Add commentDecember 9th, 2009Paladin Associates - Don Hoeppner
In Six Sigma Quality Training, we were taught that a good repeatable process should always produce the same results … with little variation and few errors. That is a good thing for many processes such as manufacturing widgets, processing customer orders, paying bills, etc. It is not a good thing in a Strategic Sourcing project. In Sourcing, uncertainty, variation, and supplier agitation is a good thing. Add competition, especially new competition, and incumbent suppliers get nervous about losing the business and potential new suppliers get encouraged and excited about winning new business. Everyone sharpens their pencils … which is a good thing … for buyers at least!!
At a recent client, we were engaged to review their Indirect Purchase Base. We were told, ‘see what you can do’ to improve on what the client had already completed. In most spend categories we looked at, the client had recently ‘renegotiated’ the current pricing with the incumbent supplier (repeatedly for years in some cases) but had not completed a rigorous, and competitive RFQ process. In most cases, the client was informed that their current prices were the best that could be offered. All good sales people say that, right?? So, nothing for a new Sourcing Team to do?? Wrong.
We reviewed many of the categories, researched the markets, and set up various competitive sourcing events (paper RFQs, e-RFIs/RFQs, e-Auctions), introduced alternate suppliers, and conducted fair and open competitive bidding and negotiations. In some cases, we found errors in specs, poorly administered contracts, and other issues with the current suppliers. In all cases, we improved the clients previously negotiated prices (generally double digit improvements), improved contract terms, and maintained or improved service levels, often without changing suppliers!! So much for sales people claims about the ‘best prices that can be offered’. Maybe it was the best that they could offer, but when faced with losing business supplier management at higher levels (with higher discount authority) usually will get involved to improve on those ‘best prices’!!
Several lessons or reminders. First, “Different Process … Better Results” is the rule in Strategic Sourcing. High quality and high impact sourcing results often come from changing the way things are done. Change the process for best results. Second, introduce uncertainty into the process. By engaging Paladin Associates, the client completely ‘changed the game’ and introduced a huge amount of concern for the incumbent suppliers. The suppliers didn’t know us and didn’t know what we knew about the market value of their products. Many did know our reputation for obtaining the best value for our clients. That alone, is a good reason to engage outside resources to help to quickly source non-strategic spend categories. Third, identify and introduce new suppliers to the client. New suppliers are hungry, have new ideas, take a fresh look at the opportunity, and again, generate uncertainty for the incumbent. And generally have great attitudes!! And finally, ‘the best price that can be offered’ is usually not the lowest price (or best value) when RFQs are property structured and competition is introduced.
Add commentNovember 2nd, 2009Paladin Associates - Rick Schlegelmilch
A structured competitive bid will generally result in better pricing than one-on-one negotiations with suppliers. In one clear example, a client had recently secured a 20% cost reduction in facilities services from the incumbent suppliers using face-to-face negotiations.
Nonetheless, we recommended creating a structured RFP to include multiple suppliers as well as the incumbents. We identified an array of 12 qualified local and national suppliers. We developed a detailed scope with floor plans, unusual surface descriptions, number of bathrooms/fixtures, etc. In addition we expanded the scope of the RFP somewhat to make the offering more attractive. Terms and conditions remained the same as with the current suppliers. The client arranged group facility tours with finalists.
Ultimately, the incumbent suppliers won the competitive bid on a “total best value” basis, but the competitive bid netted an additional 20% savings! Because the incumbents won, there were no transition issues or expenses.
Particularly in tough economic times like these, competitive bidding is a most valuable cost-reduction tool to ensure best value… even if some savings have already been realized.
Purchasing Magazine ran a listing of vendors that offer spend analysis solutions, available via this link. It must be a tall order for companies to accurately assess and evaluate this technology solution, as I would only consider 11 of the 17 to be spend analysis tools. Some of those 11, I gave the benefit of the doubt because I do not know of a single time we have competed against them, nor do I know of any companies using the technology for spend visibility needs (eg, US Bank).
In fact, there only 7 on the list that I know we have competed against. Hence, to me this list just further validates that quality Spend Management vendor information simply does not exist, and is the reason why practitioners often are forced to rely on Analysts. Unfortunately, this method of qualification is hardly better, as I have previously proclaimed (accurately, I might add).
