Category Archives: Strategy

Strategic Procurement for Strategic M&A

A recent article over on Fierce Healthcare on how strategic procurement can maximize M&A benefits noted that consolidating procurement can slash costs by standardizing purchasing processes and taking advantage of volume discounts for supplies because a smart business buying strategy involves using one technology platform for purchasing a wide variety of products from multiple sources.

The healthcare sector has also been ripe with M&A over the past few years, with $13 Billion in revenue now required to be a top 20 healthcare system, as many systems have grown significantly as a result of inorganic M&A growth over the past few years. According to the article, the recent M&A activity has been characterized by cross-geography deals designed to create value by scaling investments in platform capabilities across digital, analytics, shared services and workforce management.

But Procurement can find more value beyond shared products, shared supply base, and shared systems.

As hinted in the article, Procurement can also:

  • identify opportunities for shared services across the merged companies:
    this can allow for service provider contract consolidation and renegotiation for better rates
  • better workforce management:
    Procurement can help analyze the workforce needs across the proposed combined organization to better reallocate workforce needs (and possibly reduce the need for outsourced services)

But it doesn’t have to stop there.

An organization spends money across:

  • employees
  • contractors
  • facilities
  • utilities
  • products
  • systems

Procurement can help identify opportunities across each of these.

In other words, don’t overlook:

  • facilities:
    maybe you can reduce the number of locations through relocation of some personnel, and even reduce the overall cost through better facility identification
  • utilities:
    some states have energy deregulation, and there is significant opportunity in telco (like SaaS)
  • software: well beyond the S2P tools

Anywhere money is spent, Procurement can help provide an objective, fact-based view — not just on product-based spend.

Craft Category Strategy Like a Chief with akirolabs

As much as many vendors and consultancies would like to tell you that category strategy selection can be automated whenever you need to kick off a new sourcing cycle, because “it just depends on the supply vs demand imbalance and based on that you either do an auction (if [way] more supply than demand), do an RFP (about balanced), or renegotiate with the incumbent for a contract extension (if there is [projected to be] a lack of supply)“, that’s simply NOT the case, especially for highly strategic, specialized, or evolving categories.

The reality is that category strategy depends on much, much more than this. Factors it depends on include, but are not limited to:

  • supply vs demand
  • current and projected spend
  • current relationships
  • innovation requirements
  • environmental requirements
  • industry and regulatory requirements
  • risk factors
  • regional differences between source / make / sink
  • etc. etc. etc.

That’s why we have so many methodologies to arrive at a strategy including, but not limited to:

  • Porter’s 5 forces
  • Kraljic Matrix
  • SWOT
  • PESTLE
  • etc.

All of which serve a purpose and give us insights, but none of which actually give us a strategy. Consider Porter’s five forces — it provides insights into the current market, but then we decide what to do with that. Consider the Kraljic Matrix. It tells us whether an item is non-critical, bottleneck, leverage, or strategic based on an analysis of risk/complexity vs. profit impact, but we still have to decide what strategy to use, and, more importantly, how to evaluate the responses based on non-price factors that are also important to us (such as supply assurance, carbon / GHG reduction, etc.). SWOT helps us identify the responses, but we still need a strategy to evaluate them against. PESTLE is one of the more complete analyses of external factors encompassing Political, Economic, Sociological, Technological, Legal and Environmental factors, but you still have to build a strategy on that.

Plus, it’s not just the external factors these methodologies are based on that’s relevant. It’s internal factors that include, but are not limited to:

  • current and projected category spend
  • current relationships
  • organizational culture and process
  • organizational direction and goals
  • stakeholder needs
  • etc.

All of this needs to be considered simultaneously with the external factors and analytic methodologies described above in order to arrive at a proper, acceptable, and executable strategy — and a strategy is not a strategy if it is not:

  • proper : an inappropriate strategy will NOT lead the desired results
  • acceptable : if the stakeholders don’t buy in, your project won’t go anywhere, and you may have to start over (or just continue with the status quo)
  • executable : a strategy that doesn’t provide actionable guidance cannot be executed and isn’t really a strategy at all

And that’s what akirolabs, challenging the 40-year old Kraljic matrix as the de-facto standard in category management, is building — an augmented intelligence (because they fully realize that no Artificially Idiotic technology can ever do something that requires real human intelligence and experience) solution that helps category managers build proper, acceptable, and executable strategies and do so in weeks, not months, and see the results in months, not quarters.

