Monthly Archives: June 2015

Where is Procurement Headed?

Will Procurement ever graduate from the status of misfit toy to that of
one eyed one horned flying purple people eater?

Procurement is still the back room function in many organizations. The early achievers adopted new technology and new processes in the early to mid noughts. The leaders adopted new technology and new processes from the late noughts to the early teens. But the laggards are still on the fence. And not just because they are laggards — but because their organizations are laggards and not giving them the respect and support they deserve.

Let’s face it, with the vast majority of Procurement organizations not having a seat at the table, they are still being treated as a misfit toy. Graduating to the status of one eyed one horned flying purple people eater would be a grand accomplishment — if they could get there.

But first they need to be a rockin’ band. But in order to rock, they need instruments. Technology, which they don’t get budget for, processes, that they haven’t been trained on, and knowledge, that they don’t even know they need. And even if they could get the tools, processes, and knowledge that they needed, they still need to learn how to play in sync.

We’ll start with the second issue first. In order to learn to play in sync, they need training. Training that they never got, even when training was a top procurement survey issue for almost five years in a row. But this is not only hurting Procurement, it’s hurting the organization. Because if Procurement had the training, they would not only know how to play in sync, but they would have the knowledge. In particular, the knowledge they need to not only obtain great savings, and value, for the organization, but the knowledge they need to institute better processes, identify better technology, and convince the organization of the proper steps to achieve savings success.

Good training not only provides knowledge to execute, but knowledge to educate, and knowledge to entice the rest of the organization to follow your lead.

So if your Procurement organization wants to excel, it has to get training. If it can’t get it by hook (by getting it in the budget), then it has to get it by crook (PO now and take the consequences when the invoice come in later), or if there are no other options, with the personal check book (and replace the funds with the bonus you’ll get when the savings materialize). And only then will Procurement be a band of one eyed one horned flying purple people eaters.

M&A: Confusion or Clarity?

There’s been a lot of M&A in the past few years, with companies like SciQuest, Selectica, Xchanging, etc. gobbling up a number of smaller companies with offerings that the acquirer believes could be used to make a full S2S (Source to Settle) suite, and with the recent investment announcements, including this week’s announcement of an 80M investment in Coupa (at a 1 Billion valuation, which the doctor still finds unbelievable), there is sure to be a return to the M&A frenzy of the late noughts that will likely equal, if not exceed, the scale (and occasional absurdity) of the APE Circus. (Which I hope will be accompanied by a return of the Sourcing Maniacs, but alas, the doctor has not heard from them since they told us they were on their way back from their African vacation on New Year’s day five years ago.)

But will it be worth it? First of all, many acquisitions end up being overvalued. (For example, the doctor believes CombineNet is still far in the red, and this can’t be helping SciQuest.) Secondly, many acquisitions have overlap in functionality and offering. Thirdly, many acquirees often use different platforms. Right now, .NET, true C++, Java, and Ruby on Rail frameworks are all quite likely in the space and many acquisition frenzies result in a the merged company having three or more platforms to deal with.

Since, for example, a Source to Pay offering is only valuable if there is more integration than a company could achieve on its own by acquiring separate sourcing and procurement, and, if necessary, contract management and spend analysis platforms, this last point presents a major headache for the newly merged companies. Simply defining the push-pull endpoints and automating the data transfer doesn’t add that much value. A third party integrator can do that. Value comes from real-time end-to-end visibility through the source to pay process for every invoice, shipment, purchase order, contract, supplier, etc.

And the functionality overlap presents another hurdle. Each customer that uses a platform will expect all of the functionality of that platform, so you can’t even consider killing a platform component until all of the functionality is in another platform component. Not only will this take development time and effort while the organization has to support two platforms, but considerable time will be required as bruised egos try to decide which is best to keep and which to discard if both “endpoint” modules appear to be equally valuable.

And then there is the balance of how far to take integration in the short term when sales are rapidly needed to justify the expenditure, pay for the overhead loss as reorganizations occur, and support new personnel to plan development of the next version which will, someday, integrate everything on one underlying stack.

Sometimes it’s quicker, easier, and more cost effective to be patient, just build everything in house from the ground up, and go to market with a truly integrated solution which offers end-to-end visibility because it takes top talent to pull off a successful technology integration. And, by definition, not every company will have top talent with enough expertise across the source-to-pay process to make the right decisions.

the doctor is sure there will be some great success stories in a few years, but there will also be some mega failures as well. And in the interim, we’ll likely have more confusion than clarity.

Any differing opinions?

Coupa = 1B? the doctor is still shell-shocked!

the doctor is still so flabbergasted that he does not know what else to write! So, in honour of their amazing, unprecedented, achievement, the doctor is reposting the classic first single from the Coupa EP: Davie and the Coupa Factory, which was originally released on March 24, 2007.

Oompa Loompa Doom-pa-dee-do
I’m building a great product for you!
Oompa Loompa Doom-pa-dah-dee
If you are wise download it for free.

What do you get when you go open source?
Straying away from the Oracle course
Where you are going terribly flat
What do you think will come of that?

