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From tactical to strategic sourcing: Going beyond daily battles to long-term victory

Do you ever feel like you’ve been winning the battles but still losing the war? In the art of war, military strategists are required to look beyond short-term skirmishes, where little if any ground is gained, and instead focus on a vision for victory in the longer term. That doesn’t mean suddenly pulling your forces from the front or ignoring enemy advances but has more to do with creating a better line of sight between the guys in the trenches and the generals in the tents.

Joonas Jantunen, Cloudia’s CEO for the Middle East, sees a similar distinction to be made in today’s business procurement wars. Every large procurement function aspires to be strategic, but most are running their operations on short-term tactics.

Strategic sourcing, in contrast, sets out to align all sourcing practices with an organization’s long-term business objectives, with a view to creating new and sustainable value.

Customer reviews for Coupa-Exari are in the new SolutionMap Customer Insights report

This week’s SolutionMap Customer Insights report focuses on customer reviews for Exari, a provider of contract lifecycle management (CLM) solutions that was acquired by Coupa this year. The applicable SolutionMap category for this report is in CLM.

SolutionMap Insider members can read about Exari in our latest report. The customer feedback was given before the acquisition was announced in April. In each Customer Insights report, we provide a one-page summary from the SolutionMap peer review process. The summary includes ratings on how well the vendor meets user expectations, three key differentiators for the vendor and a list of quotes about the vendor’s greatest strengths.

Icertis’ customer reviews are in the new SolutionMap Customer Insights report

This week’s SolutionMap Customer Insights report focuses on customer reviews for Icertis, a top provider of cloud-based, enterprise contract lifecycle management (CLM) software. The applicable SolutionMap category for this report is in CLM. 

SolutionMap Insider members can read about Icertis in our latest report. In each Customer Insights report, we provide a one-page summary of information gleaned from the SolutionMap peer review process. The summary includes ratings on how well the vendor meets user expectations, three key differentiators for the vendor and a list of quotes about the vendor’s greatest strengths.

Contracts Aren’t Just for the Legal Department Anymore

Cost-savings and strategic advantages hide in every business, and the latest procurement technology can reveal how to find it — in your contracts. In our recent article about spend management, we focused on the flood of spend data that businesses face and the technology that can help make sense of that.

But that technology, like artificial intelligence, is also being used to connect contract data and accounts payable information. That connection offers insights into novel ways to think about contracts that can add profits to the bottom line.

Contracts represent a direct link to suppliers, and that can offer profitable information about supplier activity that can help with contract renewals, a common way to control spend and find savings. But with AI, it gives your business the advantage and reduces risk.

Commercial Value Management (Part 3): Critical Commercial Use Cases to Align Extended CLM with the Enterprise [PRO]

change of control clauses

In our last installment of this CVM series, we highlighted a graphical framework to depict how commercial value management is about extending CLM into a more commercially enabling role in all enterprise areas where contracts (and value promises) are stored.

In this next installment of this series, we’ll highlight these areas and how to unlock some of that value for the benefit of the firm — and procurement.

Let’s briefly look at some of these areas to see how extending contract management to broader CVM approach is a practical way for procurement to get aligned with other areas (and with itself).

Commercial Value Management (Part 2): Using Next-Generation Contract Systems to Integrate Operations, Financials, Risk and Technology [PRO]

Let’s start this piece with a question: How are high-flying SaaS providers measured?

Answer: Growth (hopefully profitable) through repeatable subscription-based revenue.

And what are those subscriptions? Contracts.

The enterprise value of these companies, like others, is based on the promise of future cash flows that are increasingly built upon a portfolio of contracts. Want to maximize enterprise value (like the CEO)? Better get good at managing contracts! This is not in the way that your legal department might think of contracts, but rather in a business sense that maximizes commercial value within those contracts that will add up to enterprise value.

Put another way: If chief procurement officers want to move from “chief spend officers” to “chief value officers,” they’re going to need better strategies and tools to do value management.

“Value management” is the highest level of procurement’s evolution in a framework that I developed in my previous life leading procurement research at The Hackett Group.

The problem is that while there are great tools for spend management, when you start going broader into demand (and multi-tier supply) and deeper into financial value flow beyond single-tier cash disbursements to suppliers, the technology requirements aren’t yet well supported by existing tools and vendors.

