You can’t optimize for products that are a rounding error in a broader P&L

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Application vendors are in the business to make money and build shareholder value. This is true in procurement and other areas. Specifically, in the cloud applications world, providers that can grow quickly (ARR/MRR), maintain high renewal rates and prove they can up-sell/cross-sell are those that are most rewarded by investors. This in turn fuels investment (in R&D) and further innovation — not to mention providing a currency (stock) and balance sheet (via primary and secondary offerings) to go acquire other innovative technologies.

And so the cycle continues.

My colleague’s proposal is to give away optimization, when it is, in fact a form of differentiation for providers in the sourcing space. To differentiate, you can also go the other way in terms of restricting broad-based features and making an application incredibly easy to use. Or you can differentiate on how you use a feature, such as optimization, as part of a broader set of capabilities (e.g., autonomous sourcing, risk optimized sourcing, etc.).

Regardless, product/feature differentiation, market access/reach and pricing, of course, all drive the invisible hand of technology sales.

While it would be nice to simply give away optimization to encourage its use since it is usually inherently better than other forms of negotiation for most situations — Michael and I agree here — doing so runs counter to building and sustaining innovation.

To borrow my favorite Margaret Thatcher phrase, “socialism is great until you run out of other people’s money.” So, too, is simply giving away capability, and not showing enough success with a solution or P&L to further fund investment in the same product line. Unless you're subsidizing it!

Until optimization becomes as “expected” as RFI/RFX or reverse auction capability in sourcing, I, personally, would actively discourage providers from simply tossing it in. But what I would deploy is clever marketing, channel, business model and go-to-market approaches to capitalize on the asset, if I had it.

Unfortunately, optimization is a rounding error for suite vendors in their overall P&Ls. As such, it simply does not get the attention of anchoring products such as e-procurement, invoice-to-pay, AP automation, CLM, etc. And the marketing is generally rubbish for it.

And that, my friends, is the problem that Michael and I would both agree is worth solving for (pun intended!)

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Voices (4)

  1. anu gardiner:

    I agree with Kevin Brooks. Process improvement tools (e-procurement, AP automation) and optimization tools are targeted at different audiences. Also, they are frequently part of different organizations/teams at any given large enterprise. So the entire GTM strategy is different – how you sell, how you price. @Jason Pricing is key and it is only a “rounding error” if your denominator is the large p2p system. Two different problems in my view. But since we are in an election mood, I’ll throw my lot in with you over Michael. Not least because of the Thatcher quote.

    1. Jason Busch:

      I always consider that Thatcher quote my litmus test for people. Anu, I thought I liked you … kidding! Seriously, can’t wait for regular travel to resume so we can all catch up soon!

  2. Alan Holland:

    Here at Keelvar we decided a few years back that the problem with Optimization was twofold: it delivered outstanding results but too few people understood why it was so effective and where it should be applied. They were intimidated by it and dismissed it as being solely for large complex projects. Secondly, too few people in an organization knew how to get the best out of it.

    So at Keelvar we decided that the answer to wider deployment wasn’t to give it away for free. Instead we wrapped the delivery of best practice in intelligent software agents (bots) that act as proxy users of sourcing optimization.

    The result is that Sourcing Automation customers are getting thousands of events that leverage sourcing optimization now. Some of them don’t even know they’re using optimization. They just see bots offering scenarios (that optimized for different objectives). I would wager that bots are already executing more sourcing optimization events than all humans combined in the world already.

    So vendors should not sell the tech (ie optimization); they should sell the solution (successful bid events). Optimization happens to be under the hood but some customers don’t really understand or even care about that.

  3. Kevin Brooks:

    Love the topic, Jason & Michael! I think optimization suffers from the same marketing challenges as analytics, where the number of people who actively use the feature and understand its significance is small, and, as you point out, with few exceptions it is an afterthought in the overall deal for the software vendor.

    I wonder if some of this also comes from the age-old problem of procurement not being “strategic” in either perception or expectation at the board level of most companies.

    Keep up the great info and analysis, guys!

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