Personally, I think this excerpt of definition from Wikipedia, hits it on the head: A disadvantage of dead reckoning is that since new positions are calculated solely from previous positions, the errors of the process are cumulative, so the error in the position fix grows with time. In a nutshell, unless you really know what you are doing and have a lot of time, the informational errors will compound and your decision will be made without modern day navigational equipment that keeps you on course.
So, if there are no resources that can accurately maintain an unbiased vendor ranking system, what is a buyer to do?
For starters, do your research from at least 3, preferably 5 resources. This would include reading some analyst market reports, but NEVER just one. You should also thoroughly digest vendor websites and document features and benefits, to make sure they are each saying enough of the right things for consistency. Next, speak to your colleagues that have used SA tools, or been on evaluation teams at other companies. They can help you really reduce the noise. Lastly, be ready to concentrate during a minimum of 5 product demos, maybe more. If you are truly committed to choosing a partner and awarding the business, it is likely the finalists will give you access to their tool with a custom data set from your side.
Choosing the right tool for spend visibility is hard enough, be sure Garmin is turned on.
Last month we had a major release for our clients, with the long awaited functionality for supplier information management, or whatever terminology kids use these days for vendor data management. As you can read in the press release, our COO was quite pleased. In fact, we had to edit his exact quote to be less enthusiastic.
Then again, why wouldn’t we be excited? Our integrated application can now give users the ability the design custom supplier portals with supplier type profiles and n-tier level classification. In the first month, a large number of clients have already begun tracking supplier data for reporting and risk assessments. Our next release will build in scorecarding data to enhance the supplier data content with the official release of a stand alone product – SmartSupplier.
Simple usages, such as maintaining supplier diversity information and sharing that information across the enterprise, are now part of our standard deployment. The maturation of the eSourcing solution marketplace continues to evolve and deliver value to practitioners.
Iasta made the list again this year, which has been every year since 2004. Of course, we are very happy about this achievement and being listed 6 years in a row. I also have been pretty happy with the SDCExec publication. The magazine has quality content and Andy Reese has been associated with the industry for a long time now, which gives him a lot of credibility.
More interesting to me this year, than us being on the list, was who was not on the list. Ariba.
Per SDCE – Supply & Demand Chain Executive has identified leading providers of supply chain services and technologies who are helping their customers and clients both respond to the downturn and, more importantly, position themselves for growth ahead. Based on submissions to the “100″ from end users and solution providers, the judging committee for the “100,” including the editorial staff of the magazine, in conjunction with the editorial advisory board, has compiled a list of leading supply and demand chain innovators.
“Our goal with this year’s ‘100′ is to highlight a broad range of solutions and services targeted at a variety of industries, addressing the needs of companies of varying sizes, and assisting in the transformation of a diverse mix of the functions that make up the supply chain,” added Reese.
-more-
“Therefore, our judging committee looked for solutions across a variety of industries, addressing the needs of companies of varying sizes, and assisting in the transformation of a diverse mix of the functions that make up the supply chain.”
Now, I will go to war with Ariba every day for eSourcing supremacy, but I do find their exclusion peculiar. Did they not submit an application? Did they not get enough votes? Something more sinister?
There are 3 to 4 things per month that I wish I could announce here, but generally zip it. I actually do not know anything about this and submit the question openly. In the grand scheme of things, the issue is not overly important, but it did give me a furrowed brow and stink eye combo that is generally reserved for my 2 yr old demanding a gummy worm exclusive dinner menu.
Add commentJuly 30th, 2009Paladin Associates - Pat Horgan
Companies spend millions to set up professional Procurement departments, staff them with experts, and invest in tools and processes to insure they are purchasing goods and services at the best prices.
Countering this, suppliers often pay top dollar to Salespeople, part of whose job may be to bypass Procurement entirely, by calling on other executives or employing a bewildering array of sales techniques. Procurement professionals frequently work closely with supplier sales people, but they often do not realize how those salespeople may be working behind the scenes. Generally, Procurements’ job is to try to foster competition, and drive supplier prices down, while Sales’ job is to try to differentiate from competiton and keep prices up. These roles may be cordial, but are essentially adversarial.
One such Sales technique is gaining competitive information from the customer. Top-notch Sales people know their competition very well; they are usually familiar with their competitor’s strengths and weaknesses. And they try to find out what their customers or prospects think about their competition. The more they find out about the competitive selling environment in a prospect account, the better able they are to gain an edge.