In Part 1 of this Spend Matters PRO series on commercial value management (CVM), we highlighted the fact that contract management systems are morphing from legal documents focused on transferring risk onto your trading partners, and toward systems that model all B2B commercial (and even non-commercial) promises with trading partners, regulators and even just internal stakeholders. The financially related “promises” or “commitments” are really obligations/rights that can be viewed as liabilities/assets. And these aren’t just ledger entries to close the books for regulators, but rather living, breathing promises made up and down the supply chain to deliver value to customers — at a lowest total cost of course!

Unfortunately, this chain of value doesn’t exactly flow across the fragmented landscape of systems out there. It’s hard enough to see contracted revenue & cost/spend flows in the direct materials supply chain where only a few advanced firms can stitch together some semblance of integrated business planning that brings in multi-tier supply-aware cost modeling and contracting (e.g., buy-sell arrangements for volatile commodities). Now, consider the services supply chain and an XaaS world where omni-channel value chains need to merge products and services.

For example, think about the mind-numbing complexity of field services operations where customer warranties (contracts) and service levels (contracts) need to be translated to supply fulfillment that can include leased equipment (w/ contracts), outsourced transportation services (and contracts), third-party contractors (directly contracted or via a service provider with its own contract), and even outsourcing providers (with BIG complex contracts) who might run the whole shebang for you. These contracts, sub-contracts, MSAs, SOWs, POs (a contract), etc. all have information in them related to direct committed revenue and costs/spend, but also hints at potential spend and business risk depending on what’s in (or not in) those contracts.

But, if you’re a CFO trying to manage your spending (“Spend” with a big “S” and not just supplier spend with a small “s”) and see both types of spending in terms of:
* Tying spend to revenue to understand profitability
* Seeing and shaping spend and resource commitments before they occur
* Cash flow implications of that spend
* Category and supplier views to maximize value from supplier spending
* Spend volatility based on price risk, volume risk, competitive risk and other supply risk factors like geo-political risk (e.g., trade wars) and regulatory risk (e.g. data privacy)
* Projects that drive this spending (e.g., in project-intensive industries)
* Drivers of this spend that are hidden (e.g., IT/telecom contracts of all forms)
* Legal spend (internal and external) to manage all of these contracts!

The problem is that you don’t have a single system to see all this. You have a G/L to close the books and maybe a planning-and-budgeting application rather than the “financial control tower” (go ahead and trademark that — it’s available) that you’d love to have something like an EVA/ROIC-type model that drives all the way down to the atomic contracts and execution systems. And if you’re good, you have a CPO with a single spend database and contract repository.

But, let’s face it, even for those firms with this, the contract is still usually a document artifact to refer to and not a dynamic system with complex pricing modeling and linkages to dozens of execution systems in the field that are REALLY governing the commercial aspects of operations. All you likely have in your contract repository is a field called “contract value.” And even in the simplest case, and even with the most modern S2P application suite, you’re likely matching supplier invoices to POs with payment terms that aren’t likely staying synched with the original contract.

So, contract data and associated CLM systems must transcend their legal artifact role and even move beyond the level of contract clause libraries and associate basic clause metadata. They need to go much deeper into the business realm (and not just the legal department realm) and be able to model and manage commercial data much more deeply. Doing this requires improved systems that manage what we call commercial value management — which is about commercial lifecycle management rather than contract lifecycle management. “Spend Management” is great, but spend is what you pay, and value is what you get. So you need to be really clear on who gets how much of what, under what conditions, and what happens if they don’t!

We spent a fair amount of time in our last PRO series installment that dove into the specific elements of CVM. In this second SpendMatters PRO series installment, we’ll dive primarily into the buy-side aspects of this topic and discuss how procurement organizations — and procurement’s functional peers in finance, IT, legal, GRC, SCM, sales and HR (and any related CoE combinations) — can use contracts as commercial data hubs to better support not just basic buy-side CLM within a source-to-pay context, but also how to use it to better connect procurement with these internal partners to help them manage spend/suppliers in their functions individually and also collectively with each other — and out to external stakeholders.

We’ll also highlight a few areas where CVM support emanating from a next-gen CLM platform can likely disrupt a few existing niche markets within and outside of the procurement realm.

Ivalua: Vendor Snapshot (Part 2) — Upstream Solution Overview [PRO]

gig economy

In Part 1 of Spend Matters' seven-part PRO series, we provided an updated background on Ivalua, which has been growing steadily since our last Vendor Snapshot in 2016, adding clients, offices, employees, customers and capability around the globe. No longer the Rodney Dangerfield of procurement, Ivalua is finally getting some real respect, having just reached unicorn valuation status in its last funding round.

