October 15, 2009

After the sale: Delivering on the promise of SaaS

Posted by Carlos Ortiz under SaaS, spend management | Tags: |
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For several years, I was part of the second wave of the SaaS promise. After Salesforce.com, the first widely successful software-as-a-service platform that became the guiding light of SaaS, several companies tried to transform themselves into a similar solution provider. When the transition was completed, my role at a leading spend management solutions company was to support accounts after the sale was consummated when

At the beginning of the transition from behind-firewall solutions to a on-demand environment, the deployments generated a lot of friction with clients. Among the problems:

1.- Clients didn’t really understand what the software was capable of doing on an on-demand basis. Clients assumed that customizations were simple and readily available. Changes are possible, but within constraints of a multi-tenant environment, although Coupa maybe changing that.
2.- Timelines specified in the SLAs were unrealistic, because they assumed the client clearly understood what they were looking for. Not the case by far.
3.- The promise of the solution was based on a product-based sales cycle, instead of showing how life was going to be for the end user. This created big disconnects between the management at the client, who purchased the solution, and the front line people who were supposed to “just get it” and start using it right away.
4.- Almost all training and documentation were related to the product itself, using terminology that some people calls “gobbledygook” using terms such as flexible, scalable, groundbreaking, industry-standard, cutting-edge and the likes. More on gobbledygook here.
So, the problems were basically people and process related. A solution that didn’t address the particular problems of the front line team was bound for failure from the beginning, not because the selected solution didn’t deliver, it was because the client was not prepared to absorb the extra workload needed to re-train their teams due to misplaced expectations. And expectations management is the role of the sales and marketing team, not the implementation ones.

Conversely, client companies didn’t perform well in their due diligence either. Very rarely I found companies that had a very clear understanding of what was needed, what are the limitations of a SaaS solution or effectively collected input from end-users.

In the last few years, my professional career was centered around making my management and clients happy after the sale. It was a role that verged on advanced diplomacy, in which I had to “twist” statements of work into workable task lists, reselling the entire solution to end-users who where not consulted, creating new processes so clients could make better use of the solutions, etc. That in turn created a big push back from my leadership who were surprised that so much of my consulting time was spent convincing people to deliver information and not implementing the solution itself. The big disconnect was between the promised solution and the actual delivered product, and my task was to make those two converge into a single successful implementation. And then, and only then, the promise of SaaS was fulfilled, but after much pain and bad blood.

 

October 14, 2009

Aberdeen Group: 81% of companies see Spend Analysis as a high-value function

Posted by Carlos Ortiz under spend management | Tags: , , |
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Recently, Aberdeen Group released “Spend Analysis: Transforming Data Into Value” [registration required to download]

From the Executive Summary

As dire economic conditions place an unwanted negative backdrop to routine business, spend analysis has risen as a valuable process to the entire enterprise. In fact, 81% of enterprises in our survey for this report cite spend analysis as a high-value option in today’s economy.

I cannot agree more with them. I delivered a seminar on Spend Analysis some months ago at the ISM in Silicon Valley, and I found high interest from the audience. I was lucky enough to be able to speak with one of the attendants few days ago, and he mentioned that his team is currently performing a manual assessment and the results are so astonishing (meaning the discovery of so much waste and maverick spend) that now his team is presenting a preliminary set of findings to the CEO. And the company is one big technology player in the valley, known for sound processes and policies. Imagine what is out here to uncover by performing this sort of analysis. And most importantly, what are the actions after the results are tabulated.

The report is structured as follows:

1.- Benchmarking best in class
2.- Benchmarking requirements for success
3.- Required actions

The report shows a perfect case study to demonstrate how companies save resources by regularly and effectively analyzing their spend and putting it under active management.

 

September 1, 2009

On Corporate Culture: Netflix

Posted by Carlos Ortiz under Uncategorized
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This deserves a full read. Understanding how Netflix runs its business.

