CFOs are doubling down on people cuts due to the ongoing COVID-19 disruption. This is the key finding from a Gartner survey of 161 finance executives on May 3, 2020. The survey revealed that in May and June the number of companies furloughing staff, as well as cutting salaries and workforce will have more than doubled since the end of March. Some 11% of respondents reduced staff in March, and 25% plan to reduce staff in May and June.
“CFOs are unsure what reopening will look like and have little visibility into when revenue will start to normalise,” said Alexander Bant, practice vice president, research, for the Gartner Finance Practice. “This is driving CFOs to look for the next round of structural cost cuts to preserve cash for the coming months. Companies are conducting robust analysis about which of their business lines and products sets they will rescale, reinvest, return, reduce, and retire. As they do this, they are determining which sets of staff they need to succeed in the short-and-long-term.”
“CFOs want to optimise costs but still be able to come out fighting when restrictions are loosened,” added Bant. “Companies are being deliberate about rapidly reducing headcount in areas of the company they do not believe will return to normalised revenues anytime soon. They are protecting roles in parts of the organisation that will be necessary to meet a return of demand across the coming two quarters.”
RPA, cloud, and advanced analytics reprieved
An interesting anomaly to this picture of broad-based cuts was around specific technologies which CFOs believed may drive cost optimisation. The Gartner survey showed that 24% of finance executives anticipate more spending on robotic process automation (RPA), 20% anticipate more spending on cloud-based ERP technologies, and 19% anticipate more spending on advanced analytics.
“COVID-19 shifted the way work is done by most organisations overnight,” said Bant. “Companies are now operating in remote environments, with less staff to run key processes, and under immense cost pressure. This has resulted in companies moving more quickly to the cloud, applying more robotics to their processes, and exposing the need for advanced analytic technologies to plan effectively in this environment. Gartner research has shown well-implemented RPA, cloud ERP and data analytics have driven extensive cost benefits.”
Of the areas that had been cut back the most there were three clear favourites among CFOs to reintroduce once revenues return. Open hiring (49%) T&E (46%) and capex investments (41%) were the most common costs that CFOs indicated they intend to reintroduce.
“Conversely, we see several areas that CFOs tell us they will not bring back spend right away. Notably, real estate spend, sales reward trips, social media marketing and service provider contracts do not look like they will be making a rapid return to previous expenditure levels.” Bant concluded.
Worldwide IT spend down
Despite the positivity towards RPA, advanced analytics and cloud from CFOs, a separate Gartner survey of chief information officers (CIOs) shows that overall worldwide IT spending is projected to total US$3.4 trillion in 2020, representing a decline of 8% from 2019. The coronavirus pandemic and effects of the global economic recession are causing CIOs to prioritise spending on technology and services that are deemed “mission-critical” over initiatives aimed at growth or transformation.
“CIOs have moved into emergency cost optimisation which means that investments will be minimised and prioritised on operations that keep the business running, which will be the top priority for most organisations through 2020,” said John-David Lovelock, research vice president at Gartner. “Recovery will not follow previous patterns as the forces behind this recession will create both supply side and demand side shocks as the public health, social and commercial restrictions begin to lessen.”
All segments will experience a decline in 2020, with devices and data centre systems experiencing the largest drops in spending. However, as the COVID-19 pandemic continues to spur remote working, the cloud again shows some signs for optimism. Public cloud services (which falls into multiple categories in the Gartner research) will grow 19% in 2020. Cloud-based telephony and messaging and cloud-based conferencing will also see high levels of spending growing 8.9% and 24.3%, respectively.
“In 2020, some longer-term cloud-based transformational projects may be put on hiatus, but the overall cloud spending levels Gartner was projecting for 2023 and 2024 will now be showing up as early as 2022,” said Lovelock.
“IT spending recovery will be slow through 2020, with the hardest hit industries, such as entertainment, air transport and heavy industry, taking over three years to come back to 2019 IT spending levels,” Lovelock concluded. “Recovery requires a change in mindset for most organisations. There is no bouncing back. There needs to be a reset focused on moving forward.”
Like this item? Get our Weekly Update newsletter. Subscribe today