Category Archives: Market Intelligence

M&A: Is What’s Good for the Shepherd, Good for the Flock? Part II

In Part I, we noted that the prophet has a different take than the doctor on the recent M&A (merger and acquisition) frenzy that is again gripping the Procurement space and, contrary to the doctor‘s opinion, the prophet believes that, at least in the long term, it brings more clarity than confusion. We then summarized the cons that the doctor sees with the M&A frenzy and the pros that the prophet sees. The points that the prophet made were all valid points and they definitely presented opportunities for the firms in question, but is what’s good for the shepherd good for the flock?

While it’s obvious that any of the advantages brought up by the prophet bring great value to the new organization, do they bring great value to the customer as well? (Let’s face it, while the doctor loves innovative and customer-focussed vendors, he loves innovative and customer-focussed solutions even more.) The Supply Management space will only advance if the organizations doing Supply Management can advance. And to advance, they need the right (transitional) processes, the right technology platforms, and the right talented people to run the function. Does a merger necessarily improve the processes, the platforms, or the people? Let’s take the advantages proffered up by the prophet one by one.

  • Differentiation by way of a broader solution offering
    If you were relying on the vendor for its great sourcing platform, and the merger was between a platform provider and a services provider that allows the new organization to offer a full (outsourced) sourcing solution, how much does this help you if your organization was a leader in sourcing process and capability and doesn’t need any of the new service offerings? Or let’s say a sourcing provider and P2P provider merged but your organization already has a superior P2P platform implemented and integrated with the sourcing platform. Does the merger help you?
  • New Points of Entry
    While it’s great for the newly merged company that they have more opportunities to secure more customers, except for the fact that this may lead to increased financial stability for the provider (which will make your risk management department happy), that doesn’t do anything for you as a customer. The only thing that you care about is whether there are new products, functions, or services that make your operations better.
  • Lower-Cost foot in the door
    With the exception that this lowers the provider’s overhead in the long term and the provider is willing to reinvest this savings in innovation that results in free platform / product upgrades, this doesn’t do anything for you as a customer.
  • Stealth-Transformation
    While this is great from the perspective of an acquiring company that can use the acquiree’s personnel and capabilities to transform itself into a big league competitor under the radar, what does this do for the end customer? Maybe nothing!
  • A Better Executive Team
    If the executive team understands your needs and support requirements better and actively works to improve their service offerings for you, this could be a good thing, but not every new thang will be right for your organization.
  • New Products / Solutions
    If the new products / solutions complement the products / solutions that your organization is using and can be utilized by your organization to increase organization capability and maturity, this will be a good thing, but the new products / solutions might be focussed on a completely different type of customer base and leave you hanging high and dry.

In other words, while all of these benefits are arguably good for the shepherd, there is no guarantee that any of them are good for the existing flock. And even if some of these benefits are good for some of the herd, there’s no guarantee that they will be good for each individual sheep. So, again, the doctor must ask, from a customer perspective, M&A: Confusion or Clarity?

M&A: Is What’s Good for the Shepherd, Good for the Flock? Part I

As the doctor expected, the prophet has a different take on the recent M&A (merger and acquisition) frenzy that is again gripping the Procurement space and, contrary to the doctor‘s opinion, the prophet believes that, at least in the long term, it brings more clarity than confusion. Furthermore, in his posts over on Spend Matters, the prophet makes some great arguments as to why M&A is a good thing, at least from the vendor perspective.

But is what’s good for the shepherd good for the flock?

Let’s look at the cons that the doctor highlighted in his original post that asked if M&A was confusion or clarity.

  • Many acquisitions end up being overvalued
    As the prophet neatly summarized, the doctor has noted that some transactions often remain “in the red” even a couple of years after the transaction has been made. Maybe the value was there, but if it’s not captured, and the private investors and/or VCs start demanding realization, who’s going to pay?
  • Many acquisitions end up significantly overlapping in functionality / offering
    Does a customer need two RFX platforms? Two invoice management platforms? Two reporting engines? Nope! In order to streamline costs and operations, one of these platforms has to be axed, and a large portion of the customer base migrated. If the functions don’t map one to one, who loses?
  • Many acquisitions run on completely different platforms & stacks
    This makes integration a nightmare. Either a lot of work, and money, will need to be invested to make an integrated platform work or one platform will have to be selected as the core go-forward platform, critical functionality developed on it, and a migration strategy, and module, developed for the customer base that will need to be migrated. In the short term, costs will go up (and not down, which is what should happen if there is synergy).