Culture

 

August 3, 2009

Spend Management ten years ago. Much has changed since then, much hasn’t

Posted by Carlos Ortiz under spend management | Tags: , , , , |
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Today I had a conversation with an old friend, Bobbi Battista, who now works for Tenzing Consulting as a recruiting manager. While talking with her I realized that we first met in Monterrey, Mexico exactly ten years ago in the summer of 1999 when I was working at a diversified manufacturing corporation as an MBA summer intern in the procurement organization, and she had just arrived to perform an, at that point novel, exercise called “Opportunity Assessment” in order to identify sourcing projects ripe for a “reverse auction”. Both terms were really new and Bobbi’s company FreeMarkets, Inc, was at the center of the revolution in those sourcing techniques.

It is extremely telling that the challenges she faced then in running that exercise are exactly the same now. In the ten years since we first met, I have conducted countless spend assessments, first at FreeMarkets (yes, they hired me right after I finished my MBA, thanks in no small part to Bobbi) and then Ariba after they merged with FreeMarkets in 2004. During those assessments I performed myself at some of the biggest corporations in the world, I found extremely difficult to get the message across that without proper understanding of where the money was going, running a productive sourcing practice was futile. Yes, they were getting savings by using brute force negotiations. But no strategic vision.

In these ten years, I’ve seen companies short changing their sourcing teams by squandering resources, hiring mildly talented managers, and requesting the impossible from a group of hard working spend professionals without giving them proper tools to do their work. It seems almost impossible to believe that the vast majority of companies still use Excel to perform a spend analysis, pretty much the same way as they were doing in 1999. We will never know how many opportunities to save money they relinquished. But I’m sure of one thing: if they had invested in talent and tools since 1999, they could have saved several times more money than any investment in people or tools since then.

Strategic sourcing is and will remain an area of opportunity to save money now and in the near future. Companies will remain uncompetitive if they don’t find ways to be more efficient and cost conscious. But what are they doing? They fire “costly” employees in order to make the numbers for their quarter. They suspend investments in technology because they fear the ROI may not be as high as they expected, etc. I see them spending tens of millions of dollars in an SAP implementation that undoubtedly helps them trace their financials but decline to invest a couple of hundred thousand dollars in sourcing technology. They find hard to believe an ROI of 10 to 1 (and lots of times higher). As many at FreeMarkets and afterwars Ariba realized, the vast majority of the first reverse auction we conducted at any company helped pay for a full year of the underlying technology without doing anything else. If there’s a sure thing in investment, that is a full suite of a spend management solution.

But why after ten years we are still struggling to get the message across? Why do companies still need proof of concept for strategic sourcing? I don’t have an answer, but my guess is that the current generation of procurement leadership still recall their days as buyers relying in telex as a communication tool in the seventies and brute force as a negotiation strategy. They still see procurement as a tactical task instead of a strategic core competency. They wanted “numbers” so they went along the SAP train. They needed predictability so they liked MRP systems making crude demand projections. But they thought nothing about enabling their teams to perform their duties better using similar tools tailored for their practice.

Another problem is talent retention at the sourcing departments. I recall training a team of newly recruited sourcing managers at the Latin American headquarters of a big US corporation. I have very seldom encountered a team so focused, avid for knowledge and with clearer objectives than that. They did wonderful things and became an example to the rest of the organization on how a professional team is recruited, trained and performed. But they were too good for procurement. Their careers started to stagnate because the upper management didn’t create the right incentives to keep them working. Promotions were deemed too expensive. So the new recruits either left the company or asked to be transferred to other areas with better career paths. They were 20 people that were recruited after interviewing more than 300 people! After they left their sourcing positions, the company never replaced them with like talent, because it was “too expensive”. After only 3 years, the sourcing department was back to the same old bullying tactics with the vendors and had a lot of friction with the internal clients. Like nothing happened. All that talent and investment, wasted.

