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Forbes
2 days ago
- Business
- Forbes
Prioritize Cost Optimization Over Cost Cutting To Achieve Meaningful Results
As pressure to reduce costs increases, CFOs have an opportunity to deepen their cross-functional influence and fortify their advisory role to the CEO and other C-suite leaders. Capitalizing on this opportunity likely calls for some CFOs to forget everything they know about traditional cost cutting while embracing—and instilling throughout the organization—a mindset focused more on sustainable cost optimization. Prioritize cost optimization over cost cutting to achieve meaningful results The stakes of this gambit are exceedingly high. Economic uncertainties related to tariffs, supply chain upheaval, inflation and/or stagflation, and geopolitical conflicts are among numerous issues that have boards and C-suites taking hard looks at their cost structures. At the same time, the risks associated with cost-cutting missteps have never been higher. A blanket across-the-board cut can undermine the organization's execution of strategic initiatives, leading to declining employee morale, engagement and productivity and driving highly skilled, difficult-to-hire talent to competitors. Trimming the budget of a technology modernization initiative can delay the adoption of vital artificial intelligence (AI) applications while subjecting the company to a higher risk of being too slow in pivoting to disruptive markets. Indiscriminate or percentage-based cost cuts can compromise service quality, scale back innovation, hamstring future growth and even impair the organization's long-term viability. Bottom line, in today's fast-moving business climate, old-school cost cutting can, while perhaps achieving a short-term quarterly objective, do more long-term harm than good. Similarly, drastic workforce reductions and other one-off slashing don't work well for very long. There is a better way. Multiple surveys of business leaders find that only 40-60% of traditional, one-time cost-reduction initiatives achieve their initial goals. A Gartner study indicates that just 11% of organizations are able to sustain cost cuts over a three-year stretch. On the other hand, cost optimization initiatives are proving to be increasingly beneficial. For instance, according to the results of Protiviti's most recent Global Finance Trends Survey of CFOs and finance leaders, 60% of publicly held organizations have achieved measurable, meaningful progress in their cost optimization efforts by utilizing cloud-based systems. And that's just one example. We're seeing substantial savings from deploying technology to automate processes. Renegotiating supplier contracts, improving inventory management and implementing energy-efficiency measures (in capital-intensive industries) are examples of other cost optimization tactics. Cost optimization relates to the CFO's responsibility to nurture and preserve the organization's financial health. Think of the approach as a perpetual efficiency play that continually rebalances the right cost structure with an eye on revenue-generation and profitability objectives. Its focus reaches well beyond cost cuts. While cost optimization efforts target the same pain points as traditional, more reactive cost cutting, these pain points are assessed in a more thoughtful and holistic manner: How do these costs influence our pursuit of strategic objectives? How would a potential cost reduction affect our product and service offerings, workforce, customer experience, ability to innovate, and growth prospects? Advanced data analyses and AI tools can help address those questions and refine the search for 'smarter' opportunities for cost savings. Consider this scenario: A traditional cost reduction play might call for a business process to be offshored, end of story. A cost optimization approach might result in that same process—let's say accounts payable (AP)—being offshored, but with some critical differences. A smaller AP team might remain onshore to handle exceptions and manage relationships with high-value suppliers and vendors. That team also might receive training in risk management and the use of AI applications to help them operate more effectively and efficiently. Plus, the upskilling necessary to enable these additional job functions could be funded by a portion of the cost savings realized from moving the bulk of the AP group offshore. As finance leaders create cost optimization playbooks, they should consider how the following actions can benefit their organizations in the near- and long-term. Perhaps the biggest difference between traditional, reactive cost cutting and cost optimization is that the latter should be performed continuously rather than in response to economic and marketplace swings. The point is clear: Optimizing costs is as much a good idea in the cool of the day when times are good as it is in the heat of the moment when times are challenging. When CFOs stop their organizations from vacillating between across-the-board cuts to focus on increasing profitability on the one hand and investment infusions designed to stimulate growth on the other hand, cost optimization stands a better chance of becoming a standard operating procedure. Indeed, it becomes a key pathway to sustaining the organization's agility, resilience and long-term viability.
Forbes
3 days ago
- Business
- Forbes
Interim CEOs: A Symptom Of Deeper Governance Failures
Interim CEO Wanted In early 2025, CEO departures reached record highs. Interim appointments surged—but behind the numbers is a more troubling signal: boards are increasingly unprepared. (I highlighted this alarming trend in my most recent column.) While interim CEOs can provide temporary stability, their increasing prevalence points to deeper issues in corporate governance and succession planning. Recent data indicates that nearly 25% of new CEOs appointed in the first two months of 2025 were on an interim basis, a significant increase from 8% during the same period in 2024. This surge suggests that many organizations are unprepared for sudden leadership transitions, often resorting to interim appointments as a stopgap measure. While interim CEOs can offer short-term solutions, they also introduce several governance risks: Recent academic research supports these concerns. A study entitled Interim CEO Successions: Implications for CEO Successor Selection and Subsequent Firm Performance found that companies appointing permanent CEOs following an interim period tend to underperform compared to those with direct permanent appointments. Another study entitled: 'Timely help' or 'one disaster after another': The impact of potential and transition interim CEO succession on corporate performance highlights that interim CEOs, especially those serving as temporary placeholders without prospects for permanent appointment, may face challenges such as limited authority and reduced internal cooperation, leading to slower strategic decision-making and potential declines in firm performance. The appointment of an interim CEO often sends a cautionary signal to the investor community. It may indicate that a company lacks a robust succession plan, leading to concerns about strategic continuity and organizational stability. Investors may perceive such appointments as a sign of internal uncertainty, potentially impacting stock performance and stakeholder confidence. From the employee's viewpoint, the appointment of an interim CEO can trigger deep uncertainty about the organization's future. It may signal instability at the top, raising concerns about job security, stalled initiatives, and potential cultural disruption. Without a clear, permanent leader, employees may worry that strategic priorities will shift—or be put on hold altogether—affecting morale, engagement, and retention. Especially in cases where communication is lacking, interim leadership can be perceived as a temporary fix, not a source of direction or long-term vision, prompting top talent to consider exit strategies. This concern is particularly acute given that talent acquisition and retention rank among the top three priorities for CEOs, according to The Conference Board's C-Suite Outlook 2025: Seizing the Future report. In an environment where leadership stability is closely tied to employee confidence and organizational performance, the presence of interim leadership can undermine efforts to attract and retain key talent, exacerbating existing workforce challenges. Despite the risks, interim CEOs can be beneficial when used strategically: However, these benefits are only realized when interim roles are part of a well-thought-out governance strategy rather than a reactionary measure. Several factors contribute to inadequate succession planning: These issues are compounded by a trend of shorter CEO tenures, averaging just 8.3 years, indicating decreasing tolerance for missteps and increasing pressure on boards to find quick replacements. The increasing dependence on interim CEOs underscores the need for robust succession planning. Boards and CHROs must collaborate to: By proactively addressing succession planning, organizations can minimize disruptions, maintain stakeholder confidence, and ensure sustained performance. In conclusion, while interim CEOs can serve as effective short-term solutions, their rising prevalence signals deeper governance challenges. Organizations must prioritize comprehensive succession planning to navigate leadership transitions successfully and uphold corporate stability.
