Investor perspective: The CFO and CPO offices are converging — a spend technology thesis

Spend Matters welcomes this guest post on the technology market for business automation from Jack Freeman, Partner at PeakSpan Capital.

At PeakSpan, we take a highly thematic approach to software investing. A theme will typically fall into one of two camps: a vertical (hospitality, retail, etc.) or a horizontal (security, sales, marketing, etc.). Over the past handful of years, we have noticed a fascinating convergence between two of these functional groups: procurement and finance. In other words, the offices of Chief Procurement Officer and Chief Financial Officer are converging.

Historically, procurement departments have been viewed by the broader organization as a cost function rather than a value-added partner. Procurement officers had developed multi-year relationships with vendors that they depended on for the sake of convenience and trust rather than favorable pricing.

When considering your company’s digital transformation plan, start with Spend Matters’ 5-step “Procurement Technology Buyer’s Guide.”

Spend technologies and data analytics are promoting more collaboration between teams through generating data-driven insights, which is forcing procurement professional to deliver sustainable bottom-line benefits and strategic long-term values. This isn’t only true for procurement — CFOs and their teams are held to the same standards when it comes to cashflow management, optimizing payment processing and much more.

As investors, we are taking out our proverbial sledgehammers and knocking down this wall between the offices of the CPO and the CFO — leaving behind a single, more cohesive office and functional group that handles everything relating to B2B spending.

Our spend technology thesis has been informed from hundreds of conversations — many of which included robust debates about “what market we play in.” The truth of the matter is that market segments are not stagnant — they converge, diverge and evolve. This is especially true in a space like B2B spending, where the underlying infrastructure is being innovated on at a rapid pace (think APIs, digital currency, wallets, real-time payments (RTP), FedNow, p-cards, neo banks, new forms of lending — and an explosion of platforms centered around facilitating digital payments across peer-to-peer, consumer-to-business, business-to-consumer and business-to-business).

Underpinning all of this exploration and interest is the fact that B2B payments volume is now over $120 trillion per year globally versus just $20 trillion-30 trillion when looking at C2B. We see B2B spending as a massive, decade-long opportunity and where we are just in the early innings of penetration and disruption.

We have spoken with platform vendors that address treasury, B2B payments, B2C payments, C2B payments, procurement software, spend management, spend automation, p-cards, virtual debit cards, AP automation, AR automation, PO automation, payment integrity, billing management, invoicing, remittance, tax compliance, contingent workforce management, the financial supply chain — the list is endless.

No longer are the good old days where enterprises simply used an ERP or source-to-pay platform. The options that stakeholders have in front of them are endless regardless of whether you are a CPO, CFO or anyone involved in B2B purchasing and payments. From a vendor perspective, there has never been a better time to challenge the status quo.

We are seeing this procurement/finance convergence first occur in the SME segment of the market where there is neither a CPO or CFO present (e.g., no veterans stuck in their siloed ways …) and where software must be delivered in a single, streamlined manner (no time or money available to implement multiple, complex systems). Taking procurement as an example, there really aren’t any (or very few) “SME procurement solutions” but there are “SME spend management” solutions. Furthermore, these “spend” solutions are typically championed by the most senior and financially oriented individuals in the organization or simply the owners themselves.

For these reasons, we see these spend management solutions becoming quite wide and encompassing p-cards, expense management, budgeting, approvals, purchasing, contracts, etc. Essentially a one-stop shop, championed by whoever is lucky enough to take on the titles of CFO AND CPO at a small business. A recently popularized category name for this space is “finance automation.”

How about at the enterprise level?

Sure, the wall between the CFO and CPO might be slightly stronger relative to SMEs, but we are seeing that start to change. We would look at the next generation of leaders in categories such as source-to-pay (Coupa, Ivalua, Corcentric, etc.) and AP automation (Tradeshift, AvidXchange, Medius, etc.). Arguably, all have started by coming to market with different areas of expertise but are now starting to converge to span the entire value chain from sourcing all the way through payments.

Some of you might challenge the examples cited in each category above — and you would be right to do so! Folks who previously focused on procurement and marketplaces are realizing the payments opportunity, and folks who started in payments are seeing the opportunity to move up the stack into purchasing.

While we think the ecosystem of point solutions will continue to evolve and be an excellent area for innovation, we believe the suite providers will ultimately converge and compete with one another under umbrellas such as finance automation, payment automation, spend management, etc. The CFO, CPO and entire organization needs to be in lockstep now more than ever when it comes to B2B purchasing because the stakes are too damn high!

How do you find the right procurement technology and vendor for your company’s digital upgrade? You can use Spend Matters’ 5-step “Procurement Technology Buyer’s Guide” to help.