MID MARKET BANKING
How CFOs Can Solve The Inflation Puzzle
MID MARKET BANKING
How CFOs Can Solve The Inflation Puzzle
As concerns over the rise of economic inflation escalate, a stark reality emerges: There are legions of executives—even board members—who have never had to cope with persistent inflation. A rare environment of this kind presents a unique opportunity for leading CFOs to elevate scenario planning activities and other next-generation finance capabilities with the objective of contributing an enterprise-wide solution to a puzzling challenge with numerous moving pieces.
While it’s tempting to harken back to the 1970s and early 1980s for insights on responding to soaring prices, that would be a mistake. The current environment—and the role of the CFO—fundamentally differ from what they were four decades ago. The types of consumer demand shifts, supply chain disruptions, tight labor markets, demographic makeup and other factors driving inflation higher in today’s markets did not exist in 1982. Nor did a 100-year pandemic event with its various complications and aftereffects. These differences in the dynamic are contributing not only to inflation, but also to volatility and unpredictability.
Business moves at a much faster pace today given the global, interconnected and data-driven manner in which companies operate. Corporate finance groups have access to powerful systems, brilliant algorithms and vast pools of data to sharpen their forecasts and scenario planning. Finance leaders rely on these resources to shape corporate strategy around technology investments, supply chain resilience, talent management and even organizational culture, in addition to more traditional matters such as product costs and below-the-line expenses and the ability to absorb or pass those along to customers.
CFOs will need to deploy all of the next-generation approaches and tools in their quivers to address the multifaceted challenges that inflation poses to their organizations, regardless of industry. Examples of key challenges include:
CFOs should play a decisive role in addressing these and other challenges and how they affect their organization’s overall strategy and its interrelated enabling components, including product strategy, marketing strategy, human capital management strategy, and so on.
If the finance group, for example, forecasts that a product price increase ultimately could erode profit margins by 10-15%, should marketing investments be reduced by a similar amount, should the product pricing remain at current levels, should procurement revisit price negotiation strategies, or should a different lever or combination of levers be pulled?
Making these strategic determinations requires CFOs and their teams to lean on their data, predictive analytics and advanced technology tools to craft dynamic plans and contingencies that can be adapted to volatile economic swings while maintaining the organization’s overall strategy.
To equip their organizations to address the quandaries sparked by inflationary pressures, CFOs should:
The CFO’s role in the organization’s response to the current inflationary cycle and its resulting uncertainties boils down to communication, collaboration and—just as important—coordination. Finance groups possess the data, tools and expertise required to produce and analyze the data, indicators and information that combine to form an accurate picture of the risks inflation poses. As those scenarios and forecasts are generated and continually regenerated based on new, real-time inputs, finance should coordinate responses requiring behavioral shifts from leaders throughout the business.
It's time for CFOs to coordinate how all of the pieces of the organization’s inflation risks and responses should click into place. And they should accept nothing less than an effective, sustainable enterprise-wide solution.
This article was written by Jim DeLoach from Forbes and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.
The information above is provided as a convenience, without warranties of any kind and MUFG Union Bank, N.A. disclaims all warranties, express and implied, with respect to the information. You are solely responsible for determining what strategies your organization should utilize.
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