Ironically, given the huge investments made in procurement technologies during the past decade, usage of these systems remains markedly poor. Only 1 4% of the companies surveyed expressed confidence that 60% of spend was being channeled through eProcurement, the typical benchmark for applications of this nature; more than 60% placed eProcurement usage at less than 20%.
from Chances and Challenges for Buyers by Leon Smith, Supply Chain Europe (November 2009)
One of the most interesting aspects of what was already a thought-provoking discussion was introduced when I had made the suggestion to our expert panel that perhaps government had abdicated the relationship side of the procurement process in favor of technological compliance and scalability. In essence, focusing more on what IACCM’s Tim Cummins called “contractual rules” through technologically driven compliance versus actual “commercial acumen” leading to best value decision-making.
Through this broadening lens of informed understanding the abysmal usage statistics referenced above make a great deal of sense. This is due to the fact that the emphasis has traditionally and almost exclusively been placed on the end-user adapting to the technology as if following a pied-piper, with the same result of being led over a cliff of increasing costs and declining returns.
In this regard, Karen Evans hit the proverbial nail on the head when she made the statement that “products” (re technology), does “not replace skill sets.” According to the former CIO of the U.S. Federal Government “vendors have to change their business models” focusing on the critical areas of “quality of service and reliability of data.”
This Evans continued is “different from selling an Oracle data base,” even if it is within the realms of a virtualized or “cloud computing” architecture. Her reasoning is that computing in the clouds is really just “optimizing the use of infrastructure” and is therefore a commodity versus being an actual service.
This is an incredibly important observation by Evans in that it goes to the heart of the paradigm shift that has created the chasm between the traditional ERP-based applications offered by the Oracles, SAP’s and until recently Ariba’s, and the emergence of the original SaaS-based solution providers.
The inherent problems faced by traditional ERP vendors such as Oracle and SAP is that they view SaaS as a pricing model within the framework of their existing architectures versus being an organically originating, radically different adaptive platform.
In both my May 18th (SaaS Sprawl, One-Stop Shopping and Free 8-Tracks To Boot: A Sad Day in the World of SAP) and May 26th (Traditional ERP vendors such as SAP and Oracle overlook the Disruptive Innovation question when they discuss their move to a SaaS model) posts, I make reference to a comment by Ariba’s CMO Tim Minahan. Minahan, who is the former CSO and Senior Vice President, Global Supply Research at Aberdeen Group, expressed his opinion that “Oracle’s on-demand sourcing is not really on-demand at all,” and “if he were an Oracle or SAP customer,” he’d be confused, and that he thinks that “that’s their intention.” (Once again, I strongly recommend that you check out the on-demand version of the Minahan interview.)
Obviously risking a “one who lives in a glass house should not throw stones” response from either Oracle or SAP, and of course without calculating the ultimate result of Ariba’s DNA transformation to a on-demand provider, Minahan nonetheless echos a similar sentiment to those expressed by Evans.
Evans further stressed her point by emphasizing her belief that “government needs to make hard decisions about best solutions,” and in the process “reduce operating costs” through leveraging or “maximizing what is already out there.” This shift in mindset in which government can no longer “buy products,” but should instead focus on acquiring “services and relationships” presents the greatest challenge and perhaps threat to the traditional vendor models under which the Oracle’s and SAP’s have conducted business (re technology-centric collaboration).
Based on recent comments by SAP’s John Wookey regarding the vendor’s “orchestration” of on-demand functionality within the current SAP architecture, it would appear that this is a point that continues to elude his organization despite the minimal utilization statistics referenced in the Smith article. That being said Wookey’s own acknowledgment that “customers that already have gone with SaaS in addition to an on-premise suite may not swap out for on-demand orchestration,” might indicate a recognition that a change is afoot.
The bottom line reality is that these traditional technology vendors are simply too sufficiently top heavy in terms of head count and associated operating costs which, when combined with Wall Street influences, preclude them from moving aggressively towards the kind of “DNA cultural transformation upon which Ariba embarked last year.” It should be noted that Ariba’s decision to make the move to an on-demand model was to a certain degree influenced by their losing $3 billion on $1 billion in sales between 2001 and 2005. This is a motivating factor that neither SAP or Oracle presently faces . . . at least for the time being.
While the shifting sensibilities of end user decision-making gravitates towards a more service/relationship oriented outcome, and therefore provides original and emerging SaaS vendors with a marked advantage over their ERP-based counterparts, these new titans of the eProcurement world would be well-advised to avoid the same trappings of leading with their technology alone, including an overemphasis on their lower costs and reduced implementation time lines. The temptation to do so is usually strong given the algorithm driven, agent based solutions they provide on a pay-per-transaction basis. In short, real-time, real-world dashboard technology is pretty cool stuff. However, technology no matter how advanced, has to be a behind the scenes facilitator of efficient and relational process versus being a front and center initiative-based player. This of course leads us right back to IACCM’s Cummins’ remarks about buyer skill sets now being more focused on commercial acumen versus rules compliance, and the need to build collaborative relationships and solutions.
