In the first installment of this series, I took partial issue with Duncan Jones’ argument that large providers, at least within the procurement market, have a “scale [that] enables them to spend far more money on development than their smaller rivals, and this usually results in excellent innovative products.” Without question, some of the larger source-to-pay providers – and smaller ones acquired by larger organizations – have been able to return more to users by through aggressive R&D investments.
But let’s take one market where this is most certainly not the case in comparison to best-of-breed vendors: sourcing. In the sourcing space, the level of innovation that has come out of best-of-breed vendors including CombineNet, BravoSolution, Trade Extension, Iasta, MarketMaker4, and many others in the past five years has been an order of magnitude greater than the larger providers. Despite significant customer pushback over the years, for example, Ariba still does not have a sourcing product that can handle constraints and scenario analysis comfortably across thousands of line items. It’s a fatal flaw in Ariba’s product portfolio that initially allowed Emptoris to break free and grow shares. It later allowed CombineNet and Trade Extensions to carve out strong niches (and BravoSolution and Iasta to build a strong advanced suite business).
Most recently, MarketMaker4 has pioneered some really nifty new areas around integrated category and market intelligence. And don't us started on the manufacturing area for sourcing, a place where best-of-breed doesn’t just trump the incumbents and largest providers – it stomps on them. From DirectWork’s built in security, PLM-like capabilities and Excel integration to MFG’s marketplace integration with highly domain specific category sourcing capabilities, the world of manufacturing and sourcing innovation belongs almost entirely to anyone but the big guys. This is not even mentioning even mentioning what Pool4Tool and FullStep have done for a fully integrated direct materials purchasing suite that is highly customizable to specific shop floor environments.
The best tactic we have for companies going up against Ariba and Emptoris/IBM (who are incumbents) in negotiations within the sourcing area (even though the same also goes for spend analysis and related modules) is to play the competitor innovation card in renewals. Rather than rewarding incumbent providers for their own innovation, procurement teams should get smart on all the progress of the rest of the market and use this to their advantage to get the most from whomever they chose to work with (which increasingly means using multiple solutions rather than one, because large providers so significantly come up short from a broad-based sourcing perspective).