Category Archives: Market Intelligence

With Great Data Comes Great Opportunity!

In fact, it can quadruple your ROI from a major suite.

Not long ago, Stephany Lapierre posted that your team may only be realizing <50% of the ROI from your Ariba or Coupa investment, to which, of course, my response was:

50% of value on average? WOW!

Let’s break some things down.

A suite will typically cost 4X a leaner mid-market offering which is often enough even for an enterprise just starting it’s Best in Class journey (that will take at least 8 years, as per Hackett group research in the 2000s).

Moreover, even if the enterprise can make full use of the suite it buys for 4X, at least 80% of the “opportunity” comes from just having a good process, technology, baseline capability and automation behind it. That says you’re paying 4X to squeeze an additional 20% worth of opportunity in the best case.

On average, it takes 2 to 3 years to implement a suite (on a 3 to 5 year deal). So maybe you’re seeing an average of 66% functionality over the contract duration.

As Stephany pointed out, bad data leads to

  • increased supplier discovery and management times
  • invoice processing delays and errors
  • increased risk and decreased performance insight

As well as an

  • inability to take advantage of advanced (spend) analytics
  • inability to build detailed optimization models
  • decreased accuracy in cost modelling and market prediction

This is even more problematic! Why? These are the only technologies found to deliver year-over-year 10%+ savings! (This is where the extra value a suite can offer comes from, but only with good data. Otherwise, at most half of the opportunity will be realized.)

Thus, one can argue an average organization is only getting 66% of 25% of 80% of its investment against peers (based on 2/3rd functionality, the 4X suite cost, and the baseline savings available from a basic mid-market application that instills good process and cost intelligence) and 50% of 20% (as it is able to take advantage of at most half of the advanced functionality offered by the suite due to poor and incomplete data). In other words, at the end of the day, we’d argue an average company is only realizing 23% of the potential value from an opportunity perspective!

However, as one should rightly point out, the true value of a suite is not the value you get on the base, it’s the ROI on that extra spend that allows for 20% more opportunity than a customer can get from lesser peer ProcureTech solutions.

For example, let’s say you are a company with 1B of spend with a 100M opportunity.

If tackling 20M of that opportunity requires advanced analytics, optimization, and extensive end-to-end data, it’s likely that you’ll never see that with an average mid-market solution with limited analytics, no optimization, and only baseline transactional data. If the company paid an extra 1.5M over 3 years for this enhanced functionality, then the ROI on that is 13X, which is definitely worth it.

Moreover, if the suite supports the creation of enhanced automations, you could get more throughput per employee and realize the base 80M with half or one quarter of the workforce, which would lead to a lowering of the HR budget that more than covers the baseline cost.

However, ALL of this requires great data, advanced capability, and the in-house knowledge to use both. This is only the case in the market leaders. As a result, we’d argue that the majority of clients are only realizing about 25% of the suite’s potential — when sometimes the only thing standing in their way of realizing the rest is good data.

The Pundits Agree. Winter is Coming!

In a recent LinkedIn Post, THE PROPHET, a year late to the party (see the SI and Procurement Insights archives, and our Marketplace Madness post in particular), finally announced that Winter is Coming: The Great Procurement (and Broader) Legacy SaaS Rationalization and that it is going to be a very cold winter that will be Swift. Brutal. And very, very final.

There’s too many companies that took too much funding at too high a valuation with nothing to show. PE firms will be dropping these companies faster than a hot potato into boiling lava pits to focus on the companies in their portfolio with current year-over-year growth in hopes of making some of their losses back. Too many companies started without doing any research and literally built the 10th AP clone, SXM clone, RFX clone etc. of a dozen already existing solutions. (Just check the mega map if you don’t believe me.) In a race to the bottom (which helps no one), they’ll lose due to their lack of a bank account as they slash prices too deep in hopes of getting customers. Too many applications took a silo focus, didn’t build Open API centric, and the hurdles of plugging them in will be too much or too costly, and no matter how good the tech is, they won’t get bought.

And then Agentric AI will thin what remains (but not lead the cull as THE PROPHET predicts, because these AI solutions still cost money, and sometimes a lot of it, and for what they cost you can hire a real expert and not a fake one, license a few augmented intelligence tools for a quarter of what these over hyped Agentric AI platforms are charging (because they raised, and wasted, too much cash and have to recoup that before they become the next hot potato dropped into the lava pit by their PE investors), and have a super-human employee who does the work of an entire team, error free (with little to no risk of that skilled employee getting you sued as a result of a conversation, installing a back door for hackers on your systems, shutting down your systems for days, costing you 10X on a purchase due to a dot transcription error, or increasing your internal fraud [link]).

