Empower? Or Incitement?

It’s that time of year when Emptoris holds their annual conference, invites all the bloggers (but me) to their peace pipe pow-wow, and somehow stirs them into a blogging frenzy which results in the temporary flooding of the bitstream with post after post about Emptoris. It wouldn’t be so bad if we got good information out of it. However, possibly due to the “selective reporting” favored by members of the previous management team, this hasn’t been the case historically.

And while it does look like the new team is working harder at being open and communicating (except where financials are concerned, but it’s certainly better to share nothing at all then inflate the numbers by 20M), despite the flurry of activity over the last few days (which likely isn’t the end), we haven’t received much in the way of useful information yet, and, more importantly, it looks like most of the bloggers (except Bob) have missed the only point that matters. But first, a recap of the stories to date:

Spend Matters

  • “Emptoris Empower Kicks Off — What’s on My Mind to Focus on?”What to ask? What to ask?
  • “Emptoris Empower Dispatch: Emptoris is Thriving — But What’s Behind the Numbers?”They claimed 91% “booking sales” growth in the first half of this year, and that a lot of new business is from “channel partners”.
  • “Friday Rant: Emptoris Echos — Cloudy With a Chance of Software”Emptoris takes to the clouds with echOS — is a cloud-based delivery system built to streamline the deployment and management of Emptoris solutions.

Procurement Leaders

  • “Emptoris Empower: procurement’s moments of engagement”Geoffrey Moore’s keynote got everyone excited.
  • “Emptoris Empower: beating the benefits drop-off”Patrick Echkhert’s presentation (on behalf of Cardinal Health) made a great point, implementations have to revolve around a sustainable savings/benefits plan.
  • “Emptoris Empower: the case for mastering risk”Accenture’s Randall Moore explained how becoming a risk master leads to real returns and that technology and talent investments can pay for themselves 8-fold when you reach a level of mastery.

Gartner (Debbie Wilson)

  • Dispatch From Emptoris Empower 2010$2 million investment in its data center infrastructure. Some procurement friends expressed frustration with gaps in functionality that aren’t being addresses quickly enough.

Supply Chain Matters

  • “Emptoris 2010 Customer Event- An Anticipated Report of Glowing Progress”The management team has been clearly focused on getting closer to customer needs, while making implementation of its technology easier for customer to navigate and manage.
  • “Emptoris Empower 2010 Customer Event- Summary Impressions”Over 100 customers went live with Emptoris applications this year. Emptoris signed a global agreement with SAP regarding the use of SAP Business Objects technology for business intelligence reporting and analysis needs across the Emptoris suite of applications. A new and transformed management team.

That last point is key, if you happened to catch one of Wednesday’s press releases, you’ll see that Emptoris added three new senior executives. Add this to the number of new executives the new CEO has brought in since his arrival, and you’ll see that the current management team is almost entirely new. At this point, he’s only a few executives away from an entirely new management team (and I will be thrilled the day it’s entirely new). This will be the key to their success (or failure) in the future.

In my view, Emptoris’ biggest problem historically has been their management team, which appeared to be hand-picked by the former CEO to mirror his corporate philosophy (and never challenge his way of doing things) — which obviously wasn’t the right one for Emptoris (because, if it was, why did they never truly make profitability and need yet another funding round last year just to stay afloat, almost 9 years after formation?). I hope the new team maintains the “get close to the customer and figure out what they need” strategy. In this economy, I think that’s your only chance of success.

Sunk Costs ARE NOT Underwater Treasure

You’d think it would be painfully obvious that dollars sunk into historical IT investments have nothing in common with chests of Spanish Doubloons on lost underwater wrecks, but given the tendency for most organizations to hang onto their archaic IT systems, one has to wonder. Really, really wonder. Especially when many organizations are still drowning in red ink.

It’s not how much you spent on a system, it’s how much value it’s generating now. Maybe it was worth 1M a year and 2M in integration costs five years ago when it enabled you to streamline operations and shave 5M in the first 2 years, but if you’re still spending a million and not saving a single cent, then it doesn’t matter that you spent 7M — what matters is that you are spending 1M a year with nothing to show for it! Enterprise software prices have dropped considerably over the past decade while functionality has increased exponentially. Today, that Million will get you an end to end e-Sourcing AND e-Procurement suite with some professional spend analysis and category services thrown in (and then some) — a solution that could easily save you millions.

When evaluating your technology solutions, past expenditures should never enter the picture. Only current expenditures should be considered, and only in the ROI calculation. That’s all that matters — the expected return on the current solution vs. the expected return on a new solution. If a new solution has an expected ROI that is greater than the current solution (factoring conversion costs into account and amortizing them over the expected utilization period, which should never be more than a few years), you switch. It’s that simple.

