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Dead weight. It’s the thing you don’t want on a backpacking trip—or in the economy.
CFOs are simultaneously facing “tepid demand growth, stubbornly higher costs and constrained access to capital,” all of which make it “harder to sustain the corporate performance stakeholders have come to expect,” according to a recent Gartner report. Taken together, these pesky problems add up to a “deadweight economy,” the report’s authors argue.
While optimists have anticipated an economic soft landing, thanks in large part to monetary tightening and government spending, “many observe durable headwinds that suggest otherwise,” per the report.
“Growing economic optimism in advanced economies obscures an inconvenient truth: favourable conditions that have powered growth in the last decade are no longer present,” Randeep Rathindran, distinguished vice president of research in the Gartner Finance practice, said in a statement tied to the report.
This economic landscape puts immense pressure on organizations “by constraining traditional avenues for growth, pricing, investment funding, cost management, people management, and productivity gains,” he added. And there’s something else exacerbating the situation: Deadweight economic conditions “can be expected to linger through most, if not all, of organizations’ current strategic planning horizons,” Rathindran said.
So maybe this is worse than bringing a few extra T-shirts on a camping trip. By carrying around this “dead weight,” CFOs now face a host of new challenges if they’re going to achieve “profitable growth” and meet performance expectations, the report explained.
You’ve likely already noticed these challenges. For example, the report notes that growing price sensitivity is reducing “the viability of pass-through pricing as a way to neutralize the impact of cost pressures,” which makes it important for CFOs to reconsider existing pricing strategies.
There are three key strategies to overcoming the current “deadweight” economic challenges, according to the report. First, CFOs need to emphasize the importance of differentiated spending to their colleagues, focusing on areas “that support or create unique capabilities that differentiate their organization from competitors.”
The report’s authors also suggest adopting the mindset of an activist investor when faced with capital allocation decisions in order to “embody a ‘nothing is sacred but the strategy’ mindset.” Finally, CFOs should concentrate on aligning digital initiatives “to make informed funding and project performance management decisions in service of an enterprise outcome.”
These types of strategies could pay off, according to Rathindran: “While the average organization will resort to managing against short-term economic volatility, forward-thinking companies that can successfully navigate these challenges will dramatically improve their performance trajectory and create sustained competitive advantages.”