Given its thoughtfulness (even if you disagree with it), I've reprinted Kevin Potts' comment from last night regarding the Click and Emptoris deal.
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