CFOs double software spending across the finance department

The finance department is often characterised by a risk-averse approach, prioritising established practices for accuracy and efficiency over new developments.

However, a recent study from Cledara shows that businesses have been actively pursuing the transformation of their finance department.

According to the report, software spending in the finance department increased by 105% year-on-year in the second quarter of 2023. For comparison, customer support, the department to see the second most spending, had a year-on-year increase of 79%.

The 26% difference highlights the increasing focus of CFOs on transforming the finance department. A 2022 PWC survey of 522 global CFOs found that 73% of respondents saw digitalisation of the finance function as a high priority.

Cledara’s report, which analysed 40,000 software transactions across a sample of 1000 customers, shows that CFOs have been following through on their priorities.

According to Richard Gargan, an analyst at Cledara, the increasing technology spending in the finance department forms part of a wider software spending trend, which Gartner reports is poised to top $1 trillion next year.

External event influences spending in finance

However, Gargan also notes that inflation and notable events in the technology sector have contributed to the increase in spending.

“A lot of spending has happened due to inflation in software prices. After the Silicon Valley Bank troubles and interest rate rises, lots of companies responded to decreased business activity by increasing their prices, ” he says.

Silicon Valley Bank was notable for funding technology start-ups. Its sudden collapse earlier this year meant many technology companies had trouble accessing new funds.

Additionally, central banks raised interest rates to combat high inflation, which meant that technology firms that prioritised high-speed growth over immediate profits had a harder time securing loans as lenders sought to mitigate risk.

Besides the economic developments, businesses’ legacy technology also contributed to higher costs, leading to increased spending.

“If you have a finance tool that is embedded into the finance function, especially if it is a legacy tool, it is quite difficult to change your processes quickly. So a lot of this will lead to a price increase,” Gargan adds.

AI and automation in finance

Gargan also believes that the increasing AI adoption and price have contributed to CFOs spending more on technology.

With the introduction of ChatGPT earlier this year, generative AI tools saw a massive popularity boost leading to several big companies rushing to roll out similar products.

Google and Microsoft were among the big-name companies that announced their own tools based on the technology.

The latter launched Microsoft 365 Copilot, an AI-powered tool that uses large language models and Microsoft 365 apps to generate text, create PowerPoint presentations, and execute functions in Excel spreadsheets.

Gargan refers to the recent announcement from Microsoft to charge $30 per user per month for its AI-powered assistant for Microsoft 365 users as an example of areas where CFOs would spend more.

“For Microsoft to charge $30 per month means that the finance team’s software pulse is going to increase,” he says.

Gargan also credits the proliferation of automation tools for financial planning and analysis for influencing CFOs to boost their technology spending.

According to Gargan, automated tax compliance, payroll automation and financial forecast tools were some of the popular targets for the CFOs.

Cutting costs and boosting efficiency

While the increasing technology spending is beneficial for the finance department, Gargan warns against investing in duplicate tools.

Often, companies may use several software programs to perform certain functions. However, they may utilise multiple tools for the same purpose, leading to unnecessary costs.

He advises CFOs to have a complete audit of the software they use to discover any tools that may be redundant because “maybe a $10 subscription is sneaking in, and they add up over time.”

Executing a cost-benefit analysis can also help CFOs discover the return on investment and efficiencies of the tools they are using.

While initial software costs may be high, its usage over time can help businesses save money and maintain a healthy cash flow.

Gargan believes that analysis of their software costs is especially relevant at a current time when businesses are looking to cut costs by laying off staff.

He says, “A lot of people see software as an expense, but as long as it is being analysed properly, it actually saves money. And I think it is better than laying off staff. In this environment, there has been a lot of emphasis on laying staff off for a huge cost saving, but as soon as the economy turns around, companies will want to hire again, which is difficult.”

“Saving on software spend by getting tools that produce a return on investment, cutting unused applications, and eliminating unused seats is a lot better long term for the business than just laying off staff.”

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