The akirolab platform guides you through an analyze/strategize/realize process where it helps a category manager, or management team in a larger organization, collaboratively analyze the company and market factors, develop a strategy based on value levers and strategic scenario modelling, and then realize the strategy using the project and performance management capabilities (not found in most strategic sourcing applications).

In the Analyze phase, the company pulls in the following company data:

  • current spend (it just pulls in your current spend cube in a frame; it’s only volume tier and trend that’s relevant for strategy, not minutiae transaction details)
  • current budget (based upon projections)
  • current contracts (which formalize relationships)
  • stakeholder mapping (who is involved, and how)
  • strategy & requirements survey (what do the stakeholders need, why, and what are their goals and concerns)

… and the following market data …

  • market intel – articles, studies, white papers, etc. found by an appropriately trained semantic search engine
  • innovation factors and data
  • cost drivers relevant for the category
  • risks and associated data
  • supplier preferences (based upon relationships, innovation, and supplier risks)

… and then completes the following analyses, with the help of the akirolabs platform:

  • Porter’s Five Forces — where the category team scores and ranks the relevant factors in each force (which can be seeded from market data using the AI if enough data is available)
  • Kraljic Matrix — where the category team evaluates the risk/complexity vs. cost (and where the platform can suggest risk/complexity based upon available market intelligence, risk data, and innovation factors)
  • PESTLE — where the category management team can complete a full PESTLE analysis using all of the available data and the aforementioned Porter’s Five Forces and Kraljic Matrix
  • SWOT — where all of the above is fused into a category SWOT analysis

And the best part about its analyze capabilities is that the strategies can be analyzed by region (or by department if each department has different needs and/or goals for the products in the category), scored and weighted separately, and then overlaid visually (using a spider graph in the case of Porter’s Five Forces) to allow a team to see the average as well as the regional, departmental, etc. differentiations.

Another unique feature is its approach to SWOT. For each quadrant, they define key questions and key parameters to ensure that the analysis is done consistently (and comparably) across categories, and to ensure that the category management team collects the right information in order to generate a good strategy.

In the Strategize phase, the category management team identifies the value levers and then creates a strategy using Strategic Scenario Modelling. Using the akirolabs strategic scenario modelling capability, a category team can build a strategy that balances cost savings, sustainability, supply chain resilience, procurement agility, innovation, quality, regulatory requirements, and growth potential by evaluating multiple scenarios inspired by the market analysis in the analyze phase. These can be overlaid graphically to provide a visual comparison of the strengths and weaknesses of different scenarios.

They can pull in the relevant information from the analyze phase, and define the strategy that will be applied as well as their reasoning as to why, backed up by all of the relevant analysis and data. They can then create Executive summaries for each executive (CEO, CFO, COO, CIO, etc.) that explains the strategy, rationale, and expected results. The platform allows the team to create standard report templates by function and makes it super easy to pull in the relevant data and graphs that explains and supports the decision.

And all of this can be done collaboratively, as it was designed to allow all stakeholders to answer the survey and all team members to work together to collect the data, associate it with the appropriate analysis, score appropriately, and collaborate on the strategy using the built in messaging platform.

Finally, as part of the Strategize phase, a category management team can assess the sustainability of the scenarios using their “Procurement with Purpose” view that assess the strategy against each of the 17 interlinked Sustainable Development Goals of the United Nations.

Once the strategy has been defined and accepted, the category management team can create a project plan and track it in the “Project and Performance Management”. They can track the stages and activities, timelines, responsibilities, status, assigned value category, expected financial effect, forecasted financial benefit, etc.

If this sounds good to you, you’re probably one of the target customers, that fall into three categories where they can provide you with great value (4.4x as per their claim):

  1. Mature Procurement Organizations: leaders (under analyst frameworks) or best-in-class (under the Hackett numbers) organizations that are high on the maturity ladder and that are looking to go beyond savings and expand the core business
  2. Maturing, But Fragmented, Procuring Organizations: average to average-plus maturity, but no centre of excellence, no history of formally captured category strategy development, and little experience bringing stakeholders together across regions and departments (leading to fragmented category events)
  3. Immature, but Growing: and, most importantly, ready to invest the time and effort to formally mature as a Procurement organization by embracing a world-class methodology and platform to jump-start their efforts and success

And if you’re still on the fence, it doesn’t just support traditional “Category” strategy. It also supports “Beyond Category” for organizations that want to use it for supply chain design, logistics & warehousing, sustainability improvements, etc. Not just traditional material or procurement hierarchy categories. And that’s a differentiator. If any of this sounds good to you, be sure to check akirolabs out.

