CFOs and CEOs less likely to raise prices in response to inflation

Majority of CFOs and CEOs still rate inflation as a top factor damaging their organisation

Top execs have revealed in a Gartner survey that despite the rate of inflation damaging business, they are less likely to raise prices than in 2022.

As CFOs and CEOs face concerns about the effects of inflation and a potential recession, they're pursuing options beyond the typical approach of raising prices, with CFOs joining CEOs in demonstrating a new open-mindedness towards other strategies.

A large proportion of both CFOs (84 per cent) and CEOs (68 per cent) rank inflation as one of their top three most damaging factors impacting the outlook of their business.

Raising prices has been a go-to tactic. In 2022, IBM CEO Arvind Krishna agreed at the 2022 Xchange Best of Breed Conference that partners should react to inflation by raising their prices.

And Aabyss CEO Andrew Allen added that "squeezing in the middle" was not the right way forward amid a looming recession and that not being profitable will result in "not being around for a long time".

But many CFOs are now realising they need to expand that playbook.

There was an 11-percentage point drop relative to last year in the share of CFOs who cited that increasing prices was one of their top two actions to respond to inflation, driven at least in part by signs that customers are tiring from consistent price rises.

"Rising rates are forcing more customer price sensitivity, and CFOs are less able to pass pricing on to their customers," said Alexander Bant, chief of research with the Gartner Finance practice.

"We see CFOs asking teams the tough questions about how they will use resources and headcount even more efficiently in the remainder of 2023 and into 2024.

"With budgeting right around the corner, CFOs will attempt to force higher levels of productivity by clawing back resources while asking their teams to achieve more."

Top business priorities

Growth was found to be the top strategic business priority.

Forty-five per cent of CEOs surveyed ranked growth in their top 3 strategic priorities, down from 53 per cent in 2022, while 62 per cent of CFOs put it in their top three, up from 59 per cent in 2022.

While CFOs and CEOs agree on growth as their top priority, their emphasis on this and other priorities differ, according to the Gartner survey of 422 actively employed CEOs, CFOs, and other senior executive business leaders conducted through December 2022 (see Figure 1).

For instance, CFOs' second top priority is corporate action such as M&A and restructuring (41 per cent), which ranks fourth for CEOs (27 per cent).

Bant said: "Balancing future growth investments and CEO expectations, while still tightly managing cost and cashflow, is the tightrope CFOs must walk in the back half of 2023.

"The top questions CFO should be educating the CEOs and the board of directors on as the business cycle begin to turn more positive include: How should we sequence funding for organic and inorganic growth bets? How best do we secure capital? What does it look like when we model out the impact on margin and ROIC?"

Rising interest in AI

When asked which new technology will most significantly impact their industry over the next three years, it may not come as a surprise that both CFOs and CEOs named AI as their top pick.

For CFOs, this is especially notable because they likely do not have much direct experience with AI yet, given that 80 per cent of finance functions using AI just started in the past two years.

Bant explained: "Five forces are driving CFOs and CEOs to prioritize conversations about AI in the third quarter.

"First, boards and CEOs expect C-suite leaders to protect the organization while driving broad use case adoption.

"Second, customers continue to leverage generative AI in their daily life, moving their expectations for user experience.

"Third, employees are concerned about job loss yet may eventually leave organizations where they can't fully leverage generative AI.

"Fourth, regulators expect all organisations and their leaders to comply with responsible generative AI regulations.

"Lastly, investors expect new sources of growth and much better margins, placing pressure on leaders to deliver results."