As CEO of Hubwoo, Gregory Mark has witnessed the evolution of procurement technologies from the dot com bubble and burst to e-invoicing and e-procurement to spend analytics and the cloud. Mark began his career in the industry fifteen years ago at Commerce One, where as Vice President, he ran CommerceOne.net, as well as the Marketplace Management Group, which provided strategic consulting into the various marketplaces that were being setup at the time. In March 2006, Mark joined Hubwoo as Senior Vice President of Americas and Asia and eventually assumed the role of Global Head of Sales. Three years later, Mark was asked to become their next CEO.
Andrew Bartolini: The market certainly is different from when we both started working in this space. Maybe reflect on it, or talk a little bit about the evolution as you’ve seen it.
Gregory Mark: Sure, so when we started 15 years ago, there were a few basic themes in the market. One was that EDI (electronic data interchange) was dead – it was a dead technology, and what we wanted to do was replace EDI with XML over the internet. It was going to be a more flexible (extensible) and a much lower cost transacting platform. And as we all know now, EDI is still alive and doing quite well; however, EDI is much more focused on the direct side of business transactions.
I think we also saw, when Ariba and Commerce One popped up that the ERPs of this world just didn’t have very good non-MRP or warehouse replenishment driven procurement solutions. They had focused on the core financials, HR, manufacturing, etc. Ariba and Commerce One came to the table with this new concept of electronic procurement, which was embodied requisitioning off catalogs versus free-form entry, electronic work flow for approval processing and electronic document delivery covering the order-to-invoice lifecycle. It was going to be easy to use, create a lot of control over average spending, and was going to be how people address indirect procurement. Is it me or does this sound like what you might expect from a P2P solution today?!
Then the bubble burst and the ERP companies started developing more and more improved procurement software. The general thought process became, “These niche procurement apps (those who survived the crash) are going to slowly die out as people move to the corporate ERP-based procurement solution”. Funnily enough, I think we are seeing the pendulum swing back again. I don’t know if it’s the SaaS revolution or the Cloud revolution (is there really a difference?), which has created a little bit of disruption out in the market or if it’s just the demand for UI (user interface) improvement, mobility or what. But we’re once again seeing an explosion in the “niche arena.” It’s like the perfect storm out there right now.
And rather than be left behind (again), you see the likes of SAP and Oracle running out and acquiring these niche companies, and trying to blend them into their cloud offering. It’s created an interesting evolution of the market place, which, I hope is a positive mutation rather than a negative one.
To me, however, I worry that procurement organizations aren’t really focusing on, or solving, the real problems at hand. Will “Amazon-like” solve the business problems facing most organizations? Wasn’t the KSP of Ariba and Commerce One “a better, more intuitive user interface”? Strategy, organizational or process challenges are seldom solved with just a better user interface.
AB: So when you say niche, are you referring more towards “best of breed,” or are you looking more at companies or solutions that are focused on specific processes?
GM: I’m talking about specific processes but really, doesn’t everyone refer to themselves as best of breed? It’s a funny term because it’s a singular concept, “the best”. There seems to be a large group of “best of breed,” right?
AB: Sure. Yeah, I mean, on some level, “best of breed” was relevant 10-15 years ago. But the new reality is that you’ve got a variety of solutions out there in the market place that have various degrees of sophistication and feature functionality. So, you’ve talked a little bit about the evolution of the technology market place. Put that into context with how procurement and the procurement organizations that you’ve worked with over the years have evolved.
GM: First of all, probably the biggest revolutionary concept in procurement was the creation of the role of Chief Procurement Officer (CPO). What’s interesting is that it’s been a mostly positive development, but it has also introduced a few challenges, and I think this is reflected in the market as we now see the evolution of separate eProcurement and eInvoicing solutions and networks today. One sold to the CPO, the other to the CFO and unfortunately, they don’t always meet in the middle as seamlessly as one would like.
We’ve also seen procurement being one of those outsourced functions as companies look to move to a lower-cost operations model. But I think what’s interesting is that you’re now seeing a trend towards insourcing procurement back from BPO providers due to a variety of reasons. Additionally, you’ve seen organizations that have been decentralized become centralized and some of them have now become decentralized again.
We’ve talked to some of our customers, and what’s interesting is that some of them are “hitting it out of the park” in terms of use of the technology and some just are not. It’s the same technology, but you’ve got similar sized companies, some doing 400 sourcing events a quarter while others are doing six-to-ten a year. You have some customers with 500+ catalogs and others with 10-20, and you basically ask yourself, “Why is that the case?” I think what you find – and what really surprises me as I look across all of our customers – is that some of the challenges that procurement faced a decade ago, still exist today. It’s encouraging, because there’s still significant opportunity to make improvements. There is still work to be done to help customers reach excellence and that is what drives me each day to get up and get to work.
What I also find in talking to people is that it’s still a challenge for procurement to get executive support and consistent commitment to the strategic directions that they want to take. We see this across all verticals from retail to Oil and Gas. I also think you see a lot of CPO and executive level turnover, and it’s created a problem for maintaining strategic direction. I think you see that an organization’s longevity at the executive level is often times key in achieving the strategic changes within an organization that truly benefits in the long run. You see that at GE, and that is why executive succession planning is so key to them.
AB: Yeah, I think that last point is very interesting, and it’s something that is definitely a reflection of corporate hiring practices more broadly. But there are sort of fault lines up and down procurement. I guess it depends on how old they are, but people aren’t looking at their current employer as the last employer or last job they’re going to have. It does create disruptions, right? One of the things that I see when I work with CPOs who are now in their second or third stint is that they have a defined approach on how to transform procurement, or how to drive process improvement, or put more spend under management. That may be diametrically opposite of what their organization was built to do. So I do think that there are some continuity problems.