This can enable a good Salesperson to identify and “sell” a benefit that perhaps only his company can perform, or that he knows the competitor can’t perform. If the Sales person can succeed in getting a particular product feature more heavily weighted, it may reduce price competition.
If Salespeople learn that a competitor is not well-liked by a Buyer, or by other influential executives, they may be less inclined to compete on price, being confident that the competitor can’t really win at any price. On the other hand, if Salespeople learn that an incumbent is well-liked, they may be less likely to bid aggressively, fearing they are being used as a “stalking horse”, and will eventually lose anyway.
Sales people often have many sources and can be very clever gathering intelligence. They pick up bits during a sales call, other pieces from Engineering, maybe some more data from talking to administrators. They talk to the receptionist. They get people in one function to talk about people in another function. They are always asking questions. They can “triangulate” and put things together over time. A sophisticated company needs to be aware of how this works, and be on guard.
Although it is very hard to stop a skilled sales person from doing this over time the risk can be mitigated by making everyone a sales person might talk to aware of the potential issues. They must be taught to overcome the basic human inclination to share confidences, talk freely during a golf match, tell tales about other functions, succumb to flattery, etc. A procurement organization should have a policy, even though it is hard to implement, and very difficult to enforce. The truth is that most companies have no idea of the impact good vendor salespeople have on them. Loose lips sink ships!
On Friday, Jason Busch on Spend Matters had excellent coverage of the latest effort from Forrester, the 2009 eSourcing Wave, which is conveniently available from Emptoris. Unfortunately, the blog from Jason is infinitely more interesting than the actual report. If you were wondering, it should be the opposite.
These have historically been done by Andy Bartels. However, this Wave was done by Duncan Jones with help from Christine Ferrusi Ross, Antonin Shanahan, and Philipp Karcher. Much to my disappointment, a new crew has done nothing to enhance the Wave for its value to practitioners. In fact, I waffled on whether to even address this “analysis” but in the end, decided that Iasta must have a public response, since this report will exist on our shared airwaves for the next four years. To not do so would be a disservice to the procurement community. Moreover, it would be a disservice to us and the decade of hard work that has resulted in a very accomplished company and product line.
Before beginning, a quick housekeeping item: it will not be a coincidence when you see my content densely packed with proper names, titles, tags and descriptive terms for eSourcing (like spend analysis, contract management, reverse auctions and optimization). I want to make sure that when any one does a Google search for The Forrester Wave™: eSourcing, Q1 2009 by Duncan Jones, they also have easy access to other sides of this story.
The latest Wave begins with retread benefits of eSourcing – that have existed in Powerpoints going back to FreeMarkets days. Fair enough, I guess some readers are new to this and need the 101 class. It continues on with more basics like deals are getting done in SaaS, suites are expanding across other functional areas, and ERP are becoming players in the market. Spoiler Alert: the rest of this analysis is basically a forty-something ex-model trying to latch on top a sixty-something, moneyed retired divorcée (large vendors pay Forrester into the millions every year for research and “access”). Spoiler Alert II: this is not the portrayal of ERP solutions in the new report coming out by Andy Bartels about the ePurchasing market. I saw an advanced preview and it has got a lot of good impartial information in it and is especially candid about SAP and Oracle in the market.
Aside: Page 4, Figure 1 of the eSourcing 2009 Wave, shows that the total market (using revenue projections for sourcing, contract management, spend analysis, and spm) for eSourcing is $2,043,000,000 and roughly half of the entire ePurchasing market. If this is the case, why would you pick 9 vendors and call it a day? Does not this topic deserve a true “deep dive” with in depth product reviews, surveys, interviews and audits?
The truly troubling part of this effort, was the arbitrary criteria used for inclusion: current offering, annual revenue, strategy, market presence. I am not sure how these were actually graded since we were only asked four questions via email about our revenue and general value proposition and we never did a product demo or serious benchmark. These artificial parameters around the qualification have nothing to do with the product, additional services offered, quality of support, client base or price and do a disservice to practitioners by shot-gunning the research.