I guess my point is that, after all the above ranting, it seems that Spend Management is NOT a mature practice. Corporations needlessly delay their commitment to a more strategic approach and waste time, money and resources in quick fixes and half measures. And that the ones that invested heavily in the area when a visionary leader saw what needed to be done, lacked the capacity to lock the knowledge and disseminate the goodness of our profession.

 

August 3, 2009

Government has no CPO

Posted by Carlos Ortiz under economy, spend management | Tags: , |
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In today’s post on Supply Excellence Tim Minahan makes an excellent point about the lack of proper oversight of purchasing practices in the federal government. Imagine the biggest spender in the world NOT having an appointed CPO and a competent team to oversee the expenditure of upwards of 3 trillion dollars. Granted, some lieutenants are in place now, but the team is not complete.

Every company in the world right now is looking into ways to become more efficient in their spend management. There are ways in which they can save money and they are looking furiously into that right now.

But Congress is blocking the nomination of the only persons who can actually help change wasteful practices and at the same time blames the administration of not being efficient in the shedding of taxpayers’ money. What a bad example to spend managers elsewhere. So much talking about saving money for health care but little action in actually saving it.

UPDATE: I just realized that Jason Busch from Spend Matters and Justin Fogarty, Editor of Supply Excellence co-authored the article, which also appears in the Spend Matters blog.

Carlos Ortiz

 

August 1, 2009

Spend Assessments – Interest is very high based on audience at my seminar at ISM-SV

Posted by Carlos Ortiz under spend management | Tags: , , |
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After some weeks of no posting, I have to share to some news. I just delivered an ISM seminar on Spend Assessment at the Hilton Santa Clara, at the heart of Silicon Valley, to an audience of spend management professionals from world class tech companies. And, caramba, what an eye opener that was. Every single one of them is having a lot of difficulties in understanding their spend. And no good tools to do an even passable work to address their spend visibility woes. Just their relentless manipulation of huge amounts of data and likely a humongous amount of work and pressure to get it done. Kudos to them, the unsung heroes in procurement. I also thought that based on previous cancellations of other seminars organized by the ISM-Silicon Valley, mine was going the same way. I was wrong.

Clearly there is a need for spend analysis solutions out there. What I didn’t know was how unaware people were about the requirements to get the data ready for a manual spend assessment exercise, which was the core of my presentation. Now they know and hopefully are ready to make a case to perform a structured category assessment at their companies and have tools to deliver a successful strategy for managing their spend. I also made clear that, as we, the ones in the trenches who went through such an effort know, that a corporate spend assessment is a gargantuan undertaking if you don’t have the right amount of resources. I emphasized the fact that a one-off manual assessment was OK. But since refreshing the information is NOT an easy task, I recommended looking into an automated solution from the Spend Analysis vendors out there, like the ones here.

The idea of the seminar was to acquaint people with some of the common tasks associated with spend analysis, best practices, terminology and project management. Based on the feedback forms, looks like my delivery was a success. Very encouraging.

So, all in all, a good experience doing the thing that I like the most which is teaching people how to do their job in a better way.

See you soon.

 

June 23, 2009

Green by Design: Sustainable purchasing practices in start-ups

Posted by Carlos Ortiz under Eco-effectiveness, spend management | Tags: , , , |
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I wish I was working for a start-up, for I will help shape it’s future in a sustainable way without the hassle of dealing with layers of bureaucracy and detailed ROI analysis on the advantages of sustainability. But the hard fact is that I’m not working for a start-up. So instead of doing what I want, I will write about it so others can take a look at my advise.

In previous posts I’ve wrote about business practices for start-ups and also sustainability. Today I want to merge the two streams into one list of ideas, to implement on the design phase of the new venture. To be green and profitable by Design and not by imposition.

1.- Sustainable working environment.
Yes, you can buy a solar panel and put it on the roof of your office or build a super efficient building. But as a start-up you likely can’t. What you can do is check the energy bill of the buildings or office space you are about to lease. Have someone appraise the efficiency of the windows, walls, HVAC systems, lighting, etc. You may be surprised to find that a simple comparison of these may render an otherwise “nice” office a money pit. Remember that commercial buildings are constructed at the lowest possible cost that complies with regulations . The builder doesn’t really care about your energy bill in the future, so be careful when renting your space.