I was also struck by your comment that we still have organizations today with the same technology, organization and supplier landscape, and the same type of spend and yet, some can execute hundreds of sourcing events a quarter while others only a handful a quarter – it’s a pretty dramatic difference and there are strategies that work and leaders who can execute them. I spend a lot of my time [Publisher’s note: granted, not as much time doing so on CPO Rising as in the past; but, in other venues] trying to coach up the ones that struggle.
GM: Yes, and the thing is we want all our customers to maximize their ROI potential of their technology investments.
AB: You’ve made some points here regarding some of the drivers of getting procurement to that next level of performance. What will it take for that organization that’s doing just a handful of sourcing events to get to that next level? More broadly, what sort of breakthrough ideas, strategies, or technologies are needed to get procurement to that next level of performance?
GM: I think visibility is key to getting out of emotional, political, “gut feeling”, or opinionated strategies. When you get down to the raw numbers that visibility provides you, then you start making fact-based decisions, which are hard to argue with. With spend visibility, you see what you are spending, where and who with. Then you can create a sourcing roadmap that insures you focus on those areas of your spend that will return the most value. This is not a “low hanging fruit” exercise. This is a “which fruit is the juiciest” exercise while always asking yourself, “is the juice worth the squeeze?”
The concept of spend analytics has been around for a long time, but compared to eProcurement and sourcing, not everyone utilizes spend analytics. And some of those who do, are using manual processes and spreadsheets, or performing a less stringent form of spend assessment. There are a lot of good systems and companies out there that cleanse data. But quite frankly, spend analytics is often a lot of looking backwards. Spend Analytics pricing is typically based on three variables: (1) How much spend, (2) How many AP systems are we going to pull data from, and (3) How many refreshes do you want? But that’s all historical information – that’s all looking backwards and some of the data could be 12-15 months old.
Where I think the market needs to go (and I think it’s actually starting to go that way) is towards real-time spend analytics where you know exactly what is happening as it’s happening. That’s the whole reason why you deploy electronic transactional networks within your procurement organization – so that you can constantly have your finger on the pulse. Finding out that you had a lot of maverick spend last year doesn’t do anything for you now except make you angry; well, maybe it alerts you that you need to do something about it. But it would be a lot more useful if your procurement system alerted you when someone was about to approve a maverick purchase order that was not contract compliant. So, real-time spend analytics is something that we’re promoting pretty heavily within our customer base and within the market. Let’s “close loop” the procurement process such that all spend is on-contract. And, lets catch what we can before we send out the purchase order, not in 15 months when we get the next refresh of our spend analytics tool.
What’s also interesting is that at first, everyone was outsourcing; now they’re insourcing. I say, let’s automate the whole process because there’s a lot of the transactional procurement process that can be automated. When you automate it, you make it as efficient and as accurate as possible. Then, you start to see the procurement and accounts payable functions becoming one group, involved in all strategic decisions and every capital project. So your strategic procurement organization is absolutely viable and key, and they’re focusing on vendor selection, qualification, negotiation, management, risk, etc. But at the end of the day, the reality of accounts payable – if you really say you have a “procure-to-pay” system that spans over two organizational structures– is that you’re going to have some issues. We think that if you have a closed-loop procurement operation – that the invoice approval process could be and should be fully automated – you should have very few invoices that are not approved on first pass through your matching algorithms. And, what’s cool is that now, all of a sudden, you’ve just completely opened the door to get into the trade financing arena, which is, in my view, the next evolution of what we were doing last decade with P-cards.
AB: Yup.
GM: And quite frankly, trade financing should be a win-win. It’s great for suppliers who have the opportunity to have some kind of control over their cash flow. But it should also work for the procurement department, or a combined procurement-AP department because, we are seeing companies that will allow us to get away from the banks and credit card companies and their accompanying fees. We no longer have to pay them two or three percent of the transaction value. We’re starting to see non-banking entities get into this business. Now all of a sudden, those transaction fee costs, that two to three percent that used to go to the acquiring bank, issuing bank and/or credit card company, are available to be Buyer company. So, you’ve got the procurement department that offers this great thing to Suppliers, but also sees it as a way to further enhance the value/savings they can deliver back to their organization. Lest we forget, 2/10, net 30 equates to an APR of nearly 37%.
The future is one in which I think procurement can even further leverage the value in their organizations such that they can have the support necessary to make the strategic changes that are possible within their organizations and make a real impact on the earnings per share, or the bottom line of a company’s performance.
AB: Yeah, that’s great. It starts with visibility, connectivity, and automation. And those things begin to open up the doors into areas like trade financing, which it sounds like you’re a very strong believer in a big opportunity there.
If you were to go back 15-16 years, and then look out and say, “Oh, there will still be a lot of companies that absolutely have not figured it out, or haven’t even really begun to figure it out.” The automation levels are so low, and the opportunity for improvement that still exists is still just huge. So I always go with “glass half full.”
GM: Well, with the number of paper POs, paper checks, and PDF invoices that are being sent around, we’re not going to get where we need to go until we get away from that. And we’ve got to stop doing what’s easy and start doing what’s right. You know, it’s work, but the opportunities are just so huge in these organizations, and we enjoy working with those that have not only the vision, but the commitment to seeing that vision become reality. Every time we finish a project, we ask, “What’s next?” But after our customers have gone several steps in the right direction, they’ll turn to us and ask that question. That’s when you know that you’ve got someone who’s really onboard and going where we all want to go in this industry.
AB: It’s cool stuff – I am still as optimistic as when I was started. Greg, thanks again for joining us today, we really appreciate your insight.
GM: It was my pleasure, Andrew.
Stay tuned to CPO Rising for more interviews with key procurement influencers.
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