There are a number of reasons for this, some of which revolve around services and global support capability, and others that revolve around its extensive solution platform. The latter is the subject of our articles today and tomorrow, where we will overview all of the major components, starting with the upstream ones today. Then, after we review the downstream components in Part 3, we will dive into Ivalua's particular strengths and weaknesses from a solution perspective in Parts 4 and 5.

Icertis becomes first true CLM unicorn, with $115M funding round — and it sits atop a market that’s red hot and ripe for M&A [PRO]

Global Risk Management Solutions (GRMS)

Icertis announced today that its latest funding round raised $115 million and that the provider of contract lifecycle management (CLM) is now valued at more than a billion dollars, reaching proverbial “unicorn” status.

The funding round was led by two groups, Greycroft and PremjiInvest, with participation from B Capital Group, Cross Creek Advisors, Eight Roads, Ignition Partners, Meritech Capital Partners and PSP Growth, according to a press release. The latest round brings total funding to date to $211 million, the release said.

Mark Terbeek, a partner at Greycroft, said in the release: “We’ve seen (Icertis) become the undisputed CLM leader, acquiring a huge stable of blue-chip customers and generating a return on capital that is among the best we’ve ever seen. We have no doubt they will become the next giant in the enterprise SaaS market.”

The release also noted that “the AI-infused Icertis Contract Management (ICM) platform is used by companies like 3M, Airbus, Cognizant, Daimler, Microsoft and Sanofi to manage 5.7 million contracts in 40+ languages across 90+ countries.”

Icertis is private and doesn’t disclose revenues, but it has been growing extremely quickly (claiming 125% CAGR over the last four years), and with over 800 employees, a forward-looking revenue run rate approaching $200 million seems reasonable, and only requires a 5X multiple to get to a $1 billion valuation (we believe the revenue multiple to be higher than this).

Also, Icertis is a clear market leader in the CLM space based on our latest Q2 2019 SolutionMap deep-dive competitive assessment (available here for free). And, Icertis competitor Exari was recently acquired at roughly a 10X multiple, so there should be little doubt about Icertis’ favorable prospects.

Icertis announced that its new $115 million in funding will be used for continued product development in adjacent product areas (and geographies), verticalization, possible acquisitions, blockchain development and, of course, AI — which is red hot in CLM.

Spend Matters has covered Icertis for years, and while the firm’s stated mission to “become the contract management platform of the world” may seem a bit audacious, the firm has executed historically well due in part to its strong management team and focused strategy as a true CLM pure play that doesn’t focus on any one particular business process area (e.g, within the sell-side for customer contracts).

The firm is also buoyed by the fact that the CLM market is throwing off its shackles as a place for glorified document management systems set up by legal departments to transfer commercial risk to counterparties. Rather, contracts are becoming the ultimate system-of-record for B2B commerce, not just from a legal department standpoint, but a financial one (e.g., where contracts become the new ledgers that augment the G/L), a regulatory/risk standpoint, and an operational one relevant to any place where internal/external stakeholders make commitments to each other.

We call this concept “commercial value management” (CVM), and we discussed its framework in a recent Spend Matters PRO research paper titled “Commercial Value Management: Making Contracts the Commercial Core of Enterprise Value (Part 1).” In it, we stated:

“There is a subtle shift happening within the scope of contract and commercial management (CCM), and a not-so-subtle shift that is also happening within the digital realm (e.g., namely artificial intelligence, low-code platforms, open source, “XaaS”). What’s happening is that as contracts get digitized and more deeply modeled, they are becoming the single most important piece of master data within the enterprise that touches virtually every single stakeholder within these core processes and also within corporate functions such as R&D, risk management, strategic planning, treasury, audit, sustainability, digital/innovation and others.”

In the rest of this Spend Matters PRO / Nexus brief, we’ll examine the following topics:

* Icertis’ prospects relative to multiple CLM market segments and competitors
* How CLM’s evolution to “CVM” impacts Icertis. (Think of CVM as “extended CLM” on steroids.)
* M&A, exit and other considerations for Icertis — including potential acquirers as an alternative to an IPO.

