Category Archives: Market Intelligence

What Would the Acquisition of SalesForce Mean to the Procurement Market?

Who Cares?

While the doctor and the maverick see eye-to-eye on a lot of issues, and that’s why they have been collaborating on the new Spend Matters CPO site because there are important messages that are just not being communicated by the new press at large, the doctor believes that the impact this acquisition will have on the Procurement market, as summarized in yesterday’s post on “what would the acquisition of salesforce mean to the procurement market” by the maverick, is not as important as the maverick seems to believe it is.

While the acquisition of SalesForce is an important topic, it’s no more important than the acquisition of any non-Procurement technology vendor. (While some SRM vendors use the platform, one has to remember that it is, at its core, a CRM platform). It’s (primarily) upstream, while Procurement is primarily downstream. While the processes should connect, they are still distinct and, unless you are in the middle of a negotiation, there’s no reason to even think about it as a Procurement issue.

The real issue is what does the acquisition of SalesForce mean to the technology market, and the market at large?

And while the doctor knows that he’s not just stirring the pot but the entire honeycomb on this subject, it’s a subject that needs to be addressed. So what does it really mean?

Simply put, too big to succeed!

One of the biggest problems with the technology market is that the misconception that bigger is better, and too big to fail, is a reality. The whole point of big was to benefit from economies of scale. But economies of scale have a limit. A single factory with a single production line can only produce so much going 24 hours a day. To go beyond that, you have to add another production line, or even another factory. If you do so, and you only reach half of the capacity, you don’t have the same economy of scale on the overage.  The biggest economy of scale was when you were at full capacity on the one line.

In other words, if you expand faster than demand, you waste time, money, and resources. This situation is bad, but the situation that occurs in an acquisition is much worse. Not only do you have more capacity, but you have a huge debt load as a result of the acquisition. So you are paying more to produce, and then you are paying even more to service the debt that you took on to produce more than you needed to.

But even this situation isn’t as bad as the situation where you are talking about technology companies that don’t produce physical goods, don’t have demand that typically rises with population increase or market growth, and have valuations that are many multiples of annual revenue — not profit, revenue. And we all know that the misconception that the product has already been built and the residual cost of sale is minimal is incorrect. Software has to be maintained, debugged, and constantly improved in order to be saleable to the mass market. That is costly. Whereas a product has a single production cost, possibly a single repair cost under warranty, and possibly a single reclamation or disposal cost, that’s it. The cost for each product is essentially one-time, whereas the cost of software is continual and adds up everyday it is in use.

As a result, you have software that typically:

  • cost millions to build
  • costs millions to maintain

and now you want to

  • add millions to the cost just so you can change ownership and assign a different name

It doesn’t make a lot of sense. Especially when you are talking about the acquisition of an 800 lb gorilla which already has a (relatively) complete solution. In this situation the acquirer is essentially admitting that either

  • its solutions are totally inadequate and it wasted millions of its customers dollars on its solutions (versus realizing that it has some good solutions, is missing a few key elements, and just needs to acquire a few point solutions from smaller vendors to fill the holes) or
  • it has no inherent capability to enter the space (and maybe it shouldn’t be entering the space to begin with).

And the acquiree is essentially admitting that

  • it cannot maintain (rapid) growth on its own anymore (which may not be bad if it’s the dominant player and has a very large recurring revenue and could continue to increase profitability with improved efficiency) or
  • it’s shareholders are greedy and impatient and don’t care what’s best for their customers and just want a quick payout.

Neither situation is good for either party. Nor does it make sense for any of the de facto tech giants who would likely acquire SalesForce to do so. None of the six AMIGOS (Amazon, Microsoft, IBM, Google, Oracle, and SAP) should acquire SalesForce. Here’s why.

