The next BriefingsDirect business innovation thought leadership discussion focuses on how companies are exploiting advances in procurement and finance services to produce new types of productivity benefits.
We'll now hear from a leading industry analyst on how more data, process integration, and analysis efficiencies of cloud computing are helping companies to better manage their finances in tighter collaboration with procurement and supply-chain networks. This business-process innovation exchange comes in conjunction with the Tradeshift Innovation Day held in New York on June 22, 2016.
To learn more about how new trends are driving innovation into invoicing and spend management, we're joined by Bill McBeath, Chief Research Officer at ChainLink Research in Newton, Mass. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.
Here are some excerpts:
Gardner: What's going on in terms of disruption across organizations that are looking to do better things with their procurement-to-payment processes? What is it that's going on, that's focusing them more on this? Why is the status quo no longer acceptable?
McBeath: There are a couple things. There is this longer-term trends toward digitization, moving away from paper and manual processes. That's nothing new, but having said that, when we do research we always see these huge percentage of companies that are still either on paper or even more common is a mix. They have some portion of their stuff on paper and another portion that's automated. That's foundational and still in the process.
A big part of that is getting the long tail of suppliers on board. The large suppliers have the internal resources and that they can get hooked up with these networks and systems to get automated. Smaller suppliers, we think about people that may have less than 100 people or even mid-sized suppliers, have no dedicated IT resources. They may have a very limited ability to do these things.
That's where the challenge is and that's where we see some of the innovations in helping lower the barriers for them. It's helping get a company that's trying to automate all of their invoices or other things -- that can be a mix of paper, fax, e-mail, and EDI documents -- and then gradually move that customer base over to some sort of automation, whether it's through a portal or starting to directly integrate their systems.
So that ability to get that long tail into, so that everything comes in digitally ultimately, is one of the things we're seeing.
Gardner: In order to get digital, as you put it, it seems like we need a common-denominator environment that all the players -- the suppliers, the buyers, the partners -- can play in. It can't be too confining, but it can be too loosey-goosey and insecure either. Have we found that balance between the right level of platform that's suitable for these processes but that doesn't stifle innovation and doesn't push people away because of rigid rules?
McBeath: I want to make a couple points on that. One is about the network approach, versus the portal approach. They are distinctive approaches. In the portal approach, each buyer will set up their own portal and that's how they'll try to get that long tail in. The problem for the suppliers is that if they have dozens or hundreds of customers, they now have dozens or hundreds of portals to deal with.
The network is supposed to solve that problem with a network of buyers and suppliers. If you have a supplier who has multiple buyers on the network, they just have to integrate once to the network. That's the theory, and it helps, but the problem there is that there are also lots of networks.
No one has cracked the nut yet, from the supplier’s point of view, on how not to deal with all these multiple technologies. There are a couple companies out there that are trying to build this supplier capability to just integrate once into one network and then it goes out and gets all the other networks. So, people are trying to solve that problem.
Gardner: And we have seen this before with Salesforce.com for example. We have an environment to develop on, trying to provide services that people would use in the customer relationship management (CRM) space, for example. We saw in June that Tradeshift has come out with an app store. Is this what you are getting at? Do you think the app store model with a development element to it is an important step in the right direction?
McBeath: I mentioned there were two points. The network point was one point, and the second one is exactly what you're talking about, which is that you may have a network, but it's still constrained to just that solution provider's functionality.
The Salesforce.com or Tradeshift approach is different. It's not just a set of APIs to integrate to their application; it's really a full development kit, so that you can build applications on top of that.
There's a bit of a fuzzy line there, but there are definitely things you can point to. There are enough APIs that you can write an application from scratch. That's question number one. Does that include UI integration? That would be the second question I would ask, so that when you develop using their UI APIs and UI guidelines, it actually looks as fully integrated as if it was one application.
There's also a philosophy point of view. More and more large-solution providers are kind of in the light bulb is going out [stage] and they can't necessarily build it all. Everyone has had partners. So, there's nothing new about partnering and having ISV partners and integrating, but it's a wholesale shift to building a whole toolkit, promoting it, and making it easy, and then trying to get others to build those pieces. That's a different kind of approach.
Gardner: So clearly, a critical mass is necessary to attract enough suppliers that then attracts the buyers, that then attracts more development, and so on. What's an important element to bring to that critical mass capability? I'm thinking about data analytics as one, mobile enablement, and security. What's the short list of critical factors that you think these network and platform approaches need to have in order to reach critical mass?
McBeath: I would separate it into technology and industry-focused things, and I'll cover the second one first. Supplier communities, especially for direct materials, tend to cluster around industries. What I see for these networks is that they can potentially meet critical mass within a specific industry by focusing on the industry. So, you get more buyers in the industry, more suppliers in the industry, and now it becomes almost the de facto way to do business within that industry.
Related to that, there are sometimes very industry-specific capabilities that are needed on the platform. It could be regulated industries like pharma or chemical that have certain things they have to do that are different from other industries. Or it could be aerospace defense, which has super-high security requirements. They may look for all of these robust identity-management capabilities.
That would be one aspect of building up a critical mass within an industry. Indirect is a little more of a horizontal play; indirect suppliers tend to go more across industries. In that case, it can be just the aggregate size of the marketplace, but it can also be the capabilities that are built in.
One interesting part of this is the supplier’s perspective, and for some of these networks, what they offer to suppliers is basically a platform to get noticed and to transact. But some companies are trying to provide more value to suppliers, not just in terms of how they market themselves, but then also outward-facing supply-chain and logistics capabilities. They're building rich capabilities that suppliers might actually be willing to pay for, instead of just paying for the honor of transaction on a platform.
Gardner: Suffice to say things are changing rapidly in the pay-to-procure space. What advice would you give both buyers and sellers, suppliers, when it comes to looking at the landscape and trying to make evaluations and making good decisions about being on the leading edge of disruption, taking advantage of it, rather than being perhaps injured or negatively impacted by it?
McBeath: That can be a challenging question. Eventually, the winners become quite obvious when it comes to network space, because certain networks, as I mentioned, will dominate within an industry. Then, it becomes somewhat easy decision.
Before that happens, you're trying to figure out if you're going to bet on the right horse. Part of that is looking at the kind of capabilities on the platform. One of them that's important, going back to this API extensibility thing, is that it's very difficult for one platform to do it all.
So, you'd look at whether they can do 80 percent of what you need. But then, do they also provide the tools for the other 20 percent, especially if that 20 percent, even though it may be a small amount of functionality, it may be very critical functionality for your business that you really can't live without or get high value from? If it has the ability for you to build that yourself, so that you can really get the value, that's always a good thing.
Gardner: It sounds like it would be a good idea to try a lot of things on, see what you can do in terms of that innovation at the platform level, look at the portal approach, and see what works best for you. We've heard many times that each company is, in fact, quite different, and each business grouping and ecosystem is different.
Getting the long tail
McBeath: There's a supplier perspective, and there is a buyer perspective. Besides your trading partners on the platform, from a buyer’s perspective, one of the things we talked about is getting that long tail.
Buyers should be looking at, and interested in, what level of effort it takes to onboard a new supplier, how automated can that be, and then how attractive is it to the supplier. You can ask or tell your suppliers to get on board. But if it's really hard to do, if it's expensive for them, if it takes a lot of time, then it’s going to be like pulling teeth. Whereas, if there are benefits for the suppliers, it’s easy to do, and it’s actually helping them, this becomes much easier to get that long tail of suppliers onboard.