Friday Rant: Spend Management Snake Oil
During his talk, Jim suggested that snake oil purveyors in the supply risk market fall into a number of categories, including "existing vendors with incomplete or partial solutions (spun as the real-deal), market information packaged and resold as real-time intelligence (which it's not), dashboards from larger enterprise software providers (which leave it up to you to fill in the blanks or pay an army of consultants to populate)" and, my personal favorite, "the one hit wonder -- any service provider deliverable that takes the form of a Microsoft Office document, spreadsheet or presentation". Not only is Jim dead-on in this analysis -- he's putting a stake in the ground that someone should have posited a long time ago. Namely, that a good many of the self-proclaimed supply risk emperors out there really have no clothes.
Now, to be fair, D&B's solutions have their detractors. I've heard a number of people criticize their risk ratings accuracy on smaller and middle market suppliers. My favorite story here is how CVM Solutions, a D&B competitor, likes to tell customers that according to D&B's data, it's going bankrupt. Which is anything but accurate when it comes to their free cash flow and balance sheet (maybe moral bankruptcy, perhaps, but they're certainly not going out of business). I've also heard numerous companies complain about false positives with D&B data. But when organizations customize D&B deployments and incorporate their own operational data, the actual results I've observed tend to be in a different class entirely than anyone else claiming to offer real-time, predictive supply risk solutions focused on delivering as much early warning as possible around supplier financial disruptions and operational failures.
Granted, snake oil exists in many areas in the Spend Management market. The fact that SAP and Oracle can still say with a straight face that you'll be able to deploy their eProcurement capabilities without additional providers (e.g., Vinimaya, Hubwoo, etc.) in the mix and achieve significant levels of indirect/catalog spend under management is an absolute farce. Both would have been run out of town -- or shot with a six-shooter -- in the old American West for selling such spend snake oil nonsense. Moreover, the supposed category expertise that many consultancies -- including some of the biggest names -- bring to certain spend areas are anything but. Rather, they trot out their SME partners who will rarely, if ever, show up again during the course of an engagement. And don't for a minute get me started on the rest of the spend tools lot. I don't want to get my blood pressure up at this hour in the day.
Regardless of what area of Spend Management technology or services you're looking at, it's always worth putting an exceptionally critical eye to what's being sold to you. Watch out for "shills" as well -- vendor reference clients who've gotten millions in custom development for nothing (and/or have had their pet features prioritized). They're equally a part of the snake oil business.
During the buying cycle, the only way you can be sure that you're not being snake oiled is to embark on an extensive market analysis of everything that is out there. It's also critical to methodically check multiple references (ideally those not provided by the purveyor) and to make sure your BS-detectors are in proper operating condition at all times during the sales process. Don't just depend on so-called experts to help make a final decision (they too, can be part of the act). Depend on your own extensive research and gut. Only then can you be 100% sure that your purchased spend salve will have its desired effect.
- Jason Busch
Based on how D&B's methodology works, it's pretty clear that after paying them and supplying them with information, we too (along with CVM and many others) would be blacklisted, even though our company has been profitable for years.
So guess what, D&B, you won't get any data from us until you come up with an algorithm that's fair to small companies. And we won't pay you to do research that you should be funding yourselves.
(Sorry for the anonymous post, Jason, but I'm sure you understand why...)
I'm an avid reader of your blog and a fan. However, I'm surprised by this rant in many ways.
First, you are usually fair and balanced in your analysis and review, but in this case, you seem to have completely missed the point about supplier risk.
Most companies that are in anyway serious about supplier risk don't use D&B for anything other than a guideline. They do what Jim calls "one hit wonders" and supplement D&B data with more detailed analyses. We do these internally in our company and so do most of my peers in this space. I can understand why Jim may not like these since they directly question the validity of D&B's scores. But to deride them as unnecessary implies either a bias (as in Jim's case) or only a cursory understanding of the problem.
With D&B's solutions, the issue is not really with false positives. These can be weeded out based further analysis. At best, these are annoyances for companies that use D&B's scores. At worst, these are severely detrimental to the companies that receive these ratings since they either often get passed over many opportunities without a second look, or have to scramble to prove their financial health.
The key issue is false negatives - companies that D&B does not flag as high risk, but are. This issue exists not only in D&B's small and medium company ratings but also in ratings for large and public companies. I understand that D&B's model is probabilistic and can't be 100% accurate. But in our experience, the rate of false negatives is high enough that we can't base key supplier decisions on these ratings. Decisions that might cost us millions to correct if they are wrong.
Secondly, I'm surprised by your conclusion. While you accept the flaws in D&B's solutions, you go on to recommend that these be incorporated without really addressing how companies should handle these issues.
Finally, I'm surpised at your comments about CVM Solutions - while you may prefer D&B's approach to whatever CVM's offerings are, throwing a personal jab at their character, valid or not, (morally backrupt? come on) seems out of place not only for you but for also for this serious and highly informative blog. I'm sure you have reason to believe what do about them, but I'm surprised you would reduce the quality of your posts with such comments.
I'd be happy to give you some further color behind the scenes here if you would like, including data accuracy, false positives/false negatives and how different providers obtain / have obtained their information. I an intimately aware with the strengths and weaknesses of the different solutions in this market, having spoken to many references clients of those providers that have them and also having been involved in selections in this area. Depending on the circumstance, I still usually tend to recommend D&B first as a content/software provider for monitoring supplier financial risk. I say this with some caveats, some of which I pointed out in this post.
Regarding CVM Solutions, from what I hear, they are most certainly not going bankrupt in the legal/financial sense. I brought up their story because it illustrates the dangers of false positives in the risk monitoring process. I can also discuss data and other areas offline as well.
Please reach out to me if you would like to discuss either of these points if you would like. I sincerely appreciate your feedback. As with every issue, there's much behind the scenes than ever makes it into an actual column or post (which I often share in client or advisory situations). At the end of the day, I'm paid to have an opinion. I'd like to think its usually more right than wrong, but I'm always willing to admit when I've overstepped with a comment or called something incorrectly. I don't think this is the case here, and the more I learn about some of the practices in the data market (which have caught me off guard and caused embarrassment in some situations), the more I see that many buyers do not know exactly the provenance of what they're buying. I think we'd both agree there's been too much trust placed blindly in content in the past.