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.

Technological Damnation 84: Dashboards

This is another damnation that should not be unexpected, as the doctor has been proclaiming the dangers and dysfunctions of dashboards since 2007. As per the doctor‘s classic post, a dashboard CAN NOT tell you how well you’re doing. It does not, and can not, know everything your organization is not doing well or how much the lack of efficiency is impacting overall organizational performance. As a result, it can not report on this ever important metric.

As the doctor said in his classic post, the best [a dashboard] can do is capture the data it’s been programmed to capture, roll-up the metrics it’s been programmed to roll up, and do the built in calculations of efficiency based on those roll-ups. Whatever went undefined goes undefined and stays undefined. The best that a dashboard can do is provide an upper bound on how well you’re doing — and this is useless. In particular, a dashboard that says you’re warehouse efficiency is 98% when it is only 92% is useless as it is totally unactionable. (the doctor can tell you that your efficiency is at most 100%, always be correct, and he doesn’t need an overpriced software hack to tell you that!)

And it’s not just the doctor who has this view. About five (5) years ago, Robert D. Austin, author of Measuring and Managing Performance in Organizations, penned an article in Intelligent Enterprise on how “metrics can lead [us] in the wrong direction” which echoed many of the doctor‘s concerns. Mr. Austin states:

“Kaplan and Norton’s cockpit analogy would be accurate if it included a multitude of tiny gremlins controlling wing flaps, fuel flow, and so on of a plane being buffeted by winds and generally struggling against nature, but with the gremlins always controlling information flow back to the cockpit instruments, for fear that the pilot might find gremlin replacements. It would not be surprising if airplanes guided this way occasionally flew into mountains when they seemed to be progressing smoothly toward their destinations.
”

It’s as the doctor said. Not only will your staff be lulled into a false sense of security when all of the gages in the dashboard are in the “safe” zone (and not look for the faulty wiring about to spark a devastating explosion), but, and this is especially true if their compensation is based on those numbers, they’ll start to perform dysfunctionally if such behaviour improves the score. For example, many call centres once thought (and some still do) that number of calls processed was a good metric. The result? The reps, who do their best to get you off the phone as soon as possible, don’t take the time to understand the true nature of your problem and instead focus on a “quick fix” to get you going again (even if such a fix, like “reboot”, doesn’t fix the issue and will only result in the problem re-occurring again and again). As a result, not only did the number of calls processed a day increase, but the total number of calls processed by the organization increased, because people have to call multiple times to get their problem solved. Not good. Not good at all.

And while an integrated view is necessary, the doctor was right when he said that integrated dashboards are deadly. Common issues are inconsistent views, propagated errors, and the overconfidence they instill. Despite the fact that they always increase risk, dashboards do not always improve visibility. Unlike a top-of-the-line spend/data analysis tool, dashboards do not give you real intelligence. You should ditch the dashboards before they are your downfall.

Technological Damnation 83: Spreadsheets

Spreadsheets. You can’t run your business off of them. But you still can’t run your business without them. Despite the fact that it’s 2015, and that better, customized, back-office systems exist for every facet of your business, most business still run at least one key aspect of their business on spreadsheets.

This is, literally, the only technology worse to run your business, and supply chain, on than the ERP (which, as we pointed out in a recent post, is a supply chain disaster waiting to happen. Do you have to remind you again that Spreadsheets Will Cost You Billions? That Fidelity lost 2.6 Billion due to a simple spreadsheet error? That 1.13 Billion in Fannie Mae Shareholder Equity went out the window due to an honest spreadsheet mistake?

And do we need to remind you that trying to run a business off of spreadsheets is fraught with peril and could result in your organization tossing 20 Million into the trash on an annual basis? That your new support centre could be woefully understaffed upon switchover? That unavoidable delays will result in your projects as a result of spreadsheet gaps?

You know spreadsheets are a damnation because they still exist, five years after the Harvard Business Review told us why good spreadsheets make bad strategies. There’s just no such thing as good spreedsheets. All spreadsheets of any level of complexity contain errors. The most recent statistic, as reported in Forbes last year in Sorry, Your Spreadsheet Has Errors, 88% contain errors (and the vast majority are human. But what can one expect when one in one hundred keystrokes is erroneous?) And so will 88%+ of spreadsheets going forward as forecasts, models, and financial statements just keep getting more complex.

As long as they exist, spreadsheets will be an eternal damnation that might just burn your business to the ground if the sea of red isn’t detected, due to a human error, until it is too late. If it’s the last thing you do, get rid of them.