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3 Deals Signal a Changing M&A Landscape in Procurement Technology and Solutions (Part 1: Coupa-ConnXus)

Despite coronavirus lockdown measures, the past couple of weeks have seen a flurry of deal announcements in the procurement technology and solutions world (which represent the M&A “re-start” of about a dozen material transactions that you’ll be hearing about for the rest of the year).

Deal activity is not just financial engineering. It is form following function. And form in this case is the fact that procurement technology and solutions are still going strong in most cases inside companies and government. In other words, they’re still buying stuff, at least in many cases.

The reason procurement technology and solutions, even in the economic uncertainty maelstrom of COVID-19, are still hot compared with other sectors is simple: No other set of capabilities or tech can be tied so directly to cost reduction/takeout, risk mitigation, working capital improvement and process efficiency/automation (yeah, we know what that can sometimes be code for, but unfortunately it’s true — as labor economists would agree).

In short, even in the current mess, companies and the public sector are still active consumers of procurement technology and solutions. And on the transaction side, deals aren’t slowing down entirely either, even if the debt markets are still a challenge. Moreover, valuations aren’t taking the same hit as in other sectors (either in the private deals we’re seeing or in the capital markets). Coupa’s stock, in fact, just hit an all-time high last week, valuing the company at nearly $13 billion, putting the firm at over 30X revenue on a trailing basis. That’s HUGE.

Still, there’s changes afoot from a deal perspective. And I believe three recent transactions collectively suggest precisely how the M&A landscape is changing.

In this three-part Spend Matters Nexus analysis, I will share my own perspective on the shifts, both from a corporate development lens (what I used to do) and a private equity lens (the practice I lead today for Azul Partners).

Some of these shifts are subtle, others not so much. But one thing is coming into sharp focus for me: More folks are going to miss out on opportunities if they fail to put the right pieces on the chessboard soon.

Deals covered in this series are Coupa-ConnXus, Apttus-Conga, and Bregal Sagemount’s recent $80 million investment in Corcentric.

For each, here are the questions I’ll answer:

  • What is the summary of the transaction?
  • What is the “gotcha” of the deal (for me)?
  • What additional factors make the transaction interesting?
  • What does it signal for tomorrow (why is it an important signpost for the road ahead)?
  • What are the competitive/market implications for sponsors and strategic buyers?
  • What other (related) providers are interesting to look at in the same or similar markets?

For this installment, let’s look at the Coupa-ConnXus deal.

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service.

Analysis of Apttus-Conga deal — Background, transaction analysis and a bit of armchair speculation [PRO]

Apttus made waves in the CLM market this week with an announcement of its intent to acquire Conga, merging the two firms under the Conga brand to create a hefty player for “configure, price, quote” (CPQ) software, CLM and document management with roughly $400 million in revenue. The deal is perhaps not the transaction one would expect of either player. Both vendors have considerable product overlap, bringing together a set of sell-side CLM capabilities and deep historical hooks into the Salesforce ecosystem.

Still, there is some rationale for the deal. As you peel the onion on customers, the CLM market and where future deals could arise, you can see the potential logic behind Apttus owner Thoma Bravo’s move. At its core, the deal is about quickly producing scale, as the combined firm counts well north of 11,000 customers. It also brings a significant toolbox of CLM adjacent tools (e.g., CPQ, BPM/workflow management) into one ecosystem, which in turn creates a competitive alternative to the other elephant in the CLM room (especially from a customer count standpoint), DocuSign, which with its acquisitions of SpringCM and Seal Software has built its own contract management ecosystem enabled by its ubiquitous e-signature product.

So just what exactly do Apttus and Conga offer customers today, and what are the key takeaways for the CLM market? Spend Matters has not yet been briefed on the “new Conga” product merger plans and firm strategy, but we do have deep background into Conga, given its recent participation in the Spring/Q1 2020 CLM SolutionMap, and a few ideas about how the transaction could play out for another strategic buyer down the road.

Let’s explore these now ...