As far as what results these parameters developed: a sourcing product that is specifically designed and sold to the retail industry, a company in Europe that I have never heard of and we certainly have never competed against, a product with the acronym PLM right in it, that practically requires you to use the advanced search box to find the one web page about SRM, and an ERP product that actually gets people to laugh out loud at its miserable value. As far as Siemens goes, they probably still have the old eBreviate code jammed into some dark corner but they aren’t competing on any sourcing specific deals with the ATKPS application. And, correct me if I am wrong but Agentrics at least used to use Emptoris – unless they’ve now created their own platform? Would that not a be a violation of Rule #1: (a vendor must have its own e-sourcing product)?
Hmmm, I am losing confidence in the vendor inclusion process…44% of the best vendors have serious issues with their qualifications. Back to Iasta for a moment, which one of these criteria did we not qualify for? We are not $15m in revenue (this is true) but no one ever asked or requested our audited financials.
Moreover, I just do not understand what Forrester is trying to accomplish with this. Is it an intense global review, hence they were impressed by i-faber? If so, where are IBX, Synertrade, Portum and others that have significantly more presence? They even explain that Agentrics and Siemens are vertically targeted tools. So, is there a weighting benefit by only serving one category of client? What does $15m in license revenue have to do with happy customers that renew contracts and quality software that performs incredibly advanced functionality? And, as Jason points out, how is an analyst best qualified to judge a vendor’s strategy and assign 50% of his ranking to it to boot?
At the end of the day, I believe that these reports only do a disservice to the entire community. I got my first inbound query about Iasta not being included at 10:30am Thursday morning following the publication of the Wave. It came from Europe, from a very important prospect, at a very large company, that is strongly considering our tools. (Pay attention class: that’s more than one platform and an international presence, but we are not on the grid). I had to go into Code Red emergency response mode for the rest of the morning, just as I always do when the Wave or Magic Quadrants come out with their predictable results.
I am not mad because these reports are schlock. I am mad because they seriously impact our business and cause irreparable harm to our reputation and growth efforts. Countless companies will now use this report as their short list for evaluating solutions. We will never be contacted. I have no problem with practitioners trying to take the shortest path to the correct decision; everyone is very busy and needs help. However, passing this off as qualified unique research, when it is merely a 4 year refresh to a branded report, is counterproductive to the innovation which is really occurring out here – at Iasta and other vendors who did not meet someone’s arbitrary inclusion criteria.
Add commentMarch 18th, 2009Sean Delaney - Iasta UK
I have been desperate to take some time to read this article in SM on the A to Z of SRM. It is a big topic anyway but I was still hoping that It would offer some clarity on what is SRM. However, it gave me a lot more. The speakers highlighted at the SRM conference in Geneva outlined how they interpreted SRM within their organisations and what benefits it gave. Let me summarise, by speaker:
BP, Bill Knittle – he believes that successful SRM programmes “require about 70% behavioural change and 30% process adjustment”. Bill went on to say that it had taken between 24 to 36 months before he could get suppliers to talk. Success must be linked to organisational goals like shareholder value which will reward innovation, growth and efficiency. Finally, Bill observes that Relationship management skills require a totally different skill set.
I totally agree with this ideology. Procurement can learn so much from their Sales & Marketing brothers across the desk. There are those who are good at acquiring business, and those who are better at managing the business….Hunters v’s Farmers. The “levers” that Bill adopted to reward suppliers are interesting, but in reality, with such a large organisation like BP, one suppliers efforts will have minimal impact…I would like to know more about the exact mechanism for measuring performance, as I feel this should always be realistic and achievable.
AVIVA, Sheilagh Douglas-Hamilton – SRM function is a department within procurement. Sheilagh suggests it is all about getting a deeper relationship with your suppliers and tapping into their resources like innovation and design. AVIVA have realised savings of £100m directly from SRM activity. What is interesting is that Sheilagh agrees with Knittle, that SRM managers need different skills than Category Managers.
Again, I would like to know more about how that £100m breaks down and by what mechanisms this benefit measured. What is really interesting is how AVIVA have organised themselves to manage SRM, and again, the different skills required.
BUPA, Steven Pink – Steven’s thoughts on SRM are much more simplistic and he gives the example of when he joined the business from BA there was an adversarial approach to suppliers. He summarises be saying their objectives were to align goals and create more efficiencies between both parties.
I think there is more to this – again what levers were used to measure and encourage a change in behaviour? This is starting to sound like the old Partnership agreements that were common during the late 80’s and early 90’s.