  • Amazon
    They are an online e-commerce giant, with inherent ability to be a commodity supplier to large enterprises. They are not a software provider and beyond insuring quality, and receipt of goods, would not benefit from CRM. Sure the Force.com platform would allow them to offer even more apps, but they can already offer Android apps and sell online software, so it’s not a huge leap in capability.
  • Microsoft
    They already have huge back office suites that they have made huge investments in, including investments to port these suites to the cloud. Plus, their focus, and strength*, is back-office apps. They’d be taking a huge-write off on existing technology and would have to rewrite a lot for a whole new platform. They already run on Windows and Mac, that power the vast majority of office desktops, so why do they need the Force.com?
  • IBM
    IBM already has platforms for just about everything, including Alliance for CRM, have heavily invested in Watson, and need to keep building on the workflow and integration platforms they spearheaded in the early naughts.
  • Google
    the doctor will admit that it almost makes sense for Google, but Google’s market, and expertise, is apps, and it is still learning how to make money off of enterprise apps. It’s not ready for SalesForce, would have to let it run as a completely separate division, and take a huge hit to its balance sheet to pull of the acquisition. And while it’s the one company that could probably pull of a successful integration in a reasonable timeline without bleeding blood red everywhere, it would likely be quite a divergence from its other projects.
  • Oracle
    Oracle has too many CRM platforms as it is (with Siebel, PeopleSoft, CRM on Demand, and integration to about a dozen other platforms) and needs to continue to integrate and build on what it has. What makes Oracle strong, and great, is that it has always believed in eating it’s own dog food (while Microsoft ran off of third party databases even after SQL Server was released and has demoed Windows software releases on MacBooks on more than one occasion), but even Oracle can only integrate its acquisitions so fast. It’s still catching up on acquisitions past (and it took about 3 years to integrate the majority of Sun applications into its “single instance view”), so just imagine the effort to do a true end-to-end integration of SalesForce. Plus, it’s still a database / ERP company and with SAP so aggressively pursuing its marketshare in the US, with IBM and Microsoft still aggressively pursuing its global market, and with some companies (still) proclaiming that non-relational or in-memory databases can be faster and better for the average application, it has to focus on winning that fight.
  • SAP
    SAP is an ERP company with a very heavy focus on SRM, as evidenced by the huge amount of money it has dropped on Procurement, T&E, and Supply Management vendors over the past few years. This is where it has to focus to not only break-even on its acquisitions, but generate future value. And it still has a lot of integration to do. A lot.

the doctor‘s sure not everyone will agree with him, especially since people seem to get a little blind when such big numbers start flying around, but someone has to start putting this in perspective.

And now to put up the tarps in expectation of the reactionary mud-slinging from third parties not inclined to think deeply about the issue.

* And yes, the doctor cringes when he says this because most of their software, in his view, while standard, is sub-par — but they are the de facto solution and their Office apps, when you cut through the clutter (and the ribbon), work very well.

Forget SIM. The Real Answer is SIR.

Earlier this year, Spend Matters ran a post by Jason Busch on Why Collect Supplier Information that highlighted some of the information needs addressed in a recent piece by Mr. Busch and Mr. Gustin on “Supplier Enablement for Invoice Discounting and Supply Chain Finance: Background, Tips, and Secrets for Success” that not only highlighted some of the needs for detailed supplier information but also outlined many other reasons why organizations need supplier information.

The traditional answer to this is Supplier Information Management (SIM), implemented by way of a supplier portal where suppliers provide, maintain, and verify their information to the buyer on an as-needed basis. While this sounded like a good solution, especially since the amount of information some buyers need to collect on a single supplier can be staggering, which makes the task almost impossible for a large organization with thousands of suppliers, all it does is shift the burden to the supplier. The rationale provided was that the supplier, who needs to sell its wares, would accept it as a cost of doing business, especially since the supplier would need to provide much of that information on an RFX anyway and this way only has to provide the information to the buyer once as it would be maintained and reusable on every future RFX or information request.

This sounds fine and dandy, but really only makes sense if the workload for the supplier is less than the workload for the buyer. Otherwise, the work is just being shifted, overall supply chain efficiency is not increasing, and cost is not being take out of the supply chain. And SIM is not delivering on its promise.

The reality is that the workload for the supplier is not decreased because, with the proliferation of SIM systems across Procurement, more and more organizations are asking more and more of suppliers. And the perception that the supplier has less customers than the buyer has strategic suppliers is not always correct. Since most large buyers with risk avoidance tendencies only buy from large suppliers, and since suppliers can only become large suppliers by attracting a large client base, the supplier has as many buyers as the buyer has strategic suppliers — and the supplier has just as much data entry and maintenance to do as the buyer did before the buyer purchased its SIM solution. The work hasn’t been minimized, only shifted, and the cost has only increased because the supplier’s cost of data maintenance is no less than the buyer, and the supplier will just add a mark-up to cover their cost.

The true answer to the supplier information problem is not a SIM solution, but a SIR solution — an on-line, shared-access, Supplier Information Repository where a supplier can enter all of their information once, maintain it, and, under a fine-grained security model, share it with their customers (the buyers) on an as-needed basis. This reduces costs for all parties and truly takes costs out of the supply chain as the supplier only has to maintain one set of data, and the buyers can access all data from all suppliers for one low-cost annual subscription, which, because a vendor does not have to maintain multiple SIM instances, allows the vendor to offer repository access at a cost that is less than the cost of a traditional SIM solution.

