Spend Matters recently published a research brief (available for free download): The Services Spending Revolution: Gaining Visibility, Control and Saving -- Selecting Services Procurement Technology – Options, Approaches, and Philosophy. In it, we examine a range of tips and tactics for choosing the vendor management system/services procurement environment that's right for your company. Having dug into services-procurement technology now for well over a year, I no longer consider myself a novice. Regardless, since the early days of my investigation, I have been amazed -- especially from an applied-procurement angle -- at the lack of differentiation in the way vendors position their solutions, as compared to the actual differentiated value certain approaches bring over others. Not only does everyone sound the same today, many of the providers in the market lack a full appreciation of how procurement organizations will evaluate their capabilities in the context of their other investments.
What we have here, essentially, is an HR sale repackaged and re-spun for procurement and finance, rather than a value proposition designed for procurement in the first place. Moreover, the standard business/revenue model that vendors continue to foist -- and that companies continue to accept -- is a direct percentage of overall spending through the system. Academically, this may seem the right answer, as it aligns both provider and company incentives, but in practice it actually deters adoption. In my experience, when companies either plan a capital budget for a software investment or can predict (and often self-fund) investments through a SaaS rental model, it requires a higher level involvement and commitment from the start, not just simply agreeing to pay overtime. Moreover, even though suppliers absorb the fees in the great majority VMS situations, you can be sure you're still paying for it (and then some) through higher costs in the long run. All that's happening is that cost and markup transparency is reduced in the process -- a situation that gives your supplier more control, at your ultimate expense.
Spend Matters encourages companies that are serious about global contingent VMS rollouts to engage potential software partners on a fee based on something other than percentage of spending. Even though this may sound like sacrilege today based on the accepted models, this was the exact issue that companies faced in the late 90s when pushing early e-sourcing, e-procurement, and marketplace providers away from value-based pricing into models that controlled their cost. Moreover, it will force a commitment from your organization to actually focus on getting more use and value from the system in the first place, often on a broader basis rather than in a highly targeted manner to support individual initiatives. Trust me, some vendors would secretly like to see more of this model enter the fray.
Pricing models will -- and should -- be only a single component of any VMS selection. It's also critical to create a platform-selection process based on your own specific requirements. Aside from how analytics capabilities differ among leading providers (which we examine in the Compass Research Series in depth), Spend Matters research suggests that the initial step of any selection should be to determine whether the following kinds of functional support and capability characteristics are essential (or not), based on your own requirements:
- Full lifecycle support for contingent spend management (vs. support in targeted areas)
- Statement of Work (SOW) support and depth
- Built around co-owned (MSP and company) deployment and management
- Full lifecycle support for broader services categories (e.g., marketing, print, legal)
- Tight integration with my back-end systems (transactional)
- Tight integration with my business application and functional systems
For a full list of suggested requirements -- as well as more specific details on what types of elements to look for in each of these areas -- download the full Compass research brief, The Services Spending Revolution: Gaining Visibility, Control and Saving -- Selecting Services Procurement Technology – Options, Approaches, and Philosophy, today.