency has become essential to surviving intensifying competition. The traditional response to downward pricing pressure includes more frequent and aggressive price cuts in response to current pricing trends and competitor analysis. The need for a flexible cost structure, price regime and business model capable of operating profitably in a constantly changing world is now imperative.

Equally, the payoff for making the right decisions is worth it: we estimate that a 1% reduction in costs, achieved through a sophisticated procurement strategy, is equivalent to a 10% increase in sales. Over the next two years, CFOs of high-performing companies must ensure that they know the difference between eliminating waste and simply cutting costs.

Optimization of the operating model offers significant new opportunities

For CFOs trying to balance the desire for cost competitiveness in key markets, as well as growth in new markets, rethinking the cost and location of operations from a global perspective can deliver a range of opportunities. The geographical dispersion of manufacturing, along with other activities such as call centers, is not new. However, what is now emerging is the ability to move a range of functions — such as IT, marketing, finance and R&D — to wherever is most cost-effective.

CFOs at the world's biggest global companies are now exploring with their business colleagues how their company can combine back-office processes into specialist multifunctional shared service centers.

The need for operational agility has become greater than ever

In most cases, companies have already tried the simplest solutions to the operational challenges arising from a difficult economy. However, CFOs are still struggling with profit pressures and skill shortages, as well as a limited ability to invest.

That makes operational agility crucial to surviving today's volatile business environment. In particular, many companies see room for improvement in bolstering productivity. So too is the need to make sure that decisions reached at the top are actually implemented on the ground.

Companies must juggle a growing number of stakeholder relationships.

Post-crisis, CFOs must engage with a wider range of stakeholders than shareholders alone. Regulation and compliance remain a key concern. Government is playing an increasing role in business, especially in rapid-growth markets, and in sectors such as financial services, pharmaceuticals, and power and utilities. Companies must also be prepared to engage with other stakeholders, including nongovernmental organizations, consumers and the media.

Despite this broadening requirement, good investor relations remain critical to the CFO's stakeholder management agenda. Excellence in investor relations remains a key opportunity, with companies increasingly aware that they must keep investors informed of broader issues such as the environment, as well as strategy and results. Full disclosure will reassure investors that the firm is aware of the possible risks, and can manage them. It will also help them attract investment in a highly competitive and sometimes funding-constrained world.


Top 10 list of risks and opportunities

EY - Top 10 list of risks and opportunities