spend_management technology landscape update

1Entire Contents Copyright © 2007 Azul Partners, Inc. All rights reserved. Not for distribution.

Making Sense of the Spend Management Technology Landscape

February 2007


Agenda

Don’t Let the Vendors and Analysts Confuse You!

How We Look at the Technology Landscape

A Few Closing Thoughts …


In this discussion, we’ll attempt to cut through the confusion of the procurement and sourcing technology market

• In addition to segmenting the vendor landscape, we’ll talk about how companies should think about prioritizing technology investments

• We’ll get into the “who” and “what” -- but more important, we’ll dig into the “why”

• Some of the areas which we’ll look at in detail include sourcing, eProcurement, EIPP, spend visibility, contract management, supply performance, and risk management technologies

• As part of our market segment discussion, we will hit on who the bigger vendor names are in each sector as well as the smaller ones (which may include some names that you might not know, but you should!)


There’s Confusing …

“SRM”E-ProcurementE-Sourcing

Purchase-to-Pay

SupplierPerformanceManagement

Em

ploye

e / Su

pp

lier P

ortal

Master Data Management

SupplierCollaboration

MarketAnalysis

SupplierAnalysis

BidAnalysis

ComplianceAnalysis

PerformanceAnalysis

TotalCost

Analysis

Supply: Analytics and Performance Management

‘System ofProcess’

Services (content, connectivity)

Program / Project Management (advanced)

ContinuousImprovement

•Supplier•Commodi

ty•Specificat

ion•Contract

•Employee‘System ofRecord’

‘System ofDecision’

(i.e., Analytics)

SpendingAnalysis

RFx / Auction

ContractMgmt.

Cu

sto

me

r M

an

ag

em

en

t

Source: A highly esteemed analyst (who knows far more about this sector than anyone else)


And There’s CONFUSING!

Com

modit

y 1

..n

FindMoney

GetMoney

KeepMoney

AnalyticData Model Master

DataModel

Shared Service Workflow and tools

Business Unit Execution

SBU/Site 1..n

Design Assess Engage Contract Execute

Source

Assess Engage Contract Execute

Monitoring

SupplierPortal

Build this…To fund the

fixing of this…

To guide and integrate to your choice of these…

To “DMAIC” commodity

performance…

Taxonomy Mgmt.

WebServices

Corporate

•Supplier•Contract•Commodity / Cost•Part/BOM/Spec•Employee•Project

•Volumes (units/$, history/plans) •KPIs•Targets•Actuals

Tools for e-sourcing and e-procurement served

up to commodity teams and line staff in the

trenches

Tools for e-sourcing and e-procurement served

up to commodity teams and line staff in the

trenches

Source: The same highly esteemed analyst!


But don’t get frustrated! Simplify …


Agenda





There are easier ways to segment the Spend Management technology landscape

Components

• RFX, RFI, RFP• Reverse auction / sealed bid• Optimization • Category management

• Data management / enrichment• Spend analytics• Contract management• Dashboard / portal

• eProcurement• Catalog / content mgmt. • EIPP (to be explained!) • Supplier portal / registration

• Supply risk management• Supplier implementation• Supplier performance• Quality management • Supplier development

Sourcing and Decision support

Procure to Pay

Spend and Contract Visibility

Risk Management and Supply Performance

Market Segment

• There is limited component / functional overlap outside of each market segment …

• … But within each segment, functional overlap can be necessary to maximize returns and simplify implementations


Taking a step back – let’s understand the background and typical priority level of each area today

Sourcing and Decision support

Procure to Pay

Spend and Contract Visibility

Risk Management and Supply Performance

Market Segment Background

• Pioneered a decade ago • Emerged as a result of the

evolution of strategic

sourcing

• Moving away from one-time

efforts – repeatability matters• It’s about the data! More than

analytics, contract mgmt.

• Once there was Ariba

and Commerce One …• Now, the landscape is

much more complicated!

