7 minute read 29 Dec 2023
Holding a crystal ball through colorful background

How top CFOs see 2024 unfolding and what they’re doing about GenAI

By Juan Uro

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Experienced strategy, transaction and transformation advisor and operator. Board member. Husband, father of two.

Local contact

EY Finland, Consulting, Partner

Niko leads Global Business Services in Nordics and Finance Consulting in Finland.

7 minute read 29 Dec 2023
Related topics CFO agenda AI

Finance executives remain vigilant, keeping a close eye on interest rates and inflation, while also exploring generative AI applications.

In brief

  • In an EY roundtable, CFOs overwhelmingly show caution and prudence (but not pessimism) about 2024, while awaiting clarity on interest rates and inflation.
  • All CFOs are doing something about generative AI. As you test GenAI use cases, don’t overlook how processes and systems are reinvented to maximize impact.

Amid persistent concerns about inflation and interest rates, CFOs suddenly saw a new priority appear on the C-suite agenda over the past six months: generative AI (GenAI). As they steer their organizations through an uncertain growth outlook in 2024, how can leaders also help prioritize and guide AI projects so that they deliver ROI, whether throughout an organization or within finance?

Questions about the future of the global economy, inflation, interest rates and emerging technology were on the minds of the more than 20 Fortune 250 CFOs who gathered in October. They traded ideas among themselves and with Gregory Daco, EY-Parthenon Chief Economist; Karim Lakhani, professor at Harvard Business School and Chair of The Data, Digital and Design (D^3) Institute at Harvard; and Dan Diasio, EY Global AI Consulting Leader. These CFOs — representing about $2 trillion in revenue altogether — are overwhelmingly approaching the current environment neutrally, while just 7% felt bearish or bullish. Six months ago, only half of them were neutral while 38% of CFOs said they were making targeted cutbacks and 15% were slowing down investments.
 

Which labor and investment are you likely to take in 2024?

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    When asked which labor and investment decisions they were likely to take in 2024, 86% of CFOs said they are neutral, with strategic right-sizing decisions on labor and investments. Just 7% said they were bearish or bullish.

This roundtable was hosted by Julie Boland, EY US Chair and Managing Partner and EY Americas Managing Partner; and Juan Uro, Americas Leader for the EY Center for Executive Leadership. “Our clients are trying to figure out how to jump on the AI bandwagon and streamline their operations at the front or back end, and we’re doing the same,” Boland said, in taking the pulse of companies she’s spoken with. Here is what’s on the mind of today’s leading CFOs.

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Chapter 1

Economy: the end of ‘free money’?

CFOs see inflation reducing but interest rates remain above typical levels in recent history.

In the US, the long-predicted recession has never materialized, with third-quarter growth expected to be strong, Daco said. However, consumer spending is slowing, and student debt payments are restarting amid autoworker strikes and rising energy prices. So while Daco predicts moderating growth through the beginning of 2024, he foresees a gradual reacceleration for the rest of the year.

“We’re looking at a slower first half in 2024,” said a CFO of a home improvement company. A CFO of a global retailer added: “I think there’s a lot of uncertainty about what’s coming ahead in Q1 with consumers experiencing more pressure on share of wallet.” Another said: “The opportunities in 2024 are more margin expansion and looking at improved processes and efficiencies rather than growth.”

“Looking to 2024, we’ll normalize to the mid-single digits,” added a CFO of a major airline. “In the last 90 days, the lower-end consumer has softened.” The CFO of a major financial institution noted a similar trend: “We’re seeing spend per customer slowing at the lower end. They’ve depleted excess savings from the pandemic. We’re starting to see higher revolve rates on the credit side.”

Daco pointed out that this environment is showing different outlooks across sectors, with some sectors seeing a more positive outlook in 2024. One CFO of a major health care company said, “Overall, we’ve seen good utilization trends in the health care market and unlike a lot of businesses, ours is just not driven by macroeconomics.”

Behind these outlooks are two related variables — inflation and interest rates — and the resulting “pricing fatigue” from consumers, affirmed by CFOs at financial services companies. “It is somewhat more difficult to take price today than a year ago,” another CFO noted. In their businesses, most CFOs are expecting moderating inflation and taking action in the face of higher lending costs.

In 2024, do you anticipate________?

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    When asked what they anticipated for 2024 in terms of inflation, 68% said that prices would increase at a slower pace than in 2023, and 26% said prices would be maintained around 2023 levels. Just 5% expect a more rapid pace.

In light of the increasing cost of debt, which of these actions you are undertaking?

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    When asked what they anticipated for 2024 in terms of inflation, 68% said that prices would increase at a slower pace than in 2023, and 26% said prices would be maintained around 2023 levels. Just 5% expect a more rapid pace.

