Should You Put Spend Management Technology Last to Reduce Costs?

In August, AMR's Mickey North Rizza published the findings of a quantitative survey of over 70 CFOs and CPOs which found procurement organizations that lean too much on technology are often the most misaligned ones, sacrificing savings and opportunity. In a post that beat me too the punch in writing about it, Supply Excellence quotes from the study and suggests lost savings comes from misaligned business strategies. Specifically poor performing organizations incorrectly allocate resources in the correct manner. These types of performers sacrifice savings by allocating 10% of their efforts to organizational structure and design, 40% to reactionary disparate business processes and 50% to enabling technology. In contrast "leading procurement organizations allocate their resources closer to "50% organization, 40% business process, and 10% enabling technology". But is an over focus or emphasis on technology really the problem?
Regarding this point, Mickey opines "if the alignment, training and processes are in place, technology enables the strategic approach and realized savings to be scaled up efficiently". In my own experience, I'd concur that an over focus on technology alone can be a dangerous thing. However, I'd also suggest from what I've seen over the years that top performers tend to spend more on technology than the rest of the procurement pack. Hackett research tends to support this finding as well. Overtime, I've read a number of Hackett studies that suggest world class performers tend to spend roughly 100% more per FTE than average performing procurement groups on technology. However, much of this spending is focused on replacing and improving manual processes such as manual PO processing with complete P2P automation versus simply licensing a sourcing or spend analysis platform and hoping for the best.

Now, don't get me wrong. I'm a huge believer in sourcing and spend analysis. In fact, it's in these areas that I got my original start in the procurement world. But I can also tell you that too many organizations still see e-sourcing -- and reverse auctions, specifically -- as a type of mystical cure-all for saving woes and spend analysis and a way to just feed the sourcing beast. But nothing could be further from the truth at least as top performers see it -- and realize the returns. Which is why it's so useful and timely that AMR, a firm that counts much of its own revenue based around technology/business application advisory work and research, is in fact noting that technology is only part of the Spend Management success equation. Given the significant need for savings today, it's not a moment to soon for a technology/industry analyst firm to get the procurement results equation right. Let's just hope their clients -- and the rest of us -- listen to what Mickey and her colleagues have to say on the subject.

Jason Busch

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