Daily Archives: March 30, 2011

Procurement Is Worth IT

So listen to the CPO Agenda when it says that Procurement Professionals should get bonuses, even though it might make this recommendation for the wrong reasons.

If Sales gets bonuses for making a sale, which brings the organization X cents to the bottom line for every dollar sold, then Procurement, which brings the organization 5X to 20X cents to the bottom line for every X dollars saved should definitely be in line for a bonus.

Plus, as the CPO Agenda suggests, if fixed costs are still a problem from a (short-sighted) organizational viewpoint, performance-based bonuses should be much less of a problem, especially if they are based on cost avoidance or savings, as a CFO can’t argue with numbers that improve the bottom-line 10X as much as the same numbers from Sales improve the bottom line.

Plus, if you want to retain talent, this is the best way to do it. Just like a hedge fund manager jumps to the investment house that will give him the biggest reward, your stars are going to jump to the organizations which give them the biggest rewards. And as much as you’d like to think that work-life balance, empowerment, and sustainability are important to your team, in general, nothing compares to a bigger paycheck which gives your star the ability to control their own work-life balance, a feeling of empowerment, and the ability to financially support their own sustainability goals.

So give your stars performance-based bonuses. They’re worth it.

The Forrester Wave: The Tsunami that Wasn’t

In yesterday’s post, we noted that the latest Forrester Wave on eProcurement Solutions has been released and that Jason was right when he said the Forrester ranking methodology, generally, does a better job than Gartner because it provides better transparency into the criteria that contribute to a ranking on each axis, but that, overall, the report wasn’t much better for a few, very significant, reasons.

First of all, limiting the evaluation to vendors with more than $15 Million in revenue is unduly restrictive. While it’s critical that the vendor have a steady income stream to maintain stability, a specialist vendor focused solely on best-of-breed e-Procurement solutions can be quite stable around the 5 Million mark. e-Procurement, like e-RFx and e-Auction, is a mature technology that’s not rocket science. As a result, a specialist provider with real talent in the R&D organization can easily maintain and continue to enhance such a solution on a regular basis with only 1 to 1.5 M in the R&D budget.*1 And since a small provider without a lot of sales & management, operational, and executive overhead can devote 30% or more of revenues to R&D, it’s easy to see that 5M makes a very sustainable company.

I realize that lowering the threshold would have entailed a lot more work, and probably doubled the number of vendors, because then Forrester would probably have had to look at b-pack, Conexa, Coupa, Esize, Global eProcure, Intenda, iValua, Ketera, Proactis, PurchasingNet, Puridiom, Verian, and / or WaxDigital. But would that have been so bad? Especially when CapGemini and Hubwoo, which are just extensions of an underlying SAP platform, were included?

Secondly, while product strategy is important to consider in an evaluation (is this an end-of-life product or a product that is just hitting it’s stride with years of improvements planned), strategy does not deserve a 50% weighting. If a company is going to acquire a solution, it has to solve the problems the company has today, not solve those problems in two years time. Furthermore, while financial resources to pursue the strategy are also important, if the list is limited to companies with a sufficient revenue stream, it has no place in the weighting since all companies make the cut. And as for corporate strategy, that will be reflected in the product strategy. Plus, with respect to the “current offering criteria”, where’s the “integration” criteria? Remember, its Sourcing and Procurement. Thus, while supplier connectivity and enablement is important, so is integration with the sourcing suite and the underlying ERP (that holds the organization’s data store, if there is one).

Third, procurement isn’t the problem, it’s compliance! It’s getting the big maverick spenders under control and forcing them to buy on contract (unless there is a real, management approved, need to go off contract) and forcing the suppliers to only deliver contracted merchandise and to bill for it at contracted rates. This is why most organizations only see roughly half of negotiated savings — mavericks buy off contract and they don’t catch the unapproved supplier substitutions and overbillings. Both require a good settlement function with advanced reconciliation and m-way matching capabilities. In the first case, invoices from contracted suppliers without POs have to be caught and denied (since the contracts will state no invoices without POs will be paid) and in the latter, matches have to be done against the PO and contract. However, “settlement” only gets a 1.5% weighting in the Forrester evaluation! In comparison, (future) product strategy gets a 30% weighting and goods purchasing, which an application has to have to be considered eProcurement, gets a 10%.

But, as I noted in my last point, at least this report had some good points. For better or worse, it defined inclusion and evaluation criteria and stuck with them. No vendors slipping in or out on analyst exceptions or technicalities. It displayed an understanding of what maverick spend is and why e-Procurement is needed to counter it, even if it didn’t capture and weight the appropriate functionalities. It noted that the right process must be easier than the rogue one and that approvals must be rapid when the right decision is made. It understands that while suites are getting better, there is still lots of edge left for best-of-breed to capitalize on. And it provides its evaluation spreadsheet to its clients who can alter the weightings to see which subset of the solutions are more appropriate to it based on the Forrester criteria. (You might still end up with a foot in the grave if you select one of these solutions, especially if you’re not a 1000 lb gorilla, but at least you can choose your own grave!)

Conclusion: Unlike many analyst reports, it’s definitely worth a read, but I wouldn’t base a decision on it unless you’re a 1000 lb Gorilla who is limited to buying from a 800 lb Gorilla by corporate mandate. An average mid-market company IS NOT likely to find the right solution for it in the evaluated vendor mix.

Finally, for those of you who have decided that you are going to limit your eProcurement selection to one of these gorillas, I’d watch for Jason’s forthcoming vendor analysis. SI will not be doing any further analysis on this report. Given that it missed the majority of solutions appropriate to the mid-market with its ultra-restrictive inclusion requirement and that a number of these vendors are in the very small set of vendors who won’t talk to SI, it’s not worth it.

*1 There are some “micro” companies in the space that I follow that work magic on a yearly basis on an R&D budget that never tops 1M.