Category Archives: Blogologue

the doctor Gives You Nine Questions to Ask Your Technology Vendor

Inspired by InformationWeek’s 9 Questions To Ask A Tech Startup, here are the equivalent nine questions that you should be asking your prospective sourcing and procurement technology vendors.

What’s Your Background?
This question applies to founders, key executives, and the company itself. Look for the right mix of people with deep technical expertise, deep domain expertise, and proven success in managing a growth company in a growth industry. If the depth of technical expertise is building websites (and all coding is outsourced), the depth of domain expertise is buying office supplies, and the depth of management expertise is managing a team of advertising executives – RUN!

When Was Your Company Formed?
Anything less than two-to-three years is a cause for caution. You want to see maturity in terms of the management team, revenue, and the product.

What’s Your Financial Situation?
You want to know where the company is getting the money it needs to support day-to-day operations. Is it drawing on VC funding? If so, at what rate is the required draw decreasing on a monthly basis and can the company honestly expect to be at least break-even before the funding runs out?

Do You Expect To Be Acquired?
Most companies in this space are start-ups, or were in the not-too-recent past. They should have had an exit strategy from day one. If the exit strategy was acquisition, how soon do they expect that to happen? If the exit strategy is six months down the road, be cautious – since many companies in the space will acquire a competitor just to take it off of the playing field – and there goes your investment in learning to use their technology!

What Do You Have Today?
Every vendor and their dog will paint you a rosy picture of where the space is going and where their product is going if you give them the chance, but what’s really important is what they have today. You’re buying a product because you need to increase productivity and decrease costs today – not 3 months or 3 years from now! Furthermore, this is an emerging market – that means that not every solution is equal, and, thus, not every solution is equally appropriate for your needs. You really need to understand what the vendor has today and how it solves your problems.

What Success Have You Had With Customers Similar To Us?
The usual “our e-auctions have saved an average of 12%” is not enough to base a decision on. Although you shouldn’t be considering any vendor who can not make a significant productivity or savings claim, you want to be sure that the vendor you select has saved money in the categories that you need to source or reduced processing time in the processes that your organization employs. An average is just that – an average. Maybe they save on average 20% on office and janitorial supplies and 2% on high-tech purchases. If the bulk of your purchases are for high-tech, then the product they have today is not the product you’re looking for.

Can I Talk To An Early Customer?
You’re looking for a company that has demonstrated the ability to continually improve – not just a company that expresses a willingness and a grandiose roadmap. An early customer will be able to give you insight as to whether or not you can expect the promised savings or productivity gains, how long it’s likely to take, and whether the company has a history of delivering on its roadmap and promises.

Who Are Your Competitors?
The list they give you should be similar to the list you build yourself after doing your homework. If it’s not, either they don’t understand what they’re selling or don’t think they stack up well against their real competition. Either way, it’s a warning sign.

Can I Visit Your Offices?
You want to feel comfortable that you’re dealing with a professional, mature company. This is sometimes the only way to know. Just because the salesman is slick and well-prepared, doesn’t mean the company is well managed. And just because the competition tells you that the company you’re considering is four-guys-in-a-garage, doesn’t mean it is. The opposite can be true. Just like you take the time to visit a new supplier before giving them a major contract, take the time to visit a new technology vendor before giving them a major enterprise contract. It’ll only take a day and won’t cost you much, especially compared to how much you could lose if you pick the wrong vendor!

the doctor Exposes The Elephants In The Room

This is a continuation of the doctor wonders why the elephants in the room are often so hard to see where I expose the elephants hiding behind the couch, the lamp, and the projection screen. In my last post, I exposed you to the optimization elephants, the EIPP elephants, and the spend analysis elephants that were hiding behind the blinds. In this post I’m going to expose you to the supplier enablement elephants, the contract management elephants, and the hidden cost elephants.