Diageo, David Lawrence – David suggested that SRM could be improved by reducing audit fatigue. David suggests this could be achieved by collaborating with other buying organisation in their sector. They use the International Labour Organisation conventions and the UN global compact as platforms to qualify suppliers.
I agree wholeheartedly with David’s sentiments to reduce audit fatigue. However, I do not believe alone that this constitutes SRM. I believe there are now automated processes in place to make measuring far simpler. Furthermore I also believe that SRM is not only about working with the large suppliers but also nurturing the new, small and innovative types as well. After all, sharing the same supply base with your competitors does not give you competitive advantage.
MacDonald’s, Joseph Youssef – Joseph believes that SRM needs executive sponsorship and a long term approach. It helped McDonald’s create greater visibility in the supply chain, foster innovation and for suppliers it allowed them to reduce costs by eliminating needless sales activity. Joseph interestingly pointed out that the focus shouldn’t be on the big picture and should focus on “one area at a time”. Benefits achieved from SRM activity have been $3.5m per year over the past 4 years.
This is interesting and quite different than BP which clearly focused on the bigger picture. Executive sponsorship is mentioned for the first time, but in all these organisations SRM wouldn’t have dedicated resources without it.
British Airways, Paul Alexander – BA were motivated to focus on SRM firstly after industrial action within the supply chain and secondly due to lack of competition within the supply chain. Paul believes that SRM will have a major part to play in the future because BA’s experiences will be felt by many more as scarce resources become scarcer
This is interesting perspective in many respects BA could be ahead of the curve in their thinking here. However, after reading this extract, I couldn’t help but feel that this had the look and feel of one of those Partnership approaches, rather than SRM. Also, should SRM be driven by “well, we have no other option”, or more about making both organisations more competitive?
This article has certainly given me food for thought. Is SRM just an advancement on the Supply Partnership theme used in the late 80’s/90’s? What mechanisms should be used to measure and change behaviour? Should it be less measurement based to avoid audit fatigue?
However there are some common themes here:
• Executive Sponsorship
• Dedicated resources to SRM
• Mirror Customer Relationship Management in your SRM methodology and approach
• Use some measurements to change behaviour and align goals
• Regularly update success criteria so it is aligned with the organisational goals
What is still unclear is:
• What measurements should be used?
• How much measurement?
• Is it a Partnership or something different?
This post originally appeared on ESF on March 24, 2008.
Barb Ardell, of Paladin Associates, sent me a very interesting essay about the future of VC, by Paul Graham. For any one who has read this blog over the last 4 years, you would know that one of my hobbies is to pick on people that cannot succeed in business, despite millions in capital to help ensure that it does succeed.
This particular essay was intriguing as it blueprints the path we took at Iasta, way before it was a trend. We cobbled together our capabilities, one chapter at a time, until the critical mass was formed which allowed for grander opportunities. Mistakes have been made along the way, but none that could not be overcome with some common sense and effort.
I continue to eagerly listen to stories of companies that squandered $25mm, $50mm and more on poorly executed strategies. Usually, a huge bulk of the wasted money comes from massive expenditures on SAP, Oracle, or other e-commerce platforms that were customized for that marketplace. We were able to build our “infinite runway money” in the 2nd year of operations. We must have been told 100 times in the first five years, that we were too risky and would not be around as long as Freemarkets, PurchasePro, CommerceOne, etc. None of those people ever realized that we actually cared about our business and we would protect our assets like they were our children.
In short, I agree with this story in concept and practice. We never saw where the VC money would positively impact our efforts, but to the contrary, would actually serve to destabilize our plans. There are places for large capital investment, of course I believe in that, where it is critical to move into a market quickly for complete mindshare domination. When the idea is truly innovative, you will win big when the brand = action (eg, eBay). In fact, it’s was probably the right thing to do for FreeMarkets, as the established the early dominant position.
The chatter in eSourcing is literally non-stop, regarding the financial viability of each vendor. Further consolidation coming, most likely in the form that it has mostly been – opportunistic bone picking of a software company carcass. Do you want to do the due diligence the right way? Look for the right ratios of R&D vs Sales & Marketing, executive leadership tenure and stability, a history of releases and a legit roadmap, YOY revenue growth with associated net margins, and finally, reputation.
