Category Archives: Technology

What Would the Acquisition of SalesForce Mean to the Procurement Market?

Who Cares?

While the doctor and the maverick see eye-to-eye on a lot of issues, and that’s why they have been collaborating on the new Spend Matters CPO site because there are important messages that are just not being communicated by the new press at large, the doctor believes that the impact this acquisition will have on the Procurement market, as summarized in yesterday’s post on “what would the acquisition of salesforce mean to the procurement market” by the maverick, is not as important as the maverick seems to believe it is.

While the acquisition of SalesForce is an important topic, it’s no more important than the acquisition of any non-Procurement technology vendor. (While some SRM vendors use the platform, one has to remember that it is, at its core, a CRM platform). It’s (primarily) upstream, while Procurement is primarily downstream. While the processes should connect, they are still distinct and, unless you are in the middle of a negotiation, there’s no reason to even think about it as a Procurement issue.

The real issue is what does the acquisition of SalesForce mean to the technology market, and the market at large?

And while the doctor knows that he’s not just stirring the pot but the entire honeycomb on this subject, it’s a subject that needs to be addressed. So what does it really mean?

Simply put, too big to succeed!

One of the biggest problems with the technology market is that the misconception that bigger is better, and too big to fail, is a reality. The whole point of big was to benefit from economies of scale. But economies of scale have a limit. A single factory with a single production line can only produce so much going 24 hours a day. To go beyond that, you have to add another production line, or even another factory. If you do so, and you only reach half of the capacity, you don’t have the same economy of scale on the overage.  The biggest economy of scale was when you were at full capacity on the one line.

In other words, if you expand faster than demand, you waste time, money, and resources. This situation is bad, but the situation that occurs in an acquisition is much worse. Not only do you have more capacity, but you have a huge debt load as a result of the acquisition. So you are paying more to produce, and then you are paying even more to service the debt that you took on to produce more than you needed to.

But even this situation isn’t as bad as the situation where you are talking about technology companies that don’t produce physical goods, don’t have demand that typically rises with population increase or market growth, and have valuations that are many multiples of annual revenue — not profit, revenue. And we all know that the misconception that the product has already been built and the residual cost of sale is minimal is incorrect. Software has to be maintained, debugged, and constantly improved in order to be saleable to the mass market. That is costly. Whereas a product has a single production cost, possibly a single repair cost under warranty, and possibly a single reclamation or disposal cost, that’s it. The cost for each product is essentially one-time, whereas the cost of software is continual and adds up everyday it is in use.

As a result, you have software that typically:

  • cost millions to build
  • costs millions to maintain

and now you want to

  • add millions to the cost just so you can change ownership and assign a different name

It doesn’t make a lot of sense. Especially when you are talking about the acquisition of an 800 lb gorilla which already has a (relatively) complete solution. In this situation the acquirer is essentially admitting that either

  • its solutions are totally inadequate and it wasted millions of its customers dollars on its solutions (versus realizing that it has some good solutions, is missing a few key elements, and just needs to acquire a few point solutions from smaller vendors to fill the holes) or
  • it has no inherent capability to enter the space (and maybe it shouldn’t be entering the space to begin with).

And the acquiree is essentially admitting that

  • it cannot maintain (rapid) growth on its own anymore (which may not be bad if it’s the dominant player and has a very large recurring revenue and could continue to increase profitability with improved efficiency) or
  • it’s shareholders are greedy and impatient and don’t care what’s best for their customers and just want a quick payout.

Neither situation is good for either party. Nor does it make sense for any of the de facto tech giants who would likely acquire SalesForce to do so. None of the six AMIGOS (Amazon, Microsoft, IBM, Google, Oracle, and SAP) should acquire SalesForce. Here’s why.