2.- Energy efficient hardware.
Regardless of your trade, you are going to use some sort of equipment for your business. It can be computers, machines, motors, printers and whatnot. The question is, when the team was deciding the specs of the equipment, did anybody build an energy efficiency analysis into the sourcing process? An electric motor can be very efficient, in the range of 95% or more of electricity conversion into mechanical drive. If you instead buy a 90% efficiency motor because it has lower “price”, you are basically planning to spend more cash in the future in the form of the extra electricity used to action the motor. Simple arithmetic using the extra 5% kWh usage for let’s say 10 years projected life of the motor, times the price per kWh, will tell you a horror story of extra costs.
The company can greatly benefit from a Net Present Value analysis of the equipment, including in the equation the maintenance costs and projected energy bill. For more information on energy efficiency in the workplace you can follow the guidelines of the Energy Star program.

3.- Supplier Management for a green relationship.
Have you asked your suppliers if they use sustainable business practices? If so, what was the answer? Only after you know what your suppliers are doing is that you can truly claim your business to be sustainable. Your own island may look “green” but the entire business environment serving your company may not be. A supplier may be producing some exotic component/product/chemical for you that results in massive amounts of pollutants released or that requires complicated and wasteful packaging or handling. Maybe a partnership with vendor can result in a product that is non-polluting and most likely cheaper.
Are the vendors solely selected on price concerns? Have you analyzed other solutions with more “expensive” vendors and see if they have a lower TCO and more sustainable alternative? Are you pressing your vendors to reduce packaging/energy use/toxic chemical use in the products or services you buy from them?
These and other questions must be asked before you sign that procurement contract. You want a partner for the long term.

4.- Corporate Vision.
None of the above happens without clear corporate vision. A one line statement issued by the CEO can work marvels down the ladder. Just saying “We will have a goal of zero waste for producing this widget within 3 years” will focus everybody into making the widget more effectively. And since waste is equivalent to throwing money down the drain, having zero waste therefore renders the business more profitable by default. In procurement, zero waste could mean an automated purchasing process that everybody understands and uses effectively, sourcing for long term value, tracking spend accurately, measure performance and drive for constant improvement.

These are very basic ideas on how to improve your bottom line By Design and by using procurement as one of the cornerstones of your sustainable business. If you embed sustainable procurement practices from the beginning, your business has much better chances of success while reducing waste and increasing the bottom line.

Carlos Ortiz

 

June 16, 2009

Sustainable Procurement: More words than action.

Posted by Carlos Ortiz under Eco-effectiveness, supply chain | Tags: |
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Today I read a post by Justin Fogarty in Supply Excellence that mentions a report from HEC Paris.

I read the entire report, and among the things that caught my eye is the list of tools and their usage at the interviewed companies that have been implemented to work in a sustainable way in procurement. Below the list and the percentage of utilization:

1.- Supplier Charter: 67%
2.- Suppliers Assessment tools: 40%
3.- Categories/Risks Analysis tools: 38%
4.- Suppliers CSR Audits: 30%
5.- Guidelines on best practices per commodity: 27%
6.- Total Cost Models: 16%

Interestingly, having a formal Supplier Charter on Sustainability is the one tool that 2/3 of the companies have already implemented. That is only the INTENT to do something. When they move to actually doing something (the rest of the list), the tool most used is the Supplier Assessment one, but only 40% of companies are using it. Furthermore, if you keep reading the report, companies are more into stating changes in their processes rather than actual results i.e. reduction of carbon footprint. Again, more words than action.

Is still along road to Sustainable Sourcing and Procurement, but at least the intent to do something is better than nothing.