And for some of these companies, it’s already too late to pivot. For others, there are actions they can do. THE PROPHET offered some:

  • risk over-cutting
    (if done smartly)
  • consumption-based models
    (which will be more attractive to some potential customers)
  • challenge the team to earn their existence
    (but that doesn’t necessarily mean prompting GPT like a pro: you don’t want junkies)
  • redefine the sales org
    (a better playbook is key, and it needs to be differentiated)
  • Skip the Fairy Dust and Buzzwords
    (Hear! Hear! I’ve been shouting that for years! Unfortunately, not sure most of the companies out there know how to do that though! I know for a fact only the squirrels have been listening to me, and they are getting very tired of that rant. They like variety. Basically, it’s been a long, long time since marketing focussed on education and value and startups priced based on that.)

And that’s just the tip of the iceberg. SI has posted entire series on:

Failures from those who raised too much and offer too little will be coming fast and furious. This needs to be repeated. You need to be very careful which vendor you buy from and what protections you have in place if they don’t make it. (In particular, there must be a “we own our data” clause which gives you the right to all of your data and the right to export all of it into a standard file format at any time, and that specifies your data includes rules and workflow configurations and the right to export those too — for example, in spend analysis, it’s not just the data, it’s the rules that create the cubes; in invoice processing, it’s the workflow and approval rules … you won’t be able to migrate to another system quickly if all you have is the transaction data, the data that defines the processes and rules is just as important. And if you can’t export all of your data, rules, templates, etc., at any time, then don’t buy the system!)

However, while the app consolidation will be brutal, as will the renegotiations if you want to be one of the apps that make it (now that organizations are realizing they don’t need 17 apps for S&M and probably shouldn’t have 17 apps in any function, including Procurement), Agentric AI (especially at 20K a month when you can hire a REAL person for 1/4 of that) will not replace people en masse (but AI-enabled technology will). Teams will be cut and replaced by two individuals who can use next generation augmented intelligence solutions that can truncate months of research and analysis to a few days and allow strategic decisions to be made in hours, not weeks, and shifts to be made seemingly overnight while eventually allowing 99% of all tactical data processing to be automated through evolving rules and workflows under expert guidance.

Moreover, at the end of the day, relationships are not built on 1s and 0s, and they are needed now more than ever. So not only will we have skilled technologists, but skilled relationship managers. (While everyone else who does nothing but push e-paper 90% of the time or code spreadsheets will slowly be eliminated.) Of course, this means if you don’t understand optimization, analytics, statistics, game theory, economics, and logic, or you’re not an expert in relationship management, you’re screwed, but everyone had a chance to study STEM in University (and skip the woke liberal arts) and learn the technical skills for the first set of jobs.

So this also means if the platform is not enabling this next generation of employees to become more and more productive over time, its lifespan is probably short.

So get focussed in your diligence efforts on solution acquisition if you don’t want your platforms disappearing out from under your virtual feet, and if you need help, call an expert!

We Need More Leaders in Procurement!

And it’s not just because we don’t have enough, as the doctor pointed out in his post on how It Would Be Great If Future CEOs Were Past CPOs (which isn’t happening because we’d need 90% of companies to fail to have enough CPOs for the CEO role), it’s because without them, we are getting lost in a see of sound-bite driven, fact-free marketing, hype, and FOMO relentlessly pushed upon us by vendors, analysts, consultants, and now influencers with next to no one left to cut through the noise and no one to lead you through the land of confusion.

As THE REVELATOR commented on the doctor‘s Top 10 Ways to be a Procurement Influencer on LinkedIn!, in a perfect world,

A “true influencer” would be driven by a single purpose – to get it right versus being right.

A “true influencer” would never look to gain consensus but to stimulate meaningful dialogue, leading to greater individual and collective understanding.

A “true influencer” would build a community of active engagement beyond token gestures of likes and thumbs up.

A “true influencer” would actively look to build a diverse community that challenges them and other members to think differently and see a subject or issue through a wider lens.

A “true influencer” would be insatiably curious and always open to new ways of thinking and doing.

A “true influencer” would be someone who has been around long enough to have witnessed first-hand the events that create the needed context to understand how we are where we are today.

Finally, a “true” influencer would stimulate thoughts and ideas, leading to practical and measurable outcomes.

Of course, today’s influencers don’t measure up to any of that, and as they exist only to build their fame and fortune, they never will.

However, true Procurement Leaders, who believe in education (and not hype-based sound-bite marketing), measure up to all of this. And that’s why we need more Procurement Leaders!

