Good morning. Health care CFOs are concerned about profitability, while not compromising on delivering high-quality and affordable care. Traditionally, they’ve relied mostly on cutting costs, but that may be changing.
Deloitte Center for Health Solutions has surveyed CFOs annually since 2020. In prior years, cost reduction was consistently named one of the top three organizational priorities. However, cost reduction ranked last among the top priorities and concerns of finance leaders in 2024, according to the latest survey. (The top three are the economy, cybersecurity, and the impact of the upcoming U.S. presidential election.)
The majority of finance chiefs surveyed are focusing on improving their organization’s operating margin, Deloitte found. “I was pleasantly surprised to see CFOs setting ambitious financial improvement targets for the near term,” Tina Wheeler, vice chair, health care sector leader at Deloitte LLP, told me. A third of CFOs surveyed are aiming to improve their operating margin by three or more percentage points over the next three years, she said.
The health care industry has been experiencing a period of low profitability, with operating margins of 1% to 4%, on average, in the past five years, according to Deloitte. So CFOs meeting aggressive margin targets is, “a much-needed goal,” Wheeler said.
The firm recommends “operating margin transformation levers” that CFOs should consider using across four major categories—strategic growth, revenue growth, cost reduction, and capital deployment.
Wheeler also said there are four overlooked opportunities for margin improvement:
—Adding new products and services and discontinuing offerings that do not add financial value.
—Forming alliances. “Organizations risk slower growth and poorer performance if they operate alone,” she said. Value-based partnerships, along with market-based alliances provide opportunities to co-develop products and services, expand customer reach, and increase revenue.
—Outsourcing and offshoring opportunities. For example, outsourcing administrative functions.
—”Doubling down” on digital and AI technologies.
“While cost reduction is no longer the dominant focus for margin improvement initiatives, it is still an important part of the portfolio for both health system and health plan finance leaders,” Wheeler said.
The main lever for cost reduction is building an efficient workforce, she said. “This will continue to be important as many health care organizations are grappling with employee turnover and burnout coupled with increasing labor costs,” she said. Emerging technologies, like generative AI, can be useful for workforce management strategies, “potentially leading to substantial cost savings,” she added.
Have a good weekend.
Sheryl Estrada
sheryl.estrada@fortune.com
The following sections of CFO Daily were curated by Greg McKenna
Leaderboard
Some notable moves this week:
Richard Kraemer was named senior EVP and CFO at Fulton Financial Corporation (NASDAQ: FULT), effective Sept. 3. Kraemer replaces interim CFO Betsy Chivinski, who will retire from Fulton at the end of the year. Kraemer has more than 20 years in the financial services industry, most recently serving as chief banking officer overseeing commercial markets for another bank.
Paul Lundstrom, CFO at Flex (NASDAQ: FLEX), will step down as CFO, effective July 31, to pursue an opportunity outside of the company. Jaime Martinez will assume the role of interim CFO. Martinez has over 20 years of experience with Flex and has held various finance leadership roles. Flex has initiated an executive search process to identify a permanent CFO.
Akhil Shrivastava was promoted to EVP and CFO at The Estée Lauder Companies Inc. (NYSE: EL), effective Nov. 1. Shrivastava succeeds Tracey T. Travis, whose intention to retire was announced on July 11. Travis will remain at the company for a transition period until June 30, 2025. Since joining ELC in 2015, Akhil has held several senior finance roles within the company. He was recently named ELC’s SVP and corporate controller. Before that, he was SVP and treasurer. Akhil will also serve as a member of several of ELC’s senior management leadership groups.
Helen Shan was promoted to CFO at FactSet (NYSE: FDS) (NASDAQ: FDS), a global financial digital platform, effective immediately. Shan succeeds Linda Huber, who is leaving the company. Huber’s departure is not the result of any disagreement with the company and not the result of any financial or accounting matters, according to FactSet. Shan is rotating back into the CFO role, which she previously held from 2018 to 2021 before being appointed EVP and chief revenue officer.