• The newest technology

sector within the Spend

Management landscape• Watch this space!

Typical Priority Level

• Number one priority

• Third priority

• Second priority

• Last (but new priority)


Sourcing and Decision support tools have come a long way in recent years

Background / Highlights

• In 1995, FreeMarkets pioneered the first online reverse auction (but depending on who you talk to, GE did it earlier)

• A decade later, there were well over 100+ software providers / exchanges offering sourcing capabilities

• The migration from full-service only solutions to a wide range of low-cost and self-service capabilities has created significant downward pricing pressure in the market

• Beyond unit cost: decision optimization has been a major newfound focus of vendors in recent years

• If you’re just getting started, don’t ignore the smaller players – some of the most intuitive and powerful products come from names you probably have not heard of

• Sourcing and decision support has all of the hallmarks of a mature technology market… but innovation does remain (think small, not big)

• To achieve the best results, go beyond the unit price (and choose software accordingly)

• There is little risk in technology decisions – what you buy will most likely work as expected


Examining the Sourcing and Decision support marketplace

Buyers Vendors

SAP Competitiveness

SubscriptionLicense

Market Overview

Market Maturity

Delivery Model

ERPBest of Breed

Field Success

• ATK Procurement Solutions• Ariba• Co-Exprise• Combinenet• Emptoris• Global eProcure

Independent Vendors to Consider

Oracle Competitiveness

• Iasta• Moai• Procuri• Sciquest• Synertrade• WhyAbe

• Despite the large number of providers with viable solutions, there are really only a dozen or so vendors which are generally invited to the table

• “On Demand” = No IT and free upgrades

• To understand how the subtleties of each provider’s unique capabilities can help you achieve your sourcing goals, ask them to present specific “use cases” based on your needs

The Independents – an Insider’s Perspective


Sourcing and Decision Support: the state of ERP and a few other items you should be aware of

Be Aware of …

• The benefits of expert content and category-focused services (on an ad-hoc basis)

• The need to bridge the identified / implemented savings gap

State of ERP

• Aggressive sales tactics and discounting

• Your need to integrate sourcing technology with other Spend Management components

• SAP’s Frictionless acquisition has provided them with technology on-par to where the market leaders were two years ago

• Strong configurability, average feature / function capability

• The current integration story they are telling is not as compelling as that of the ISVs

• Be wary of future release promises

• Oracle has been surprisingly quiet in the market • Many of Oracle’s early procurement / sourcing

team members have left the company

• References are lacking across industries (and a general lack of references with PeopleSoft customers)

Don’t Discount


A last piece of advice: Analyze ERP marketing claims carefully …

SAP + Frictionless = ? ?


The Spend Visibility and Contract Management market is still in its early days


• For most practitioners, the decision to invest in spend visibility / contract management is made separately

• But this should not be the case, as both are two sides of the same coin

• Spend visibility and strategy development (reactive)

• Contract management (proactive)

• ERP offerings are completely insufficient at this point

• The best of breed / ISV / service provider landscape remains highly fragmented

• New approaches to visibility and analytics are also taking into account engineering and costing data in addition to financial data in their analysis

• This is one of the least mature technology markets within the Spend Management technology landscape

• Working with multiple providers is almost always required

• Don’t give ERP the time of day here as the GC (if you do, you’ll be at a competitive disadvantage to your peers)


The Spend / Contracts landscape can be confusing!

BI vendors

Strategy consulting firm

“Spend management” vendors

Offshore data crunchers

ERP vendors

“Supply management” vendors

BASS Method Data enrichment / data management providers

Best of breed providers

On Demand “SRM” vendors

The competitive landscape appears as fragmented to customers as it appears to vendors! But there are logical ways of segmenting the market to make it less confusing

Big 5 consultants


How we look at the Spend and Contract Management landscape

• ERP and platform

• Best of breed / analytics

• Data management / data enrichment

Provider type Description

• Includes ERP, supply management, spend management, supplier relationship management (SRM) platform vendors

• Must have at least some “end-to-end” capability including eRFX, contract management, spend analytics, etc.