CORONAVIRUS RESPONSE: Contract Analytics — Finding and Managing Contractual Risk and Reward in a Pandemic [PRO]

In the Spend Matters Coronavirus Response series, we are exploring the COVID-19 related business scenarios where the pandemic is affecting supply chains and commercial relationships — and how various countermeasures, solutions and providers are helping to respond. Much of the pandemic coverage started upstream in China where the outbreak originated. Last month, an ISM report that was conducted in late February cited that 62% of firms saw delays in orders from China (and a majority of firms also cited delays in simply getting supply chain information out of China). We did a deep dive into supply risk as the first topic of our now seven-topic series covering the pandemic response in areas such as:

  1. Supply risk management solutions that include supply chain risk, CSR risk, supplier financial risk, etc. (Read this category’s PRO analysis and solution recommendations here.)
  2. Sourcing and commodity management, including advanced sourcing, direct sourcing, automated supplier discovery, and commodity management to help dynamically plan and source. (See this category’s recommended solutions for direct sourcing here.)
  3. Advanced procurement analytics to enable direct procurement and/or to perform “spend planning” when demand drops out or spikes. (Its profile for this series is here.)
  4. Procure to Pay (P2P) that emphasizes working capital, dynamic discounting, payment control and related finance priorities to help inject cash into the P2P process — especially for many cash-starved suppliers. (This category is discussed in-depth here.)
  5. Fraud, P2P and vendor management safeguards when new suppliers need to be set up quickly, and also when lowlife fraudsters try to use the pandemic as a way to steal money and IP. (Its profile for this series is here.)
  6. Providers with deep contract analytics that can analyze a contract portfolio for affected contracts from suppliers (and customers) for not just force majeure clauses, but other related clauses that tie to the multiple risks popping up at once in the pandemic.
  7. Contingent Workforce and Services solutions that are able to, at a minimum, help rapidly ramp up on-demand workers to deal with massive resource shortfalls. We are looking at four categories of solutions: for sourcing remote/online work; solutions for sourcing and managing mobile-first contract workers anywhere you need them; solutions to “direct source” and manage contract workers; and solutions for data management and analytics.

This installment of the series covers contract analytics, No. 6 above, and deals with the topic of contracts (and commercial relationships more broadly). Staying on the China theme for now, the pandemic’s impact on Chinese supply chains led to roughly 6,000 force majeure certificates being issued by the PRC via its trade body to Chinese suppliers (a nearly 5x increase since early February). A force majeure clause provides relief from contractual obligations due to external events that are unpredictable/unforeseeable, unpreventable and of no fault of your commercial counterpart — and these certificates are somewhat of a “get out of jail for free” card for contracts.

The supply risk management firm Riskmethods cited that it has seen a 44% increase in firms that declared force majeure and a corresponding 38% increase in production stoppages or reductions in operating hours. It’s the latter metric that should be unpacked a bit. Force majeure is just a single clause, but it’s an interesting one because, similar to a business continuity clause, it represents how trading partners can help model and manage the effects of external risk/complexity on the commercial relationship. For example, Kira Systems, a contract analytics provider, recently conducted a study of two years’ worth of such Chinese supply agreements and found that within their sample of 130:

  • Only 74% even had force majeure clauses!
  • Of those contracts, 89% had contract language specifying the impacts/effects on the commercial relationship.
  • Within those, 42% specified contract termination effects, but 55% specified contract suspension (e.g., suspending performance obligations through some period of time) and 39% discussion/consultation to remedy the situation.

The whole point of this discussion on force majeure is to illustrate that contracts shouldn’t just be boilerplate text documents that include generic clauses that sadly try to properly transfer commercial risk to counterparties, but yet, end up creating downstream confusion and ill will because they don’t actually provide the needed risk mitigation and recovery when the crap really hits the fan like the coronavirus pandemic. The best contracts work in concert with robust risk management processes, policies and playbooks so that when various external conditions change, the underlying contracts can translate those changes to the affected parties and actually give them the decision-support / options to help jointly mitigate them (a business continuity clause is just one example here).

And herein lies the foundational problem: If you do not have an electronic contract repository that is filled with “intelligent” contracts that model the richness/complexity of the value exchange between the parties in commercial relationships in a risky world, you’ll be driving blind and putting yourself at risk. It’s like playing football without a playbook and not knowing what plays to call and how to actually successfully run the plays — NOT a recipe for success! We’ll return to this concept of playbooks later when we discuss Seal Software. Seal delivers many of its world-class contract analytics through a playbook approach where specific playbooks (i.e., the sequence of granular analytics to run that answer specific questions and support specific business use cases) and “rule books” (i.e., rule libraries and knowledge bases that are built on top of a rich contract data/metadata model) are served up as “Insight Packs” that can then be tailored by the client and augmented with Seal experts.

