The CFO dilemma: between cost-cutting and growth strategies
The main dilemma for CFOs is how to balance the short and long-term goals of their organisation. Should they focus on developing their finance teams and future-proof them - or on reducing costs through hiring freezes and other cost-cutting measures?
On the one hand, there are requirements for cost control and financial stability, especially in difficult economic times. Short-term cost reductions may be necessary to ensure the survival of the company. Hiring freezes, budget cuts and the postponement of projects are often among those measures that quickly take effect.
On the other hand, CFOs know that long-term growth and the further development of the company are crucial in order to remain competitive. However, investing in innovation, digitalisation and talent requires resources that are difficult to justify in the current situation. These conflicting demands present CFOs with complex decisions that can often shape the success of the company in the coming years.
During the COVID-19 pandemic, many companies opted for drastic cost-cutting measures. Some industry leaders, on the other hand, took the opportunity to develop their teams and drive forward digital initiatives. These companies are now better positioned to benefit from the economic recovery (European Investment Bank (EIB) - Digitalisation in Europe 2021/2022).
Focusing on overarching goals: Short-term adjustments vs. long-term strategies
Economic turbulence often leads to a decline in certain business areas or to a general slump. However, successful companies have one thing in common: they do not lose sight of their long-term goals. Even if short-term measures are necessary, the focus remains on developing and growing the company sustainably.
CFOs need to identify those areas where short-term adjustments can be made without jeopardising the long-term course. This could mean temporarily reducing costs, for example by outsourcing certain activities or optimising existing processes. At the same time, it is crucial to invest in key areas such as digitalisation or talent management.
One example of this is the integration of ESG principles into the corporate strategy. Even if the focus is on cost efficiency in the short term, the integration of sustainability criteria can create long-term competitive advantages and make the company more resilient to external influences. However, the focus remains clear: growth and development take precedence over short-term cuts.
Risks of hiring freezes and cost reductions
A frequently chosen instrument for short-term cost reduction is the hiring freeze. For CFOs, this is often one of the first measures taken to ensure financial stability. However, not hiring new talent or cutting existing positions can have serious long-term consequences:
- Loss of expertise: Particularly in key areas such as financial analysis or strategic risk management, the lack of skilled labour can hinder innovation and growth.
- Increased workload for existing teams: Hiring freezes can lead to existing teams being overloaded with additional tasks. This overload can not only affect efficiency, but also jeopardise the quality of work and the ability to meet deadlines. A long-term backlog of unfinished tasks can weaken the company's competitiveness.
- Competitive disadvantages: While competitors continue to invest in talent and technology, your own company is at risk of being left behind.
Strategies for overcoming the dilemma
- Prioritise investments in key competencies: CFOs should invest in areas that have a direct impact on the company's competitiveness, such as data analysis, risk management and sustainability. Clear prioritisation helps to deploy limited resources effectively.
- Develop flexible cost management approaches: Instead of imposing blanket hiring freezes, CFOs can take more flexible approaches, such as temporarily reducing working hours or making targeted savings in non-strategic areas.
- Using technologies for optimisation: By using cloud technologies and advanced data analysis tools, CFOs can make more informed decisions and leverage efficiency potential.
- Communicate a clear vision: Employees and stakeholders need to understand how short-term measures are embedded in a long-term strategy. This transparency strengthens trust and motivation.
Sustainable corporate growth in volatile markets
Companies that want to survive in a dynamic market environment must continuously adapt and pursue clear growth approaches. Two strategies for sustainable growth in companies that have proven their worth in many industries are the integration of sustainability into the corporate strategy and the targeted expansion of digitalisation. These approaches not only offer solutions to current challenges, but also create a solid foundation for long-term success.
Sustainability as a core strategy
Companies that view sustainability as an integral part of their strategy not only secure ecological advantages, but also strengthen their position in the market. Ambitious targets for reducing emissions or promoting sustainable supply chains create trust among customers and partners. At the same time, they increase the company's attractiveness for top talent, who are increasingly looking for employers who are actively committed to social and environmental responsibility. Sustainability is therefore not only a duty, but also a strategic growth driver.
Digitalisation as a growth driver
Digitalisation is essential in order to remain competitive in a dynamic market environment. Investments in modern IT systems and data-driven processes create efficiency and enable faster adaptation to change. From globally harmonised supply chains to user-friendly e-commerce platforms, digitalisation offers potential to optimise operational processes and open up new business areas. Companies that invest in cloud-based technologies and advanced data analysis not only boost their efficiency, but also their ability to grow successfully in the long term.
Why good talent management is crucial for sustainable growth
Savings in talent management can have serious consequences, especially for companies with growth targets. Short-term cost-cutting measures are often unavoidable in order to ensure financial stability. However, those who make savings in the wrong places risk long-term disadvantages. Caution is required in the area of talent acquisition in particular: Highly qualified specialists are the basis for innovation, efficiency and competitiveness. If these talents are missing, it is not only operational performance that suffers, but also the company's ability to utilise new market opportunities or implement strategic initiatives. Savings should therefore be targeted and strategic - without jeopardising the future development of the company. The focus must be on smart investments in key areas that lay the foundations for sustainable growth. Strategic talent management is crucial, especially in turbulent times.