Carlos Ortiz

 

June 11, 2009

Extreme Sourcing: Aiming for Perfection in Spend Management. Part 2 of 2

Posted by Carlos Ortiz under Eco-effectiveness, supply chain | Tags: , |
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Today we continue with Part Two of Extreme Sourcing: Aiming for Perfection in Spend Management and how sustainable business practices are not only more economical, but also mandatory if we want to have a planet in which we can all live in.

We reviewed two of the four pillars of natural capitalism, namely Increasing Resource Productivity and Elimination of Waste. Here come the other two:

3.- Service and Flow.
Every business needs product and services to keep it going. But the ways in which those items are sourced, purchased and used can dramatically affect the impact in the environment, simply by misplacing incentives. The classic example is how companies are now sourcing for photocopiers. In the not-so-distant past, vendors like Xerox, Canon, Ricoh and others made their money by selling photocopying equipment and a juicy maintenance conract attached to it. The equipment was the product being transacted and the purchaser was married with the manufacturer for the life span of the equipment.

Now, every major client I have worked with has, or will soon move to a services agreement in which it pays by printed document. The client is paying for the photocopying service, not the equipment itself. In this case, the manufacturer has every incentive to keep the equipment working at it’s peak efficiency and for the longest time in order to recoup the investment and then make profits. If the manufacturer can extend one year more of productive life out of the standard five years from it’s equipment, each machine can now increase revenues by 20% with little extra investment. It requires that the manufacturer designs the machine in ways that minimizes overhauls, uses high quality and durable components, lowers cost of operation and be fully recyclable so old components can be re-used or fully recycled into new equivalent ones.

Now, I may ask, why can’t we do this for every non-core process in the enterprise? Companies can buy conditioned air services instead of air conditioners from Carrier Corp. or flooring services from Interface, Inc., leasing carpet instead of buying it. Almost every service can be purchased in this way, using a pull approach and paying for what is actually used instead of the equipment to perform the work.

4.- Reinvestment in Natural Capital
So, what do we do with all the money we save after implementing all the above strategies? The standard way would be to return the money to investors or “invest” in the traditional sense. New plants, equipment, employees and R&D. That is capitalism, and it is indeed good. But the focus of those investments is the one that should change.

Instead of just building another manufacturing facility, invest in a sustainable one: one that uses solar lighting, no air conditioning, lean processes, no toxic effluent.

Equipment that minimizes or eliminates waste.

In some instances, because of all the savings attained in manufacturing, companies can actually start looking at hiring more people to take care of some of the tasks that traditionally have been poorly performed by machinery, such as disassembling old equipment, customizing products for demanding clients who bought a “close enough” solution, product or service instead of the ideal one, etc.

And finally, research and development. As an example, I use one that has been widely used in the literature around natural capitalism: spider silk. If a spider can make a totally organic, non-polluting, extremely resistant fiber as it spider web silk is, why can’t we do the same? Why do we need multi-billion dollar investments in chemical plants, generate pollution, waste and massive energy use, when a spider can do it at room temperature using other fully natural inputs? Granted, the spider evolved over millions of years to accomplish that. But did not do it in a vacuum. It evolved out of necessity.

We can evolve out of necessity and be able to create the spider silk ourselves.

So, where does all this talk about natural capitalism leaves for the Spend Management profession? Two key takeaways:

1.- We are part of the core team of professionals who can help shape the future of businesses. We need to educate ourselves in sustainable practices so we can sell internally in our companies the way of the next industrial revolution.

2.- There are sustainable ways in which each service and product entering the enterprise can be sourced, purchased and used. It takes ingenuity and hard work to figure it out, but it must be done. Or else.

 

June 10, 2009

Extreme Sourcing: Aiming for Perfection in Spend Management. Part 1 of 2

Posted by Carlos Ortiz under Eco-effectiveness, supply chain | Tags: , , |
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Benchmarking. The magic word for companies trying to be among the best and be more competitive. Unfortunately, “among the best”, “leader”, “best in class” are no longer valid alternatives. The enterprise should focus in perfection in its own terms by eliminating waste and therefore becoming ultra-efficient, or perish. The clear leaders in any field do not benchmark: they ARE the benchmark! The leaders are not aiming to be like someone else, they define “best” by aiming high, aiming for perfection.