The foundational problem of poor commercial intelligence from an online contract repository takes many forms. IACCM benchmarks estimate that between roughly a quarter and a third of firms struggle to 1) find contracts they’re looking for, 2) find specific information with particular clauses, and 3) assess/report risk in their contract portfolios. So, when you consider the impact of COVID-19 on your customers, suppliers and employees, you can see how pervasive the pandemic’s impact is on contracts related not just to force majeure (and related clauses for termination, governing law, jurisdiction, arbitration, etc.), but also provisions related to delivery performance/service levels, liquidated damages, payment terms, limitation of liability and others.

We’ll dive more into the above clauses later when we get into specific use cases, but for now, CLM providers or niche contract analytics providers should be able to analyze contracts and related broader commercial information (which we call commercial value management, CVM) that in turn allow firms to:

  • Interrogate the contract portfolio proactively based on advanced search down to the clause level and even to the provisional language that includes specific obligations and risks (that hopefully have already been specifically modeled and extracted into granular metadata fields).
  • Perform where-used analysis and “related contracts” pegging to find impacts and enable changes (some of them being mass changes).
  • Identify what contracts have specific clauses in place (or not), including where either you or your counterparties can claim force majeure, but also the related information that determines the related clauses for notifications, required information for proof of harm, proof of mitigation (which might be specified in a business continuity clause), and types of available remedies/resolutions (contract suspension, cancellation, amendment, etc.).
  • Relate contracts to other critical data about counterparties (suppliers, customer, etc.) and value chains to help prioritize where to focus based on certain clauses. For example, customers might be actively trying to cancel/renegotiate their contracts that in turn may link to specific suppliers that you’ll need to pass on the pain. Some CLM systems allow this type of supplier-customer contract linkage.
  • Get ahead of contracts that will do you harm in terms of performance obligations and renewals (and related steps), but also use the pandemic as a good way to re-prioritize sourcing/negotiations efforts and also third-party/supplier risk management activities (e.g., liability issues for essential contractors that still are needed on site in operations)
  • Respond to specific adverse contract events that are occurring in real time (e.g., attempted contract cancellations) while also trying to support new deals and support transformation activities.
  • Support transformation activities during the downturn so that you can address highlighted weaknesses in your contract portfolio (e.g., weak/generic force majeure clauses that don’t specify pandemics or other related clause information).

We’ll dive more into the above clauses later when we get into specific use cases, but for now, such analytics help organizations answer the following questions related to some high-level use cases:

  • How can my contracts guide me in my need to radically cut costs, and more importantly, preserve cash?
  • How can I work with suppliers (or any supply chain partners) to accelerate existing cash-to-cash cycles and reduce working capital levels?
  • How can I support supply chain risk analytics to better support rapid decisions and risk mitigations?
  • Are “wet ink” paper contracts still being used, and isn’t it silly to continue using them given that COVID-19 can be spread through human-based contact or via intermediate surfaces (like a signing pen)? The chances might be infinitesimal, but there’s no better time to finally be moving to a fully virtual contract lifecycle and to get all paper contracts digitized into a proper contract repository. And where are contracting bottlenecks for customer contracts, supplier contracts, contingent workforce contracts and others holding up the value chain when every second counts and every precious resource counts even more than usual.
  • How standardized are our contract terms that are being lit up during the current pandemic, and can we use the crisis to help improve this standardization? Also, how richly are the contracts being modeled so that they can be directly interrogated for such decision support questions? And can these contract risk factors be the perfect way to align and operationalize other risk management processes and systems across the business? Hint: The answer is yes! And as a shameless plug, Spend Matters compares CLM solutions in our SolutionMap benchmarking process/database based not just on process-specific functionality, but also on the richness of the contract information models and underlying technical platform elements.