Now let’s look at the pros that the prophet highlighted in his pieces on “A Critical Take on M&A in Procurement Technology” and “M&As in Procurement Technology Work” on Spend Matters.

  • Differentiation by way of a broader solution offering
    than the companies could offer on their own, which creates
  • New Points of Entry
    into the market than a point-based solution can provide with a
  • Lower-Cost foot in the door
    since, even if the technology headcount can not be synergized, at least the salesforce can be (and sell more per unit). In addition, the combined company can effect a
  • Stealth-Transformation
    that allows the combined organization to offer more than each could on its own, because 1+1=3, and all of a sudden the new organization can graduate from the minors to the big leagues, with the support of
  • A Better Executive Team
    that is formed by bubbling up the cream of the crop for each position in a manner that allows each executive (who often had to wear multiple hats in the individual smaller organizations) to focus in on their key strengths which will help the company identify
  • New Products / Solutions
    that could be developed and brought to market by the combined organization that neither organization could consider on its own.

And these are all real opportunities that can be realized by the firms in question in a merger or acquisition that truly has the right synergy, but is what’s good for the shepherd good for the flock? Stay tuned for Part II!

Sourcing Your Salary: What Should You Be Paid?

This is a good question. Not only are salaries in the Procurement profession all over the map, but so are the salary surveys and reports produced by different organizations, including the ISM, CAPS, and the APS. However, these can sometimes be hard to get, and, with the exception of the ISM, not regularly produced.

But there is an alternative, and now that it is in its fifth year, it is becoming a very reliable one. That alternative is the Next Level Purchasing Association Annual Salary Survey, and it is a survey you should be familiar with. This survey, which collected data from over 1,300 participants, provides very reliable salary data for North America (39.6%), Africa (24.9%), Asia (22.9%), and Europe (7.1%) and starting data points for South America (3.2%) and Australia (2.3%).

As expected, the highest salaries are in North America, followed by Europe, Asia, and Africa; the average supervisory salary in North America is almost 50% more than the average salary, compared with 30% more outside North America; and salaries increase according to position title. And, despite the proliferation of equal opportunity employment advertisements, we should not be that surprised (especially given the number of women in corporate board rooms), that male procurement professionals not only make more money than their female counterparts, but they also get more higher-level opportunities. And, as those of us who have both climbed the ladder and jumped ship know, Procurement professionals who are recruited from the outside make more than those who are promoted from within. Once you’re inside, you’re on a standard progression track with a small raise tied to each progression. But if another organization is desperate enough, you can get the high end of market value, even if it’s 30% more than you are currently making, and a signing bonus.

However, not all of the results are as one might expect. Two findings in particular that stick out are the facts that

  • Buyers of indirect goods and services make more than those who buy direct goods and services
  • The use and size of bonuses in procurement is trending steeply upward

While a decent amount of market intelligence and negotiating capability is often required to identify and seize the opportunity in an indirect (services) category, the expertise required to properly should-cost model a direct materials category such as custom hardware or aircraft engines is staggering. For any modern piece of electronic or engineered equipment, you often need an advanced university degree just to understand what you are buying on top of the knowledge required to do a great purchasing job, which will likely require a background in operations management as well. Given the average level of education and skill required for direct vs. indirect, one would expect direct buyers to be paid more.

And while the doctor has been promoting performance-based compensation in Procurement for years, because the right incentives can often produce absolutely amazing results (just like appropriately incentivized sales people can lead to incredible growth), it was not something he expected to see. The average (laggard) organization believes that a Procurement professional’s job is to save money, that she should do the best job possible (even if she has to work 60 hours a week), and that her only reward for going above and beyond and identifying hidden millions in savings should be knowledge of a job well done.

the doctor strongly encourages you to check out the Purchasing & Supply Management Salaries in 2015 (Login required) report. A Basic Next Level Purchasing Association (NLPA) Membership is required, but basic membership is fee and Sign Up is simple.

Time to see how you stack up.

How Do We Solve the Top Procurement Challenge?

A few weeks ago, we mused on what is the Top Procurement Challenge when the average Procurement organization has so many challenges to deal with and indicated, for many organizations, the top, immediate, procurement challenge might be to align Finance and Procurement on the ROI of platforms and processes Procurement wants to implement for the good of the organization because, in many organizations, not only do we have the situation where Procurement don’t get no regard, but we also have the situation where they don’t get no money for essentials either, trying to survive on life-support when over half of organizational spending goes through them and organizational livelihood depends on them.