And until you realize this, you’re never going to get the true analytics solutions you need to really cut costs. Remember, as I’ve been saying for years, Business Intelligence (BI) is not analytics. As echoed in this recent article on Analytics by Ritu Jain over in the Supply Chain Digest, a lot of users, industry analysts, and consultants have not fully grasped the difference between business intelligence (BI) and analytics. They continue to consider simplistic query and reporting and OLAP drill-down capabilities to be analytics, thus limiting themselves to traditional BI systems that provide simple alert, monitoring, and dashboard capabilities — and then use the erroneous sunk-cost argument to justify sticking with current systems that just don’t do the job.

And without these modern systems, the company will realize the cost savings potential of true analytical capabilities such as forecasting, data mining, predictive modeling and optimization [that] provide businesses with an understanding of why something is happening, when it can occur again, [and ] what will be the future impact of decisions, so that outcomes can be optimized. So bury your sunk costs in the history ledgers. That’s where they belong.

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You Don’t Put Up With This Crap When You’re Making a Major Purchase …

Let’s say you’re out to buy a new car, you know what you want, so you walk into the biggest dealership in the area, walk up to a salesman, point out the vehicle, and say:

“I want that one!”.

At this point the salesperson says:

“Fine Choice: Top of the line. Powerful engine. No Fade Paint Job. Exceptional Performance. I can let you have this beauty for only 40,000”.

At this point you’re a bit taken aback, because you thought the MSRP was 30,000 and you also thought there was a manufacturer’s rebate for 5,000 as part of the year end clear-out. So you go down the street to the next biggest dealership, walk up to a salesman, point out the same vehicle, and say:

“I want that one!”.

The new salesperson says:

“Excellent Choice. Solid vehicle. V6 engine. High quality paint job. Great performance. I can sell it for 35,000 and throw in service for three years.”

So you say to yourself that sounds about right, maybe the first person was confused about what car, model, and features I wanted and you decide to go back to the first dealership because you know they are bigger, move more inventory, and are more likely to be able to offer the best price. You walk up to the salesperson and say

“I just visited the dealership down the street and they said I could have that car for only 35,000.”

At this point, the first salesperson says:

“Oh, that car! Sorry, I misunderstood. I can let you have that car for only 20,000.”

At this point you say to yourself what the heck is going on here? You know that the automotive market is very competitive now. No one quotes a price above MSRP and no one drops the price, even on a luxury car, more than 20% anymore as the fierce competition for limited market share combined with the price transparency of the internet age has taken the vast majority of margin out of car sales. So if the sales person is dropping the price 50%, you know you’re buying a piece of junk that will be back in the shop every other month running up repair bills that will quickly exceed the purchase price of the car. So you get out of there as fast as you can and cut a deal with the second dealership for 27,000 after a fair round of negotiations.

In other words:

You Don’t Put Up With This Crap When You’re Making a Major Purchase …

So Why Do You Put Up With It When You’re Buying Your Enterprise Software?

It seems that not a week goes by where I don’t hear a vendor complaining about how a (certain) other vendor dropped their price by 50% or more at the last minute to steal the deal. You’re probably saying “what’s the problem with that, the customer negotiated a great deal, right”? Wrong! In many of these cases, the (certain) vendor in question literally bends the customer over the table, sticks a vacuum cleaner in their backside, and sucks out every dollar the customer has in one-time “implementation fees”, “support fees”, and “upgrade fees” as the initial quote didn’t include the “enterprise” version, didn’t include “training”, didn’t include (24/7) support, and didn’t include implementation costs, etc. (while the other vendor’s quote included all this at a price that, in the long run, would have been multiples less than the “best price”).

In other words, the next time a vendor suddenly drops their price by a ridiculous amount, tell them to take a hike — before they cut the bottoms out of all of your pockets with the knife they used to “slash” their price.

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Working Capital Improvement: What the “Smart Kids” Do

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

Analyzing data from CFO Magazine’s “Working Capital Scorecard” (Part I and Part II), and reviewing case studies around the web as well as several interviews, reveals several themes, or habits, common to top performers. Perhaps the most compelling is a holistic view of the business process, change management and technologies deployed.

Business Process

Organizations can simplify the “bookends” of their enterprise business processes and focus on the order-to-cash (DSO — days sales outstanding) and source-to-settle (DPO — days payables outstanding; includes the procure-to-pay) processes. Simply put, focus on your customer processes and your supplier processes to improve these metrics. For DIO (days inventory outstanding), certainly internal processes need to be reviewed (for some enterprises, the manufacturing/production process). However, each external process connects into the manufacturing process, therefore, once optimizing each process has been successful, then organizations can optimize joint processes for further efficiencies. An example of optimizing joint business processes can be connecting your customers to your inventory, thus enabling faster moving inventory, and reducing the need for DIO. Similarly, on the supply-side, provide your suppliers visibility into your inventory and manufacturing requirements and enable the suppliers to replenish the inventory based on services levels.

