In the beginning, strategic sourcing and supporting applications were for the Fortune 500 only, not only because they were the only organizations that could afford the multi-million dollar price tags, but they were the only organizations that theoretically had enough spend to see a significant ROI after the (very) significant product, process, and people costs were taken into account. (And whether or not you agreed with the viewpoint that strategic sourcing was only for the rich and famous, you couldn’t argue that unless you were among the rich and famous, you couldn’t afford the price tag.)
Then the Sourcing 2.0 providers, who said we can use the web to deliver solutions on-demand for a fraction of the cost of the on-premise behind-the-firewall model (which, in the beginning, was six figures instead of seven), hit the scene and strategic sourcing broke into the (high end of the) mid-market. It wasn’t applicable to every category, or to every project in the categories it was applicable to, but made a significant impact in those categories it was applicable when best practices and the right expertise was applied.
Then costs went down, as features increased, and (strategic) sourcing solutions slowly permeated the mid-market, starting with the companies with revenues in the high nine-figures and ending at the companies with low nine figures in revenue. At this point, most of the “leaders” had these solutions, as well as a few of the learners, and the laggards still did not give a damn one way or the other. The market started to saturate. So what was a vendor to do?
Push strategic sourcing down into the small business market. Simplify the solutions, make them true self-serve cloud-enabled multi-tenant applications, and price them so that everyone can afford them. But is this really strategic sourcing?
While you can argue that the market was starting to stagnate because it was saturated, you can also argue that the market was starting to stagnate because most of the market wasn’t benefitting from the solutions (to the extent that they adopters of the technology thought they would). And if the latter is the case, you have to ask if strategic sourcing truly exists in the mass market. After all, if the solutions aren’t working, there can only be three reasons:
- the solutions being sold don’t support strategic sourcing
- the solutions being sold do support strategic sourcing but aren’t being properly utilized
- strategic sourcing isn’t possible at a company below critical mass
If we assume that a critical mass isn’t required to effect strategic sourcing, then if a company isn’t getting results, it’s either because the solutions don’t support strategic sourcing or they do but aren’t being properly utilized. I think we can quickly rule out the theory that the solutions being sold don’t support strategic sourcing (when properly utilized) because the basic process has been well understood for a couple of decades now, every big consultancy has their own n-step process, and the foundational solutions have been built and rebuilt so many times that they’re almost commodity. I also think we can’t say that the solutions aren’t being properly utilized because while I’m sure some companies don’t have a clue, at this point it’s well understood what the solutions do and how to use them, especially at any company that’s investing in the right people, process, and technology to improve it’s sourcing.
This leaves one reason why the results aren’t being realized (to the extent they were expected) by the majority of the market — they companies are not at critical mass. In order for strategic sourcing to truly be effective, I would posit that the following two conditions must hold:
- there is enough spend to warrant a strategic sourcing effort
- there is enough knowledge to effectively execute one
At most mid-market companies, the knowledge of modern procurement is limited. Procurement is still primarily a back office function, telephone and fax is more prevalent than modern technology, and the level of education isn’t much beyond high-school. You don’t have a room full of MBAs or Engineers trained in supply chain, and most of the buyers, who have no form of certification whatsoever, don’t even belong to any purchasing organizations. And this lack of knowledge to the face that most of the solutions don’t go beyond the help necessary to guide the user through the process, and you can see that most organizations don’t have the knowledge to effectively execute a proper strategic sourcing effort.
Furthermore, even at those few mid-market organizations that have made the effort to recruit and attract the right people, and give them the right training, I would argue that strategic sourcing is a rare event because most categories don’t have enough spend to enable a true strategic sourcing effort. As Dalip Raheja (of The MPower Group) said when he declared that Strategic Sourcing is Dead, it’s not strategic if everyone else is doing it. You can’t just go through the seven steps and have a strategic event. You have to analyze the rationale behind each and every assumption and decision you make for the event to be strategic. (Why are you dual sourcing? Why are you outsourcing design? Etc.) This takes time, money, and, often, specialized consulting and/or tools in addition to your sourcing suite — and, one way or the other, this comes with a hefty price tag. A price tag that’s only worth it if the spend is significant enough to insure (the likelihood of) a high ROI!
As a result, I have to (mostly) agree with a colleague of mine who has said that there’s no such thing as strategic sourcing in the SMB market. While there will be a few categories in the higher end of the MB market where strategic sourcing can be effectively applied, and while you can push the sourcing tools down through the mid-market to the small business market, you can’t push the strategic element. The best you can do is bring true B2B commerce to the average small business. And while this is certainly a good thing, as it drives transactional efficiency and lowers cost, let’s not fool ourselves. True “strategic” sourcing is a rarity.