Inflation and digitization: CFO priorities for 2023

Inflation and digitization top the list: finance leaders' priorities for 2023.

Nearly a quarter of finance departments say they are worried about 2023. The main culprit is inflation, which tops the list of risks to anticipate this year, according to the latest study by PwC, conducted in partnership with the DFCG. In this article, we offer a non-exhaustive summary of the priorities and risks CFOs have identified for 2023. 

One thing is certain: for another year, finance directors will need to hold their course and stay agile in the face of the "permanent crisis" we are living through.

As you already know, the current geopolitical situation and macroeconomic context are more than uncertain, making 2023 a year of very high uncertainty.

So much so that inflation has become the number one risk to watch for the CFOs surveyed in the annual PwC and DFCG survey. 

What risks have CFOs identified for 2023?

The PwC and DFCG study reveals three main risks to anticipate this year. The top 3 is almost identical for large groups and SMEs, except for third place. 

1. Inflation
2. The impact of the war in Ukraine
3. Cyber risks (large groups) and the talent shortage (mid-sized companies/SMEs)

As a reminder, in Belgium, inflation stood at 8.05% in January 2023, compared with 10.35% in December and 10.63% in November, according to the latest figures from Statbel.

In France, inflation hit a record 6.2% last November, eased slightly to 5.9% in December 2022, then rose again to 6% in January 2023, according to figures from the French National Institute of Statistics and Economic Studies (Insee). 

Uncertainty and rising risks are forcing finance departments to adapt their models to better manage profitability and improve their forecasting processes.

On top of that, many companies are facing labor shortages and struggling to recruit. 

Steering your company in a world in crisis: a how-to guide

To deal with these crises (economic, geopolitical and energy), finance departments have several cards to play. We sum them up here in three key points: keep inflation under control, invest in digitization and anticipate how your company's performance will evolve.  

1) How can you keep inflation under control? 

The first lever used to tackle inflation is, naturally, passing it on to selling prices (35% of respondents). Next come efficiency measures to offset or limit the impact on margins (31%). These are followed by pressure on suppliers (17%) and absorbing it in the margin (15%). 

One finance director interviewed for the PwC and DFCG study shared their experience: "The inflationary context has led us to return to stricter margin management: targeted price increases on specific contracts or markets, changes to recipes to manage raw material consumption, and more frequent financial reporting that focuses on what really matters".

2) 93% of CFOs plan to invest in digitization

Which technology levers are CFOs planning to invest in for 2023? Paperless processes come first (39%), followed by Data visualization & Analytics (27%) and robotic process automation (14%). The study also shows that "80% of large groups and 82% of mid-sized companies and SMEs plan to transform their finance departments over the next 3 years".

Technology will therefore play a leading role in meeting tomorrow's challenges and creating value.

We can only recommend adopting an automated dashboard, which offers many benefits: 

• up-to-date reporting at your fingertips, 
• more time to analyze your data and less time consolidating it manually,
• a drastically lower risk of errors that can lead to poor decisions.
  

3) Anticipate how your company's performance will evolve  

The uncertainty of recent years (Covid-19, the war in Ukraine) has heightened CFOs' need for agility and the need to work differently in an uncertain environment, particularly through scenario-based approaches and simulations. 

Yet 45% of the finance directors surveyed say they are unhappy with their forecasting and simulation processes and tools!

And yet highly effective tools exist that let finance directors anticipate how their company will evolve in the short, medium and long term. For example, the EMASPHERE automated reporting solution lets you prepare and publish your budget in a few clicks, review and update your forecasts throughout the year, and run scenarios based on key drivers. 

"The finance department has a role to play in assessing the profitability of organic and external growth, all the more so in this uncertain context that calls for different scenarios", says one CFO interviewed by PwC and DFCG.

CFO confidence is down in 2023

Another point raised by the study: finance directors' confidence is falling. Yet 2022, the first post-Covid-19 year, had seen a rebound in confidence among finance leaders.

That was before the war in Ukraine, which has now dragged on for many months, and its economic repercussions (energy crisis, raw material supply, etc.), which are generating uncertainty and rising risks. 

As a result, 2023 will be marked by a loss of confidence among finance directors, in both the short and medium term. 

We won't dwell here on other findings from the survey, such as "how to integrate CSR issues", but you can read the full study on the PwC website.