Airflip: Flip it to the “S” Side

Airflip is a new, and unique, offering in the Source-to-Pay+ space that offers what they call “analyze-to-intake” and what is actually a new generation of analytics-backed category intelligence that allows a sourcing team to not only identify categories of opportunity, but identify where that opportunity is and what vendors they should be looking at.

Introduction

Airflip was founded in 2022 to help small Procurement teams in mid-sized Procurement organizations be prepared for their next deal. Billing itself as “vendor intelligence for your next deal“, it provides something that most small Procurement teams desperately need, and don’t even know how much they are missing by not having it.

Before we can dive in, we have to step back and discuss where category management is today and where it’s lacking. Today, category management is typically addressed by services vendors who bring their expertise to help you define a category, understand the market dynamics, put together a sourcing strategy, identify the appropriate suppliers/vendors, put together an RFP, put together a should-cost model, identify the evaluation criteria, and the process for selecting a supplier.

The Category Management solutions out there today are good, but they have their limitations. First of all, it is limited to the categories the services vendor has expertise in. Secondly, it is limited to the categories the buying organization can afford to pay for. (Services are costly, and if it’s a complex category, and requires a month or two of an expert’s time, that’s more than an annual license for a niche best-of-breed module in Source-to-Pay+.) Thirdly, it’s not repeatable by the buying organization the next time the category comes due for sourcing.

A technology solution was needed.

There are a few of those out there, but most of these fall into the categories of:

Savings Estimators
(Hybrid Servies-Backed) Sourcing platforms that keep track of identified savings percentages by category (at level 2 or 3 of a vendor standard hierarchy) and/or changes in average market price over time to identify an expected savings range should an organization choose to source the category (at the current time)
Specialist Category Sourcing Platforms
which incorporate market intelligence on supply vs demand, price trends, economies of scale by supplier, and logistics/supply chain costs and guide the buyer through a fine-tuned workflow for the current optimal strategy

And, outside of select categories, don’t really help a buyer:

  • identify which categories have untapped opportunities
  • get insight into current spend and potential opportunity
    (based on spend on-vs-off contract, etc.)
  • identify which vendors they currently source from in those categories
  • identify which other vendors they could be sourcing from
  • get relevant category-based insight on those vendors
  • get insight into how to evaluate the category
  • get insight into how to identify the relevant organizational needs, and what should happen before the sourcing event is kicked off

As most of this insight is limited to research reports from category consultancies or expert services providers. What is needed is a combination of the two solutions.

Airflip is one of the first solution providers to create a platform that bridges the capabilities of today’s “savings estimators” and “category insights” platforms with detailed category insight and guidance tailored to the organization’s current spend and supply base.

It does this by combining analytics (for spend insight), select contract meta data (for on vs off-contract insight), category intelligence [research] (gathered from the web and curated 3rd party data sources), and pre-sourcing category guidance [deal management] into one unified platform.

Analytics

Airflip is powered by a modern spend analytics application which allows the cube to be sliced, diced, shaped, and reshaped to your liking. While it only supports one cube (for now), the dynamic spreadsheet-like interface still puts it on par with a top 10 analytics application as a user can easily map and remap transactions and categories, create customized views using filters on any dimension, and drill down into the individual transactions if necessary.

Like every good analytics application, it has a dashboard that displays standard spend breakdowns by department, category, supplier, and cost center. Standard filters are date, thresholds, category, PO, contract, requester/department, payment method, domain, etc.

The standard spreadsheet view is a split view with the category hierarchy on the left and the transactions on the right, displayed in standard row/column spreadsheet format where the rows can be resorted and the columns reordered and hidden. For easy manipulation, the user can bring up a configuration view on the right that allows the columns to be hidden and unhidden and rows to be grouped in any order, based on any arithmetic formula.

One of the more unique capabilities is their semantic spend classification that uses all of the transaction data, their augmented supplier / vendor profiles, and third party data feeds to classify a transaction to level 3, and even level 4, if there is sufficient data, or to a higher level if there isn’t, with high accuracy. (Unlike traditional neural nets which tended to max out at 80% or Gen-AI which tends to max out at 70% or worse.) For example, they can often classify an implementation down to a CPQ software implementation (level 4 under software implementation, under IT Consulting, under Professional Services) vs. web development vs. translation and localization vs. generic implementation services. It’s a level of classification not found in most providers.

Associated with each transaction is a generated vendor overview based on retrieved profile data from the vendor website and any available third party data feeds.