  • Amazon
    They are an online e-commerce giant, with inherent ability to be a commodity supplier to large enterprises. They are not a software provider and beyond insuring quality, and receipt of goods, would not benefit from CRM. Sure the Force.com platform would allow them to offer even more apps, but they can already offer Android apps and sell online software, so it’s not a huge leap in capability.
  • Microsoft
    They already have huge back office suites that they have made huge investments in, including investments to port these suites to the cloud. Plus, their focus, and strength*, is back-office apps. They’d be taking a huge-write off on existing technology and would have to rewrite a lot for a whole new platform. They already run on Windows and Mac, that power the vast majority of office desktops, so why do they need the Force.com?
  • IBM
    IBM already has platforms for just about everything, including Alliance for CRM, have heavily invested in Watson, and need to keep building on the workflow and integration platforms they spearheaded in the early naughts.
  • Google
    the doctor will admit that it almost makes sense for Google, but Google’s market, and expertise, is apps, and it is still learning how to make money off of enterprise apps. It’s not ready for SalesForce, would have to let it run as a completely separate division, and take a huge hit to its balance sheet to pull of the acquisition. And while it’s the one company that could probably pull of a successful integration in a reasonable timeline without bleeding blood red everywhere, it would likely be quite a divergence from its other projects.
  • Oracle
    Oracle has too many CRM platforms as it is (with Siebel, PeopleSoft, CRM on Demand, and integration to about a dozen other platforms) and needs to continue to integrate and build on what it has. What makes Oracle strong, and great, is that it has always believed in eating it’s own dog food (while Microsoft ran off of third party databases even after SQL Server was released and has demoed Windows software releases on MacBooks on more than one occasion), but even Oracle can only integrate its acquisitions so fast. It’s still catching up on acquisitions past (and it took about 3 years to integrate the majority of Sun applications into its “single instance view”), so just imagine the effort to do a true end-to-end integration of SalesForce. Plus, it’s still a database / ERP company and with SAP so aggressively pursuing its marketshare in the US, with IBM and Microsoft still aggressively pursuing its global market, and with some companies (still) proclaiming that non-relational or in-memory databases can be faster and better for the average application, it has to focus on winning that fight.
  • SAP
    SAP is an ERP company with a very heavy focus on SRM, as evidenced by the huge amount of money it has dropped on Procurement, T&E, and Supply Management vendors over the past few years. This is where it has to focus to not only break-even on its acquisitions, but generate future value. And it still has a lot of integration to do. A lot.

the doctor‘s sure not everyone will agree with him, especially since people seem to get a little blind when such big numbers start flying around, but someone has to start putting this in perspective.

And now to put up the tarps in expectation of the reactionary mud-slinging from third parties not inclined to think deeply about the issue.

* And yes, the doctor cringes when he says this because most of their software, in his view, while standard, is sub-par — but they are the de facto solution and their Office apps, when you cut through the clutter (and the ribbon), work very well.

Societal Damnation 47: XaaS (Part II)

In our last post we introduced you to XaaS, Everything as a Service, and told you that this latest craze is going to cause your Supply Management organization nothing but suffering and pain. Why? Because even though, historically, the transformation of a non-core but essential function or utility to a service was a good thing that made your life easier, like all good things, there is an end to the goodness. Taken too far, nothing but chaos will result by handing over a function to a third party that is not well equipped to handle your service needs because they do not have the expertise, cannot achieve the necessary economies of scale, or just can’t be managed effectively.

For example, let’s say sales and marketing decides that IT just isn’t cutting it and decides to outsource IT support for marketing to a third party, and the organization is a CPG company that depends on all communications, orders, and marketing deliverables being properly archived in the ERP and Marketing Procurement system for compliance, cost management, and post-campaign/event analytics. This brings with it a host of problems. One, the systems are not being managed by IT or the support organization IT recommends. This increases 3PM overhead, causes the organization to lose out on better rates that come with more volume, and could result in core systems being bypassed (if the provider is inept and can’t figure out how to push critical data into the core systems). Two, it sets the organization up for a compliance nightmare down the road (when audit trails go cold due to missing data). Three, it opens the door for over billings, duplicate billings, and even fraudulent billings when AP can’t find all of the associated PO and contract data to m-way match an invoice. Four, instead of providing Supply Management with an opportunity to determine why IT isn’t meeting Sales and Marketing needs (which could be due to a misunderstanding, lack of staff, or other issue that could be easily solved by Supply Management) and identify a solution that would benefit the entire organization, it instead opens the door for each OU to hire their own provider (since Sales and Marketing did it), and burden the organization with a 3PM nightmare in IT.