Jonathan Geehan was promoted to CFO at Techstars, a pre-seed investor. Geehan has been at Techstars for three years, having served in the finance department as SVP and senior controller. Geehan brings more than two decades of experience in finance, including over 16 years within venture capital and private equity. He joined Techstars from ClearSky where he was the investment firm’s CFO. Previously, he was controller at Fairhaven Capital Partners.
Mike Kaswan was named CFO at Precision Neuroscience Corporation. Kaswan brings over 30 years of financial leadership experience in health care to his role. Most recently, he served as the CFO at Orchestra BioMed Holdings (NASDAQ: OBIO), which he helped take public in 2023. He also cofounded Georgia Veterinary Specialists (now part of BluePearl Veterinary Partners); Lumenos (now part of Wellpoint); and Persante Health Care, a provider of sleep and balance diagnostics and treatments.
Alonso Sotomayor was named CFO at DynaResource, Inc. (OTCQX:DYNR), a junior gold mining producer, effective immediately. Sotomayor has over 15 years of professional experience. He started his career in a mining-specific role with accounting firm McGovern Hurley LLP, followed by progressively senior roles in the Toronto Mining Groups at KPMG and Deloitte Canada. Since 2017, Mr. Sotomayor has held the position of Corporate Controller of Ascendant Resources Inc. and Corporate Controller of Cerrado Gold Inc. since 2020.
Aaron Rosenberg was named CFO at BeiGene, Ltd. (Nasdaq: BGNE), a global oncology company, effective July 22. Rosenberg will succeed Julia Wang, who is departing to pursue external opportunities and will stay with the company through August. Rosenberg has more than 20 years of experience at Merck & Co., Inc., most recently serving as SVP and corporate treasurer. He also held roles such as SVP of corporate strategy and planning and VP and finance lead of Merck Animal Health.
Logan Powell, global president and CFO at Puttshack, a provider of tech-infused mini-golf venues, was promoted to CEO, effective immediately. Powell succeeds Joe Vrankin, who oversaw the company’s growth in the U.K. as CEO and subsequently brought the concept to the U.S. in 2021. Powell and Vrankin have collaborated on this transition, as Vrankin will be moving on from the company. Powell has served as CFO since 2019. Before joining Puttshack, he was a partner at Copper Beech Capital, LLC.
Big Deal
Business leaders are already reporting a return on their organizations’ investments in AI, but many have neglected the underlying infrastructure AI needs to thrive, according to new research from EY. The firm’s first AI Pulse Survey polled 500 U.S. senior leaders across a wide range of industries from tech to government and the public sector.
About three-quarters of those leaders said they are experiencing positive ROI on operational efficiencies (77%), employee productivity (74%) and customer satisfaction (72%). Leaders from organizations who have invested 5% or more of their total budgets in AI saw higher rates of return compared to those whose spending is under that threshold.
“Business leaders are beginning to shape their future by raising strategic AI investments,” Traci Gusher, data and automation leader at EY Americas, said in a statement. “But the survey uncovered significant risks on the path to enterprise-wide AI adoption, including data infrastructure, ethical frameworks, and talent acquisition.”
Only 36% of those surveyed said they’re investing in data infrastructure fully and at scale. A similar number said the same for building an AI governance framework (34%), as well as training and upskilling employees (37%).
Going deeper
Here are a few Fortune weekend reads:
“Sequoia Capital invested early in Google, Nvidia, and Apple. Can Roelof Botha keep the legendary venture capital firm ahead in the AI future?” by Michal Lev-Ram
“Tesla’s latest earnings expose chronically weak profitability and an inflated share price” by Shawn Tully
“The Fortune 50 Best Places to Live will serve multigenerational families for the long haul” by Alexa Mikhail
“Kamala Harris’s economic agenda: What experts say it might look like” by Alicia Adamczyk
Overheard
“I would characterize his economic approach as one that’s fully consistent with [1980s Democratic candidates] Walter Mondale and Michael Dukakis—a pro-worker party based around a lot of government intervention and managing the economy.”
—Richard M. Reinsch II, an editor at the American Institute for Economic Research, told Fortune’s Jeff John Roberts regarding his opinion on Republican vice presidential nominee J.D. Vance’s potential economic approach.