5 Trends That Will Change the Way CFOs Make Tech Purchases

CFOs have to make sense of tech advancements and the transformation of IT.

As someone who has continually kept his pulse on the finance and tech side of companies throughout his career, Steven Kasok, CFO at Gallus BioPharmaceuticals, has seen the rapid changes in technology firsthand. Too often, he’s heard service providers make pitches and use terms or concepts that are actually nothing new. “People get so excited or energized or upset about the cloud, for example, but we’ve been doing it for years,” he says. “The cloud is just something, an infrastructure, beyond the building, beyond the desktop.”

Instead of getting swept up in the latest terminology or tool, senior finance executives who oversee their IT department or have approval for major tech purchases have to think about business needs first, suggests Kasok, who also oversees IT at Gallus. “We need to be focused on what the business is doing today and what do we believe the business needs to be doing in some point in the future, and what are the solutions that tie into that,” he says.

That task isn’t easy to do. When it comes time to search for a solution, finance chiefs have a plethora of choices to sort through amid rapid advancements in technology and assertive marketing efforts by service providers. Here are the changes that will be driving financial professionals’ thinking and decision-making over tech purchases.

1. The CFO’s Influence and Interest in IT Has Risen.
One of the few silver linings out of the financial crisis has shone on the career of CFOs. By swooping in to keep their companies lean in tough times and give their business a cash cushion when it was needed most, many CFOs have more of say in their business’s overall strategy and are no longer limited to the goings-on in the finance department. If a project needs funding and has a clear return on investment, CFOs will speak up and push for it. In fact, nearly half of finance chiefs have seen their influence over IT investments increase between 2010 and 2012, according to a study by Gartner and the Financial Executives Research Foundation.

That influence is making a mark: Business spending on IT is in a period of resurgence, according to John McCarthy, a principal analyst at Forrester Research. “We are seeing the rising tide of the IT budget – it continues to increase – and the business budget is also increasing to keep up with the pervasiveness of technology across all aspects of the business.” he says.

2. IT Has a Loosened Grip Over the Enterprise.
Armed with smartphones and tablets at home and during the workday, everyone is a tech user these days. In a May study by Forrester Research, 20% of “high spenders” at companies said the technology they use as consumers has changed their view in how technology should be used in their business. Their new perspective makes sense: In general, executives who work outside of the IT department have a higher comfort level with using technology and adapting to new systems than they did, say, a decade ago. Their phones, their email, and various applications have become more user friendly and more prevalent.

These changes have taken some of the aura away from the specialized knowledge the IT department was able to claim as its own not too long ago. This is not to say IT isn’t still important and useful; it’s just taking on a different form. The department no longer has a tight hold over all technology spending. In the same Forrester survey, 92% of business decision-makers said they spend a portion of their own budget on technology products and services. Of those, 61% told Forrester that “technology is too important for the business not to be involved.”

Jack Gold, principal analyst and founder of analyst firm J. Gold Associates, has noticed a similar trend. “Two-thirds of solutions are being funded and driven by the business,” he says. In the past, IT had more of a dictatorship role because CIOs and their employees were one of the few in the know about emerging technologies and the offerings that could improve efficiencies or speed up progress at a company. Now others, including CFOs, have more access to information about various tools. Analysts predict this so-called democratization of IT will make the concept of a centralized IT department fade away at many companies, if it hasn’t doesn’t so already.

3. The Number of Choices Will Overwhelm, and Eventually Decline.
We’re in a period of innovation, McCarthy claims, which is great for IT buyers and decision-makers. However, with choices comes decisions, which are difficult to make if an executive is overwhelmed and unclear on how to move forward.

The cloud is a perfect example as new terminologies continue to multiply in number as do the number of vendors that claim to offer some type of software as a service. Startups (such as Workday) have quickly become household names, and larger vendors have had to play catch-up by making acquisition so they too can claim they have a cloud offering.

While this market is primed for consolidation, businesses will have to make sense of it all in the meantime. Public, private, hybrid, or all three? Huge-name vendor or a little-known, niche company? “The real problem for CFOs is separating the wheat from the chaff and understanding the difference between good sources and bad sources of information,” Gold says. “One way to do that is peer networking or social networking.”

Indeed, executives’ use of social media is increasing. Nearly two-thirds of CEOs, senior executives, and directors use social media for business purposes, and 30 percent use it to research new products and services, according to a 2012 study by Stanford University’s Rock Center for Corporate Governance and The Conference Board.

4. Peer Input Will Be Highly Valued and Influence Final Decisions.
Successful tech-purchasing decisions involve gathering input from industry peers and former colleagues, according to a survey of decision-makers who made major tech purchases by the Network Roundtable at the University of Virginia.

Peer input is more valuable because if a company relies solely on information provided by a service provider, it is less likely to realize success in their project. “Most information that decision-makers collect and act on comes from their network,” the researchers wrote. “People – not databases or paper reports – form the primary source of information they use to formulate and validate decisions.”

5. CFOs Will Have Higher Expectations of Their Service Providers.
Vendors have, for the most part, realized interruptive marketing isn’t making inroads in their quest to win over CFOs. “It annoys me to no end when I get a cold call for a solution to a problem I don’t have,” Kasok says.

Instead, vendors are having to develop stronger relationships with their existing and potential clients, who want to be educated about tech trends and solutions, and could be open to sales talk only when a trusted relationship has been established and they have a problem that does need solving.

Indeed, the marketing strategy for service providers has evolved into selling themselves as “trusted advisers,” says Jerry Gentry, vice president of IT program management at Nemertes Research. Gentry says companies have a gap that smart service providers should convince CFOs they need to fill. It’s the generation gap – between the well-stocked baby boomer ranks who are about to retire and the younger-generation members who lack the experience and institutional knowledge of their elders. While the youngest of employees are comfortable with the latest gadgets, Gentry notes, they don’t have a grasp of the technology’s role in the enterprise; they are missing the big picture.

Another change ahead could be how vendors approach CFOs, McCarthy hopes. They should segment their messages to different buyers and be more clear about their value propositions, he suggests. For now, many of them are continuing a “one size fits all” marketing approach, which tend to fall flat on CFOs’ busy ears.

To help finance professionals sort through noise in their IT purchasing decisions, Proformative has launched Proformative Exchange, a directory of over 4,500 products and services peer-reviewed by others working in corporate finance. Those who have already had to make the tough choices over an ERP system, budgeting and forecasting software, or other business solution have written about their experience or provided a review. 

To learn more on this subject,attend CFO Dimensions 2013 in New York City, August 21-22. Register with code CFODKAR for a special $649 discount here.