  • True leaders care about getting it right, they don’t care about being right.
  • True leaders understand you will almost never have consensus across the board, but if you let everyone speak, and take all views into account, they’ll respect the decision and change course as necessary for the greater good.
  • True leaders build a team who actively engages with them and each other, not a team who just does what they are told without question (as that team is lazy or scared, and neither indicates a work environment conducive to success).
  • True leaders embrace diversity in their team and their suppliers (to the extent possible, they don’t confuse outcomes with opportunity and force quotas that don’t make sense and just alienate their teams; e.g. if you only have 25% of women in STEM, you can only expect 25% of women in your technical positions; if you locate your office in a 98% caucasian neighbourhood, it’s going to be awfully hard to achieve a 15% African American or a 20% Latino workforce).
  • True leaders want to learn, want you to learn, and want to find practical, measurable solutions that work for everyone.

True Leaders (and a return of True Educators) are what we need to take Procurement forward. Will The Real Slim Shady please stand up?

Tech Won’t Solve Your Procurement Problems!

Probably not something you’d expect from a blog that was initially founded to educate you on best practices and best tech in Procurement and or from the doctor who has publicly reviewed close to 400 companies on Sourcing Innovation (and Spend Matters between ’16 and ’22), but it is something that needs to be said, and yelled loudly, now that everyone (analysts, influencers, marketers, etc.) is telling you this next generation of Gen-AI, Agentric, or AI-driven tech they are building will solve all your problems.

Because it won’t. In fact, it probably won’t solve any!

That’s because Procurement is NOT like other business functions. And while all business units are different, Procurement is different in a unique way. It has to constantly solve problems the business has not experienced yet. Sales just has to sell the next N customers in the target customer base which will be rather similar to the last N. Marketing is messaging this potential base which is not changing their business overnight, or even year to year, isn’t rapidly advancing in their market understanding, and won’t recognize more than a subtle shift in the message. Moreover, you don’t have new mediums popping up everyday. There’s print, radio, TV, skywriting, and web/social media. (We haven’t invented gamma radiation-based dream advertising yet!) Finance isn’t changing the rules of accounting, and even minor changes, like GAAP, only change every couple of decades.

Not so in Procurement. It’s not just acquiring supply at the lowest cost, it’s sustaining supply at a cost that allows the organization to remain profitable, which is not simply repeating the last order to the current supplier when stock gets low. That’s because Procurement not only has to constantly deal with supplier capacities, raw material shortages, carrier capacities, occasional port strikes, occasional carrier and supplier failures, but unexpected natural disasters that wipe out entire yields of renewable raw materials, arbitrary sanctions and border closings making suppliers and routes unavailable, and completely unexpected trade wars sparking tariffs that can completely upset all the cost models you ever developed.

That means that every model you have built and every solution you have customized instantly becomes irrelevant. And you can’t use AI to tell you what to do because AI can only tell you what it has been trained to do, and it can only be trained on existing data which would be based on historical situations.

That means that tech cannot solve your Procurement problems.

That means that the only option you have, as Sourcing Innovation has been saying for months, is Human Intelligence (HI!). That means that only educated, experienced, skilled, and smart people can solve Procurement Problems.

This isn’t to say that you shouldn’t use tech. You most definitely should! Because most of what you do is tactical data processing that is well defined, for which there are configurable solutions that will allow the software to do the majority of it for you, and “AI” solutions that can be trained to learn from the exceptions you manually deal with to handle them automatically the next time.

But when it comes to strategic decisions, there is no Agentric AI that can solve a problem, especially one it, and you, haven’t seen before. You have to do that. If you’re smart, you’ll acquire all of the best knowledge summarization and analytic solutions that you can get your hands on because they’ll automatically acquire, process, summarize, and graphically display all of the information available, which will help you make the right decision efficiently and effectively, so that you can react fast in a crisis with confidence, but it will still be you, the human, who has to make the (right) decision!

As an IBM slide deck stated in 1979:

A computer can never be held accountable, therefore a computer must never make a management decision.

Just because it can do a billion calculations a second and thunk better than you, that doesn’t mean it can think, because it can’t (and when Gen-AI claims to display a “chain of thought” it is lying, it is a “chain of compute”, which is not thinking, just identifying patterns that typically follow other patterns in sequences it was “trained” on). Only you can. (Remember, if machines ever become intelligent, our best case scenario is they need us for bioelectric energy and create the matrix where we believe we are living a life free of machines. Otherwise, we’re probably looking at a SkyNet situation. It’s only logical for many, many reasons.)

Yes, Gen AI will Have to be Consumed By …

Orchestration along with Intake if any of these loud, overfunded, mostly useless (but, unfortunately, not mostly harmless) startups are going to survive!