Contracts

As noted above, it’s not a contract management platform — all it can do is integrate with a contract store, suck in all the contracts, process them with semantic AI, extract defined clause types, extract products and services, extract costs and obligations, and use that data to augment transactions and help the user answer questions as to whether or not a contract contains a clause or term.

Right now, it’s a very simple repository where you can sort and filter contracts by supplier. Drilling into a contract brings up the meta-data and key details associated with the contract, and a link to the uploaded pdf.

Research

Their “research” centre provides the category intelligence by subcategory, for example sales/marketing software in back-office software in software. The market research category intelligence provides deep insight into:

  • business area (sales acceleration, workforce management, intelligence, quotes, and contracts)
  • description
  • market leaders
  • (sub) categories (engagement, email, dialer, demo management, etc.)
  • … and in each (sub-) category, with the right license level,
    • the business impact,
    • overview
    • market details
    • key features
    • the (sub-) category leaders and organizational suppliers,
    • the recommended sourcing strategy
    • category risks
    • the related categories,
    • the relevant evaluation criteria,
    • the internal worksheet (for eliciting the necessary information from internal stakeholders)
    • a (starting) vendor questionnaire (that can be extended by the customer)
    • relevant links
    • … and, for each vendor, with the right license level, a research report that specifies
      • what the vendor does
      • who the solution is for
      • why the vendor is different
      • the funding the vendor received
      • known integrations
      • recent product/service launches
      • acquisitions the vendor has made
      • other key facts on the vendor

In most indirect and services categories, it will be more than enough information to identify the right suppliers to invite to the RFX. For direct, where custom goods are required, it will at least allow a buyer to identify those suppliers who make similar products in the (sub) category and get the buyer close to a short-list.

Deal Management

Deal Management is the final part of the application and provides the pre-sourcing category guidance for the product or service being sourced based upon the built-in category research.

The deal management capability walks the category owner through the business owner requirements, the evaluation workflow steps, the necessary compliance considerations, an evaluation of the business impact, an overview of the alternatives (for comparative baselines and negotiation ammunition), the recommended negotiation strategy, an outline of key steps in the strategy (and progress tracking capability), and the estimated savings potential. It can be configured with all the standard steps to help a junior buyer work through a purchase on their own, or a senior buyer expedite a process while ensuring they don’t miss anything important.

In addition, during the research phase, the application contains survey capability for the buyer to solicit the inputs required from the category or business stakeholders in order to properly plan the sourcing event.

Summary

Airflip is a great solution for mid-market companies looking to get platform-based insight and assistance into their category management. While the depth of insight will vary by category and vendor (as it’s relatively new and development is ongoing on a daily basis), it’s considerably more than the average small Procurement team in a mid-size organization will have access to, and a great foundation for success where the team doesn’t have deep category knowledge or insight across the board. So if you want better sourcing strategy support, consider flipping it to the Success side and inviting Airflip to your category management RFP.

Less Than 1/3 of Organizations Have a CPO — How Will They Continue to Survive?

the doctor has yet to see a single study that said that more than 30% of (public) (listed) organizations have a CPO, and some have that number as low as 15%. He has to admit that he just DOES NOT get it. From a basic business point of view, if you go back to the first thing that they teach you in Business 101, it should be easy to see that it is one of the two most critical roles in an organization, and one of the four roles EVERY organization should have.

The first thing that they teach you is for a business to survive, it has to be profitable, and

Profit = Revenue – Expenses

This says that one of the two most important roles in an organization is the (acting) CRO, who is responsible for bringing the revenue in that is required for the business to operate. In a startup, the acting CRO could be the CEO who has to sell, sell, sell (or raise, raise, raise) until she has enough money to hire a CRO, but without revenue, there is no business.

This also says that the other most important role is the (acting) CPO, as the business will need products. Even a pure services business needs products to operate (equipment, software, office supplies, MRO, etc.), and those need to be obtained at a total cost that is less than the revenue available to pay for them. If the company is primarily a product company, then the majority of its spend will be on these products (and not products for operations or personnel), and the CPO is super critical. Now, in a primarily services company, this role may be fulfilled by the CEO (if the CEO is not sales oriented, but an ops or HR person), but will likely be fulfilled by the CFO or the HR Director/VP until the company is big enough, and spends enough on internal products, to hire a CPO.

Furthermore, this would imply that the third most important role is the CFO that ensures the money coming in and money going out are appropriately tracked and the budgets appropriately allocated and the financial reports and taxes appropriately filed with the government agencies. (But, if there are no funds flowing in and out, you don’t have a business, and, thus, don’t need a CFO.)

