Spend Matters Not

Not long ago, sometime after my post where I asked Is it the Case that Spend Matters Most?, the posts Emptoris: Readying the Spend Visibility Armaments for Battle and Ariba: Not Sitting Still in the Spend Visibility Arms Race appeared on Spend Matters and generated quite a buzz. I’m now convinced that most of the providers still have not progressed beyond Spend Analysis 1.0 and, more importantly, that spend, or at least the amount of spend, doesn’t matter.

It’s not how much you spend, how you store it, how you cube it, or how you report on it – it’s how much you get, how you profit from it, and how you improve on it. It’s all about value, profit, and continual improvement. The fact of the matter is, sometimes spending more is the right thing to do. If you’re spending more to build higher quality products that allow you to double your profit margins and drastically increase revenue, compared to spending less, building the same products, and having your profit margins shrink to nil because they are not innovative and desirable compared to the rest of the products on the market, then you’ve made the right choice. Just like you should focus on Total Value Management, and not Total Cost of Ownership, when you make your award decisions, you shouldn’t be focused on how much you’re spending when doing spend analysis. It’s what you are spending it on, who you are buying from, the prices you are paying relative to the prices you could be paying and the rest of the market, and opportunities you have to drive value from the spend.

So, how do you figure this out? Analysis. Flexible, powerful analysis that allows you to aggregate, slice and dice, associate, break-out, normalize, aggregate, and slice-and-dice again. Analysis that allows you as the user to see the data any way you want to see it, any time you want to see it, any how you want to see it. A rigid view on a fixed set of dimensions might tell you that you’re spending 30% more on supplier X, but it might not tell you that you’re spending 60% more on servers, 10% more on workstations, and 10% less on laptops compared to other suppliers. In other words, a rigid cube analysis might lead you to conclude that you should be dropping supplier X for suppliers Y and Z, when really you should only be dropping them as a server supplier, aggressively negotiating with them on workstation pricing, and routing more laptop purchases through them for a larger discount.

I have to agree with Eric (Strovink) of BIQ. It’s the analysis. The value added services, especially those provided by Emptoris in their new release, are great, and they can be used to create some top notch reports that will knock the socks off of your stodgy old CFO, especially compared to what you can pull out of a traditional ERP, but that’s not how you drive maximum performance. Drop the spend. Focus on the value. Which supplier is giving you the highest value ratio (the most quality product for the least spend)? On which categories? Why? Which categories are performing the worst? On which categories? Why? Which suppliers do you have multiple contracts which? Any way to leverage the volume? And so on. You need to be able to build a cube, analyze it, slice off dimensions, extract a sub-cube, aggregate the data, run a report, and then compare it to a report generated off of another sub-cube for a different, but complementary, data set.

After all, it all comes down to the bottom line. It’s not what you spend. It’s not the revenue you take in. It’s not your operating costs. It’s how much profit the business makes at the end of the day and the value it returns to its shareholders. And that requires smart spend management based on actionable intelligence – the kind enabled by next generation spend analysis and visibility solutions. Everything else is just reporting – sometimes really, really, really good reporting – but just reporting.

And if the user can’t hack it … then the user needs to be trained or be replaced. Commodity prices are going up. After the third reverse auction, there’s no more fat left to trim. Once you’ve implemented the latest IT system, there’s little room for productivity improvements. That simply leaves collaboration, innovation, and smart spend management.

On a side note, I applaud Iasta for basing their new spend analysis solution on BIQ’s solution instead of trying to build their own from scratch. It takes years to build a good spend analysis solution, and since they are on-demand, they can easily integrate BIQ’s on-demand solution into their platform and extend it with value added services, which is where the real value is. This complements their core strength, the executable sourcing cycle, with a SaaS solution that helps the user determine the best category candidates for dedicated eSourcing events. Furthermore, as time progresses, they can build up baseline cubes and reports for common categories to jump-start the process for new customers and junior analysts. And, since it’s a partnership and not an acquisition, you don’t have one company swallowing another. Although this sounds great in principle, what usually happens is that the development teams merge, the new blended company adopts “one focus”, and a lot of the distinctive expertise that made the acquired company the best at what they do gets masked or disappears. BIQ is going to continue to build a better, differentiated, spend analysis product, Iasta is going to continue to develop better services around the product for the sourcing professionals it serves with its end-to-end executable eSourcing suite, and everyone is going to win. The only thing keeping it from being a perfect solution is the ability to easily integrate 3rd party data sources for spend augmentation and market-based reporting. But I’m sure that will come in time.

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