We’ll drill down into the high-level questions and examples in a moment, but for now, it should be clear that having a modern CLM system (and a commercial knowledge management database built within that system) with robust contract information modeling and associated contract analytics is a critical business competency to manage commercial value (i.e., the “CVM” concept again). But you don’t have to be on the leading edge of AI-based contract analytics to get many benefits from a CLM application, although having a CLM solution with some of these capabilities is a key advantage. These include providers such as DocuSign (with its pending acquisition of Seal Software), Conga Solutions, Agiloft, SirionLabs, Coupa (via its acquisition of Exari), and Apttus.

Some providers have built out specific COVID-19 capabilities.

For example, Seal Software brings its capabilities to bear with existing clients. SirionLabs has built a COVID-19 specific dashboard that has some straightforward analytics, shown below. SirionLabs also specializes in supporting “agile contracts” for large-scale services contracts like BPO deals so that if demand for services spikes or drops precipitously, the contracts can be updated dynamically to accommodate those shifts.

(Click to enlarge image)

CLM market leader Icertis shared some examples of clients using its solutions in interesting ways to address the crisis:

  • One well-known US-based multinational consumer electronics retailer has had its in store performance hit hard by the pandemic and has used the Icertis ICM application to digitize and radically speed up its supplier rebates process with electronics manufacturers — thus helping improve cash flow.
  • Another client is a food supplier/distributor that has been hit hard in its restaurant segment and has used the ICM solution for guided contracting in a mobile app that helps configure the sales contract based on various customer attributes, including payment terms calibrated to the financial status of the customer.
  • A life sciences firm had one of its coronavirus-affected regions move legacy contracts onto the ICM application so that workers didn’t have to physically go find contracts in the office buildings!
  • This move to a virtual CLM environment was cited by Granite Construction, a $3 billion firm headquartered in California, where a procurement staffer mentioned that “many back-office departments, including legal, had to transition to working from home. Since all of our contracts and contracting processes were cloud-based ... there has been little to no change for our business.” “Contracting had always been important, but now it’s more critical than ever. When the outbreak hit, we knew risk indemnities and force majeure clauses were already in our templates and our contracts; we didn’t have to think about it.”

These examples illustrate that contract management has a place in the coronavirus response, even if the use cases are very straightforward and don’t require advanced capabilities such as AI-based analytics.

It’s also important to realize that these commercial/contract issues are impacting an ecosystem of solutions / services providers beyond CLM tech providers. For example, NPI Financial is a market leading IT-intelligence provider and they offered up some insights on what they’re seeing around this topic in the IT/digital markets:

“Some buyers in hard-hit industries are defining plans to ask vendors for special concessions. This requires a strong business case and buyer-side compassion. What (if anything) can a buyer offer the vendor in return for concessions? E.g. Longer commitment, faster payment in the future, ability to use their name publicly in an approved case study or ad, etc. One thing we’ve seen across several of our clients is that buyers are approaching this with compassion — one enterprise told its IT sourcing team to “behave ethically and don’t be outrageous” as they push for cost reductions across their IT supplier base. They know some vendors are also hurting and want to be sure they’re financially sound and strong when we come out on the other side of this crisis.”

It’s encouraging to see buyers taking a holistic and humanistic approach that also lets them be a “customer of choice” when critical vendors/suppliers are hard-hit and to use the buyers’ market leverage responsibly to create value with a win-win approach that should pay off down the road with a thankful supplier.

Within the rest of this Spend Matters Coronavirus Response installment, we’ll dive a little deeper into some use cases and supporting tools.

Some providers are offering coronavirus-specific programs and “freemium” commercial offers, and we’ll note those whenever we update this piece. We’ll also start the series with providers that we already have deep knowledge on, but we’ve been seeking information from other providers too.

Through April 2020, a special PRO Expert Survival Pack is available to procurement practitioners only* at up to 50% off — Learn more

The impact of COVID-19 on M&A and procurement technology investing (Part 2: Private Equity)

Outside of highly targeted or opportunistic investment interests, the technology and solution areas for procurement and finance have only garnered significant attention within the private equity community in recent years. But in less than half a decade, these firms have become a staple in M&A in the sector. And not only has private equity driven the acquisition and buyouts of many of the largest companies in the sector, but it has also been a source of growth capital investments as well (albeit not as frequently). In recent years, just about every process above a certain size — including numerous providers eventually picked up by strategic buyers — involved one or more private equity firms at some stage.

