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© 2017 Bonfire Interactive Ltd. GoBonfire.com Sourcing Enablement: Going deeper, not broader An Industry Whitepaper January 2017 Corry Flatt CEO of Bonfire

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© 2017 Bonfire Interactive Ltd. GoBonfire.com

Sourcing Enablement: Going deeper, not broader An Industry Whitepaper January 2017 Corry Flatt CEO of Bonfire

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

Why Sourcing Enablement? The purpose of this whitepaper is to define Sourcing Enablement, our term for the constellation of new functionality emerging in the latest generation of sourcing platforms. We believe that sourcing software is beginning to undergo a similar evolution to other SaaS/cloud software categories: deeper data, deeper automation, deeper collaboration, and predictive analytics. Indeed, we’re not alone in thinking so: Gartner concludes that CPOs should “evaluate advanced analytics, machine learning and decision support algorithms for processes that are digitized” (see Gartner’s ‘Predicts 2017: Procurement and Sourcing Technology’). We believe, however, that the coming sourcing revolution is not only underpinned by technological change but will also be driven by long-simmering non-technical trends coming to a head: 1. Sourcing’s ascendancy. Sourcing is becoming the primary value-driver across the entire

procurement value-chain, especially for high-consequence decisions that involve large spend or have large strategic impact. Capturing more spend under management is only half of the story – the other half is sourcing’s ability to get great products/services at great prices, an outcome that impacts their ability to drive adoption of P2P’s back office workflows, as well as the overall impact on the organization. If sourcing fails (i.e. selects non-compliant / poor quality / expensive products), maverick spend increases, stakeholders are dissatisfied, and strategic outcomes suffer.

2. Sourcing’s ‘strategic impact’ problem. As sourcing’s importance rises, only a shockingly 32% of

procurement leaders report that their team is a strong strategic partner to their organization (The Deloitte Global CPO Survey 2016). The decades-old hand-wringing about a lack of strategic impact is now turning into a more serious deficit as the stakes get higher. Sourcing teams that have been focused on two-dimensional or transactional sourcing often struggle making the transition to more strategic decision-making and outcome tracking. The short-term prospect of squeezing a few extra points out of suppliers must be balanced against long-term strategic outcomes. Piling on is the challenge of managing unified strategies in the face of growing decentralization.

3. Sourcing’s escalating skills/talent gap. An even deeper concern: in the same study, Deloitte

reported that only 38% of procurement leaders believe “their teams [have] the skills needed to deliver their procurement strategy”, an escalating downward trend since 2013. The skills gap and talent shortage in procurement are not new topics, but take on a new urgency when contemplating a future of rapid change.

In short, sourcing has never been more important; but the typical procurement leader (a) doubts their ability to achieve true strategic outcomes, and (b) doubts that their team has the capabilities or tools to even handle their current strategy let alone what the future may bring. Meanwhile, looming on the horizon is a tsunami of new technology that will transform the way their suppliers, peers, and competitors perform. The inescapable conclusion is that procurement leaders will require new types of tools to thrive in tomorrow’s world.

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

Sourcing Enablement: going deeper, not broader

Against this background of change, procurement leaders have a legitimate complaint against software vendors: that they lack imagination and vision. A brief glance at any of the dime-a-dozen basic bidding portals, overly complex ERP procurement modules – or even the sourcing functionality of giants like Ariba or new kings Coupa – leaves one with a sense of underwhelming sameness. Basic requirements and outcome tracking, basic vendor discovery, basic information collection, basic workflow management, basic costing, and almost zero collaboration opportunities. Worse still, even when a platform houses significant power, users find them so challenging and painful to use that they dump out the data as soon as possible and use Excel / paper / email to get the job done. Examining any of these platforms begs the question - where’s the innovation? Why do most sourcing teams still use spreadsheets for not only cost analysis and optimization, but also routine collection and evaluation of requirements? Perhaps it’s because older platforms are built for less sophisticated technologies (browser-based software in 2017 miles ahead of what was possible in 2007); or perhaps it’s because the core users of these systems are only gradually becoming more familiar and confident with browser-based “apps” and tools. Or perhaps the root problem is that most procurement software providers seem to view sourcing features simply as a few more boxes to check on their 1,000-feature checklist. Whatever the reasons, it’s no wonder that older sourcing software is almost casually dismissed as not important enough to move the needle. So what would move the needle? We believe that there are clues to be gleaned from other modern SaaS/cloud software categories. Specifically, their are five overlapping technological themes driving innovation in other categories:

Collaboration Data Automation Coaching API-ification

Expanded

participation by all stakeholders at all stages of workflow

Little to no training

required / instant use

Coordination despite growing

decentralization

Capturing / analyzing not only more data, but ensuring data is

more highly structured and re-usable

Managing data across

organization silos

Utilizing the ‘wisdom of the crowd’ where

appropriate

Capturing and

streamlining deep workflows that were

previously done offline or manually

Applying statistical or

machine-learning algorithms to rapidly improve throughput

Live suggestions /

benchmarks to guide performance

Analytics that identify

inefficiencies or bottlenecks

Surfacing new

knowledge sources

Plugging into adjacent parts of the toolchain

Gathering inputs

from / posting outputs to other

systems Shared identity across

systems

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

Applying these themes to sourcing software, one quickly notices that they are not about functional expansion – i.e. are not necessarily about capturing new parts of the workflow – but rather are about innovating on how deeply the current workflows are executed within software. In other words, a next-gen sourcing platform that embraces these themes would, functionally-speaking, look relatively similar to the older generation. Both vintages would involve collecting requirements; gathering supplier data/pricing; some form of evaluation/tabulation; reporting after-the-fact. And, of course, all sourcing software vendors lays claim to classic sourcing value propositions (shorter cycle times, improved savings, etc). The difference lies in how the workflow is performed, and how that difference leads to significantly better outcomes. Sourcing tools that embrace the above themes would be expected to perform the same workflow steps with much more depth, efficiency, and outcome-certainty. We are now ready to define Sourcing Enablement:

Sourcing Enablement is a category of software that prioritizes high performance in the sourcing decision-making process as the primary drivers for procurement’s strategic value. It empowers the sourcing team to perpetually deliver optimal strategic decisions via deeper collaboration, data collection and usage, automation, outcome tracking and coaching.

Broadly speaking, Sourcing Enablement software will include features that provide the following:

• Frictionless Collaboration. Collaboration with internal stakeholders pre-, mid-, and post- sourcing activities. This includes collaboratively defining requirements, discussions at all stages, collaborative evaluation, consensus, and group decision-making, and shared visibility and ownership into outcomes.

• Richer data. Complete and exact control over what information is collected, in very highly structured packets, with ability to segment, filter, and re-package data in-application for purposes such as the evaluation and balanced scorecards. Allowing cross-silo data sharing.

• Deeper automation. Beyond the simple stack-ranking of basic bid tabulation, Sourcing

Enablement platforms provide sophisticated and powerful optimization, auto-scoring, what-if analysis, frictionless eAuctions, evaluation process mapping, and reminders to name a few.

• Real-time coaching & outcome tracking. Providing visibility into how the sourcing team is

performing, down to the category / department / buyer level, against strategic outcomes, cost-savings target, and other customizable benchmarks.

• API-ification. Sourcing Enablement tools exist alongside ERPs, P2P suites, and perhaps even

first generation bidding portals. Adaptability and integration are crucial for adoption.

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

Sourcing Enablement is a new concept within procurement. Like any new technology, the full potential and impact of Sourcing Enablement will become clearer as the category matures. However, understanding the definition of the category at this early stage is useful for practitioners, vendors and analysts alike. It provides a common vocabulary and establishes a baseline definition for Sourcing Enablement moving forward.

What is not Sourcing Enablement? It’s also useful to define what Sourcing Enablement does not stand for as a way of filling in the picture. Firstly, Sourcing Enablement opposes the idea that sourcing platforms can’t deliver enough value on their own. It denies that sourcing platforms must eventually expand to capture the entirety of P2P workflows to be taken seriously, or the view that the natural place for sourcing features is as modules of a larger eProcurement or ERP system. These attitudes are prevalent among analyst and press coverage of sourcing (most discussion of new sourcing tools involve the question ‘when will it expand to the full range of P2P functionality?’ as if that is the only viable path forward). And perhaps that view is reasonable given the underwhelming value generation or differentiation in the first generations of sourcing tools. But what if new technologies changed that equation? What if API-ification broke down the walls between legacy ‘systems-of-record’ and powerful workflow tools? Secondly, Sourcing Enablement opposes the idea that sourcing teams should offload as much work as possible to their internal stakeholders, acting as a kind of glorified switchboard rather than primary service provider. The implicit admission in this view is that formal sourcing activities are purely a result of policy control – and if only we could find a way to minimize the role of the middleman, buying things would be less painful. Against this deflating notion stands the more robust idea that the sourcing team is a crack team of professionals who can achieve outcomes over and above non-practitioners. They build, they learn, they measure their progress, they optimize, they improve. They are experts. For example, Google’s sourcing team infamously has not had a policy mandate (internal employees are not forced to go through the sourcing team, even for high-cost / high-consequence decisions). Instead, Google’s sourcing team must be so knowledgeable, so efficient, so value-adding, so proactive – i.e. so obviously good at what they do – that employees freely and enthusiastically choose to utilize them for their procurements instead of going it alone. Now, Google’s approach is not a one-size-fits-all prescription (good luck removing the policy mandate in the public sector!), and, in particular, their technology choices will not be relevant to most other organizations. But they deserve kudos for living out an alternative vision for sourcing’s role and value. We believe that the future of sourcing belongs to teams that fit that later definition, and they deserve new tools to help them continue to thrive in the coming age of change.

