In early 2023, Chief Financial Officers (CFOs) are tightly controlling technology spending, as a variety of risks beyond their control threaten corporate profitability.

According to financial executives and technology advisors, recession forecasts, high inflation, stock market volatility, rising borrowing costs, geopolitical tensions, and the most aggressive monetary tightening in four decades are forcing CFOs to conserve cash and ensure every dollar spent on technology generates a return.

Tony Tiscornia, CFO of Coupa Software, said in an interview that a recession "would not be a surprise to anyone," and that "everyone is on high alert, preparing for whatever may happen in the next year or two. Most CFOs are hoping for the best but preparing for the worst."

Gartner this month lowered its 2023 global IT spending growth forecast to 2.4%, down from 5.1% three months ago. The firm projects total IT spending this year at$4.5 trillion, only 2.1% higher than in 2021.

Chad Gold, CFO of Salesloft, said in an interview: "Every CFO is now saying, 'Unless a business executive is screaming in my face that we must buy it, I don't want to buy it.' It's a matter of doing more with less."

Weak growth in corporate spending has already prompted layoffs at tech giants. Microsoft, Twitter, SAP, and IBM have announced significant job cuts in recent weeks. Amazon and Alphabet plan to cut about 6% of their workforce,and Meta Platforms said in Novemberit would cut 13% of its staff.

Companies outside the tech industry are also pulling back from years of "spending frenzy" fueled by near-zero interest rates. Tiscornia said that in the past, CFOs focused on growth, borrowing heavily, believing that "profitability wasn't really what investors were focused on."

Last year, the Federal Reserve ended the era of easy money, raising the federal funds rate by 4.25 percentage points. Fed policymakers have pledged further tightening and may announce a 25-basis-point increase in the benchmark rate on February 1.

The exit from stimulus policies has prompted a shift in CFO strategy. Tiscornia said that over the past six to nine months, "profitability and cash flow generation have truly become as important as, or even more important than, growth to investors."

CFOs in many industries face a high-stakes challenge: conserving cash without missing out on the latest profit-boosting innovations. Advances in technologies such as artificial intelligence, data analytics, and cloud computing could determine whether a CFO leads or lags behind peers.

To achieve a high return on technology investment, financial executives and technology advisors offer five recommendations for CFOs:

1. Conduct a technology inventory

Financial executives say CFOs determined to get greater returns from technology and improve cash flow should first take a detailed inventory of software, hardware, and technology services. The goal: consolidate and eliminate duplication.

Gold said: "Inventory every piece of technology in the company, list everything, then sit down with every business executive and ask them what these technologies do."

"You'll find that some technologies they either don't know what they're using them for, or they can't even explain their purpose," Gold said.

Financial executives and technology advisors point out that many CFOs lack visibility into technology spending, with departments across the company spending in silos without collaborating to find the lowest costs.

A CFO may discover that two or more departments have purchased two different technologies to perform the same task, or have bought the same technology from the same vendor without negotiating volume discounts.

Tiscornia said: "In times of economic uncertainty, visibility is truly key to the budget."

2. Set priorities and defer spending

With growing predictions of a short, shallow recession, many CFOs are reviewing their technology priority lists and deferring spending and hiring until the economic outlook becomes clearer.

Gold said: "What we're buying now are the things that make us feel like 'we'd be going backward without them.'"

John Renehan, CFO of AI-guided sales intelligence provider Gryphon.ai, said the company decided to continue relying on external cloud computing consultants rather than adding to existing in-house expertise. The company also postponed purchasing new back-office infrastructure technology.

Renehan said in an interview: "This year, instead of deploying new systems, we're focused on making sure Salesforce or Zendesk—they can all communicate with each other. We're placing more emphasis than ever on payback period as a component of ROI."

3. Renegotiate contracts

Financial executives and technology advisors say the prospect of a recession has intensified the urgency of negotiations over costs between vendors and buyers.

