eprocurement - strategy for business growth

SMBA6002 | Strategies for Growth: Assignment 1B – Nicholas Flood

IBM Smarter Commerce

Delivering growth for our business


Introduction

Clients in every industry and geography are adopting online commerce as a way to integrate with suppliers

to achieve efficiencies and cost savings through purchasing automation (IBM, 2013).

IBM (2013) understands that client demand for online integration is on the rise due to three market shifts;

(i) IT buyers are increasingly open to using the web to purchase more sophisticated and higher-

value products and services.

(ii) Chief procurement officers (CPOs) are mandating ePurchasing within their organizations and

with their suppliers, often as a condition of doing business.

(iii) ePurchasing vendors (e.g. SAP, Ariba, Quadrem) are making technology for online

buyer/supplier networks more accessible than ever.

These market shifts are driving integration even further across the entire purchase process, from sourcing

and ordering to receipt and payment, reducing procurement costs and delivering value to both IBM as a

vendor and for our clients as paying customers (IBM, 2012).

This report recommends that IBM’s Australian & New Zealand operations accelerate efforts to meet these

changing expectations as to how our clients expect to engage & procure IBM solutions by establishing a

dedicated Online Commerce sales team. This team’s primary mission would be to:

(i) Establish relationships with client CPOs through deep consultative skills.

(ii) Obtain their, and critically their organisation’s, buy-in, to undergo an online commerce

enablement with IBM.

(iii) Manage this enablement / boarding from solution design through implementation to the

issuance and acceptance of the first purchase order between the client and IBM received

electronically.

Why this strategy for growth is desirable, technically & organisationally feasible and finically viable will now

be explored.


Table of Contents

SECTION PAGE

Introduction 2

PART 1 | Why it is desirable? 4

PART 2 | Why it is technically and organisationally feasible 5

PART 3 | Why it is financially viable 6

Appendix 7-9

References 10


Part 1 | Why is it desirable?

A recent statistical analysis of IBM’s top clients (by-revenue) found that the more clients transact

electronically with IBM, the more they spend with the corporation (Bush, 2013). The results strongly refute

the hypothesis that enabling clients for ePurchasing merely represents a “shift” in the channel - or channel

cannibalization - through which IBM receives revenue. This finding supports the belief that clients purchase

more from those IT partners who make it easier and more efficient to do so (IBM, 2012).

To explore this belief in relation to the proposed strategy more comprehensively, a customer value

proposition has been included in Appendix 1.1. The synergies that exist between the two sides of the

completed canvas, specifically; (i) The jobs that clients are undertaking and what they expect (i.e. Gains)

and fear (i.e. Pains) will occur as they perform these tasks and; (ii) The solutions within the portfolio and the

specific value conveyed through these solutions (i.e. Gain Creators and Pain Relievers) speak to the extent

of customer value delivered through an online commerce enablement and/or boarding. The clear picture

that emerges is one that demonstrates that clients will be able to complete their assigned jobs more

efficiently and with fewer complications. Through doing so, the canvas presents a rich snapshot into the

overall desirability of the strategy among key prospects.


Part 2 | Why it is technically and organisationally feasible

Resource driven analysis supports the belief that pursuing this opportunity is both technically and

organisationally feasible. The combination of tangible and intangible resources that IBM can draw upon to

realise this strategy confer significant competitive advantages that a valuable, rare, imitable and organised.

To a large extent, these specific resource asymmetries are an indirect consequence of IBM’s historic

engagements and ongoing relationships with the very same clients that will be targeted for the online

commerce enablement / boarding. Whilst these resource advantages have not come about through

conscious efforts, they nevertheless represent the very foundation upon which the feasibility of this strategy

is established. A more complete analysis of the availability of resources that will underpin the pursuit of this

opportunity is included in Appendix 1.2.


Part 3 | Why it is financially viable

Accelerating efforts to enable clients to transact electronically with IBM in Australia & New Zealand is

financially viable and necessitates minimal changes be made to the existing business model.

Appendix 1.3 captures the required business model. Beyond the establishment of a core team of Online

Commerce representatives (as captured within Key Resources) to undertake several Key Activities -

thereby enabling the Key Value propositions - the Partnerships and Customer Relationships through

which the benefits of the proposed strategy are enabled are already in place.

The cost structure will be one that is value-driven, where all costs associated with the boarding /

enablement will be absorbed by the IBM brands (e.g. GTS, STG, SWG, GBS, GPS, Watson). Although

representing an additional expense to these business units, it is anticipated that the uplift in overall

revenues from these accounts, post-enablement, will more than compensate and ultimately deliver higher

returns to the IBM Corporation.

APPENDIX 1.1 | Customer Value Proposition Canvas IBM-Side Client-Side

Products & Services eProcurement:

• By far the most prevalent method of B2B online commerce, third-party ePurchasing vendors (e.g., Ariba, SAP, Oracle) offer a web-based buying experience compliant with client policies and practices. Clients may connect directly with IBM or through a provider network.