But how do we define perfection in the enterprise? Isn’t it too high of a target? Since perfection is an absolute term, in reality, it’s relatively easy to define. The Merrian-Webster dictionary defines perfection as:

1: the quality or state of being perfect: as a: freedom from fault or defect : flawlessness b: maturity c: the quality or state of being saintly
2: a: an exemplification of supreme excellence b: an unsurpassable degree of accuracy or excellence

All are valid for the enterprise, but one stands out for me: an unsurpassable degree of accuracy or excellence. This is a simple statement, but if it is incorporated in the DNA of every company, it will make of it a formidable competitor in any field. It will make it free from fault or defect.

But, nothing is truly perfect because nobody has seen perfection, the key is then in being unsurpassable.

As you may have realized by now, accuracy and excellence, fault and defect are terms with widespread use in business books and practices. But they are seldom used to define a simple goal. What I propose is perfection as the goal instead of just being better. I’m not saying is easy, but by saying that the company is looking for total elimination of waste, it will have to align all the resources for that goal.

So how do we attain perfection in Spend Management? I don’t know. Every industry has it’s own metrics to define it. What I do know is that it requires a new philosophy. And that philosophy, as I already mentioned, is the elimination of waste. In this case, waste is any activity or material that is not directly related with the creation of value for the enterprise. I hope some examples based on the ideas presented in the book Natural Capitalism by Hawken, Lovins & Lovins will clarify.

1.- Increasing resource productivity
Would you buy or build a product or service that is utterly complicated and it requires an inordinate investment of time from your buyers? I know the answer is no, but we still do it, regardless of the lessons learned from Toyota and the principles of lean manufacturing, which reflect very well the aim for perfection. These principles, in essence, say that the right size of a process depends on the rate and location of customer pull. If we have inventory of raw materials, semi manufactured products or simply a warehouse full of finished products, they are all a reflection of a wasteful process. The process doesn’t scale to the demand. We are pushing materials instead of allowing the demand to pull production.

The spend manager can work hand in hand with manufacturing in identifying bottlenecks and help in some areas in which it can have an impact, such as raw material inventory. In this case, an accurate forecast can help the sourcing team negotiate a flexible delivery schedule with the vendor, so the materials supply matches the manufacturing requirements exactly. Not 90% or 99%. Anything beyond the exact need is waste. Zero inventory is the simplest way to manage inventory.

2.- Lean Thinking in action: Elimination of Waste
A purchase order that for whatever reason needs review, reprocessing, correction or a phone call to the supplier generates waste. It creates delays, defects, errors, and scrap. It wastes horrendous amounts of time. Why do companies tolerate waste in the purchasing department and not in the manufacturing floor? A lean purchasing organization has automated processes and also the tools to accomplish more work with the same resources. Normally, we tend to integrate very well with our “strategic”vendors. We install direct links with their ERP systems, we nurture the relationships with them. All of that is good an necessary if businesses want to succeed.

But what about the landscaping contractor? Do you really need it? What if instead of having a green turf in a semi-arid environment such as California, you replace the English style garden (mirrored from a place with significant rainfall) with a native California landscape using local species? The garden will take care of itself for the most part, will not require daily irrigation, and will only require few hours a week to maintain so it doesn’t look unkempt. The company will not only save water and other resources. It will become a more sustainable business overall, and will, as a result save money. Finding the right landscaping design company and devising the maintenance statement of work is the job of the spend management team, as well as keeping an eye of the cost reduction targets and contract revisions if necessary. Maybe the company can completely scrap a landscaping maintenance contract. As Forrest Gump would say “one less thing”.

Tomorrow, we will review two additional principles that are part of my analysis: Service and Flow, and Reinvestment in Natural Capital.

 

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