Category Archives: Best Practices

What is that Platform Worth?

That’s a question you really need to be asking before you sign on the dotted line. Because platforms are getting more expensive than ever. As a result of big companies gobbling up smaller companies at high multiples, their investors are pushing them harder and harder to get profitable returns on the investments fast, and since a company can only sell so fast (because cycles are long and it only has so many sales people to purse them), the only way it can satisfy its investors is to up the price.

Now the vendor will justify the increased cost as a result of the increased value it can bring with the new acquisition(s), and while the new acquisition(s) will definitely have value to some customers, they may not necessarily have value to you … or at least not in this stage of your development. if the acquisitions require a certain degree of maturity in your Procurement organization in order for you to obtain value from them, and you won’t achieve that level of maturity for at least three years, paying for it since day one because it’s “part of the platform” is not going to buy you anything.

You need an ROI, and while it’s perfectly valid for a provider to price on an ROI model, it’s only okay for you to pay if the ROI model is one that you can achieve based upon your current processes, level of organizational maturity, manpower levels, change management capability, and buying profile.

The ROI most providers are promising is not an ROI that is achievable by an average organization until they realize best-in-class performance, and for the average organization committed to that journey, that’s five to eight years in the future.

So, before you take a vendor’s word as to what the ROI is, ask for their assumptions and do your own internal assessment. You’ll likely only realize a fraction of the promised ROI in the first year, and it will likely be 3 to 5 years until you realize the majority of the ROI being promised to you.

So the “worth” of the platform the vendors are promising, especially in the beginning, is a lot less than you might think … so be sure that the platform is priced accordingly, and key features rolled out incrementally, so that you do realize value year-over-year.

We’re Still Not on the Side of Majority … And That’s a Damn Good Thing

Three years ago we reminded you of one of Mark Twain’s most insightful sayings:

Whenever you find yourself on the side of majority, it is time to pause and reflect.

The majority is still happy with the status quo. Still accepting the word of Gartner as Gospel. And accepting the word of vendors that they have a fully functioning, value-generating, feature-complete 3.0 Procurement platform and well on their way to the 4.0 Procurement platform that they’ve been hiring experts to talk about at all of their events over the last year (when nothing could be further from the truth).

That’s why the doctor is pushing forward with Spend Matters on Solution Maps — the only maps in the space that are bias free. The analyst rating is 100% tech weightings on a well-defined scale to beyond market average. The customer rating is 100% unbiased customer ratings as the analysts don’t talk to the customers filling out the surveys (at least not until they’ve filled the surveys out). (Psychologists have proven the way you ask questions leads the customers to specific biases in their responses and scorings, and we avoid that with out methodology.) It doesn’t mix six different measurements, half of which are completely subjective, on an axis like other analyst reports.

That’s also why the doctor still has sponsorships suspended — he won’t entertain any pay-to-play relationships and he’s not about to abandon the educational goals this blog was started on. He’s slowed down a bit, but that’s just because he’s waiting to see how the market is going to shake-out as a result of this M&A frenzy and how you will have to adapt your processes and strategies to be successful. (In the interim, the vast majority of the 5,600 posts in the archive have education that is still as relevant as ever.)

So, for now, just hold tight

Magnus Bergfors joins Spend Matters Today …

And here’s a key excerpt from the ex-Gartner analyst as to why and the importance Solution Map (co-designed by the doctor) plays in solution section (and key insights into why Magnus joined Spend Matters):

Q: How do procurement departments go about doing a tech selection and deciding which vendor among so many to spend their business’ money on? From your perspective, what role does SolutionMap play in that process?

A: Businesses need to review (and probably redesign) the way you work as part of the implementation. I saw a quote from someone that said something like, “If you digitalize a crappy process you get a crappy digital process” … and this is really true.

Unfortunately the vendor marketing here doesn’t help. The big vendors are (for obvious reasons) pushing their whole suites, and very few organizations have the resources and change management capabilities to implement a full suite at once.

So going back to your question: Identify the key areas, start there and implement carefully. Build on this success to expand the program. Even if the end goal is a full S2P suite, it needs to be implemented step by step and continuously adjusted and improved.

As for what solution, this is where SolutionMap comes in: The ability to focus in on the specific module you need and look at it from a persona perspective is incredibly powerful. Other analyst ratings don’t get into that level of detail and often includes parameters that have little to do with the actual functionality.

For the full story, check out Technology analyst Magnus Bergfors joins Spend Matters’ team from Gartner.