• Includes pure-play contract management, spend analytics and spend visibility vendors

• Must have a focused spend analytics and visibility offering / solution without other supply management suite components

• Includes content and services companies that offer data-focused capabilities such as cleansing, enrichment, and management

• Primary focus (and positioning) is typically around spend data itself, though secondary application capability may exist


Examining the Spend Visibility and Contract Management marketplace

Buyers Vendors

SAP Competitiveness

SubscriptionLicense

Market Overview

Market Maturity

Delivery Model

ERPBest of Breed

Field Success


• Analytics, Inc.• ATK Procurement Solutions• Austin Tetra• Ariba• BIQ / Iasta• Emptoris


• Global eProcure• Ketera• Nextance• Procuri• SAS• Zycus

• Except for the suite vendors (e.g., Ariba and Emptoris), there is not much overlap today in vendor offerings between the spend visibility / analytics area and contract management – but this will change!

• There are significant advantages / disadvantages of going with different providers in the field; while the independents are almost always stronger than the ERP providers, do your vendor comparisons carefully



Spend Visibility and Contract Management: the state of ERP and a few other items you should be aware of

Be Aware of …

• What it will cost to create a sustainable approach to visibility and contract management

• The need to make the right long-term decisions

State of ERP

• The need to work with multiple providers (especially if ERP is involved on the DW / BI side)

• How far behind ERP is • The importance of clean

data

Don’t Discount


The Procure to Pay marketplace is both mature and exciting at the same time – don’t ignore it!


• The market has come a long way since the early days

• Ariba, Commerce One, Rightworks, etc.

• The marketplace craze

• Best of breeds and ERP have viable solutions

• The really good news for practitioners is that it is much easier to make savings stick these days (and to get solutions implemented)

• There are also new “angles” on achieving savings from procure-to-pay activity in addition to reducing spending and thwarting maverick purchases (e.g., EIPP)

• A/P staffing efficiencies

• A/P finance opportunities

• The cream has floated to the top -- core offerings from both ERPs and remaining best of breeds have matured and are all viable solutions

• To achieve real results, go beyond merely implementing a basic catalog and requisitioning solution – look to supplier enablement, EIPP, etc.


Examining the Procure to Pay marketplace

Buyers Vendors

SAP Competitiveness

SubscriptionLicense

Market Overview

Market Maturity

Delivery Model

ERPBest of Breed

Field Success


Procure (and some pay)• Ariba• CC-Hubwoo• Ketera• Perfect• Sciquest


Pay (and EIPP)• Ariba• BasWare• Harbor (Amex)• Prime Revenue• Xign

• On the “procure” side, the independents can be equally – if not more critical – solid at enabling supplier connectivity in ERP SRM systems than their own native requisitioning applications

• The era of hosted e-Procurement has finally arrived – if you’re not happy with the level of results from an older, behind-the-firewall approach, you owe to yourself to check out Ariba and Ketera, especially



Procure to Pay: the state of ERP and a few other items you should be aware of

Be Aware of …

• The cost, time, and hassle of enabling your suppliers (and the need to enable more than 20% -- or 20!)

• The massive ROI of EIPP (which we’ve just begun to pay lip service to here)

State of ERP

• The need to buy more than just an eProcurement platform to achieve desired results

• The significant UI advances of all of the major providers in recent years

• mySAP SRM 6.0 is a big step forward from past releases (due out in March / April) – some holes remain, but the application has advantages over ISVs in certain areas

• Oracle has been quiet of late and is in fewer deals than expected

• ERP’s biggest weakness is economical and sustainable supplier enablement – turn to outside supplier networks and third parties

• This can mean the different between a wasted investment and significant ROI

• ERP is not focusing on improving enablement in its new capabilities (don’t be sold a master data management (MDM) false bill of goods)