Web Solutions:

• These solutions provide integrated work flows, spanning multiple roles, locations, and ordering privileges. They offer a deeper level of client intimacy and are often tailored to specific IBM solution interactions, such as management of maintenance services contracts.

Customised Private Sites:

• These portal-accessed catalogue sites incorporate a client’s contracted pricing and product set in a secure and easy-to use setting.

Ibm.com Public Website:

• IBM’s primary digital presence available for conducting commerce for hardware, software, and some services in 45 countries.

Gain Creators Create savings that make the customer happy:

• Real-time product & pricing updates.

• Standardisaztion of contracts and greater visibility to contract terms save time.

Do something customers are looking for:

• Access entitled contract and agreement information on-demand.

• Provide comprehensive visibility into enterprise spend by category, supplier, geography, etc.

Make customer’s life easier:

• Relevant offering information based on customer’s role, business and industry.

• Maintenance / license management and renewal alerts.

• Self-service status reporting, automatic notification.

• Role-based customer catalogues.

• Easy accessibility to IBM sales reps and experts.

Gains How does customer measure success or failure?

• Reduce overall procurement cost.

Savings that make the customer happy:

• Realise the value of my investment.

• Purchase easily and efficiently. Make customers’ life easier:

• Learn what’s possible for my business.

• Decide alongside experts by evaluating solutions in their context.

Customer Jobs Functional jobs that we are helping customer get done:

• Track supplier capabilities, contract compliance, performance and risk.

• Improve supply network design to be more responsive to the market and optimize supplier interactions,

• Procure goods & services to allow the organisation to operate / execute to their strategy.

• Ensure compliance with corporate policies & standards in all sourcing/procurement engagements.

• Negotiate favourable supplier prices.

• Establish properly constructed contracts.

Emotional Jobs that you are helping the customer get done:

• Alleviate fears/concerns relating to procurement risk.

Pain Relievers Produce Savings:

• Automated work requests against service contracts.

Make your customers feel better:

• Relieves frustration borne from inability to accurately understand costs, remaining entitlements and T&Cs across multiple contracts.

Eliminate risks customer fears:

• Eliminates chances of payment errors through automated PO/Invoice reconciliation.

• Eliminates procurement by-pass/breach by ensuring compliance with corporate policies & standards.

Get rid of barriers that are keeping customer from adopting solution:

• Variety of solutions to suit the needs of clients despite the maturity/sophistication of their internal ERP system (e.g. eProcurement for highly sophisticated ERP environments, Web Solutions for less mature environments).

• Access to experts who can help develop business cases for investment in technology (e.g. upgrading ERP).

Pains What risks does customer fear?

• Procurement risk, negotiating bad terms in a contract that lead to negative delivery/fulfilment, cost implications

• High product or service costs resulting from limited ability to negotiate favourable supplier prices Main difficulties & challenges the customer encounters:

• Manually managing a large number of paper-based procurement & sourcing contracts. • Understanding the end-to-end procurement environment & situation.

What keeps your customer awake at night?

• Concerns that an employee / department could agree to terms on a procurement or sourcing contract that will be to the detriment of the organisation.

APPENDIX 1.2 | Resource Driven Analysis

Classification Resource Evaluation Competitive Advantage Conferred

TANGIBLE

ECONOMIC: We possess the financial resources required to perform / undertake the enablement/boarding without having to charge the client.

V R • Removes a barrier to adoption - other vendors may not be able to emulate.

ECONOMIC: We possess the financial resources to raise client awareness through advertising, marketing, digital of the solution portfolio.

V O • Increases awareness of our solutions relative to competitors. • Awareness underpins consideration.

CONTRACTUAL: We have existing & ongoing contractual relationships with many clients.

V R O • Hard data & insights on historical and forecast spend allow for the development of robust

business cases / proposals to facilitate for client agreement / buy-in to Online Commerce Enablement / boarding.

PHYSICAL: Global presence allows for us to undertake, initiate and partner with procurement divisions in all locations where multinational clients conduct operations.

R O

• Facilitates for greater interaction, relationship & trust building and eases communication across geographical, cultural and language.

• Largest MNC clients are generally those whose procurement spend with IBM is greatest and who stand to realise the greatest cost savings through the boarding/enablement.

SOLUTIONAL: Diverse catalogue / portfolio of leading solutions (backed by patents) facilitates for an eProcurement solution to meet needs of all clients.

O • All clients in-scope - other vendors may not be able to emulate. • Allows for the delivery of value to clients whilst they grow (i.e. establish early footprint as their

demand for IBM’s solutions & services increase in line with their growth).

INTANGIBLE

RELATIONAL: Existing relationships – via the IBM Account Teams & Client Executives – with key decision makers at client accounts.

V I • Existing relationships underpin trust in the solution and that delivery, boarding/ enablement

will not disrupt core operations.

RELATIONAL: Established partnerships with key B2B procurement sourcing companies (e.g. Ariba, SAP, Oracle).

V I

• Early insights into key procurement systems / strategy upgrades at client accounts, allows for IBM to respond to changing client priorities and tailor our approach/solution to their specific needs / level of maturity which helps them to realise greater return on their investment in these systems and reduce procurement cost with IBM.