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

How is this playing out in various sectors? This is a topic for its own future discussion, given the depth and nuance required to fully explore the growth of Enablement. That said, the shift towards Enablement is clearly visible in all three of the broadest sectors: public sector (organizations that receive public funding), mid-market businesses (500 to 5,000 employees), and enterprise organizations (5,000 employees and up). In the public sector, richer data and deeper automated evaluation is allowing for easier compliance and the audit-proofing of decisions, while deeper stakeholder involvement is helping to reduce poor spending decisions and improving client satisfaction. On the horizon are powerful innovations like easier collaborative/group buying, easier contract-sharing, and pooling of performance data. In mid-market companies, richer data and deeper automation around cost (optimization, what-if analysis, and eAuction) is providing negotiation “power tools” that give buyers increased leverage on price and cost-factors. Meanwhile, the streamlined capturing of non-price evaluation, auto-scoring of requirements, and easy stakeholder participation is helping to ensure 360° strategic outcomes. In large enterprises, Sourcing Enablement’s features are valued for their ability to act as ‘force multipliers’, improving the output of sourcing teams as a whole, while also providing visibility into sourcing’s impact and performance, right down to a buyer level.

Where does Sourcing Enablement lead?

Sourcing Enablement is a true change in the way sourcing is conducted and perceived, but is also just the first step towards an even more powerful category of sourcing software. Taking the main themes of Sourcing Enablement (rich data, deep automation, collaboration, coaching, API-ification) to their logical conclusions, an intriguing vision for the future emerges: a vast interconnected network of buyers, sellers, powered by huge volumes of structured and consistent data about all participants, third-party data streams, machine-learning / artificial intelligence agents, and recommendation engines. Look no further than other software categories like automated stock trading bots, AI-boosted sales coaching platforms, or intel analysis platforms like Palantir. The end-game of Sourcing Enablement is inescapably “Predictive Sourcing” – the idea that the next large sourcing platform, powered by sophisticated collaboration, data, and automation, will lead to a continually-improving procurement ‘singularity’ that ends up underpinning large sections of the world’s economy.

WHITEPAPER Sourcing Enablement

© 2017 Bonfire Interactive Ltd. GoBonfire.com

Predictions for 2017 Bringing the discussion back to the present, we offer the following predictions for sourcing in 2017:

1. Rapid growth for sourcing platforms. Next-gen sourcing platforms will continue their initial flourish, continuing to fit alongside or on-top-of ERPs and P2P suites. Expect 300%+ annual growth of Sourcing Enablement companies in 2017.

2. Hot topics will continue to be ‘Big Data’ and machine-learning. As machine-learning and AI technologies continue to bleed over into sourcing and procurement software, we expect conference topics, whitepapers, and analyst discussions to increasingly feature it. That said, a healthy skepticism on these topics will remain until more quantified examples are shared.

3. High Mergers and Acquisitions activity. Incumbent and ascendant P2P suites alike will ramp up acquisitions within sourcing and other procurement workflow areas. The aim of these moves will be to capitalize on the SaaS/cloud trends identified earlier in this paper, rather than spending the time and resources to build next-gen functionality in-house. [Note: since this whitepaper was initially authored in December 2016, Coupa announced the acquisition of Spend360 – perhaps early validation of this prediction].

4. eProcurement suites are the new ERP. As deployments of newer P2P suites hit their 3 to 5

year anniversaries, the response of “we already have a P2P suite, we don’t need XYZ” will increasingly become “we already have a P2P suite… but need something deeper for XYZ”. This is a consequence of most P2P’s focus on solution breadth at the expense of workflow depth. An interesting aspect to this prediction is the fact that modern P2P suites make integration a priority, which both (1) makes it easier for clients to use other tools alongside their existing platform, but also (2) protects the suites’ status as the system-of-record by preventing wholesale disruption. This change will be driven at the client level, as end-users become more educated as to what the newer breeds of procurement software can do, and go back and compare that to their older existing toolchains.

-- Thanks for reading. We believe we’re on the cusp of an exciting era of sourcing technology, and would love to hear what you think. Leave us your thoughts and comments at [email protected].