CFOs Still Trying To Cut Overhead

May 5, 2004 ( - Chief Financial Officers (CFO) said their greatest challenge is cost reduction, yet very few feel they have reduced overhead costs as much as possible.

Eighty-five percent of financial chiefs say cost reduction is still the highest priority challenge they confront, by only 3% feel they have reduced overhead costs as much as possible.   To have more of an impact, nearly 60% of CFOs are focused on opportunities to reduce the costs, according to a study conducted by strategy and technology consulting firm Booz Allen.  

“Despite the fiscal discipline most companies imposed during the recession, overhead costs are still a target for even greater savings,” said Booz Allen Vice President Vinay Couto. “The quick fixes have been used up, and companies need to find innovative ways to control costs.”

The most common method CFOs are using to lower overhead costs is reducing non-essential spending (71%), followed by:

  • standardizing service offerings (55%);
  • reducing headcount (48%);
  • streamlining the delivery process (45%);
  • reprioritizing requests and deferring some (37%);
  • physically consolidating the facilities used to provide overhead services (33%).

Booz Allen also found a significant number of CFOs are turning to outsourcing, particularly for information technology (IT) – outsourced by 84% of CFOs – and human resource (HR) operations – outsourced by 58% of CFOs.   With the exception of IT, however, functions are almost never outsourced in their entirety. For example, while 54% of companies outsource some of their HR functions, only 4% outsource most of their HR functions.  

The results though have been positive.   Most CFOs (67%) are “satisfied” that their outsourcing efforts have met initial expectations, citing better service levels (36%), access to best practices and process improvements (35%) and lower costs (33%).

Even though outsourcing has been embraced by more financial officers, CFOs still remain skeptical about the potential positive impact of offshoring, citing service quality (37%), doubts that claimed savings will materialize (31%), and concerns about disruptions to operations (23%) as concerns about sending jobs overseas.   When asked what functions they would likely or very likely offshore, IT heads the list (43%), followed by finance (22%) and purchasing (19%).

“Companies appear to be adopting a more measured approach to offshoring. They view it as one arrow in their quiver, rather than a silver bullet,” said Couto. “CFOs understand that worldwide sourcing of white collar jobs from distant locations is a vastly complex undertaking and that there are significant performance risks that need to be managed from the get-go.”

Booz Allen surveyed 156 CFOs from around the world to understand current trends and best practices in the management of General & Administrative (G&A) functions.   For a copy of the study’s key findings contact Karen Guterl at (212) 551-6516.