The supplier enablement elephants are “catalog management”, (traditional) “supplier network”, “e-Document Management”, and “supplier portal”. Despite grandiose claims, not one of these solutions is the be-all end-all supplier enablement cure … and not one is even guaranteed to “enable” your supplier at all! One definition of “enable” is “to make able”. Another is “to make possible”. My favorite is “to make easy”.

Just because you’re giving your supplier a way to interact with you, doesn’t mean you’re “enabling” them. They already have a way to interact with you – it’s called old-fashioned telephone and old-fashioned fax machine. What they need is a better way to interact with you – that works for them. A catalog management solution isn’t enabling them if they have to send all their data to a third party and then double check that the third party actually entered all the data correctly. A supplier network isn’t enabling them if it isn’t compatible with their systems. e-Document management solutions aren’t worth a can of beans if they can only be used by a few individuals or if document location and access takes just as much work as it does to walk down the hall to the filing cabinet or get a clerk to get the document for you. And “portals” aren’t very helpful if it forces the supplier to re-key in a 100 line invoice. The fact of the matter is that most of the “supplier enablement” solutions out there today are not enabling your suppliers at all – they’re enabling you. That’s a big difference between what’s promised and what’s delivered. If that’s all you care about, then go buy whatever solution tickles your fancy. Just be clear on what you’re buying!

The big contract management elephants are called “repository” and “compliance”. Simply having all of your contracts in one place is not as great as it sounds. You can do that today without a contract management system at all – it’s called “central filing”. Simply enforce that every time a contract is signed the person responsible immediately sends a copy to central filing that files it, in duplicate, on-site and off-site and you have a contract management solution that requires zero investment in software. (How do you enforce this? It’s called the “three strikes and you’re fired” policy. After every contract is signed, you call central filing three days later. If they haven’t received a copy, the employee responsible for filing gets a strike. After the third strike, they get fired. It will be surprisingly effective after a senior employee gets fired.) Of course, you could have to wait a few days every time you need to reference a contract.

A “contract management” solution with a central contract repository will thus only be useful if its accessible by everyone (and you definitely don’t want to pay by the seat) and easily searchable (with indexes on meta-data and the contracts in their entirety) – otherwise, it’s not much better than “central filing”. Furthermore, contracts are only valuable if purchases are made against them at the negotiated rates. Thus, not only should it be easy to determine if a contract exists for a specific item, but it should be easy to determine the agreed upon rate for that item, extract it, and get it into your e-Procurement system.

The hidden cost elephants come in many varieties, such as “required upgrade”, “service fees”, and “implementation consulting”, but the most dreadful is “too-good-to-be-true discount”, as he’s always accompanied by a few, close friends. There’s no such thing as a 50% + discount in enterprise software, and any vendor that comes back and says they can give you a discount of 75% off of the original quote is making the old “we’ll gouge them later” play. They know that once you’ve spent many times your initial investment getting the software installed and configured, and your user base trained, it’ll be too late to turn back and that’s when you start getting hit with “service fees” and “maintenance fees” and “upgrade fees” because you bought the starter edition, but the features and functions you really need to be efficient are in the “regular edition”. It should be obvious that this is not a vendor you want to deal with, because if the vendor really could afford to sell at a 75% discount and remain profitable, then they were trying to screw you up front.

The reality is that traditional, installed, enterprise software shops have high overheads. There’s a reason their software costs hundreds of thousands, if not millions, of dollars. It’s because they literally can’t afford to sell it for much less and stay profitable because they need large teams of people to install, maintain, and support their customers as each instance has to be upgraded and patched separately. They also need large teams of enterprise sales people to continually pound the pavement to bring in enough software and service deals to keep these large implementation and support teams busy. Then they need lots of expensive office space to house all these people. And so on. (Now I’m not saying that enterprise software isn’t worth hundreds of thousands, or millions of dollars – as long as the ROI is there, some of it is. I’m specifically saying that, whether or not their software is worth that much, chances are the traditional enterprise software vendor cannot afford to sell for less than that and remain profitable – and if they claim they can, that should set off big warning bells!)

the doctor Goes Mental on Auctions

With respect to e-Auctions, there’s a host of myths out there that need to be busted. Where-forth they sprang from, I don’t know, but to the graveyard, they must go! I’ll start with some of the more dangerous ones, and maybe the experts from e-Sourcing Forum [WayBackMachine] and Where Next will chime in with some of their personal favorites (or is that afflictions) in the comments.

