Laying the Foundation for Digital Source-2-Pay Success
ABSTRACT
Historically, when it came to the implementation of an ERP-based eProcurement solution, the rate of failure was significant. Depending on the source, the number of initiatives that failed ranged between 75 percent to as high as 90 percent.
Unlike the ERP-based eProcurement solutions – which, as part of an overall organizational implementation, would span many years, costing millions of dollars, the implementation of on-demand or Software-as-a-Service (SaaS) platforms usually takes weeks. Although costing considerably less than their ERP predecessor, these “by-the-drink” eProcurement solutions are not without risk.
As a result, traditional approaches to the implementation of an eProcurement solution, be it ERP or SaaS-based, must be re-evaluated. Part of the re-evaluation process will see end-user customers assessing the expertise and track record of the third-party organizations with whom they partner using a new set of metrics in which indigenous procurement expertise will be a critical factor.
In response to the above metrics, a new consultancy model is emerging. In place of the general practitioner or jack-of-all-trades firms who possess periphery expertise, new model consultancies with a deep and proven procurement knowledge base are gaining recognition as best-of-breed service providers
The focus of this Knowledge Note is to provide an understanding of the procurement automation landscape, both past and present. With this understanding, we will then provide an overview of these new consultancies, including how they are different from traditional consulting firms and why they dramatically increase the odds for eProcurement, and more specifically, SaaS Source-2-Pay implementation success.
Assessing the ERP Past
The Veterans Health Administration (VHA) in the United States spent more than a combined $650 million to implement two separate ERP platforms. Despite big expectations that said implementations would streamline the procurement process, both were a massive failure.
These failed initiatives had consequences that extended well beyond the loss of money – they put people’s healthcare at risk. If you want to learn more, do a Google search on the Bay Pines VA Healthcare Congressional hearings and how an ERP breakdown in purchasing meant that patient care suffered.
Unfortunately, this is not an isolated case. Due to the increasing costs and unrealized benefits of another ERP-centric initiative, a major U.S. drug store chain went into receivership. The vendor eventually paid the receiver an undisclosed amount of money in damages.
There are many reasons why these types of initiatives failed.
According to vice president and Gartner Fellow Andy Kyte, “Early ERP adopters, particularly large enterprises in energy, manufacturing and distribution industries, are paying the penalty of a decade or more of excessive customization.” In what has now become what Kyte called the “postmodern ERP era,” businesses can take advantage of “lower costs, better functional fit, and process flexibility offered by blending cloud (SaaS) applications with on-premises applications.”
From a procurement automation standpoint, this lack of flexibility resulting in the need for increased customization is part of the problem that led to what Forrester Research’s Navi Radjou referred to as the inability of the ERP-driven solutions to “support the swift resolution of supply chain glitches.” Specifically, the amount of time it took ERP platforms to “collect and synthesize data from multiple sources” in real-time to either confirm or avert a buying decision.
Based on the above revelations, the number of organizations that are making the transition from an ERP-based eProcurement function to the more flexible and independent SaaS platforms is steadily increasing.
However, recent surveys indicate that a significant ERP influence regarding procurement and overall Source-2-Pay automation continues to exist. In short, the successful integration of digital SaaS solutions operating beyond the cloud at the edge, with back-end ERP platforms, will be critical to ensure an organization’s successful transition to a SaaS Source-2-Pay solution.
Within this dynamic environment, the new model consultancy firms will play a vital role in addressing past challenges within the context of an emerging hybrid procurement automation strategy.
New solution challenges
The emergence of SaaS or by-the-drink procurement automation solutions has addressed the core challenges associated with the ERP-centric platform, including; lower acquisition costs, shorter implementation timelines, and many of the inefficiencies previously discussed.
Despite these notable advancements and the resolution of previous issues with procurement automation, there is a new set of potential obstacles that must be “overcome” before organizations can realize the full digital promise from their Source-2-Pay strategy.
After referencing the results from a survey, McKinsey’s Jacques Bughin and Tanguy Catlin observed that “despite warnings from ourselves and others, most incumbent firms are failing to adjust to the digital era.” Specifically, and out of the 1,650 incumbent companies that took part in the survey, less than 20 percent had a tangible digital strategy, and of those, a mere 2 percent had a strategy regarding the digital automation of their procurement practice.
The results from the survey are especially troubling when you consider the fact that, according to Gartner, 70 percent of all enterprise digital strategies will require a finely tuned procurement practice and a streamlined Source-2-Pay capability.
Organizations that do not have a high-level cloud strategy driven by their business strategy will significantly increase their risk of failure and wasted investment.” – David Cearley, Vice President, and Gartner Fellow, Gartner Research
At the highest level, the “paucity” of clean data, the talent gap, and the risks of securing “rapidly evolving” digital technology platforms are the overarching concerns regarding digital transformation.
However, there are additional areas at the day-to-day Source-2-Pay operational level that requires attention.
In his February 2018 Computerworld article 6 hidden liabilities of enterprise SaaS applications, Brandon C. Curry referred to everything from a lack of enterprise-wide visibility to security, compliance, and governance issues, all of which represent potential liabilities with a SaaS solution.
A broad range understanding of the above challenges, coupled with a generalized consulting approach, has and will continue to prove insufficient in developing effective and executable strategies for digital procurement and Source-2-Pay success.
Procurement Focal Point
To make the transition from a static acknowledgment of the digital procurement promise to one in which there is a realization of tangible benefits requires a depth of expertise that is not available through the engagement of a traditional, general practice consultancy.
In place of the old model consultancies, there is a requirement for a new consultancy standard in which procurement is a core versus an adjunct competency.
Known as the “by procurement professionals, for procurement professionals” approach to strategic digital implementation and management, the new consultancy model or standard is one in which procurement is the focal point of the practice.
It is important to note that this highly specialized capability and capacity does not imply that there is a myopic focus on procurement at the expense of understanding its place within and impact on the overall enterprise. What it does suggest is that the new consultancies have a holistic view of an organization and its operations, enabling them to understand the best and most effective way to leverage emerging digital Source-2-Pay procurement platforms to achieve corporate objectives.
It is through this broader lens perspective with a solid foundation of procurement expertise that the new consultancy model will deliver the digital promise through the introduction of a proven “procurement-centric” implementation methodology.
Starting with getting an organization to the point of digital “readiness,” a procurement centric methodology progresses through several key phases with definitive objectives culminating in measurable outcomes.
Conclusion
Designing, implementing and managing a process that considers and understands the unique attributes of a global procurement practice is critical for success.
Based on historical results, general practice consultancies who employ a broad-spectrum approach to problem-solving “rarely” possess the necessary level of procurement insight and expertise to successfully develop and introduce a methodology for digitally transforming an organization’s Source-2-Pay practice.
Given the effectiveness of the new consultancy model, organizations will avoid a myopic, technology-only approach to digitally transforming their procurement practice. The result will be a dramatic improvement in measurable outcomes and enterprise-wide recognition of procurement’s strategic role in the achievement of collective organizational objectives.