Change Management

Some organizations are basing performance bonuses on working capital improvement, thus tying personal income to this specific business metric — a smart strategy. Organizations need to continue to think smarter. In several successful working capital initiatives, the sweeping organizational change is making the team pro-active vs. reactive. On the customer side, for example, some organizations (poor performers) do not realize a customer invoice is late until it is past due. By the time the collections team is aware of a specific delay in payment, they are too late — this payment from the customer may not happen for another 60 days. This can be referred to be as a reactive process. Organizations at the top-levels of working capital performance improve DSO by reviewing invoices prior to sending them to the customer. The review goes beyond just formatting and syntax to determine if the invoice matches a customer’s purchase order. In the event the invoice does not match, the collections team is notified and corrective action can be taken before the customer sees the error. By viewing collections within the order-to-cash process as a proactive process, successful enterprises transform the collections team and thus reduce time-to-receipt (payment).

Leverage various technologies

Technology can be double-edged sword. If an enterprise automates the process of manually generating invoices, and the invoices are incorrect 10% of the time, then automating causes the error to happen much faster. Key sets of technologies to leverage are a combination of automation, business process management (BPM) and a workflow-based system. Automation can come in numerous forms from a variety of vendors — from infrastructure providers, B2B integration providers, and providers of e-procurement and e-invoicing solutions to automate the various processes affecting DPO/DSO. Some of these technologies also support varying degrees of BPM, or a stand-alone BPM technology may be deployed, depending on the level of analysis required to analyze any information sent to customers/suppliers. Once such analysis is complete, the workflow-based system can be utilized to route any potential issues to proper personal within the organization.

Conclusion

The high performers in working capital, as measured by days working capital (DWC), improve the DWC by being pro-active vs. re-active in the various business processes which can directly impact this metric and it’s sub-metrics (DPO/DIO/DSO). However, the improvement is not accomplished by just addressing a single facet — process, technology or people, the improvement occurs by addresses all three facets simultaneously. Addressing all three facets enables the proactive management of the business processes, which contribute to improvement of working capital.

Thanks, Sudy.

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The Strategic Sourcing Debate, Part II (Who’s Right)

In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers, including most of the heavyweights.

So who is right? Did Jason Busch (of Spend Matters) get it right when he insisted that “Strategic Sourcing Ain’t Dead, Regardless of What the Naysayers Suggest?” How about Robert A. Rudzki (of Greybeard Advisors and author of Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise) who focussed on “Returning the “Strategic” to Strategic Sourcing” (on Spend Matters)? Or Tim Cummins’ (who leads the IACCM) who lamented The Death Of Procurement: Nightmare or Nirvana?Then there was Steve Hall (of the Procurement Leaders Blog) who lamented on the “Rumours of the Death of Strategic Sourcing”, Dave Henshall (of Purchasing Practice) who addressed Procurement 2.0 – and Other Labels, Josh Dials (of Iasta) who said it’s time to ‘Put “Strategic” Back into your Strategic Sourcing’ (on eSourcing Forum), Joe Payne (of Source One Management Services) who shouted that “Strategic Sourcing Lives On!” (on the Strategic Sourceror),  and William Dorn (of Source One Management Services) who ranted that “Strategic Sourcing is Alive and Kicking”.

Only one person got it right. It wasn’t the Spend Matters prophet, Jason, the Greybeard Advisor, Bob, or the global contracting king, Tim. It wasn’t practice leaders Dave Henshall, William Dorn, or Dalip Raheja. It wasn’t Iasta’s newest blogger, Josh Dials, and it wasn’t the Procurement Leader advocate Steve Hall either. That’s right, it was:

Joe Payne. Source One’s Director of Strategic Sourcing, the cub among the lions, who rarely speaks up (and posts maybe twice a month) was the only who got it right. While everyone was arguing alive-vs-dead, cost-vs-value, fixed-vs-variable, etc. Joe was the only one who hit the nail on the head with his hammer by pointing out the one key fact that makes the whole debate moot:

At most companies, the concept of strategic sourcing hasn’t even been born yet. As Geoffrey Moore would say, strategic sourcing has yet to cross the chasm. This is true not only in the mid-market, which has just started to tune into sourcing and e-Sourcing, but, as Joe points out, at a large number of Billion-dollar multi-nationals as well. Even today, in 2010, strategic sourcing is still only being used at the leaders and innovators, which is never more than 20% of the market, and often not more than 10%. (This is clarified by the fact that the vast majority of companies still don’t use true spend analysis or decision optimization, the only technologies that allow you to strategically select the categories with the largest opportunities and analyze not only the total cost, but the total value of a proposed award, and the only two technologies proven to deliver double-digit returns, on average, every time they are used, with 11% for true spend analysis and 12% for decision optimization.)

This isn’t to say that the other contestants, and the heavyweights in particular, didn’t make some good points, as most of them did, but that many of them missed the key point. (Furthermore, just about everyone got something wrong too.) An idea can’t die before it’s born, and while you can argue that the continual evolution that is required as the organization gains maturity implies a continual death of ideas (until the original idea is barely recognizable), it also implies a continual rebirth of ideas.

So how did the other contestants fare?

I’ll let you know in Part III.

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