Kevin Potts, Emptoris’ Vice President Marketing and Product Management Pushes Back
Jason -- you raise some great questions for Emptoris such as "why services procurement?" I am sure others will ask "why now?" For many people, this move probably seems counter-intuitive. Let me address how this supports our strategy by first defining what our strategy is. We want our customers be as successful as possible in their supply and contract management initiatives, and to do that, we must provide solutions that solve their most difficult challenges, not just their easy ones. Period.
Capturing the Silent Giant
Why services procurement? I don't need an optimizer to explain this one. The answer for how this fits into our strategy is really very simple. When we asked our customers what their biggest problems were, we found a growing recognition that better management of services-based categories presents an immediate opportunity to impact their bottom line. As Avner mentioned, these categories represent the silent giant of the supply and contract management space. Our customers spend billions in SOW (i.e, project-based services), IT outsourcing, management consulting, and contingent labor. However, they specifically cited this area as a major headache. Here are some of the stories we heard:
- "When Satyam went under, we estimated that it would take four months to identify for the CFO and CIO how much exposure we had in IT outsourcing projects with Satyam because there was no solution in place to provide this visibility."
- "We have 800 IT programming contractors from over 200 different agencies, and an analysis found the same individual working on two jobs at same time and being paid two different rates for these jobs."
- "We found errors in invoicing with our paper based processes were leading to payment errors of 1.5% on average, and they were never in our favor... we process over $1 billion of invoices annually, and we know we are overpaying suppliers by $15-20mm."
You think it is just rhetoric about the ERP vendors not being in the market, but I disagree. Of course they have checklist functionality that probably meets the sniff test of a data sheet. However, I spoke to a number of our customers and they were emphatic that this problem can't be solved in their SAP or Oracle systems. One customer cited spending $40 million to implement an ERP SRM system for e-procurement (catalog based procurement, mind you, not services procurement) and only $45 million is transacted per year through the application. "Collosal failure" were the two words I heard through my end of the phone line. I mean, where is the value in that? And why should the customer believe that the ERP services procurement solution will have the adoption rates necessary to handle $1 billion of through put per year when the catalog procurement solution isn't doing 5% of that number? So, we asked them what they are doing about it, and surprisingly, very few have deployed dedicated solutions to manage this problem. There is a less than 5% overlap in our two customer bases despite how similar they look.
We try harder
Why now? The answer to this question is also very simple. We don't have the luxury of a monopoly position in the market. We can't go back to our customers, show them a mock-up PowerPoint demo, ask them to take a risk on us that we will deliver a GA product in three years, and then ask them to pay $2 million and take 6 months to rollout an upgrade of their entire platform so they can use the solution. We are the challenger in this space and that means we have to work harder, deliver more and do it faster to win our customers' trust and business. So, we went out and acquired the best solution in the market -- the proven Elance solution owned by Click Commerce. We acquired the entire business -- employees, customers and product. Like with diCarta's Enterprise Contract Management and Zeborg's Spend Analysis, this product has a strong track record with the largest deployments out there, it meets the needs of global companies and it easily fits into the heterogeneous ERP environment found in many of our customers. Now our customers can get the most impact from the "High Value but Hard to Manage" categories such as SOW based services, IT outsourcing, management consulting, and contingent labor, in the same way that we help them negotiate high value commercial sales agreements or source high value/high risk transportation and packaging categories.
Killing two birds with one stone
I can just see how Mrs. Zerkle, my freshman year English teacher, is rolling her eyes as I use yet another cliché. However, there is a broader perspective we want to show to our customers. Despite rumors to the contrary, Emptoris has a solid financial position, a growth strategy based on meeting our customers' needs, the resources to pull it off and the willingness to move deliberately and quickly. And, here is proof of that.
I hope that adds clarity for your readers about why we are aggressively entering this space. We are excited about it, and we will invest in this business just like we invested in spend analysis, sourcing and contract management.
Kevin Potts, Emptoris’ Vice President Marketing and Product Management
Thanks for contributing these thoughts. Our major point of disagreement would be around ERP not being in the market. Perhaps much of your installed base is SAP and SAP was not in the market until this May, but as of last week, their services procurement capability is available in SRM 7.0. Oracle and PeopleSoft have had decent capability for sometime and Workday is taking their own approach which is worth considering.