Everyone who lays the smack down on the SaaS industry appears to be burned investors, installed application vendors, or hyperactive IT departments. I read this CIO article, which brings on frequently quoted crabass, Larry Ellison, about the industry. However, the vendors providing these solutions, the organizations that use them, and the budgets that fund them, all seem pretty happy.
Most of those consulted agreed that we’re at the beginning of something that’s going to be a lot bigger in coming years, so ride out the low profits now. “The [SaaS] shift is compelling to the customer and the vendors are forced to streamline and sell greater volume,” Pombriant noted. “That’s the way of markets. If you wait around until a new paradigm is profitable I guarantee you will miss the market.”
Part of it is just structural, the nature of the beast. “Given the way revenue is recognized by SaaS firms versus traditional perpetual license firms, over the life of the contract versus all up front, SaaS firms will not generate lots of profit until these fast growth opportunities slow,” Gianforte pointed out. “This is due to the way the revenue flywheel spins up in a SaaS firm… I believe you will see margins continue to expand across the entire SaaS industry in well-run firms.”
Of course, as also stated in the article, the Oracle founder has made a nice bit of money from investments like Netsuite and is a major shareholder in Salesforce, widely considered the largest SaaS company. The summary of this article is clear: SaaS is here to stay, it has too many benefits. Some of the most aggressive companies in the space are still running in the red, but that is most by design with an exit strategy in view. Profitability in SaaS is achievable, if that is what is desired.
Sometimes, I run across articles that are filled with so much common sense and guidance, that is refreshing to know you can get so much advice from one small article. This happened recently when I read How to Kill Your Software Selection Project in 10 Very Easy Steps. In this story were ten very real issues that happen during eSourcing software selections.
Fail to get user buy-in
Fail to get executive buy-in
Automate the wrong business processes (AKA “Look Ma, I’m doing the wrong thing, much, MUCH faster!”)
Over-express your requirements
Succumb to undue influence
Let software vendors set the pace in software demonstrations
Look for the magic bullet
Set unrealistic deadlines
Compare apples to oranges
Overlook the fatal flaws
You should read the entire article if there is even a possibility of a procurement application being reviewed. Additionally, I would map them out to make sure each one is being addressed by the team or individual tasked with the effort. Just treating this like a check list, can help create the right environment and expectations without getting lost in minutia or scope creep.
(Personally, I liked #6, as we encourage dynamic product demos that are driven by practitioner involvement or scripts. Any application demo that cannot do this should be instantly unplugged.)
To be clear, I am not really sure about this one. What I know for certain is that Archimedian was a smaller eSourcing niche player in the Northeast which we decreasingly saw in the competitive market over the years since their peak in 2004. If my eSourcing history serves me, I believe the company was a re-incarnation of MaterialNet, which for a short period during the 2000-2001 hey day, was a significant player that produced people like Keven Gray. I also know definitively, that more than one of their clients told me that they had announced a formal shutdown of business for October 31.
I was first alerted, by back channels, that they were looking to exit the market about 6-8 months ago, but never was contacted formally. Since then, I have heard of no transitions to different ownership, although it may have happened quietly. Also, I think there were only a handful of clients left on the platform, so the value was dissipating quickly.
This is not news that will shake the foundation of eSourcing (much like the shut down of Davaco Sourcing), but further shows that this is not an industry for the tame. Survival in SRM demands heavy investment in R&D, sales and “all-in” commitment. The pace of functionality enhancements is staggering. Without supreme talent in multiple areas of the business, the future becomes increasing distant.
Maybe the owners hit Powerball? I only know half the story but do know our side and what it takes to swim out of a shark infested rip-tide that is constantly trying to pull companies out and under.
One of the issues that I am very curious to watch in 2009, in regards to the procurement applications market, is how the current economic climate effects growth of procurement solutions providers.
Many of my non-industry friends make the assumption that a crappy economy is good for business because, “every one really needs to save money now, right?” Of course, I agree with that in principle, but the reality can be far from it. In truth, purchasing is always trying to save money but is often constrained by the limitations of budgets, which are generally set for good business reasons. However, future planning (and even immediate savings) can suffer when the short term benefits of budget and hiring freezes take effect in a company.
Many companies I speak to, client and non, are going through drastic cuts in staffing, hiring, consulting, travel, marketing and IT. This era we are in, is no different than what cash rich individuals can take advantage of now – go on an investment buying spree. Cash is King, and if you’ve got it, you should be throwing it in to every discounted opportunity there is out there. Just ask Warren Buffet.