I spend a good portion of my time leading Spend Matters’ effort to provide strategy and due diligence support to these firms, and in recent weeks, I have been in touch with over a dozen colleagues in the industry. Today, in Part 2, we turn our attention to this segment of the market, examining the COVID-19 situation on the private equity markets, in particular, as it pertains to M&A and buyouts.

This Spend Matters Nexus series, including today’s column, is open to everyone during the coronavirus crisis. It provides insight and analysis about what is happening with procurement and finance technology investing — as well as what we can expect in the months to come, as we emerge from the coronavirus disruption.

If you’re looking for a baseline of information on M&A in these markets at the moment, read Part 1 of this series: The Impact of COVID-19 on M&A and Procurement Technology Investing (Part 1: Introduction).

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service.

The Impact of COVID-19 on M&A and Procurement Technology Investing (Part 1: Introduction)

I’ve decided to open up new Spend Matters Nexus columns and research briefs for everyone, not just subscribers, in the next few weeks, as we’re all certainly in a crisis period with the COVID-19 outbreak. To help make my coverage of investing and M&A more digestible, these dispatches will be shorter than usual (some will include frameworks and charts, others will not).

Having worked through two major shocks and downturns — the implosion in 2001-02, the 2008-09 recession — I’m seeing both similarities and differences between those times and the coronavirus fallout today in the procurement, finance and supply chain technology worlds. But for different types of investing, asset classes and M&A activities, it’s clear the effects are already quite individualized.

Today, I’ll start with a summary perspective on what entrepreneurs, CEOs and business owners should expect for the next few months, based on transaction type. Please note: This column is not based on extensive primary research and survey data, but rather anecdotal evidence from what I’m seeing in the market, primarily as an advisor to sponsors and executive teams, but also as an angel investor and advisor myself.

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service.

How does McKinsey’s acquisition of Orpheus affect Sievo and the spend analytics solution landscape? (Part 1: Background)

I’ve long been a fan of the spend analytics firm Sievo (going back to when my friend Fabrice Saporito was helping drive its commercialization as CEO in the formative years). But in a world where procurement and spend analytics technology ages fast, constant investment in R&D to drive solution improvement is key. You’ll need to read SolutionMap Insider (Analytics) and Spend Matters PRO (see our recent Vendor Snapshot of Sievo: Part 1, Part 2 and Part 3) to see how Sievo stacks up today, product wise.

But more important from where I sit today on the strategy and transaction side of the house (vs. the product one — I’ll leave that analysis entirely to the Spend Matters analyst team), is how McKinsey’s acquisition of Orpheus moves around the chess pieces on the partner and M&A board in terms of Sievo and its peers (Sievo, prior to the Orpheus acquisition, had a partnership with McKinsey). Does the deal help or hurt Sievo’s stock, so to speak?

In this two-part Nexus analysis, I’ll offer a perspective on this, starting with a look at Sievo (by the numbers including estimated revenue, customers, etc.) and what makes it attractive for partners and potential suitors.

But more important than what this means for Sievo as a potential strategic partner for others, alone, is what it means for all the other vendors, consultants, managed services and BPO firms in the market looking to build, OEM or acquire the right procurement, finance and spend analytics capabilities for their needs now that Orpheus has been taken off the chessboard. I’ll also explore this topic as well in this Nexus analysis.

Let’s dive in.

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service that publishes 50+ times per year. Spend Matters and Spend Matters Nexus are owned by Azul Partners. His investment disclosures and other activities can be found on LinkedIn.

2020 Procurement Predicaments and Predictions — Gaps and a Mega Prediction (Series Wrap-Up Part 3) [PRO]

In this last installment of Spend Matters’ 2020 predictions wrap-up series, we’ll dive into some additional predicament areas where there are substantive gaps to address within the digital procurement market. We’ll also explore a “mega prediction” related to digital platforms (not applications) and how this digital land grab will have an impact on picking an optimal digital platform strategy for procurement. Click here for Part 1 and Part 2 of the wrap-up series.

2020 Procurement Predicaments and Predictions — The Big Picture (Series Wrap-Up Part 2) [PRO]

In Part 1 of this finale for our 2020 “Predicaments and Predictions” series, we summarized the problems and our outlook for various procurement areas, such as: Sourcing, Supplier Management, Contract Lifecycle Management, Procure-to-Pay, Contingent Workforce/Services Procurement, and Analytics.