Don’t Discount


Don’t let anyone tell you that Procure to Pay is dying – rather, it’s entering its golden years


Risk Management / Supply Performance will be the next major investment area for many organizations


• Risk management / supply performance will represent the next wave of investment (similar to e-sourcing investments in 2002-2004)

• The vendor landscape is highly fragmented

• Most solutions combine a blend of content and analytics

• These solutions are largely software-based

and rely on analytics sitting on top of third-

party and internal data to monitor, predict

and model performance and risk

• From a risk perspective, some vendors in

this category rely on D&B data (e.g., Open

Ratings, JV Kelly) while others rely on

Austin-Tetra and other sources (e.g., SAS) to

fuel their risk calculations

• Other providers in this category focus on

vertical-specific risk and supplier audit /

compliance tracking; many are strong in

specific areas (such as supplier diversity,

supplier certifications, one-time financial

screenings, etc.)


Examining the Risk Management / Supply Performance marketplace

Buyers Vendors

SAP Competitiveness

SubscriptionLicense

Market Overview

Market Maturity

Delivery Model

ERPBest of Breed

Field Success


Risk Management • Browz• D&B• JV Kelly• SAS• Vendormate• Vivecon


Supply Performance• Apexon• Ariba• D&B• Emptoris• Procuri• SAS

• In many cases, it might make sense to start with a services-driven approach to understanding and quantifying supply and supplier risk – in this capacity, don’t discount the old internal audit practices of the Big 5 (and related spin-outs) especially when it comes to risk

• Leaders in this space (e.g., UTC) map specific risk and performance areas to technology needs and identified specific – and often custom – solutions



Risk Management and Supply Performance: the state of ERP and a few other items you should be aware of

Be Aware of …

• The many areas of risk management (supplier operational / financial viability, compliance, extended supply chain risk, etc.)

• The need to involve cross functional team members in solution decisions

State of ERP

• The cost of poor supply performance and risk to the business – quantify your downside to justify investment

• New solutions emerging everyday

• BI and data warehousing solutions are not sufficient for either risk management or supply performance management / monitoring at this point in time (without spending millions in customization)

• ERP supplier scorecarding and management solutions continue to improve, but trail best of breed vendors

• Custom solutions which leverage ERP are a possibility here – but look for cheaper, off-the-shelf components if they’re available first

Don’t Discount


Agenda





Thinking through the ERP / best of breed debate

Completeness Technology

Benefits Delivery Capability Market Momentum

• ERP on a roll from a customer acquisition perspective

• ERP a favorite with conservative, low risk buyers

• ERP solution acceptable to sites seeking vendor rationalization

• ERP trumpeting growth (but be ware of financial and other claims)

• Best of breeds (ISVs) overall procurement offerings are more robust and complete

• However, once an eventual market leader has acquired much of the same functions and features, then this attribute no longer matters to many customers

• ISVs have procurement SME’s, category expertise and relevant vertical knowledge

• ERP leans heavily on its (expensive) service partners (e.g., Accenture, IBM, Deloitte)

• ERP lacks ample intellectual property (e.g., supply markets pricing intelligence, category insight, financial integration components like EIPP, etc.)

• ERP is talking up SOA as the second coming of software; however, users (other than IT) have trouble seeing the benefit

• ERP cost structure is high

• ERP Sourcing/SRM products going through massive re-architecting now and for next 24 months

• ISV technology proven and easily integrated to multiple ERP solutions

Advantage: ERP Advantage: Best of Breed

Advantage: ERP Advantage: Best of Breed


• Outsourcing is catching

hold in key areas that can

-- and should -- impact

technology selection

• Accounts payable

• Indirect category

outsourcing

• Supplier

management /

supplier content

• GPO and BPO solutions

are more attractive to

Early Adopters,

Innovators and Early

Majority firms

…. A little sidetrack: don’t ignore the whole outsourcing question when it comes to Spend Management technology selection

http://www.valuebasedmanagement.net/methods_porter.html

GPOs, BPO,

Shared Services

BPO

SaaS, Hosted

Systems

Custom Systems, Business As Usual

SIs, HR Service Providers, Open

Source


Some thoughts on the future …

“When we have understood the present, it has become the past.”

