Most CFOs don’t drive returns exceeding cost of capital: Survey says.

CFOs should avoid peer pressure and build cost strategy around differentiating factors, not competitive trends, Gartner researchers said in a cost structure model analysis released Friday.

Only a third of firms drive returns greater than the cost of capital, Gartner found. Organizations built around factors such as unique competitive differentiators drove a 6% greater return on invested capital (ROIC) over 3 years when compared to those with cost models focused on external factors, such as competitive trends.

“Most companies’ cost models respond to factors external to the organization,” said Jason Boldt, research vice president for the Gartner Finance practice. “This might take the form of chasing the same ‘hot’ markets as competitors, or over-committing to well-known trends, such as digital business or artificial intelligence.”

CFOs who model their costs around the factors unique to their organizations secure, on average, a greater excess ROIC, Gartner found. They also exhibit more resilience during unexpected events, like the current economic crisis.

Focusing on differentiation is “a way for the CFO to combine competitive strategy and functional strategy to sort out the economics of the business,” Boldt told CFO Dive. 

Source: CFO Dive

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