I believe many companies, with progressive leadership that are aiming beyond the next quarter, will realize this and invest in procurement transformation and excellence. However, I fear that too many will not take the challenge and withdraw from opportunity to quickly become best in class. The eSourcing vendors will not lose their abilities and will more likely, be motivated to do more to help companies.
It reminds me of when I took Ballroom Dancing in college with my roommates. We were out numbered 4:1 by eager college girls that were queued up waiting for us to become available for the next dance. I felt like a genius every Tuesday and Thursday for 12 weeks for investing in an under utilized market that had extra capacity.
Supply Chain Brain recently republished findings from a study on SaaS fundamentals from Saugatuck Technology. In it, were some less than glowing prognostications about the immediate stability of the entire SaaS industry. I think you can already figure out where I will take this – would I really want to call attention to impending doom at Iasta?
However, they bring up some interesting points that are worth noting for vendors and practitioners of HR, CRM or SCM on-demand technologies. The authors begin by out lining the challenges that global companies are experiencing in the current economic recession. They point out that things will be rough but they disclose that many companies have cash on hand, in contrast to 2001, which could spur on spending for software and services.
Small / Emerging SaaS Providers Bear the Brunt. Those most vulnerable in this economic scenario are the small up-and-coming SaaS providers that have yet to establish a significant enough customer base that will allow them to ride out the storm. Given the “build it, they will come” nature of SaaS, with a predominately pay-as-you-go subscription framework, a large number of recently funded SaaS start-ups no doubt will struggle.
I am going to assume they are referring mostly to early stage start ups, here. When things slow down and business gets harder to close, the companies without annuity streams and established business models are in great danger of falling short. This would be a very scary time to not have everything well defined and repeatable in software companies.
The final summary concludes: The Bottom Line: The good news is that established SaaS companies have deferred -revenue-based business models that provide great revenue visibility–and which therefore allows them to better plan and match expenses to projected cash flows (vs. traditional enterprise software companies). So even in a tough economic climate, those firms that have already emerged will likely only grow stronger, as they can both better manage the downturn while potentially leveraging attractive acquisition candidates to their advantage.
For users, it is important to continually monitor the deferred revenues of public companies that they are evaluating–as even some of the SaaS giants like Salesforce are starting to show a flattening out of deferred revenue over the past two quarters, even though the top-line continues to grow nicely.
Well done, Saugatuck, you knocked it out of the park in the 9th inning. There are all kinds of important statements embedded in that closing. “Established”, “deferred revenue”, “better plan”, “projected cash flows”, are the exact reasons they go on to state that these companies that have already emerged will grow stronger as they bridge the gap over a downturn.
This is exactly where we stand right now, fortunately. All signs point to the weaker companies being severely exposed to risk via credit, sales or immature business execution. I think in the next 12 months, there will be a spike in acquisitions (publicly discussed as mergers) and some outright shutdowns. One has already occurred to the best of my knowledge, which I will discuss later.
Last Thursday, I attended the Procurement Leaders conference in the heart of Amsterdam. I did not know what to expect but came away pleasantly surprised. There were almost 200 delegates and most were very high level executives from across Europe. Typically, these conferences are worth the investment, if we can develop 1-2 companies into customers. Out of the discussions we had, I believe we should be able to accomplish this.
However, just as valuable, was the networking I got to do. By meeting many influential leaders in procurement from the practitioner, consulting and vendor side, it only enhances our ability to grow in Europe. It was also nice to meet many of the folks from the magazine, which I feel is one of the best in the industry. They plan to get into the US market soon, which will be great thing. They are opening offices in the US to make sure the magazine does not feel “European” to the American readership. I would also suspect that they will try to create high level events like they have in Europe, currently.
Lastly, the conversations I had with practitioners, were very similar to the ones domestically. Many times, it is assumed that Europe is behind the US in talent and technology. This may have been true at one time, but I definitely disagree with that now. I found that many people understood the issues and had plans to address them. The break outs were also good (for the most part – some were cheerleading vendor sessions). The most common issues were Stage I & II contract management and spend visibility.
Thanks to Mark and all the rest at PL. They made us feel welcome and took time to help wherever they could.
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