Yes, the doctor said it and yes, it’s totally true.

So why this diversion? the doctor was recently asked a variation of the question by a very knowledgeable, observant, and forward thinking executive with a track record of getting it right (and growing companies) who wanted to know if he was grasping the situation accurately and likely correct about how this whole mess is going to shake out once the mass extinction begins later this year/early next year (where the doctor is predicting at least twice the typical percentage of failures, rivalling or exceeding that of the first mass extinction post the funding frenzy and market crash of 2008, as well as a large number of mergers that will happen just so companies can partially survive; and where THE REVELATOR is predicting less than one fourth of companies will make it through unscathed, because the space cannot support 666+ companies).

As the doctor has previously penned in Marketplace Madness is Coming Because History WILL Repeat Itself:

Stand-alone Intake(-to)/Orchestrate solutions, the current poster children of the space, will soon have a fall from grace (and only the smart will survive)! Call me Scrooge if you like, but there’s a logic behind why I’m developing a bah-humbug attitude towards most of these. And it goes something like this.

Intake

  • Pay For View: if modern procurement solutions are completely SaaS, then they should be accessible by anyone with a web browser, so why should you have to buy a third party solution to see the data in those applications? Wouldn’t it make more sense to just switch to modern source to pay solutions that allow you to give variable levels of access to everyone who needs access instead of paying for two solutions AND an integrator?

Orchestrate

  • Solution Sprawl: while orchestration is supposed to help with solution sprawl, it’s yet another solution and only adds to it. Wouldn’t it make more sense to invest in and switch to a core sourcing and/or procurement platform with a fully open API where all of the other modules you need can pull the necessary data from and push the necessary data to that platform?

I2O (Intake-to-Orchestrate)

  • Where’s the Beef?: Talk to an old Pro who was doing Procurement back before the first modern tools began to be introduced in the late 90’s and they’ll tell you that they don’t get this modern focus on “orchestration” and managing “expenses” and low-value buys because, when they were doing Procurement, it was about identifying and strategically managing multi-million (10, 50, 100+) categories where even 2% made a significant improvement to the bottom line, and way more than 10% on a < 100K category.
  • Where’s the Market? This is only a problem in large enterprises — right now, many of these I2O solutions are going after the mid-market who are eating it up because of ease of use, but as soon as they realize the emperor has no clothes, and there’s no support for real strategic procurement (yet alone strategic sourcing) and you have to go out and buy more platforms, what’s going to happen? The reality is that the mid-market is better served by a federated catalog management / punch-out platform, or next-gen marketplace (they’re coming, tech is cyclical like fashion, and it’s due) and will likely be better served still by a new breed of e-commerce B2B solutions for end-user Procurement.

Moreover, as the doctor has penned in many posts, Gen-AI is only useful for tasks that ultimately reduce to

  • large document/corpus summarization
  • large document/corpus query
  • language translation (including natural to system and system to natural)

That’s why the doctor listed so few valid uses in More Valid Uses for Gen-AI … this time IN Procurement!, and why most of those were utterly useless such as:

  • Create meaningless RFPs from random “spec sheets”.
  • Auto-fill your RFPs with vendor-ish data.
  • Generate Kindergarten level summaries of standard reports for the C-Suite.

In other words, on its own, each technology is mostly useless. (But not mostly harmless. On its own, consistently misused, Gen-AI is very harmful. See our other articles for a discussion of that.)

  • Intake is useless on its own because capturing an input is worthless if you can’t do anything with it
  • Orchestration is useless on its own because it’s yet another piece of SaaS you need to maintain that provides no value beyond linking two or more pieces of software together that could both be linked direct through their APIs (since it couldn’t link the software in the first place if it didn’t have APIs)
  • Gen-AI is mostly uses on its own as most of its valid uses are in CLM or RFP query (not creation!), which is only a small part of the S2P cycle

However, if you put it all together, and do it right, the whole may be more than the sum of its parts.

If it’s all expertly glued together:

  • Gen-AI creates a natural language interface where a user can make any type of request, not just a purchase request, that is translated to a standardized system format
  • Intake can process those formats, ensure completeness (relative to the needs of the different enterprise applications and modules that are integrated), send complete requests to the orchestration module, get back the responses, and feed them through the Gen-AI interface to translate them to natural language before being fed back to the user
  • Orchestration links all the applications in a way that directs the request to the right application, or application chain, ensures it gets properly processed and executed and ensures the right results get returned to the right applications in the chain and, ultimately, the user … providing, of course, it’s enterprise wide back-office orchestration, NOT just Procurement!

Which means that the only way any of these players are going to survive is if orchestration gobbles it all up AND does it right.