Synertrade: Looking Forward to Powering Inter-Planetary Supply Management

the doctor thoroughly enjoyed the theme of last week’s Synertrade Digital Procurement Summit, which was the “Mars Age of Procurement”. Not just because it was forward thinking, but because a vendor finally proved to SI that at least some of their staff have truly been following the doctor‘s writings for years (including the writings here on SI).

Long time readers will recall that back in 2013 SI asked Why Aren’t We on Mars Yet? because General Dynamics promised us a manned mission to mars in 1975 back in 1963 and almost 40 years had passed since the promise and a mission to mars still looked to be decades out. And it wasn’t just interest in the space race that prompted this — it was knowing that this would force us to look ahead to the next generation of Supply Management challenges (and start thinking about truly next generation solutions to address them).

Simply put, it’s one thing to source everything needed to build and equip a shuttle for an International Space Station (ISS) mission, another to build and equip a craft for a mission that could easily span half a decade, and another challenge yet to manage the reverse transport of recyclable products and any raw materials we may be able to mine from Mars. So, as you can imagine, seeing a conference embrace a theme around the “Mars Age of Procurement”, even if only metaphorical, is very satisfying as it means the vendor knows that supply management challenges are always going to increase in complexity as our goals and needs evolve, that a company needs to take a long term vision in order to adapt and succeed, and that they understood the hidden metaphor the doctor put forward all those years ago.

Especially since times have changed in the six years since the article was penned. Now that the space race has become the chosen pet project of the tech billionaires, we are being told that we could see a mission to Mars by as early as 2038, which, while over sixty years late according to the General Dynamics timeline, is less than two decades in the future and gives us hope that we may yet again try to explore beyond the planet.

And this is another reason SI is very satisfied with the conference theme! The mere fact that an IT company, which has already survived for two decades as a stand-alone player with a single code base that has never grown by acquisition, wishes to be around as a stand-alone company in twenty years is truly admirable. We are in an industry where most companies want to see how fast they can get acquired or merged with another company at an investment multiple that makes the investors and founders rich; an industry that has already become the new “hot” landscape for Private Equity (PE) firms looking to roll-up, take public, or flip as many companies as they can in the Source-to-Pay (S2P) space now that it has three stand-alone Unicorns (valued at over 1 Billion); and an industry that creates solutions required by every single mid-size or larger company in the world. (All successful growing companies buy and sell — that’s just how business works.) When you consider all that, the fact that Synertrade is one of the few platforms that has deep support for direct (materials) and optimization, it’s leadership rankings from multiple analyst firms (including Spend Matter’s Source-to-Pay Solution Maps), and the fact that Synertrade, especially over the past few years, has grown to be a dominant player in the Source-to-Pay space (especially in Europe) that has been increasing it’s customer base by over 15% year-over-year and it’s revenue by about 30% year-over-year for the last four years, this is very notable.

And yes, the event was very well done. For more insight into the event, SI is directing you to the doctor’s pieces over on Spend Matters which talk about some of the key insights brought forward.

Suppliers in the Solution Economy are NOT Suppliers in the Industrial Economy

Given that, in today’s Solution Economy, a company that suppliers a customer with a product or service often outsources the production of that product, or the implementation of the service, to a third party, the company needs to thoroughly understand its suppliers’ strengths and weaknesses to select the right supplier to manufacture that product or provide the service to the end consumer.

This means that, where its suppliers are concerned, a company needs to have a much better understanding of its suppliers than it did in the industrial economy. This means that a company has to start by:

  • Asking different questions, much more often
  • Observing the supplier directly

The questions need to move away from “do you have the facilities to make this product” to “what value-add do you add in the term of usability, reliability, or warranty support that we can use to meet the needs and want of our customers” and the questions have to be asked every time the customer needs change, not just once every three years when the category is resourced. You may not be able to change suppliers or alter the contract, but if you put in continual improvement and collaborative design clauses, you can at least make sure that subsequent iterations improve in the right direction. Similarly, on the service front, the focus should move from “do you provide service X” to “give us examples of how your delivery of service X met the following customer values and led to higher satisfaction ratings”.

Similarly, it’s not enough to just do a plant visit during the supplier qualification phase. There needs to be continual observation and interaction through the full contract life-cycle to make sure that the supplier undertakes continual improvement efforts, that issues are quickly identified and brought to your attention if they can not be quickly resolved, and that the level of professionalism and attention paid to you does not decrease over time as new customers enter the pipeline.

In other words, it’s not just send out an RFQ, select a supplier, have the product shipped to the end consumer … it’s make sure it’s the right product that meet’s the consumers needs and gets there at the right time with the right level of usability and reliability.