In this installment, we’ll address a broader and overarching predicament that affects all of these areas, namely:

How can procurement organizations meet short-term S2P automation needs (via current-generation S2P apps), but support broader enterprise digital transformation requirements that are better suited to next-generation digital platforms (and underlying platform elements) that progressive CIOs and chief digital officers are beginning to adopt?

Remember that while developing our 2020 predictions, we had a guiding principle that our predictions would be grounded in practitioner predicaments that needed solving, which in turn would generally drive the solution/service provider market (unless there was no money to be made in that area — which we’ll touch on later).

In terms of practitioner requirements, the following predicaments/pain points continue to plague most procurement organizations:

* Gaining timely and accurate insights into spending, contracts, costs, suppliers and markets
* Engaging stakeholders early and deeply to help them get more value from their spend and suppliers — and adopting their best practices and tools
* Demonstrating procurement value beyond purchased cost reductions on a continual process (i.e., the impossibility of “saving yourself to zero”) — and beyond the usual sourcing processes that help drive them
* Helping protect the enterprise from supply risks in the value chain
* Aligning with functional stakeholders like Finance, IT, HR, Sales/Marketing, Legal, GRC, and other groups to not just help them manage their spend, but also support their broader initiatives and also align with them on capabilities (and tools) beyond the buy-side involving contract management, working capital, budgeting, risk management, Lean/Six Sigma, innovation, “variabilization” (e.g., using a contingent workforce and service providers), etc. And these programs might also sit in a Center of Excellence and/or Shared Services organization.

Obviously, the first three items are squarely in the wheelhouse of S2P applications, but as the net widens toward supporting broader enterprise requirements, procurement organizations are less digitally savvy. So, we’ll highlight how those emerging requirements are creating gaps, how organizations are responding, and where the market is moving.

Omnia acquires InsightGPO: Putting M&A at the center of a growth strategy

This week, Omnia Partners announced it was acquiring InsightGPO, the group purchasing organization arm of Insight Sourcing Group. According to the announcement, the transaction closed on Dec. 31, 2019. Prior to the definitive agreement, “InsightGPO was one of five divisions of Insight Sourcing Group,” which provided its “clients with highly targeted offerings for office supplies, auto rental, MRO and office equipment,” according to the press release announcing the deal.

Yesterday, I had the chance to speak to Tom Beaty, CEO, Insight Sourcing Group, and M. Todd Abner, President and CEO of Omnia Partners, to learn more about the transaction.

This Spend Matters Nexus brief shares a bit of what was learned (Omnia facts, figures) along with our own transaction analysis and a back-of-the-napkin valuation and relative multiples in the GPO market. It also traces the history of Omnia and provides a perspective on the GPO today (at an investor level) and future scenarios. We will follow up this Nexus M&A analysis with a detailed vendor snapshot/overview of Omnia on Spend Matters PRO this quarter, including a full SWOT, customer recommendations, etc.

For those interested in learning the basics of GPOs and how to use them as part of a category management portfolio strategy, we suggest you start with our past coverage and a chart showing the primary GPO market segments:

● An Introduction to Group Purchasing Organizations (GPOs)
● Group Purchasing Organizations: Supplier Perspectives and the Evolving GPO Landscape
● All We Are “Saved” — Give Purchasing Consortia (Including GPOs) a Chance
● The Healthcare Group Purchasing Organization (GPO) Landscape: Background, History and Introduction

Jason Busch is Managing Partner of Azul Partners’ Investor Advisory Group. He works with sponsors, CEOs and boards on data-driven due diligence, M&A and strategy. Jason is also the lead author of Spend Matters Nexus, a private newsletter and subscription service that publishes 50+ times per year. Spend Matters and Spend Matters Nexus are owned by Azul Partners. His investment disclosures and other activities can be found on LinkedIn.

How to Make Your Procurement Organization like Amazon — Use the Flywheel! [PRO]

Many smart readers will be familiar with the Amazon flywheel. It is a graphical representation of Amazon’s business model that you can read about on this blogpost here.

