Opinion: The power of the "and"

Eric Kutcher is a senior partner in McKinsey’s Technology, Media, and Telecommunications practice—which he led globally for five years—and has served as Chief Financial Officer since 2020.

If you asked 100 CFOs to describe the ideal macroenvironment for sustainable and inclusive growth, few would choose inflation, geopolitical uncertainty, and disruption all at the same time.

And yet, that’s where we are.

But you already know that. Here’s what you might not know: A small group of companies will thrive in spite of such challenging macro headwinds.

McKinsey’s previous research on these “resilients”—the companies that cultivate organizational resilience driven not only by crisis, but also by opportunity (or simply put, those who do well in spite of a downturn)—shows some organizations don’t just bounce back from disruption, they bounce forward. When the Great Recession’s downturn reached its trough in 2009, the earnings of resilients as measured by EBITDA had risen 10%, while industry peers had lost nearly 15%.

The most resilient companies field a defense and an offense: Resilient companies bolster their flexibility and safety net by streamlining their balance sheets before a downturn—allowing them to become 10% more acquisitive after a trough. They proactively reduce costs focusing on operational effectiveness by reducing costs of goods sold and by the first quarter of 2008, the most resilient companies had already cut operating costs by 1%, while their peers’ costs continued to rise.

Throughout the recession of 2007-2009, resilient companies consistently maintained and expanded their cost advantage. Conversely, resilients in countercyclical sectors prioritize growth, even at the expense of higher costs. In 2008, oil and gas, healthcare, and pharmaceuticals embraced relatively inelastic demand and over-delivered on revenue.

Disruption provides as many opportunities as it does challenges. As one CEO told us: “I don’t want to benchmark our performance to the industry—I want to reinvent the industry.”

Yes, and…

Capturing the opportunity of disruption requires the CFO to embrace the power of the “and” across many mandates: Playing offense and defense. Leading the finance function and partnering with the broader C-suite. Navigating short-term budget reallocation and investing in strategic bets for the future, like investments in sustainability. Being a strategic architect and an operational one.

For those undaunted by the challenge, this makes the CFO role more exciting. But we shouldn’t pretend it doesn’t make it more difficult.

These challenges come in different forms. Some may argue defense is a position the CFO is uniquely set up to play. After all, within an institution, the CFO is most directly tasked with thinking about resilience and taking tough actions. They have to say no sometimes, and force difficult action in the spirit of building the enduring institution.

As a senior partner and CFO at McKinsey, for instance, I and others had to navigate many difficult actions in the redesign of the operating model for our professional functions in order to more effectively scale with growing client demand.

Let me speak from experience: Having to say no can be unpopular. We should acknowledge that.

But we also get to say yes. While that does mean making difficult decisions, it also enables strategic decision-making that can build out internal capabilities so we can help clients build theirs.

For example, we’ve been able to complete more acquisitions in the last two years than in the firm’s 90-plus year history.

Additionally, through investments in Build by McKinsey, we are bringing together business and technology efforts to invest in our clients’ digital transformations and core tech modernizations. In one example, we partnered with a developing country, with 25% more mobile devices than people, to launch its first fully digital bank.

We have also taken steps out the gate in analyzing the potential of Generative AI by acquiring our own open-source data platform and combining that with our Cloud capabilities to help enable the acceleration of Generative AI at our clients (and ourselves).

For us, these efforts are critically important to building both our clients’ and our own resilience—and ensuring we can continue to deliver impact with our clients.

CFO, the architect

Building resilience also requires expanding your set of stakeholders. 

CFOs are increasingly serving as the organization’s strategic architect, as well as its operational architect, and partnering with other leaders in the C-suite, whether it’s with the CHRO on talent strategy, or the ESG leader on green investment, or the CTO on technology transformation.

For example, when I took on the CFO role a few years ago, I didn’t anticipate spending much time on McKinsey’s sustainability efforts. I was wrong.

With estimates showing that the global transition to net zero by 2050 would require spending on physical assets of about $275 trillion, it quickly became clear that the environmental challenge is synonymous with a financial one.

As of January 1, 2023, we introduced a global internal carbon fee on all air travel to accelerate decarbonization and generate funding for carbon reduction efforts. The fee allows us to continue investing in emerging sustainability technologies like carbon removal and sustainable aviation fuels and strengthens colleagues’ awareness of our environmental footprint and commitments. This was an example of how finance played a critical shaping and enabling role of our sustainability strategy.

So as CFO, I must ask myself how can we, as a firm, make an impact? What are the right investments for stakeholders and shareholders to achieve net zero?

CFOs can and should help their organizations create this kind of competitive distance and change their odds for success across the cycle.

That’s because with their holistic view of a company, CFOs are uniquely positioned to build bridges through cross functional initiatives that excite people. Along the way, they’ll also grow their own credibility as a leader who isn’t one dimensional.

In the best of times, the CFO plays an important role in changing an organization’s ability to beat the odds in business. In turbulent ones, that role becomes more important than ever.