And in a subsequent deeper dive in the August/September inaugural Spend Matters Nexus members’ newsletter for private equity firms/investors, corporate development teams and solution provider CEOs, we’ll feature Icertis and analyze:

* Icertis’ strategy: lessons learned and key takeaways
* Valuation drivers (for Icertis and similar firms) and possible Icertis M&A acquisition prospects/targets
* The prospects for procurement suite providers with legacy CLM capabilities and Apttus, Conga and others in a CVM world

OK, let’s get to it …

Prodigo Solutions Vendor Introduction: Analysis, SWOT, Checklist (Part 2 — Product Strengths and Weaknesses) [PRO]

locum tenens

In our last Spend Matters PRO brief, we introduced you to Prodigo, an 11-year-old provider based near Pittsburgh that is deploying a platform that’s specific to healthcare procurement and contract management. With 20% of the U.S.’s largest integrated delivery networks (IDNs) and more than 30% of Gartner’s top hospital supply chain departments as customers, Prodigo has numerous use cases and a large pile of healthcare-related data on which it has built a strong core product. And although it is not always best-in-class when compared against leading P2P providers that lack a vertical focus, Prodigo’s willingness to target the needs of a specific market have led to some commendable product strengths as well.

Part 1 of this brief provided background on the company and an overview of Prodigo’s offering. In Part 2, we provide a breakdown of what is comparatively good (and not so good) about the solution, a high-level SWOT analysis, a short selection requirements checklist that outlines the typical company for which Prodigo might be a good fit, and some final conclusions and takeaways.

Q2 2019 SolutionMap: Contingent Workforce & Services Technology, SPT and S2P suite software providers’ scoring summary reports now available

As part of the Q2 2019 SolutionMap release, the Strategic Procurement Technologies (SPT), Source-to-Pay (S2P) suites, and Contingent Workforce & Services (CW/S) Technology Provider Scoring Summary reports are available today on SolutionMap Insider.

Prodigo Solutions: Vendor Introduction (Part 1 — Background and Solution Overview) [PRO]

healthcare

Rogue spend is a common problem for procurement in all industries, but in healthcare the issue is on a whole other level. Whereas the typical organization can see about 30% of indirect spend that falls into the off-contract category, that number can climb to as much as 60%.

There are multiple factors that drive these rogue purchases. Notably, in healthcare the distinction between direct and indirect spend is less of an issue than the difference between clinical spend (that is directly related to patient care) and non-clinical spend. These categories are managed a little differently from how procurement organizations typically approach direct and indirect purchases. Internal demand for clinical items can vary significantly, and since not having an item in inventory could be a matter of life and death, the need to spot buy specific medical devices or materials isn’t analogous to an ad hoc spot buy that you might find for many indirect spend categories.

Healthcare spend is also nuanced because the requestors — the medical personnel — often have a stronger say in what is purchased and to what degree cost is a factor than procurement gets compared with other verticals. This includes “physician preference items” where a physician MUST have a certain medical device/instrument that is different than the hospital system standard (and hopefully not because the MD is getting wined and dined by the manufacturer or distributor!).

This industry dynamic applies to the healthcare supply markets, as well, where unique features and quirks, including a much higher use of group purchasing organizations (GPOs) and strong influences by medical device manufacturers over how their products are priced and used within hospitals, only further complicate procurement efforts to bring spending under control. Over 90% of GPO revenue is from supplier-funded “administrative fees” (i.e., rebates that are exempted from federal government kickback regulations), and until this commercial model goes away, hospitals still need to automate them (including percentages of those fees shared back with the hospital) and other supply chain requirements such as distributor owned/managed inventory within the system.

These healthcare-specific challenges are well-known to Prodigo Solutions, a purchasing technology solutions company based in the suburbs of Pittsburgh, Pennsylvania. Originally grown out of the UPMC’s needs for better managing its own internal purchases, Prodigo today operates as a standalone software provider, offering tools that support e-procurement with healthcare-specific controls and post-signature contract management and compliance. Its customers include both integrated delivery networks (IDNs) and small community hospitals alike, and its healthcare marketplace currently facilitates transaction volumes in excess of $15 billion.

This two-part Spend Matters PRO Vendor Introduction series offers a candid take on Prodigo and its capabilities. It will include an overview of Prodigo’s offering, a breakdown of what is comparatively good (and not so good) about the solution, a SWOT analysis, and a selection requirements checklist for companies that might consider the provider.