While focusing more on spending cuts, financial leaders are taking a fresh look at the applications in use for their businesses, especially software.
Reviewing a tech stack from a return on investment (ROI) perspective, rather than just focusing on its costs, can be key in rebalancing and managing technology more cost-effectively, Derek Cavanagh, CFO for learning management system (LMS) software provider LearnUpon said. The Dublin, Ireland-based company offers a “content-agnostic” LMS solution that enables businesses to design training modules for their employees or executive suite.
Companies, especially those that may have been hyper-focused on growth, can be short-sighted when it comes to their software’s ROI. “I think too many finance teams look at the cost and not the real return for the business,” Cavanagh said.
Cavanagh pointed to the example of video software such as Zoom, which many businesses have adopted for meetings despite the availability of free video meeting tools. For these companies, the advantages provided by Zoom are well worth its cost, with businesses making the conscious choice to buy the software, he said.
“If you think about the number of people, say the salary cost of a business, and how many meetings are happening on a daily, weekly basis, especially in a remote environment now, quickly you realize that the return piece of the software becomes hugely important,” he said.
Focusing on ROI, scope creep
In order for CFOs to conduct an accurate ROI assessment of the applications at play in their companies, however, the first step is to “understand what you have and what you're using it for,” Cavanagh said.
“One of the things that we do is we push the usage basically down to the teams and the owners of the budget,” he said — for example, if the VP of customer success’s team is using an application that was originally purchased for another area of the business, that usage should be allocated within that VP’s budget, Cavanagh said.
“That quickly means that the owners of the budget can take responsibility for what their teams are using and say, ‘Oh, I don't need to use that,’ because it's hitting their budget,” he said.
This can be key as the list of applications businesses use grows larger — LearnUpon itself currently utilizes about 70 separate applications, and Cavanagh is comfortable that the “vast majority of those are delivering value to the business,” he said.
CFOs should also be mindful of “scope creep,” Cavanagh said. This is when software — which is initially brought into a business with a clear use case and justification in mind — begins to bleed out into other areas of the business, raising the cost to businesses. LearnUpon takes a “roles-based access” approach to combat this, he said.
“So as you bring that software in, you categorize a role for it…and then if you want to move beyond that use case, then you're back to another assessment,” he said.
Tech spending remains robust
While CFOs are starting to feel more pressure to cut costs right now, critically, tech spending shows no sign of slowing down despite a pending recession — total worldwide IT spending is expected to reach $4.6 trillion in 2023, a 5.1% jump from 2022, according to an October report by Gartner.
LearnUpon itself increased its software spending last year, Cavanagh said, and plans to continue to do so next year. Its software spending currently accounts for 10% of its overall outlays, a company representative said in an email.
“Our spending software will again increase next year because it will have a positive impact on the business,” Cavanagh said.
Still, ensuring that the software in one’s organization is being put to best use can be key for CFOs, especially as financial leaders’ focus shifts from growth or fundraising and back to minimizing costs amid persistent inflation and other headwinds — there’s “no CFO in the world that is not looking at expenses,” Cavanagh said.