Don't get me wrong. There's always a place for best of breed. But ERP providers warrant at least some consideration in the services procurement arena.
Everything about our society is pointing to a world where there will be greater accountability. We are demanding more honesty. And this means that companies (as well as politicians, business leaders and professionals everywhere) will be expected to make responsible commitments and to honor them.
If we are going to be held more to account, the implication is also that the relationship needs to last for the lifetime of the offering. Hence not only is structuring of the deal important, but oversight of performance moves up several notches (hence the concerns of the Obama administration and many other central governments over procurement and contract management capability).
Since no one can afford a massive increase in headcount, and robust skills in this area of services contracting are in short supply, Emptoris'move is both logical and in tune with market needs.
Thank you once again for sharing your thoughts on my recent posts concerning the Emptoris-Click Commerce Acquisition.
I have of course included your perspective immediately following my response, which is as follows:
Thank you for sharing your comments Jason. This is what I love about our business . . . the ability to respectfully agree to disagree.
Pertaining to your questions regarding actual experience in the areas you had highlighted, the answer would be a resounding yes.
When I had led the research to develop a platform leveraging the utilization of advanced algorithms under an agent-based model the end result was a solution which led to my company being acquired for $12 million.
The organization that acquired my firm was a publicly traded company whose core competency was in the area of IT component distribution.
In the late 1990’s and early 2000, their stock was significantly buoyed by the dot com “craze” providing them with more capitalization than actual, real-world smarts. In an effort to maintain the stock’s performance, this company went on a buying spree largely spurred on by the promise of a financially strategic relationship with one of the large telecoms.
Besides my company, which at the peak generated close to $2.3 million profit on $6.9 million in sales revenue, they acquired a web development firm, a secure payment firm as well as other ancillary acquisitions. Talk about a “departure from core competencies!”
Unfortunately the senior executives for the acquiring company’s focus on stock valuations caused them to go off course creating a blurred mandate. In essence, in trying to be everything to everyone they failed to focus on their strengths. In the end, this 15 year company ultimately collapsed under the weight of it’s incomplete visions of grandeur.
Having lived and breathed it on a very real basis, first as a senior executive of a company that was being acquired, and then as the president of a publicly traded company that had acquired other entities, I can say with full certainty that I do not see a parallel with Emptoris.
Understanding their organization from a technological perspective, as well as a practical business standpoint there is no such division of attention. In fact, based on my R&D days, which is why I referenced the three-part Dr. Raskina posts, I would be surprised if Emptoris had not made the move into this space.
Thank you once again for your thoughtful contribution.
Jason's Original Comment:
Jon,
I had a lot more respect for you before this post. Seriously, you seem to dismiss the market dynamics of acquisitions as not consequential, referencing indirectly what I wrote. But in doing so, you’re actually showing a complete lack of knowledge of what happens after software acquisitions and their impact on customers! Let me ask you: have you ever been through one (or more than one), have you purchased software on behalf of a company considering working with an acquired company (or the company doing the acquisition), and/or have you witnessed the amount of work required to integrate organizational efforts?
The fact is that acquisitions that represent a departure from the core for companies (vs. an extension) are fraught with challenges, not only for shareholders, but also for existing customers. I have lived and breathed this very situation in multiple lives and from multiple perspectives.
This matters here because Emptoris was a company that has largely managed to differentiate through innovation. But in moving into new territory like this, if history is any guide, it is highly likely that this will be a distraction from the core in the areas that got them to where they are today. This is important – and not something that you should dismiss hiding behind smart sounding rhetoric (which ironically will lead to anything but smart decisions in the field).
We can both agree that services procurement platforms like Click CMS are needed, necessary and a smart direction for companies and governments to consider. But you cannot evaluate an offering or a move like this in a philosophical box, however polished and well-argued you can make the argument. I thought more highly of you before this. Please don’t go down the path of becoming the Fenimore Cooper of procurement blogs.
Once again Jason, a great exchange!