Renehan said of discussions with Gryphon.ai's customers: "Every negotiation now is tougher. We see customers tightening their belts, some have already laid off staff, and we have to work closely with them to show how our products improve their productivity."

Renehan said Gryphon.ai is also scrutinizing costs more strictly, "continuously reviewing every piece of software in the business," and putting pressure on vendors when returns are low.

He said: "There's some sales technology where, in my view, the providers of these technologies just routinely raise prices."

"They're not like cloud operators who are committed to helping you maximize your investment," Renehan said. "They're just trying to raise prices every year."

Renehan said Gryphon.ai identifies the best software and gains high value in negotiations by running two companies' applications simultaneously and then choosing the best option at the end of the license period.

Tiscornia said that when evaluating software, financial executives should break down vendors' ROI claims, talk to peer companies selling similar products, and contact others who use the software.

He said: "Suppose it's a lead generation tool. I want to understand very deeply, or have someone on the team understand, how they arrived at that ROI calculation."

4. Gather frontline insights

Financial executives and technology advisors say that when reviewing technology, CFOs should reach out to frontline employees, as well as department heads and other members of the executive team.

Tiscornia said: "CFOs, especially in times like this, really need to take the pulse of the business."

"The usability of software is critical—first from an employee morale standpoint," he said. "You want employees to have solutions that enable them to do their best work, to make them feel the company is investing in them, and to avoid burnout."

Renehan said close consultation with frontline employees can lead to major improvements in a company's products. Gryphon.ai's sales team was among the first users of its AI for customer support and increasing sales. "They fully understand what the product needs, so they helped make the investment decision," he said.

5. Ground cloud spending

Gartner says cloud computing will grow more than any other IT category in 2023 and remain the top spending target. The firm projects globalend-user spending on public cloud serviceswill surge 20.7% this year to $591.8 billion.

Meanwhile, concerns about a recession and the availability of broader, deeper data on the value of cloud computing are prompting many CFOs to review their cloud usage, according to CFOs and technology advisors.

CFOs are asking: "'Okay, we migrated to the cloud, that's great, but have we really applied financial discipline to it?'" said Randy Armknecht, managing director of enterprise cloud and global delivery at Protiviti.

In some companies, CFOs are refining key performance indicators such as cost per sale and forcing cloud service providers to commit to savings plans of two years or longer. They are also tracking how well costs match forecasts.

"We forecast costs to be X, but they turned out to be 2X?" Armknecht said.

He said in an interview that financial executives at some companies have strengthened collaboration with software engineering teams to gain insights into the strengths and weaknesses of cloud computing.

With this data, CFOs can determine the cost of sales down to the cent and forecast project costs at the design stage before deployment. They can also precisely track whether projects meet targets and optimize customer journeys to maximize the value of time users spend on company applications.

CFOs and technology advisors say that as cloud competition intensifies and customers become more knowledgeable, cloud service providers feel more compelled to demonstrate value.

Renehan said: "When we first migrated our products to the cloud years ago, we didn't know what we didn't know. You just bought a big chunk of cloud time."

"Now the focus is on reducing costs and improving gross margins," he said, noting that Google Cloud Platform is helping the company identify savings opportunities and add value.

Armknecht said that in recent years, cloud service providers have recognized that "the responsibility lies with them and their transparency in reporting spending within the platform." Rather than losing customers, "they'd rather work with customers to figure out how to optimize spending."

While emphasizing maximizing the value of technology investments, the prospect of a recession also highlights the long-term necessity of scenario planning.

Renehan said: "As a CFO, conserving cash is in our nature, so you're always focused on that. We've done more scenario testing through the budgeting process, including worst-case scenarios."

Financial executives and technology advisors say that as technological innovation accelerates, companies also need to focus on customers' future needs.

Armknecht said: "CFOs should think about where customers will go in the future, not just continue funding where they've been. Market alignment and customer alignment—that's critical to driving technology investment strategy."