I don’t like the look of it

Oompa Loompa Doom-pa-dee-dar
If you are willing, you will go far
You will live in happiness too
Like the Oompa Loompa Doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-dee
If you are wise you’ll take a look-see

Oracle’s fine when you have lots of cash
It stores all your data and caches it fast
But when you’re cash-strapped, you’re hung out to dry
To watch the vultures circ’ling high

Up in the dark’ning skies

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-derd
If you are wise, you will spread the word

Ask who they’ll blame when your spend is off track?
Deep in the red and there’s no turning back
Contracts alone will never be enough
If your software’s not up to snuff

And doesn’t track your stuff

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

Oompa Loompa Doom-pa-dee-do
I have a great product for you
Oompa Loompa Doom-pa-dee-derd
If you are wise, you’ll buy enterprise

Recquisitions with a click of the mouse
No more mistakes for accounting to delouse
One click receipts when the order arrives
Invoice matching that always jives

You’ll have no … you’ll have no … you’ll have no regrets

Oompa Loompa doom-pa-dee-dar
But now there’s Coupa, you can go far
You will buy in happiness too
Like the Oompa-Loompa doom-pa-dee-do

Coupa = 1B? the doctor is shell-shocked!

It takes a lot to shell-shock the doctor. It’s a crazy, crazy world and companies get overvalued all the time (take Facebook, for example). But 1B for a Procurement play best suited for the SMB market that only recently added basic sourcing (which qualifies as level 1 in the forthcoming 5-level sourcing model), basic finance support, and globalization support? A 5X multiple would be generous — and this is definitely closer to the 15X multiple that Spend Matters estimates in “coupa valued at over 1b in latest funding round”.

There are some who would argue that Coupa was past it’s prime when it started – the doctor had a conversation yesterday with someone who thought focussed Procurement platforms should have been over in 2006 (which is when they saturated the early adopter market). But since the true measure of maturity is when the technology starts to saturate the leader majority, the actual date the doctor would give for Procurement platform maturity is circa 2010-2011. Coupa doesn’t have anything that hasn’t been available from multiple vendors since at least then.

What Coupa does it make it faster (with instant start-up), better (through unprecedented ease of use), and cheaper (through SaaS and economies of scale). But it’s not unique, it’s not new, and while it is a Ferrari compared to the ERP Yugo, it’s still just Procurement with some Sourcing, Finance, and a solid technology stack. And it’s trying to lead a very competitive market. They may have grown faster than their peers (but they also raised 80M to do it when many companies only had a fraction of that to work with at any time), but hungry, hungry hippos come along everyday. And now that they are global, they have to take on the European heavyweights and newcomers (like Basware and b-Pack, which can now offer end-to-end Source-to-Pay as a result of the recent Selectica/Iasta acquisition, and both of these providers have Finance offerings as well — Basware actually started in Finance). And they more they crack open the market, the more companies that are going to be grasping at their coat tails, forcing them to be faster, better, and cheaper still — which at some point is going to erode their margins and affect their profitability.

Don’t get the doctor wrong, he has loved Coupa since Procurement Independence Day, and he even dedicated a full EP to them (which includes the hits It’s Coupa Time, The Coupa Store, and the unforgettable Davie and the Coupa Factory), but 1B is just crazy. It’s placing unreal expectations on Coupa and the Market as a whole, and setting them up for a huge acquisition that could make them the new Titanic of the space. And we all know what happened to the Titanic …

Top Procurement Challenge

What is it?

We all know the CPO has a jam-packed agenda. One just has to review “What is Top of Mind for CPOs” for a list of 20 hot issues that are keeping the CPO up at night. But what is the top CPO challenge?

If you Google Top Procurement Challenge, the top hit today is Spend Matters’ post on “The Top 5 Challenges for the Chief Procurement Officer”, based on an overview of the chief findings of a 2014 survey of European CPOs conducted by Xchanging.

The survey found that the top five challenges affecting those CPOs were:

  • spend creep and cost containment
  • realized savings visibility
  • compliance to contracts
  • technology leverage
  • a lack of deep sourcing or industry expertise in the team

Even though each of these is easily solved by way of an:

  • e-Procurement platform that enforces budgets
  • analytics and reporting platform that regularly produces savings visibility reports
  • contract management platform and procurement platform that enforces rules
  • e-Sourcing technology to support strategic sourcing
  • training, training, and more training

So what’s the problem?

It most likely relates to alignment with Finance (as recently investigated by the maverick, summarized in this recent post on When it Comes to Procurement, Don’t Forget Finance!), and, more specifically their alignment on ROI. As far as Finance is concerned, Procurement systems are IT systems and IT systems cost too much, return too little, and never do what they are supposed to. They don’t understand that it’s not the early noughts where systems cost (close to) seven figures. It’s the teens where the systems barely cost six figures. The systems are not first generation systems with limited functionality. The systems are second, bordering on third, generation with extensive functionality. It’s not the early noughts where it takes months to implement an on-site system. It’s the middle-teens where it takes hours to create a new instance in a true multi-tenant SaaS solution.

Most modern Supply Management Systems — including e-Sourcing, e-Procurement, SRM, and CLM — deliver a return within six months, and some, like Spend Analysis and Decision Optimization, can deliver a return in six weeks. The ROI is there, and is often substantial, but Finance doesn’t always see, or believe it. As a result, Finance doesn’t always support Procurement with the funding they need to acquire the platforms, services, and knowledge they need to not only be effective and efficient at their jobs, but successful. Which is a shame considering how far Procurement success can take an organization.

Which would indicate that the top Procurement challenge might actually be to align Finance and Procurement on the ROI of platforms and processes Procurement wants to implement for the good of the organization.