And this is just the tip of the iceberg, as IT has been commoditized for over a decade now, and there are methods to manage this madness. The real problem is when different Business Units decide that anything they don’t feel is critical to manage in-house should be a service and the marketplace adjusts to that mindset. Product Design as a service. (R&D) (Hey, all we need to do is approve a design since we just need something to sell, right?) Supplier Management as a service. (Engineering) (We’ve approved the design, who cares who builds the product and how they do it, right?) 3PL Transportation, Inventory, and Distribution Management as a service. (Logistics) (Who cares how it gets to the shelves as long as it eventually gets to the shelves, right?) Campaign Management as a service. (Marketing) (Once we’ve defined the message we want to get across, we can just hand it off to a local marketing management firm to best tailor the message to the region and produce the ads, right?)

Each of these services can lead to massive headaches, fines, and reputational damage if the service provider does not understand the needs of the organization, does not employ proper processes and procedures necessary to ensure quality and reliability, does not have the right certifications and insurance, does not have a proper focus on sustainability and Corporate Social Responsibility, and does not ensure fair and equitable treatment to workers throughout the supply chain. For example, a design that does not adequately consider product safety and results in an electrical appliance electrocuting a consumer during normal use (due to lack of safeties and blowout circuits) will result in massive lawsuits. Poor supplier management could result in missed deliveries, poor quality, high defect and return rates, and even the inclusion of banned chemicals or compounds in the product which will result in costly recalls or border seizures. Poor logistics management will lead to high stock-outs on the shelves, and lost sales, which, if significant, could make the difference between profitability and impending bankruptcy for the organization. And a poor marketing campaign, that includes phrases or images offensive to members of the local community, will result in a media onslaught that will result in massive damage to your brand. And that’s just the beginning.

Services are good. But Everything-as-a-Service is a ridiculous concept and any organization that buys into it is just asking for trouble.

Societal Damnation 47: XaaS (Part I)

XaaS, short for Everything as a Service, is the latest craze that is going to cause your Supply Management organization nothing but suffering and pain. While it sounds really cool, because, historically, the transformation of a non-core but essential function (legal, accounting, etc.) or utility (water, electricity, waste disposal, etc.) into a service made your life easier, as with any good thing, it’s always possible to have too much. (A glass of red wine a day is a good thing, unless you are an alcoholic, but the same cannot be said of a bottle. A couple of aspirins are a good thing if you have a headache or a mild heart condition, but a bottle can kill you. Recruiting firms are a good thing, but imagine the chaos if you had to hand over all hiring to a third party who knew nothing about your corporate function or talent needs. Think about that for a minute.)

The right services can provide an organization with considerable advantages that include, but are not limited to:

  • Expertise
    that the organization might not have
  • Cost Reduction
    from economies of scale when all the service provider does is a certain function (and can amortize solution and personnel costs across multiple clients)
  • Efficiency
    that comes with best practices and the focus of personnel on homogenous tasks in an efficient manner (under the right, lean, six-sigma optimized, virtual production line model)

provided the organization does not have the economies of scale, dedicated personnel, or expertise in house. However, the wrong services will burden the organization with a number of considerable disadvantages that may include, but are not limited to:

  • Cost Increase
    as cost reductions only materialize if there is enough work on which to achieve a cost reduction (through the provider’s economy of scale) that covers the incremental overhead and management cost that goes with outsourcing a function
  • Efficiency Decrease
    since the management and administrative overhead of handing over a small amount of work is more than the efficiency savings achieved by the third party when there is not enough work to take advantage of an economy of scale
  • Loss of Control
    which is critical if the task is critical to organizational success (which is the case if the task supports the core business function of the organization)
  • Third Party Management (3PM) Nightmare
    if the provider is difficult to work with, in a time-zone that is opposite to normal working hours or the time-zones under which most other third parties operate, or has management requirements that are unduly burdensome to an organization already stretched thin with regards to third party management requirements

And if different business units decide to start outsourcing what they perceive as non-core functions (which are in fact core to the business or which should be managed by Supply Management or a different business unit), functions for which the service provider cannot achieve economy of scale, or functions that have not been optimized for outsourcing (which will result in an efficiency decrease as a best-practice provider will not be able to optimize inefficient workflows) willy-nilly, Supply Management will have quite a third party management mess to deal with.

How so? Come back for Part II.

Statess Wants to Stabilize Your State of Flux Part III

In our last two posts we introduced you to Statess and their SRM solution. With eleven years of SRM consulting behind it, and six years of Global SRM research, the platform hits the mark and provides the solution that many companies need to manage their supplier performance, development, and relationships. In today’s post we’re going to cover some of the key features of a few of the core platform modules.

As indicated in our last post, the platform is easily configured to provide a 360-degree view of a supplier and from the supplier homepage, a user can quickly access the overview report, profile data (which can be used to build a complete Supplier Information Management, or SIM, solution), performance data (collected internally and from third parties), the risk profile, associated contracts, tracked innovation efforts, Corporate Social Responsibility efforts undertaken by the organization and/or the supplier, current projects, supplier accreditations, 360-degree surveys (by the supplier of the organization), existing reports, and all dashboards that correspond to the supplier. In addition, if available (via 3rd party plugins), the buyer can also access trading information related to the supplier and its products, news feeds on the supplier, and the supplier’s media portal. Whereas some SRM solutions scatter supplier data throughout the different modules, the Statess solution, which allows for data entry and maintenance throughout the different modules, allows for the easy creation of centralized views by supplier so the organization, and a buyer, always has all of the relevant information through one common access point.

The system supports very extensive supplier profiles. In addition to basic HQ, Finance, and Contact information, the system can also store information on the supplier’s organizational structure as well as information on the supplier’s mission, vision, corporate objectives, and sustainability commitments (used in the CSR module). Furthermore, it can store extensive governance information that includes all of the individuals responsible for the relationship on both the supplier side and the organizational side, a complete stakeholder map, necessary actions, governance plans, planned meeting dates, and the minutes and reports associated with those meetings. Actions are implemented as project tasks and have owners, states, and status. This, in turn, provides a strong foundation for performance management and development programs.

At its core, the platform supports a very powerful generic survey mechanism that, like a good RFI solution, allows multiple types of surveys to be built with multiple sections, different response types (checkbox, numeric fields, free text, etc.) for each question, and automatic weighting mechanisms. This allows the organization to prepare the appropriate internal performance surveys and external 360-degree surveys that form the basis of good performance, CSR, Risk, and Relationship management programs.

Projects, which can correspond to the different types of efforts that can be managed in the system (including, but not limited to, risk management, compliance management, supplier development, innovation, and sustainability), can be associated with a business unit, optionally associated with one or more contracts or bids, and contain multiple stages or tasks, as they are defined in accordance with the traditional, well understood, project management methodology.

Performance reviews are built on KPIs (Key Performance Indicators), one or more KPIs can be built for each area (risk, compliance, CSR, contract, etc.) of interest, and the review can be broken down by key area. Year-over-year changes can be automatically calculated and the data can be imported from external systems or the ERP in supported data formats. Color-coding and drill-down views allow an organization to quickly pinpoint problem areas and then launch development initiatives off of the relevant area or KPI. KPIs have an extensive definition in the system (which includes categorization, associated business units, organization and supplier owner, input/import method, update frequency, default reporting frequency, tolerance levels, etc.) and, when properly defined, become a powerful performance measurement and management tool.