A prediction from the doctor with regards to Big Procurement Events

In a recent post over on Spend Matters UK on “eWorld Procurement and Supply” by Peter Smith, he made a number of observations on the event that happened last month. A few of these might have been unexpected by the average practitioner, but are not really surprising when you think about it. First we’ll cover them and then we’ll discuss why the doctor does not think these observations to be all that surprising.

Mr. Smith’s observation number two: There was also a good number of suppliers, although there seemed to be quite a few of the bigger software firms missing this time.

Mr. Smith’s observation number three: The standard of the presentations is still highly variable.

Mr. Smith’s observation number four: The other thing that might help on that would be a little more detail on the content in the programme.

Mr. Smith’s observation number seven: Ultimately, there is considerable value to delegates in eWorld, particularly if you are smart / lucky enough to choose the right sessions ….

Let’s start with observations number three and four. When you have an event that relies on lots of vendors forking over lots of dollars, you can’t always be that fussy when it comes to whose dollars you accept. And since those dollars come at the price of a presentation, it’s obvious that since vendors are of various quality, the presentations, as well as the descriptions of such presentations, will be of various quality. And as a result …

Mr. Smith’s observation number seven is a logical consequence. As a result, the value to delegates will be entirely dependent on those delegates choosing the right sessions, which, with limited information, will depend as much on a delegate’s luck as the delegate’s skill in picking the right presentation to attend. But the most important observation is …

Mr. Smith’s observation number two — the lack of bigger software firms. Not only does the doctor not find this surprising, but expects more and more absences from the leading firms in the year to come. Why? The ROI of this event for a leading provider is less and less every year. The more providers who are present, the less mindshare each provider gets. The bigger the event gets, and the more practitioners who get to go at little or no cost, the more the vendors have to pay to attend. In other words, vendors end up paying more for less every year. Especially when the practitioners who are attending the big events not only range in seniority from Junior Buyer, with no buying influence, to CPO, with ultimate buying authority, with the majority being on the Junior Buyer side of the scale.

And if you are a large, best-in-class, vendor, with a decent education budget, you have enough to finance and attend a much smaller event with a larger percentage of Director’s, VPs, and CPOs, where you are not only going to get more mind-share, since there will be fewer vendors at this smaller event, but more potential marketshare, since every individual that shows interest is one with actual buying authority.

Furthermore, since the even larger best-in-class vendors can host their own Procurement education days, with thought leaders, client case studies, and hands-on training sessions, these best-in-class vendors can get 100% mindshare for a limited time from every person who attends. So what’s the better value? A big event like eWorld or ISM where vendor capability ranges from simple e-Negotiation capability to full-fledged Source-to-Pay with little hope the average attendee will have time to figure out the difference? Or a smaller, focussed event, where the limited number of vendors have similar capability, more time to educate the participants, and a chance to educate more senior participants? Obviously, the latter, and, as a result, it’s only a matter of time before the number of absences at big events like eWorld and ISM from big, leading vendors increases. And that’s the doctor‘s prediction.

When it Comes to Procurement, Don’t Forget Finance!

Surveys regularly ask Finance to rate Procurement effectiveness, but is this the right question to be asking? Maybe Procurement should be rating Finance effectiveness? After all, is it necessarily Procurement’s fault that there are usually noticeable gaps when the results of these surveys are published? Maybe, but maybe not.

The only way the gaps will close is if the root cause of the gaps is identified and addressed. Is Finance providing the necessary funding for the platforms, training, and resources that are required to effectively address all of the categories? Is the organization evaluating effectiveness against the right KPIs? Does the Procurement agenda align with the organizational agenda that Finance has a hand in shaping?

Now, I’m not saying it’s Finance’s fault, and I’m not saying it’s Procurement’s fault, but I’m saying there is a reason for the gap and the reason needs to be identified. Sometimes it will be a lack of effort or focus on Procurement’s part, sometimes it will be a lack of effort or focus on Finance’s part, but the doctor‘s guess is that more often than not it will not be anyone’s fault but be due to a lack of alignment.

As the maverick points out over on Spend Matters in his post on “What Does the CFO think of Procurement”, Procurement and Finance are misaligned in numerous ways, and this misalignment is costing companies a lot of money.