Myth 1: Auctions won’t save me a single penny!
Dozens upon dozens of providers have saved hundreds upon thousands of clients millions upon tens of millions (and sometimes hundreds of millions) of dollars using e-Auctions – and sometimes saved this much on the first auction! Done right, on the right category, an e-Auction will save you money – with savings in the 5% to 35% range, depending on the category and whether or not this is your first time applying serious e-Sourcing to the category.

Myth 2: I’ll e-Auction it! e-Auctions always save money!
This myth is almost as bad as myth #1. Not everything can be auctioned – and anytime some fool starts with the one – and I mean the one – high dollar category in the company that can’t be auctioned, and gets dismal results, he all of a sudden does a 180 and decides that he was wrong, and that myth #1 is right – and won’t ever budge from that position. (Even though his stupidity costs his company tens, if not hundreds, of millions!) There are a number of requirements for a successful e-Auction. The first two are the existence of a competitive supply base and demand exceeding supply. If there are only two suppliers in the whole world for the item you need, and if demand is increasing faster than their production capabilities, even if the suppliers agree to an e-Auction, your prices aren’t going to go down. The suppliers are going to bid high and stay there. And that’s if you’re lucky! If you’re unlucky, they’ll collude and you’ll be up sh*t creek without a paddle or a way to plug that slow leak in your canoe.

Myth 3: If I don’t like the results of the e-Auction, I can just hold it again.
If you believe this, then you’re the one giving e-Auctions a bad name! Assuming you can even get any of the suppliers whose chains you jerked to even agree to another round, do you really think they’re going to give you anywhere near their best price? And do you think they’re going to want to participate in your future auctions? And do you think they don’t talk to each other? The rule is this – if you commit to an e-Auction, you commit to an award based on the result of the e-Auction – whether you like the results or not. That’s why you do your homework before deciding to do an e-Auction and make sure that the category, and market, is right for an e-Auction. If it’s not, you choose another negotiation method, such as a multi-round sealed-bid RFx with Decision Optimization to help you appropriately analyze potential awards.

To find out more about the Key Steps to a Successful e-Auction and the ethics you need to abide by to build and maintain a positive reputation in the supplier community, check out the e-Auction wiki-paper over on the eSourcing Wiki [WayBackMachine]. You’ll be glad you did.

the doctor Says Duh! (Of Course Leadership is Crucial in the Retention of Talent!)

I recently stumbled upon an article over on the European Leaders Network that was titled “Leadership Crucial in Retention of Talent”. Needless to say, I was a little shocked. How much more obvious can you get? Come on! I don’t know about you, but I’ve never heard anyone say “My boss is a a**h0l3! I work nine hours, he tells me I should have worked ten. I do my job and his job, and then he asks if I can do the administrative assistant’s job as well so she can accompanying him on that Bermuda trip. I arrive five minutes late because I was honestly stuck in traffic due to a six-car pile up on the interstate, and I get my head chewed off for the next forty-five minutes. He arrives forty-five minutes late for the all-hands meeting he scheduled, and then gets a big bonus later that day. Of course I love working here and would never think of leaving, even it was for a job where I would get treated like a real human being!”

But it gets better – it’s based on a study by US-based Kenexa Research Institute who, apparently, had to survey workers in six countries to find out that those [senior management] teams who demonstrate a strong emphasis on customers, an unwavering commitment to ethical behavior, and who keep employees informed about the direction the company is headed, are the [senior management] teams who build more highly engaged workforces and outperform their competitors. It makes you wonder what type of hypothesis they started with – did they honestly think it was the companies who hired trained chimpanzees to manage their workforces that succeeded?

