September 12, 2012
Last week I was a guest at IBM’s Smarter Commerce event, mainly to see what it has been doing with Emptoris, which it acquired seven months ago. You may recall that I blogged certain misgivings when IBM announced the takeover (IBM's Acquisition Of Emptoris Further Reduces IT Sourcing Professionals' Options), and, though I still have concerns, I’m very encouraged by what I saw at the event:
· Firstly, there was still a good focus on sourcing and procurement in the Empower event-within-an-event. IBM has preserved Empower’s best quality (and that of Ariba Live and Zycus Horizon, btw), which is that there is always lots of trends and best practices content, and not too much product plugging. Most of the event was aimed at marketing, selling, and servicing, but there was plenty for sourcing attendees too. For example, there were keynotes from the CPOs of AB InBev, Conoco Philips, and IBM itself about their priorities and how they are addressing them.
· IBM leaders, including Craig Hayman, General Manager Industry Solutions, gave a clear and credible vision of Smarter Commerce. Hayman portrayed his Buy, Market, Sell, and Service quadrants as discrete offerings sharing common principles and technology, rather than an engineered stack that only works properly if you buy it all — best-of-breed complements to ERP, not a rival suite.
· From speaking with Emptoris executives, and from what I saw at the event, it appears that Emptoris’s vision remains intact. I particularly like the progress in the key growth category of supplier risk and performance management (SRPM), where Emptoris has developed the Supplier Lifecycle Management product it got with Xcitec, integrated it with its own Virtual Supply Master and enriched them both with IBM technologies such as Cognos. It's good for Emptoris that IBM didn't already have competing products in this area, unlike SAP and Ariba that have several overlaps with each other, as I explained recently in my report The SAP/Ariba Merger Will Not Be Frictionless.
One of the most interesting sessions was an Emptoris customer from a large bank describing his process for calculating “savings.” It stimulated a lot of audience discussion. Procurement always says “savings” is the number one priority, but there is no consensus on what that means. The presenter explained his well-thought-through analysis of what should and should not be counted towards procurement’s targets.
I disagreed with him on one issue, which was his opinion that Procurement should not take credit for demand management. Take pens, as an example. He would take credit for reducing the range available in the catalogue and for aggregating demand with fewer suppliers, even if the business used that saving to buy more pens rather than to reduce its total spend. My opinion is that Procurement should ensure that its theoretical savings reach the bottom line or it won’t gain credibility and influence with the rest of the organization. That should include demand management efforts, such as encouraging colleagues to accept lower specification but acceptable alternatives to their preferred items.
The Market, Sell, Service side of the Smarter commerce event demonstrated why this is important. The main theme was personalized marketing and selling, treating customers as unique individuals rather than types. For instance, IBM’s Websphere Commerce platform uses detailed knowledge of an individual’s online activity to drive targeted upselling and cross-selling as ways to increase browse conversion rates and $ per order figures. Although most of the examples were from B2C companies, IBM is also aiming the product set at B2B sellers. This creates a potential conflict between sellers and their procurement counterparts:
· The seller wants to entice customers’ employees to use its website instead of an internal procurement system. Not only does it want to prevent them choosing a competitor’s products, it also hopes to use its web site features to lure them into spending more money than they otherwise would have done.
· The buyer wants to promote down-buying, not allow upselling. He wants his buyers to search across all approved suppliers. He certainly doesn’t want his suppliers up- and cross-selling to his users — in fact, he wants the opposite, what one might call “down-buying.” For instance, Rob Bernshteyn, CEO of Coupa (who was a gold sponsor of the Empower event) told me about features in his eProcurement product that encourage requisitioners to pick cheaper products that will meet their needs, rather than going with the more expensive item that fit their precise search.
Bottom line: Procurement needs to ensure its claimed savings reach the P&L bottom line. Its targets should include encouraging colleagues to buy cheaper items, preventing them over-specifying, and helping to reduce waste by fixing underlying operational issues. You also need to provide tools that drive such savings. Requisitioners will use sellers’ websites to browse and select products, instead of your eProcurement tool, unless you provide them with the great user interface they can get from those sites, with B2C features such as filters, preferences, and peer reviews. You can't ban or prevent access to sellers’ direct websites, so you have to compete against them.
What do you think? Do you agree with my broader definition of savings, or do you believe Procurement should stay away from managing demand and just buy what they’re told to buy?