Finally, logic would dictate that the fourth most important role is the CEO that defines the strategy, direction, and enables each of these roles needs to be as successful as possible.

This also means that organizations that over-focus on the

  • CSO (Strategy): have their head in the clouds because strategy needs to be executed, and you don’t necessarily need a full time person in this role — a good exercise once every year to three (depending on your market) lead by a strategic expert could be enough
  • CMO (Marketing): are over valuing marketing because, while it’s important to get attention, you have convert leads into prospects into sales … and it’s the CRO that manages that entire process
  • C(R/C)O (Risk/Compliance): are putting the cart before the horses so they can’t leave the stables; while risk is critical, it has to be managed in a sales and procurement context
  • CTO (Technology): are not seeing the big picture; if you are a software organization, having a solid platform and infrastructure is critical, but if you are not selling the product, or you are not able to attract the talent you need to build the product (which may or may not be the CTO’s skillset), it’s suddenly less important

And, of course, this means that Head of Sales, R&D Director, VP Product, etc. also become secondary as sales is only part of the funnel, some R&D can be outsourced or acquired (since design can sometimes be one time), and without the ability to acquire the talent and goods you need, you can’t create the product.

But every organization has a CFO and CEO, the second most important positions. The majority have CMOs and CTOs, the third most important positions. And they all focus on Sales VPs, R&D, Products, etc. which are essential, but the fourth most important positions from a foundational and C-Suite perspective. But when it comes to CROs, less than 15% of organizations have them and when it comes to CPOS, less than 30% of organizations have them. It boggles the logical minds!

Now, the doctor knows he’s going to get a lot of flak for this for calling CMO, CTO, etc. third and fourth on the importance scale, because they are critical roles in many organizations, but if you go back to basics, logically they are not the most critical roles that must be filled.

There are NO Perils of Big Data in Procurement!

First of all, no organization has enough data, and those that come close don’t have big data.

Secondly, the more data you have, the better.

Third, if you think you have too much data, you’re not getting it!

So where’s this rant coming from? The rant-inducing headline du jour. The CIO Review recently published an article on The Perils of Big Data in Procurement which is complete non-sense, as there are no perils to having more data (because there’s never enough), unless it’s bad data (but the assumption in the article was that all the data was correct), just perils in terms of how that data is presented and accessed.

The perils in terms of how that data is presented and accessed can be significant, but that’s not due to having big data, that is due to poor system design — and that’s a different issue!

According to the article, buyers and procurement managers … have available a huge and unprecedented amount of data … [and] start to measure everything in order to manage it and that with this approach, several data lakes are created, feeding various dashboards, scorecards, reports, and metrics as procurement professionals try to understand spend analysis, price trends, market fluctuations, volume, cost savings, negotiation performance, and other essential factors. And this is true.

It goes on to say it is very easy for a person to be lost in the sea of numbers and details and miss the big picture entirely because you don’t know what is the crucial data that would give you critical insights. And if that wasn’t enough, it goes on to say it is the same as someone that enters the hospital with a broken leg but has everything else checked. WTF?

This is so dumb it makes you angry!

  1. If a person gets lost in the sea of details and numbers it’s because they don’t know what they should be looking for and how they should be looking for it, not because there’s too much data.
  2. If they don’t know what is crucial, it’s because they don’t know enough about the project they are doing to identify what’s critical and what’s not.
  3. What health practitioner is going to be so stupid as to not see a broken leg on a triage? Come on now! And what Procurement practitioner would check all but one dashboard randomly and then not check the last remaining dashboard? (And that’s what the article is implying with its ridiculous statement.)

In other words, the headline, and claim, is bullcr@p. Don’t blame a mountain of data for a lack of capability in your people, poor vendor technology choices (that bury you in useless dashboards), and your unwillingness to train your talent in modern technology and best practices so they can do their job properly.

And while the author is completely right in that you need to

  • understand what matters
  • start with a top-down view
  • have people who are good at interpreting the data

It still misses the point in that you need to, for any application you buy and any project you wish to undertake

  • define what’s relevant up front
  • find a solution that is configured/configurable to show that up front
  • make sure the data is easy to interpret, is accompanied with written guidance, and that your talent is trained on how to properly interpret the data and
  • if the goal is opportunity finding, the solution needs to identify and present the top opportunities across all of the analysis done, with deep supporting dashboards buried under the high level summary dashboard

More data is always better, especially if you want to use machine learning. In other words, it’s not the data, it’s the application, or the people, so don’t blame the data for your organization’s shortcomings.