As a result, all vendors need to understand that merely providing centralized guidelines electronically and then automating the purchasing process (no matter how advanced technologically) is not sufficient. This is because the challenges that end users face, as Cummins pointed out, is not one of technology, but is directly related to the aforementioned limited skill sets (which again is beginning to change), and and inability to effectively “outsource relationships.” An issue Cummins noted that is not indigenous to the the public sector domain alone. However, it is especially problematic for government entities given that many are either contemplating or already pursuing a Shared Services or Outsourcing strategy. Both of which are heavily dependent on personnel aptitude and effective stakeholder interaction.
The question of disconnected relationships is also according to Cummins, not confined to external interactions with suppliers, but is also reflective of a general “failure” on the part of “public procurement agencies to look beyond their own internal borders.” This “fascinating lack of real substantive discussion,” is perhaps a contributing factor in what Colin Cram cited as one reason behind the “huge amount of added cost” which is based on procurement people being more interested in “protecting themselves versus delivering real value.”
Perhaps in what was one of the most critical highlights of the serious flaws associated with a traditional technology-driven approach to procurement according to Cram, is how it enables government to “hide within” or behind costly “procedures.”
Referencing his “Towards Tesco – improving public sector procurement” paper, which indicates that the UK government could save £25 billion per year through improvements in key areas, Cram expressed the opinion that besides the problems with “procurement fragmentation when engaging the private sector,” government has “excessive procedures” that unnecessarily complicate and hinder supplier participation.
It is therefore not an unreasonable conclusion that similar to the old “garbage in – garbage out” analogy, automating procedure-laden processes will not make up for the absence of the required skill sets or collaborative platforms. This is yet another indicator as to why adoption rates of eProcurement technologies are as low as they are.
Consistent with the opinions expressed by both Evans and Cummins, Cram also believes that government has to begin “contracting out for relationships.” Unfortunately, according to the 30 year UK public sector veteran, while “many authorities are getting the picture” regarding the need to focus on relationships, few have actually addressed the onerous procedures associated with establishing and building the necessary rapport through the current RFP process, which according to Cram are unnecessarily arduous.
This ultimately leads back to the steady erosion of the very supplier relationships that are needed to ensure that government is achieving maximum value for money. Simply put, suppliers continue to believe that the government procurement process through which technology is a dominant presence, is geared toward a belt and suspenders approach to justifying a decision that has already been made.
With fewer suppliers coming to the table, pricing inconsistencies from one agency to the next and, low bids with declining service levels is the usual outcome lamented Evans.
So what is the answer to effectively utilizing technology to build the collaborative business relationships that leverage improving skill sets and maximize service delivery?
According to Washington-based expert author Judy Bradt, the foundations for addressing the above challenges are already in place and especially strong in the United States.
Sharing a similar level of enthusiasm to that expressed by Dr. Betsy McCaughey, who during a recent interview regarding an equally daunting and somewhat pervasive problem indicated that the “good news” is that “you don’t often come across such a big problem that you can solve,” Bradt cited a recent announcement by the DoD that they were “formally encouraging the use of social media” as one of the key reasons for her optimistic outlook. (Note: refer to “Defense Department to Announce Balanced Social Media Policy“article of September 23rd, 2009.)
The DoD decision is without a doubt, very interesting given past tendencies on the part of both public and private sector enterprises to either limit or restrict outright employee access to social media during business hours. This change of heart according to Bradt, will further enhance what she referred to as an already “rich business culture” that “based on the power of existing associations to bring stakeholders together” will further strengthen the needed relationships and open the required channels of collaboration within the public sector procurement world.
Bradt’s views certainly have a great deal of merit as web-based “technologies” such as LinkedIn and Facebook, and services such as Twitter are platforms within which a growing number of buyers and vendors are beginning to interact. What is telling is that some of these vendors are actually looking beyond the communicative advantages of the group development and blogging venues associated with social media, and are extending the functional capabilities of their core solutions through a direct social media interface.
In an ironic twist, free or low-cost social media collaboration platforms may very well become the transformational bridge between the costly ERP-centric type applications of the past, and the steadily emerging on-demand SaaS solutions which, through their dramatically reduced cost and shortened implementation period, fall in line with Evans’ assessment that government can no longer “buy products,” but should instead focus on acquiring “services and relationships.”
Next White Paper Excerpt: Supplier Navigation of a Non-Linear Process
NOTE: The post came from the new Essential Connections Blog. For complete summit information including additional articles, visit the Essential Connections Blog
About the Summit:
The PI Window on Business took its show on the road on April 27th and 28th thanks to sponsor Elcom and the tremendous work of the 2010 Business of Government Summit’s organizer, Shared Services and Outsourcing Network (SSON).
It was a first rate venue that saw us broadcast “live” 5 incredibly informative sessions centered on “Building a Transparent, Collaborative and High-Performance Government Capable of Addressing the Challenges of the 21st Century.”The attendees of mostly senior officials and executives from the public sector world were exposed to an incredible array of thought leaders, whose shared insights and experiences provided much needed (and welcomed) perspectives on both the challenges and potential strategies for effective government practices in the 21st century.