HUMAN: Depth of expertise within the corporation on eProcurement is represented through (i) Process and technology patents; (ii) Growing body of thought-leadership; (iii) Certification of key engineers and sales professionals

R O • Facilitates for deep understandings of client’s challenges and insights into how these can be

addressed. • Builds relationship and credibility that other vendors may not be able to emulate.

ORGANISATIONAL: Operational discipline and dedication among staff to clients’ success.

V I • Facilitates for client centric orientation and • Enables high levels of discretionary effort among staff staff to “go the extra mile” to deliver for

our clients.

KEY: V: Valuable R: Rare I: Imitable O: Organised

APPENDIX 1.3 | Business Model Canvas

Key Partners:

IBM Online Commence Technical Team (AP/CHQ): • Perform boarding /

enablement of eProcurement solution .

• Build customised private sites.

• Build / develop Web Solutions portfolio.

IBM Marketing, Demand Programs Brand Systems: • Position IBM as an

eProcurement leader. • Raise awareness of IBM

product portfolio & generate demand.

• Maintain ibm.com public website and payment gateway.

IBM Account Teams & Client Executives: • Identify opportunities within

the account for IBM products & services.

• Progress opportunity through sales cycle.

• Proactively address issues. • Broker introductions to client

CPO’s. IBM Delivery & Technical Resources: • Fulfil orders & contracts.

IBM Support & ancillary functions (e.g. HR, finance, legal, residential etc): • Provide the environment for

the broader team to operate.

Key Activities:

Understand deeply the historical and forecast demand for IBM solutions within target accounts so as to: • Articulate the saving that have been

realised / could be realised through boarding/enabling the client for Online Commerce.

Build Relationships with Client Chief Procurement Officers (CPOs) so as to: • Understand their procurement environment

& strategy so as to be able to better define eProcurment solutions that meet their specific needs.

• Position Online Commerce enablement with the client and obtain their buy-in to undertake a boarding/enablement.

• Consult to develop business cases for investment in technology that would facilitate for them to procure & pay for IBM products & services electronically.

Manage the boarding & enablement process by: • Engaging internal technical resources to

deploy/enable the solution. • Communicating progress to all

stakeholders. • Educating & enabling clients on the use of

the new procurement platforms. Continually hone skills and deepen understandings of procurement technology, issues, opportunities and trends so as to: • Position oneself as online commerce

thought leader within local market. • Increase credibility when consulting &

engaging with client CPOs. Engage with internal finance teams to ensure that all revenues flowing through the Online Commerce solutions post-enablement are accurately reflected in business / financial performance reports.

Value Propositions:

Reduce overall procurement expense. Intuitive workflows that improve accuracy and clarity in all interactions: from SOW development through invoicing. Cognitive automated responses in anticipation of clients’ need, at relevant moments in time throughout the buying journey. Client self-service through multiple access points, including mobile and tablet.

Customer Relationships:

Pre-deployment: Client CPO’s expect the team be act as trusted advisers , understanding their environment and requirements in detail and being able to on their procurement strategy, understanding their During deployment: Partnership forged, both client and team working together to realise benefits. Post-Deployment: Trust has been built, CPO engagements and outcomes become reference-able.

Cost Structure:

Value Driven Fixed Costs • Salaries of Key Resources Variable Costs • Deployment, boarding, enabling costs, particularly those

associated with (i) Development of proposals, business case, solution design; (ii) Technical teams engaged to board/deploy/enable solution.

Run on cost recovery model with the IBM brands (e.g. GTS, STG, SWG, GBS, GPS, Watson) to which the increased revenues will flow post online commerce enablement.

Key Resources:

Human: Online Commerce Manager / Team Leader; Online Commerce Rep X 2; expertise, knowledge of industry and client

Intellectual: Patents on solutions

Customer Segments:

Industry / ASX 200: clients with a highly mature procurement environment that can connect directly with IBM. Enterprise: mixture of clients and maturity of procurement environment. Midmarket: less mature / sophisticated procurement environment. Activation: VCs, start-ups, new to IBM

Channels:

Awareness: Digital, eDM, website, social, events. Evaluation: Proposal (solicited/unsolicited), F2F. Purchase: F2F engagement to agree to boarding. Delivery: Online, virtually throughout boarding. After Sales: Online through eProcurement environment.

Revenue Streams:

$0 cost to client. Success / Value delivered to business measured in terms of (i) Increase in IBM share-of-wallet and (ii) Increase in overall spend with IBM. IBM revenues (all-brands) from online-commerce enabled clients.


References

Bush, D 2013, Top 1119 sector clients enabled for online commerce, final report prepared by IBM Global Business

Services for IBM Inside Sales, Armonk, NY

IBM 2012, Driving Higher Client and IBM Value through Online Commerce, final report prepared for IBM Inside Sales,

Armonk, NY

IBM 2013, IBM Sell-Side Online Commerce: Delivering a better IBM client experience through smarter commerce,

final report prepared for IBM Inside Sales, Armonk, NY