Editor’s Note: The following is a transcript of an interview by Andrew Bartolini with Tom Beaty, CEO of Insight Sourcing Group & SpendHQ. Some of the questions have been edited for brevity and clarity.
Andrew Bartolini: Tom, please tell us a bit of your background and how the companies that you’ve formed and now lead have come about?
Tom Beaty: I started my career in the industrial construction industry and got involved in a turnaround and a family business fairly early. A big part of that turnaround was cost optimization to try to get our cash flow straightened out. I went on to do a number of other things and ended up at Deloitte Consulting, where I did some fairly large-scale procurement projects. I then joined ICG Commerce, which later became Procurian and was sold to Accenture. I was there in the early days – kind of a wild time where they were trying to come up with a new model around blending consortia-leveraged contracts with technology to create a new kind of procurement model. They eventually morphed into an outsourcing company.
In 2002, I left ICG Commerce and started Insight Sourcing Group. The firm started out of my basement – it was just me and my dog then. But in 2005, we had about five employees, moved into office space, and then grew pretty significantly. We made the Inc. 500 as one of 500 fastest growing companies in 2008 with over 1100% growth between 2005 and 2008. In fact, this year we’ve made it for the 10th year in a row, the Inc. 5000 that is. The original focus of the business was to take world-class strategic sourcing expertise and people and bring them into the upper mid-market. A lot of our early clients were around one billion or two billion dollars in revenues. We also did a lot of work with companies that were highly acquisitive and private equity firms, what I call multi-entity sourcing – consolidating spend across the disparate entities – which is very complex and very difficult to pull off. But we stayed extremely focused in the procurement space and have completed over 4,000 strategic sourcing projects.
We’ve also launched a number of different business units. Consulting remains our largest one, and it is particularly focused on strategic sourcing and procurement transformation. We have Insight GPO, which is our consortia offering wherein we aggregate deals for certain targeted categories. The third business unit we started was SpendHQ. In the firm’s early days, we had to conduct spend analyses for every single client we had, and we created some internal tools to facilitate that. This led to clients asking to have access to the tools and it continued from there. In 2013, we commercialized SpendHQ and made it available for non-consulting clients. It has grown significantly since then. Finally, more recently in 2014, we started our energy management business where we go into non-energy companies and seek ways to optimize their energy spend and consumption. It’s pretty interesting because we get into the procurement side on both regulated and deregulated markets (and our regulated capability is pretty unusual). Then on the other side we get into solar panel projects and lighting retrofits, and we’re doing all kinds of demand management projects. So, that’s an overview of the business.
AB: You’ve spent a long time working in procurement – what do you think about the industry today and how it’s evolved? How you see it evolving in the next couple of years?
TB: It’s really interesting, and I think our point of view is somewhat different than others in the space and especially the technology providers. But when you have about a 20-year lens on the industry you can see cycles, and I feel like we’re in an up cycle where there’s a lot of interest in procurement, particularly around technology. There’s been a lot of investment in the space recently. But what has not changed – and this has been very counter-intuitive and surprising – is that despite the rise of new, more user-centric technologies, regardless of what systems a consulting client has, they still don’t have sourcing-caliber data. We see this in client after client. I don’t think anybody has solved this problem (of poor data) other than by using a spend analysis solution. So I have always been stunned by the fact that so many people essentially operate in the dark with very limited data or very poor-quality data. I think a big reason for that is so many of the folks that provide the technology really aren’t procurement practitioners and they don’t use the data that they produce for its intended purpose. They don’t ever get that kind of direct feedback. Some of the customers do the best with what they have, but I believe it’s a continuing struggle in the space. Obviously, we are trying to solve that problem with SpendHQ.
AB: Right. I think a pretty big hurdle is how procurement organizations can best leverage their data and convert that data into intelligence. But let me ask you: your organization blends consulting and technology, so how do you apply both and generate value there?
TB: Sure. We’re pursuing some pretty neat and innovative things at SpendHQ – one of them is we’re developing a fairly robust professional services capability around SpendHQ specifically. I brought in a ten-year sourcing consultant to focus on not just improving data quality and providing spend visibility, but also helping our clients leverage spend analytics to drive a pretty dramatic ROI. As folks clean up data and hand it over to procurement teams, sometimes they know exactly what to do with it and sometimes they don’t. So we’re really going to fill this void in the space and focus on how to layer in best practices and leverage the data.
For example, you get the data and one of the things our professional services group will do is focus on developing a sourcing roadmap to identify all the potential opportunities. Also, as our clients begin to source those categories we’ll provide expert sourcing guidance to assist them; this is different than strategic sourcing consulting. We’re essentially on our client’s side coaching them through this process – perhaps in a category that they never sourced before. We’re trying to bring procurement excellence to our clients and help them drive a significant ROI on SpendHQ.
AB: Right, right. So let’s pivot on that….
Want to learn how ISG and SpendHQ work with clients to identify the top categories, and where Tom thinks procurement as a function will be in ten years? Tune into Part II of our interview with Tom.