Risk tracking is also quite extensive, allowing the organization to categorize risks in different categories and track them using external data feeds (or manually entered data), define and store supplier contingency and business continuity plans, and integrate Lexis Diligence in real-time against the supplier and identified risks of interest.

Contract Management tracks all of the contract meta-data that you would expect, supports versioning, stores default templates, tracks contracting entities, and even allows for the definition of sibling (related) and child contracts so a buyer can not only quickly retrieve a contract for a product or service, but determine if there are any other contracts of relevance if she is sourcing a category or thinking of dealing with an entity wholly owned by the supplier.

The innovation module serves two primary functions. First of all, it allows an organization to centralize tracking and management of supplier projects focussed on innovating (a new product design or service). Secondly, it allows the organization to track public challenges that it issues on sites such as Innocentive. This is a useful capability that many software solutions overlook.

In summary, the new Statess solution is a very extensive SRM platform that makes a great entry point for any company wanting to get their SRM under control.

Statess Wants to Stabilize Your State of Flux Part II

In our last post we introduced you to Statess, a relatively unknown solution provider in the SRM space on this side of the pond even though they were conceived from State of Flux who have been producing leading SRM research reports for six years, in business for eleven, and are a leading provider of SRM consulting in the UK.

We discussed how they offer a SRM suite focussed on performance, contracts, risk, innovation, relationship, and sustainability management with over fifty sub-modules that address dozens of facets of performance, risk, and relationship management. We also noted how the platform could, if needed, be used for category management in addition to contract management, CSR management, and even the management of overall supplier development programmes.

The first thing to note about the Statess SRM platform was that it was designed to be modular, flexible, and adaptable. This means an organization can not only choose only the functionality that they want from such a platform, but can configure it how they want and even customize the terminology used in the UI. Even if an organization could use all of the functionality, sometimes a staged roll-out with limited functionality is best at first as this allows training to be focussed and prevents users from getting overwhelmed and avoiding the system. (And if the organization has systems with some of the functionality and wishes to keep using those existing systems, disabling duplicate functionality makes sure that the users don’t get confused.)

The next thing to note is that this web-based platform is highly configurable. Not only can the user define and customize reporting dashboards, as one would expect from any modern tool, but the user can design and customize their home page and the view for the entry point to every module they have access to. Basically, not only do all reports have overview widgets, but all action types have summary widgets, particular to what the user can see and do, that can be shown or hidden, rearranged as the user sees fit, and customized from a look-and-feel perspective. This allows the user to create a page that focusses on upcoming and overdue actions, quick access to artifacts (such as contracts, audits, certifications, etc.) stored in the system that they need to review on a regular basis, and entry points for key tasks that the user performs on a regular basis instead of just a shiny dangerous and deadly dashboard (which is where most systems stop).

After this, the next most important thing to note is that the user can create views from both an organizational perspective and a supplier perspective. The latter allows them to focus on a 360-degree view of a single supplier, as opposed to just an organizational view from a performance, relationship, or contract perspective and even replicate what the supplier will see based on what information they choose to share (with the supplier). Furthermore, from this view they can create or access any data or system artifact that relates to the supplier, regardless of the module it lives in as well as initiate new survey, innovation, or development programmes. The system maintains the necessary multidimensional relationships between the different data elements to enable the buyer to rapidly configure and access multiple views. Just like the best insights in a spend analysis project often come from looking at the data in unconventional ways, the best insights into supplier performance and, most importantly, development opportunities often come from looking at the supplier (data) from multiple perspectives. Statess realized this and built a tool that could support these multiple perspectives.

And the last point we are going to note in this post is that the platform, while quite extensive, is still looked upon as an early stage solution and is being actively, and aggressively, developed and more (and deeper) functionality will materialize over time, as well as more integrations to third party systems and data sources to shorten the average implementation timeframe and progress towards even more of an “out of the box” solution.

In our third, and final post in this initial series on Statess, we’ll overview some of the key capabilities of a few key modules.