Although energy prices are on the upswing again, Daco has seen disinflation momentum, aside from some of the stickier service sector categories. Getting back to 2% inflation by 2024 is still a possibility. “We’re still in an environment that is undersupplied on a number of fronts, like in real estate and labor,” he noted. “In manufacturing, in the broad set of conditions we’re facing, where supply is an issue, any marginal increase in demand creates upward pressure.” This outlook is supported by the collective views of CFOs in the room. While two-thirds expect higher prices in 2024, the pace of increase is expected to slow down compared against 2023, bringing down inflation rates.

The ultimate question now is when will the Fed cut rates? “We’re expecting that the Fed is done with tightening, but that does not mean that interest rates are coming down fast,” Daco said. “They took the elevator up and will likely take the escalator down.” His prediction: maybe 75 basis points (bps) in cuts for 2024, beginning in June, then 100 to 125 bps in 2025. “We’re not going to have long-term rates like they were before the pandemic,” he concluded.

“There’s no doubt that the speed at which interest rates increased has been harmful … but 5% rates aren’t that unusual historically,” a CFO of a major business service provider said. “Do we settle into something that looks like pre-2008?”

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Chapter 2

Generative AI: enabling experimentation and driving change

Intrigued by technology, CFOs are putting it to work in early use cases, leading impactful change.

The internet existed long before it had easy-to-use consumer-facing uses. Similarly, AI and machine learning are not new concepts — Lakhani notes that most organizations today have AI somewhere in their plumbing, developed over the past 20 years. But today, generative AI (GenAI) has exploded onto the scene to be just as transformational, through a simple interface that greatly reduces the learning curve for new users.

“My perspective is that the bigger barrier right now on adoption is that very smart people use it as search tool instead of as a thinking tool,” he said. “The worry I have with this tool is that we’ll all do chatbots and be happy with it, instead of thinking about them transformatively.”

All CFOs in the roundtable indicated they are doing something about GenAI, whether early experimentation or full implementation of capabilities. CFOs have been using the technology for detecting fraud, prepping for investor calls and gauging analyst sentiment, and recommending next best actions in customer journeys. “We started experimenting on mega-cases with productivity and revenue improvements,” one CFO said. “We’re trying to get our arms around how the supposed benefits are not arriving as quickly as anticipated.”

Where is your company on the Gen AI journey spectrum?

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    When asked about where they are in terms of operationalizing GenAI, over half say they have a number of experiences already under way, whereas 24% each said that they have advanced to defined projects and already implemented capabilities.

Lakhani and Diasio stressed that plugging GenAI into existing systems and processes likely will not deliver the optimum results. Lakhani likened it to the transition to the automobile: pouring asphalt onto horse paths is not the best way to build roads — cities needed to develop a grid plan. Diasio elaborated on that mindset with a real-world client example.

“One of our clients makes fashion accessories, and they have new releases every quarter,” he said. “The original ask was: how do you develop a system for a designer to ask for designs? It was a querying tool. Instead, after discussions, we helped develop a system that mines social media data to understand influencers and what’s trending, compared against the 34 characteristics of what this company produced. Then it enabled 3-D modeling and A/B testing. That’s a continuous process rather than every quarter.”

  • Lakhani and Diasio recommend:

    • Set up a control tower or a steering committee to direct where resources are allocated and be part of those discussions. It will take big bets to unlock value, and CFOs have an important role in that structure to ask where and how value will be created. Force the discussion to be focused on processes and people, not just technology.
    • Experiment with GenAI on your own. Many people have used this technology before and believe it will change their jobs dramatically within three years — yet they also don’t use it regularly. Make time for it to bend the learning curve in your favor.
    • Know that GenAI is popping up in just about every software package, raising governance concerns. “How do we use AI without losing our IP? How worried should we be?” asked a CFO of a major energy company. Consider building your own GenAI capability while scrutinizing the protections of out-of-the-box tools. The two can sit side by side with the right architecture, without being commingled.

Summary

CFOs in our roundtable remain focused on inflation and interest rates, without feeling overly negative or positive about the economy. While each sector is facing different implications, reaccelerating growth is expected in the second half of 2024, and higher interest rates are likely to persist. In the short term, generative AI holds tremendous promise for those companies willing to experiment and rethink processes. CFOs should lead the discussions on where and how value can be created.

About this article

By Juan Uro

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Experienced strategy, transaction and transformation advisor and operator. Board member. Husband, father of two.

Local contact

EY Finland, Consulting, Partner

Niko leads Global Business Services in Nordics and Finance Consulting in Finland.

Related topics CFO agenda AI