Andrew Abbott“The only certain thing about the future is that it will surprise even those who have seen the furthest into it.”

E J Hobsbaum

“Looking at the future disturbs the present.”

Gaston Berger “Any useful statement about the future should at first seem ridiculous.”

Jim Dator

“The future is purchased by the present.”

Samuel Johnson


1. The gap between “haves” and “have nots” will grow

2. Low cost country sourcing goes away

3. Procurement will have a “dotted line” to all areas of the business

4. Risk management and sustainability will become bigger than you think, sooner than you think

5. Technology interfaces — as we know them — will change entirely

Five Spend Matters predictions you can bank on

We’ll walk through these, but let’s pause to think about – and discuss – their technology specific implications


• Leading organizations will continue to pull away from their competitors, leaving them in the dust

• This discrepancy will reshape industries and cause competitive disruptions that no one will expect until it’s too late to react

• Automotive —

• A&D —

• Salaries, results, and use of technology will look completely different between leaders and laggards

• Stock brokers vs. hedge fund managers

• vs.

• Globalization (not LCCS) will hasten the gap

• But … expect some heartache along the way

1. The gap between “haves” and “have nots”will grow


• Market leaders across industries are turning to emerging markets for areas for growth as much as areas to exploit lower cost labor and resources

• Overall country competitiveness and flexible strategies will trump labor costs (e.g., 60/20/20)

• Consider:

• Significant wage inflation in China, India

• Increasing volatility in currencies, commodities

• Regional instability

• Politics, trade, and tariffs

• The emerging “red tide”

• Advantages of supply base localization

• A new model will emerge: “Competitive Country Sourcing”

Source: Javier Urioste, Azul Partners analysis

2. Low cost country sourcing goes away


3. Procurement will have a dotted line to all areas of the business

• While procurement will continue to exist as an independent function, it will increasingly be the road that bridges all aspects of the organization

• Operations

• Sales

• Treasury / finance

• Corporate development

• The CPO will need to be strong not only at managing his organization – he will need to spend the majority of his time building ties to the rest of the company


• Consider the five types of supply risk …

• Strategy

• Implementation

• Market

• Performance

• Demand

• … and then think about the reality of today’s supply management environment

• Preparing for—and actively managing—risk will be as important as reducing costs

• Sustainability will emerge as a critical supply management goal and MBO

4. Risk management and sustainability will become bigger than you think, sooner than you think


5. User interfaces—as we know them— change entirely

• Long-term, think Bloomberg—not SAP (or even Salesforce.com)

• The need for back-end applications does not go away …

• … but the emphasis shifts entirely away from IT and “systems”

• What will be valued in this world?

• Insight, not data

• The world outside, not inside

• Innovation, not technology

• Orchestration, not integration (which becomes a given)

• Service-based (but not consulting) business models will become ubiquitous in this environment


Parting thoughts ...

• Just because your ERP provider has been able to expand outside of transaction processing in other areas does not mean that their solutions in the procurement and sourcing world will deliver the same returns as best of breed vendors

• Content and insight matter as much as code in building the right solution – across the technology landscape

• Don’t let IT guide your decision making – bring them on board, work with them, but make a business-based decision

• Let your goals determine the optimal deployment model

• The sector is not mature enough for vendor rationalization across segments – at least not yet

• And above all … think solutions, not just technology!


Jason Busch [email protected]

www.azulpartners.com

www.spendmatters.com

Questions / further discussion

spend_management technology landscape update

Documents

management landscape

sourcing technology

customer management

risk management technologies

sourcing capabilities

mature technology market

technology landscapea

decision support tools