The model from that post is shown below:


The graphic generally shows the self-reinforcing cycles of how Amazon’s focus on customer experience and product selection help drive demand — which in turn attract sellers while also then letting Amazon gain economies of scale (and also “economies of scope” when it jumps into adjacent markets) to then self-fund (i.e., re-invest all the profits) the offering of lower pricing AND the development of even better customer experiences … which then repeats the cycle continuously.

This graphical model is an oversimplification because there other things at play here:
* disintermediation in the supply chain to capture value
* building/buying capabilities to jump into adjacent markets
* driving not just experience and eyeballs, but also monopolistic power in categories
* acquisitions to accelerate category dominance
* subscription-based bundling and related incentives (“free” shipping with Amazon Prime)
* playing 3D chess by playing different roles — e-tailer, wholesaler, marketplace, platform — and then using that power with upstream suppliers
* speed to value and focused/driven/intense organizational culture on mission and results

I’m sure you could add more to the list above. That said, procurement and supply chain professionals understand many of these drivers when they look at supplier power and category strategy — especially when one of those suppliers may be Amazon (e.g., AWS)!

Many procurement organizations often have a difficult time expressing their organizational value-add to other stakeholders, or they end up focusing too narrowly just on cost savings. They need to be able to communicate higher impact value creation and also create some “branding” surrounding their spend/supply management services. So, they should consider adopting the Amazon flywheel to their organizations, and there are actually three ways in which they can do this:

* Apply the Amazon flywheel to the broader organization and then dovetail in how procurement helps to support the business flywheel. Most organizations want to be like Amazon in some respects, so this can help reinforce that.
* Apply the flywheel to the procurement organization as a spend/supply management “business” in its own right and then tweak the Amazon flywheel model to create a self-funding procurement flywheel.
* Apply the flywheel to sourcing, category management and supplier management as you engage suppliers.

In other words, change “growth” to “profitable growth” and then change “sellers” to “suppliers” and you get the general idea.

In the rest of this Spend Matters PRO research brief, we’ll share our adaptation of the Amazon flywheel to a “procurement flywheel” that procurement organizations (and to the digital solution/service providers who help support them) can adopt for themselves and their stakeholders.

For any qualified practitioners interested in this PRO content, please feel free to reach out to us and we can make it available to you if you’re looking for support in your digital transformation.

2020 M&A and Procurement Investment Predictions: 10 Trends to Watch (Part 2)


M&A and investor interest in the procurement technology sector is at an all-time high. Of course it also helps that there are more than 1,000 providers in the procurement solutions market (software, consulting, outsourcing, managed services, market intelligence, etc.) and adjacent markets than ever before — and new start-ups popping up on what feels like a weekly basis.

In the first installment of this series, we covered the first three sector M&A and investments trends that we’re paying attention to in 2020. These are competition growing between strategic and financial buyers; ERP and big tech getting more active in the sector; and buyers/investors expanding their definition of procurement technology.

Today, we turn our attention to our next two trends. These are:

Trend 4: Convergence of sourcing, category and market intelligence solutions: blurring the lines (i.e., application/technology, services, content/intelligence, etc.)

Trend 5: Payments, accounts payable and procurement intersections accelerate

2020 Predictions for Strategic Sourcing: Continuous Analysis Needed for Category Management [PRO]

In today’s Spend Matters post about predicaments in strategic sourcing, we talked about the missing support of category management in existing e-sourcing solutions. The result of this is a lack of connection between the category management strategy and the tactical execution of sourcing events, which leads to a fragmented execution of the overall sourcing and procurement strategy.

To truly transform procurement you need to start from the top by defining your category management framework, then create the actual category strategies based in this framework and finally cascade this down into sourcing events as applicable. This is obviously doable without having a system to support it, but then, in my experience, you run a significant risk of creating category strategies once a year that you then put away and don’t look at until next year when it’s time for an update. By using a tool that has contract data, spend data and supplier management data (natively or through integration), you could create a dashboard that would support the continuous analysis of trends, risk, demands or supply changes. The defined strategy should also guide you to the right type of sourcing event with the right category-specific features and configuration.

Creating this type of solution is obviously not easy, especially the category strategy part, but we are seeing some interesting developments in the market and hearing some interesting things from vendors, and linking e-sourcing to category management is the next logical step in the evolution of sourcing technology.

In this Spend Matters PRO brief, we’ll look at a number of developments about how we believe this will play out.