Companies need to adopt spend agility to survive and thrive post-COVID
Spend Matters welcomes this guest post on spend agility from Nikesh Parekh, the CEO of Suplari, a specialist in spend analytics and supplier management.
The process of selecting, implementing and regretting enterprise software purchase decisions has not changed for the past 30 years. Sales cycles are long, and implementation cycles are even longer. And “time-to-value” is usually an unattainable ideal hamstrung by the difficulty in establishing causality between software implementations and revenue growth on the one hand or cost savings on the other.
Nowhere is this clearer than in procurement, especially after the COVID-19 pandemic exposed that software in the space is simply not built to handle modern needs.
The fact is, most organizations are flying blind when it comes to spend. They dig into procurement once or twice a year — a budgeting cycle and then a sourcing cycle.
With COVID-19, those cycles are dead (and they aren’t coming back after the pandemic). The crisis, which proved painfully that the semi-annual or annual process wasn’t near enough to run a modern company, has forced organizations to look at spend in far more agile ways.
Today, companies need to shift to an “always on” approach to managing costs, cash flow and investments, similar to the shift software development made from waterfall to agile.
In a phrase, they need to adopt spend agility — the ability for enterprises to rapidly assess, predict and change spend, investments and operations strategy in real time. That ability helps you create value in the moment, rather than figure out long after the fact that you spent what you couldn’t afford.
As with many things in technology and business, 2020 and COVID-19 laid this reality bare. Enterprises were almost universally unprepared for such a systemic “black swan” event. Faced with a historically unexpected shortfall upward of 75% in lost revenue, enterprises had to cut expenses rapidly, rethink investment plans, shore up balance sheets and reformulate strategy, resulting in layoffs and bankruptcies across the economy.
All of this, unfortunately, is no surprise. Enterprise software has been failing CEOs, CFOs and CPOs for decades. But most finance and IT teams ate the costs inherent in the enterprise software they chose, systems that required lengthy implementations, significant customization and on-staff resources to deliver reporting, spend visibility and forecasts. These offered no ability for an organization to react in volatile situations, like COVID.
Now there’s no excuse. COVID means adapt or die.
C-suite officers must be able to peer around the corner to predict changes to the marketplace, analyze and model changes to the financial and operating plan rapidly, and to identify and execute on quick wins and longer-term strategies. None of those things can be achieved with software that causes a 90-day lag — or, worse, that is built to be used in annual or semi-annual cycles.
The change is doable. Agile companies that adopted continuous and predictive spend intelligence were able to reduce monthly indirect spend by 25% within 60 days as COVID struck in March 2020.
To follow suit, we have identified four key characteristics of data and enterprise systems that are critical to deploying enterprise spend agility at your organization:
- Comprehensive — Leaders need access to comprehensive and clean data to make decisions. With cloud technology, you can now easily bring together all of your internal data sets across AP, P-card, T&E, PO, contracts and operational data and marry that with external supplier intelligence data (risk, diversity, news, financial data), as well as data directly from the supplier.
- On-Demand — The days of spreadsheets, pivot tables and data visualizations are over. You need the data that matters, and you need it via modern software that requires no costly training. Business users need data constantly, at their fingertips and always-on, not just once or twice a year in unwieldy reports.
- Predictive — Data and enterprise systems must inform the strategy and “next right action” that teams and enterprises should take. Too many organizations have ignored the advent of artificial intelligence (AI) to drive predictive insights that identify spending adjustments overlooked by traditional reporting and processes.
- Collaborative — Finally, teams should be able to collaborate and act quickly on the data, insights and strategy recommendations, especially since they are migrating to an always-on approach. Data must be transparently shared across the enterprise via software systems using algorithms that proactively highlight opportunities for teams to adjust spend — 365 days a year.
For all of the COVID-era ugliness, one silver lining is that it forced finance, procurement and IT teams to face facts. They’re living in the ’90s. Plan for more volatility and uncertainty affecting the economy and your business going forward. Those enterprises that do plan for it will be the ones that survive and thrive in 2021.