“Our latest data shows that CFOs are planning for multiyear impacts to their financial plans as a result of the pandemic,” said Alexander Bant, practice vice president, research, for the Gartner Finance practice. “It’s notable that real estate topped CFOs’ lists for planned cuts to next year’s budgets, suggesting remote work is here to stay and some level of downsizing is expected.”
CFO Cost Management Actions in Response to COVID-19
CFOs continue to aggressively rein in costs because of the crisis. CFOs indicated that marketing budgets have already been cut by 14% on average against their original 2020 plans, with plans for additional 11% cutback in the remainder of 2020 (see Figure 1), resulting in a 25% spend reduction for the year. Real estate budgets have already been cut 7% on average, with plans for an additional 8% reduction in 2020. Real Estate was also the most targeted expense in 2021 with a 3.4% reduction versus original budget plans for next year.
Figure 1. Planned changes to SG&A for FY2020
Beyond heavy cuts to marketing and real estate, Gartner’s data revealed broad and significant cuts of 5% or more already this year to functional budgets including: HR, Finance, Sales, R&D, IT, Communications and Supply Chain. In addition, CFOs are projecting more cost cuts this year of 5% or more to HR, Sales, Supply Chain, Finance, IT and Communications in the remainder of the year.
“CFOs are not yet sure when they will need as many staff recruiting, selling, implementing IT projects, or supporting transaction processing. This is putting budget pressure on HR, Sales, IT, and Finance in the near-term,” said Mr. Bant. “As CFOs look out to 2021, they do forecast normalization in revenues for many industries. However, most CFOs have told us that COVID-19 has illuminated new (more efficient) ways of working, and they will use this as an opportunity to right-size spend in SG&A functions for 2021.”
2021 Spending Plans: Real Estate Hit Hardest, IT and Sales See Growth
While all SG&A categories are expected to see reduced spending for 2020, 2021 shows a more bifurcated picture. As mentioned, Real Estate will see the largest reduction in 2021 (3.6%), with Marketing expecting a 1.8% reduction and Procurement, Legal, HR and Finance range between 1.6% and .6% reduction in 2021 spending. However, there are two costs where CFOs expect to increase spend in 2021: IT and Sales. CFOs are expected to increase spending in IT by .8% and sales by 1.6% in their 2021 budgets.
“CFOs are no longer expecting a long contractionary period with multiple quarters of consistent declining revenues,” said Mr. Bant. “There will be some costs that continue to remain at bay in 2021. Expanding IT and sales budgets, however, means that CFOs are investing for the next phase of growth. We see technology investments enabling remote work, new ways to reach customers, and enhanced efficiency. Sales budget growth indicates that expected revenues will start to recover, and CFOs will need to add headcount to support net-new business in 2021.”
Gartner clients can read more in Mid-May 2020 CFO Poll: Shallow Cuts Continue, but SG&A to Partially Bounce Back in 2021.
Non clients can read more here and find a selection of coronavirus-related resources here.