But how do we accomplish this alignment? How do we align Finance and Procurement on the value of good Procurement processes and platforms when everyday Finance sees proposals from various departments proclaiming mega (but unrealizable) savings and has an instinctive negative reaction to any savings claim put in front of them. Especially when Procurement and Finance don’t speak the same language. As far as Finance is concerned, a model only depicts savings if it is described in terms of ROIC (Return on Invested Capital) or ROE (Return on Equity) against the organizational balance sheet. It has to include not only financial outlays and expected cost reductions but overhead, indirect costs, assumptions, and potential variations due to unexpected interruptions.

The model has to be conservative, all risks have to be clearly identified, and the best and worst case savings ranges have to be precisely defined, with conservative estimates all the way. The savings process has to be outlined, the timeframes (especially if implementations and integrations have to be accomplished) and ranges have to be specified, and contingency plans have to be defined for delays. Only then will Finance even listen and start to take Procurement seriously.

But even then Finance may not understand how Spend Analysis or Decision Optimization can save 10% or more. Especially when previous investments in “analytic” technology resulted in glorified reports that resulted in no savings and previous investments in “auctions” supposed to “optimize” spending with the market, which had limited success in the beginning, ended up increasing organizational costs when demand started to exceed supply and inflation returned.

And convincing Finance might not always be the best idea because explaining that Procurement is not doing an optimal job might result in negativity, or even hostility, from Finance that might believe Procurement is doing a very lousy job if 10% savings are feasible. Finance might not be capable of realizing that sometimes global sourcing scenarios are so complex that it is literally impossible to get a grip on everything in a spreadsheet and there is no way any human can find an optimal solution to a complex sourcing problem without a sophisticated decision optimization tool that might have to analyze millions of possible award scenarios to find the best one. Nor can any human attempt to make sense of millions of transactions with a real spend spend analysis system that allows the user to cube, slice, and dice the data in a myriad of ways looking for patterns that simple reporting systems will forever miss. Procurement could be doing an exceptional job under the circumstances but still be leaving 10% on the table — 10% that can never be claimed without proper technology.

It’s a puzzler to say the least.

Your SRM is in a State of Flux. Shouldn’t You Find Out Where?

Last week we reminded you about State of Flux, a provider of Supplier Relationship Management (SRM) software and services, and the initiators of the SRM Research Report that we highlighted in our 3-part series on why you should focus on essentials, plan against the pillars, and be a customer of choice.

Your supply chain success is ultimately dependent on your supply base and their failure is your failure. Your customer doesn’t care why the order is late. He just cares that the order is late. Your customer doesn’t care why the product is crap. He’s just upset that he forked over good money for bad product and only cares what you are going to do about it. Thanks to omni-present supply chain disruptions that are increasing at a rapid rate (to the point that less than 15% of companies will not experience a major supply disruption over the next 12 months), something is going to go wrong. And the question is, do you have a good relationship where your supplier will proactively notify you of a potential disruption so that you can collaboratively work together to prevent it, or a not-so-good relationship where you won’t know the shipment isn’t coming until it’s two days late and someone calls the supplier who admits that, because of a missing raw material shipment, production line breakdown, or simply poor scheduling (which lets you know how important you are to them as a customer) it just isn’t coming.

Unlike RFX or e-Procurement, for which there are a plethora of good platforms that walk you through good workflows by the hand and make it hard for you to do it wrong (although they don’t prevent you from designing the process or event wrong), there are not as many platforms for SRM, and SRM cannot be fully automated. SRM is more than just performance monitoring and corrective action management, it’s also nurturing, development, and partnership. It’s a good process, with appropriate best-practices embedded within, that focusses on the soft factors as well as the hard factors.

But what the the best-practices that are appropriate for your organization? What’s the right process? How do you get started? And, more importantly, how badly are these needed? Unless you want to wait until a major disruption or disaster occurs, that could have been prevented with a better supplier relationship, the only way to find out is to measure up against your peers. Probably the best way to do this is to proactively participate in the 2015 State of Flux SRM Research Report and get the full results ahead of the market. Time is running out to complete the SRM Survey, which, in it’s seventh year, is focussed on helping you get executive sponsorship and support for your SRM initiative.

Follow the bright blue hyperlink today and take the 2015 SRM Survey today. Given the depth (and breadth) of work consistently produced by State of Flux (compared to the average over-priced and under-researched analyst report), the 45 minutes of time that is required makes the effort infinitely more valuable than the cost.

State of Flux Fooled You