You don’t even have to pay me my not-insignificant day rate to get this consulting advice from me. I’ll give it to you for free! After all, it’s just the old adage of treat others as you would want to be treated yourself (unless, of course, you’re a masochist who revels in pain and mental anguish – then simply treat others as you would not want to be treated).

the doctor On Dashboards: They’re Dangerous and Dysfunctional

A colleague of mine recently remarked that the whole dashboard concept is stupid beyond belief and just a lot of malarkey and I have to agree. “Dashboards” as they exist today are completely useless, and, in general, the concept is mostly useless.

As my enlightened colleague would say, a single metric on a dashboard is like saying one idiot light is better than the combination of oil pressure, water temperature, and battery voltage gauges. Sorry, it’s not. And, guess what, you can’t see the relationship between oil pressure and water temperature, so you could have a “TEMP” light that’s going off because oil pressure is nonexistent and you’re scraping the metal off the cylinder walls! It’s useless.

The fundamental flaw is that today’s dashboards are marketed as a snapshot view of how well your organization is doing. A dashboard can not tell you how well you’re doing. To do that, it would have to know everything you’re not doing well, determine how much that is impacting your overall performance, and report that. However, the best it 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.

Just because it reports 90% of spend “on contract” does not mean 90% of your spend is “on contract”. Maybe 10% of your total spend on a commodity under contract has been misclassified under the wrong commodity code, and all of this spend is off contract, meaning that only 82% of your spend is actually on contract. Just because it says on-time supplier delivery is 95%, does not mean that you’re doing a fantastic job of managing your suppliers and that only 5% of shipments are late. Maybe it’s only recording shipments late if they don’t arrive on the designated day and not taking into account the time of arrival – which could be a consistent 2 to 4 hours late. Since this could require a lot of overtime by your warehouse crews who arrive early with nothing to do for the first two hours, this costs you. And so on.

A dashboard can only provide an upper bound on how well you’re doing, and this is useless. Saying my efficiency is at most 98% when it is in fact 92% is useless and unactionable. I can say your efficiency is at most 100% and always be correct – and I don’t need an overpriced software hack to tell you that!

The most a well designed “dashboard” could do, if the goal was reversed from trying to tell you how well you are doing, which it cannot do, to how poor you are doing, is give you a lower bound on how poor you are currently performing. Whereas “my efficiency is at most 96%” is not useful, “my inefficiency is at least 4%” is useful. That tells you that not only are you not performing at 100%, but that the system, even though it’s unable to identify all sources of inefficiency, has found 4% inefficiency that is immediately actionable. Whereas “at most 88% of spend is on contract” is not useful, “at least 12% of spend is off contract” is useful because it identifies some low hanging fruit that should be immediately tackled to improve spend compliance within your company. Of course, this is assuming that the process used to compile the data and calculate the metrics isn’t fundamentally flawed (which it very well could be in some of the dashboards out there).

Of course, this is still nowhere as useful as a good spend analysis or business intelligence tool that allows a seasoned analyst to construct some well formed cubes and drill around as she desires – as such an analyst would find anything the “dashboard” would find in about five minutes of drilling into the “spend cube” or “efficiency cube”. Furthermore, even if you covered an entire wall with dashboard displays, you still wouldn’t get close to all the perspectives you could come up with by drilling around a couple of well formed data sets.

Basically, all today’s dashboards do is present a pretty picture of a rather useless report. And I don’t want to hear any arguments that they’re “flexible” or “configurable” or “customizable” and that they can do whatever you want them to do – they can’t – they can only be “customized” or “configured” to the extent that they were built to be “customized” or “configured” by the development team – who probably had little understanding of your business, your data collection methodologies, your processes, and the information you really need to understand your business – and, in my experience, that’s usually not nearly as “configurable” or “customizable” as they would need to be to be useful even to the limited extent they could be if they were designed properly.

So next time someone tries to sell you a “dashboard”, thank them for the offer, and instead ask them about their analytics engine. That’s what you really need!