That’s why the maverick teamed up with ISM to conduct a new study on Procurement and Finance Alignment to help Procurement and Finance understand all the misalignment areas and the loss of value caused by this misalignment so that Procurement and Finance can work collaboratively to realign. the doctor had a chance to review, comment on, and contribute to the study before its release and can tell you that it’s well designed and well worth your time, especially since the average company will be able to complete the full study in about 15 minutes.

I strongly encourage every company, no matter how well they think their Procurement function is doing, to take this study which is designed not to assign blame but to detect areas of misalignment where Procurement and Finance can work together to improve performance.

Taking the study is easy. Simply e-mail the maverick at pierre (at) spendmatters (dot) com and you can get the study link and first access to the results.

ERP is Not Enough!


When your organization was sold its Enterprise Resource Planning (ERP) solution suite back in the 1990s or 2000s, it was probably told that the ERP suite was the answer to all of its information management problems and it would be the last suite the organization would ever buy. As the evolution of Manufacturing Resource Planning (MRP) software — which was focused primarily on product planning, manufacturing, and inventory management — ERP was supposed to address all of the weaknesses in the MRP software as well as give Sales and Marketing, Finance, and Executive Management visibility into operational status. Specifically, ERP was supposed to handle sourcing and procurement, receiving and distribution, sales forecasting and integration into production planning, and provide a solid foundation for accounting and finance. ERP was supposed to provide the organization with a real-time end-to-end view of core business processes that could be used to effectively monitor, manage, migrate, and market the business. ERP was supposed to be delivering on the single system promise that you were waiting for since the dawn of MRP. But it didn’t.

“Why ERP is not Enough” by b2bConnex (Registration Required)

Those of you who are regular readers know that SI rarely promotes vendor-authored white-papers, as many turn out to be more marketing fluff than solid content, but every now and again SI finds a real gem, and this paper is one of them. Not only is it a solid, factual, educational piece, but it’s echoing a message that SI has been promoting for years (and often while screaming at the top of its lungs). ERP is Not Enough, and the continued over-reliance on ERP is why so many organizations, especially in manufacturing, are struggling to find efficiency, savings, and value in their supply chains.

Even though Sourcing and Procurement platforms are now mature technology, the number of your peers that have still not adopted modern platforms is still quite high. That’s why a number of new SaaS-based start-ups are still finding success a decade later with streamlined, on-line, implementations of sourcing or procurement modules that are almost a commodity at this point. When a company finally realizes the value, SaaS allows for a quick, easy, low-cost entry point to a modern platform.

And a modern platform is needed. Just because your ERP might support document exchange, that doesn’t mean it supports online tenders. Just because it supports price quotes doesn’t mean that it can maintain detailed price history and do trend analysis. Just because your ERP can store a contract doesn’t mean that it can store all of the delivery schedules, rate tables, and agreed upon performance metrics in formats that can be easily accessed, queried, and automatically compared to invoices and time sheets. Just because it can store a PO, that doesn’t mean it can store a full requisition and approval history. the doctor is sorry to say that he knows of more than one company that has spent over a million dollars trying to implement a good e-Negotiation platform or contract management platform on an ERP, only to fail when they could have bought a best-of-breed solution for 1/10th of the cost.

One has to remember that where ERP is concerned:

  • it is still rooted in MRP & on-site inventory management
    and distribution, logistics and supply chain optimization was never in the core vocabulary
  • it is all about reporting
    but supply chain success is all about analysis and actionable data
  • it is designed around an old-school data store with a rigid format
    and not a modern, extensible, workflow-based Master Data Management model
  • it was based on the concept of an activity journal
    not around transition management for an evolving supply chain
  • it is internally focussed
    but supply chain management needs to be externally focussed

This paper addresses all of these issues in detail, outlines the shortcomings of an ERP, and helps you understand why you need, depending on your business, a modern sourcing platform, a modern procurement platform, or, particularly in manufacturing, a modern supply chain communication and collaboration platform that handles all of the communications necessary between a provider of consumer or manufactured goods and their product and component suppliers from the initial tenders through the delivery of the final goods receipt and invoice pair when the contract has been completed. Moreover, the paper does this without any reference to any particular platform or marketing spiel and really helps you understand why your ERP is not, and will never be, enough and why you have to move to modern Sourcing / Procurement / Collaboration platforms, depending on your vertical and needs.

If you are not on a modern Supply Management / Supply Chain Collaboration platform, the doctor strongly encourages you to register for, and download, Why ERP is not Enough today and spend a good deal time of understanding the issues addressed. The sooner you understand what you need and why you need it, the sooner you can acquire the right platform and supercharge your supply chain. All the technologies you need to do so are out there waiting for you. You just need to know what to look for!