Thursday, July 14, 2016

How new modes of buying and evaluating goods and services disrupts business procurement — for the better

The next BriefingsDirect business innovation thought leadership discussion focuses on how new modes of buying and evaluating goods and services are disrupting business procurement.

We'll hear now from a leading industry analyst on how machine learning, cloud services, and artificial intelligence-enabled human agents are all combining to change the way that companies can order services, buy goods, and even hire employees and contractors. This business process innovation exchange comes to you in conjunction with the Tradeshift Innovation Day held in New York on June 22, 2016.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. 

To learn more about how new trends are driving innovation into invoicing and spend management, please join me in welcoming Pierre Mitchell, Chief Research Officer and Managing Director at Azul Partners, where he leads the Spend Matters Procurement research activities. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: We're seeing an awful lot of disruption in how companies can buy and sell goods and how suppliers can reach new markets. What is causing this disruption?

Mitchell: The technology is disruptive. In the old days, a lot of procurement executives would just say, "The technology is really just enabling our existing process, it’s really just a tool to automate the processes that we're looking to do."

That’s starting to change. Technology is fundamentally disrupting value chains. You see what’s happening in the business-to-consumer (B2C) world and the disintermediation that’s happening. Amazon, Uber, and Airbnb are having big impacts and that’s not limited to a B2C world. Look at the impact of Amazon, Uber, Airbnb, and now someone like Tradeshift? What’s going to be the impact on the business-to-business (B2B) travel process on the supply-chain process, on freight forwarding, on the logistics? It’s going to be a major impact.

So, you can say that technology is just automating, but it’s not. It’s enabling new, much more innovative value chains, and it's truly disruptive. I know it’s a buzzword out there, but it really is.

Go and Skills

Gardner: From what you’ve heard at Tradeshift’s recent announcements around Go and Skills, what are the factors that combine in a way that you think are quite new or something that we haven’t seen before? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]

Mitchell: The Skills terminology is interesting. When you look at Skills, they're really talking about a fairly atomic or higher-level kind of business process as a service. And if you're going to do business process as service, it’s not just having a bunch of cloud apps, because cloud apps are basically a more efficient machine tool, if you will.

Mitchell
Just taking an on-premises app and deploying it in the cloud is great in terms of making it more efficient for the deployment, but an empty app in an empty app. What really brings the app to deliver a business outcome, to deliver that business process, is intelligence. That intelligence is going to either come from the bottom up, based on analytics that turn information as insight, but also it’s going to come from how we take information and knowledge out of our minds and put it into that software.

That’s truly disruptive and probably the topic of our conversation of what we do with 30 percent unemployment, as the robots come to take all our jobs. But certainly, in this kind of knowledge-based area, where there is some level of repetitive tasks, the game is starting to change from on-premise apps to software-as-a-service (SaaS) apps, to moving toward the cognitive and using those apps to really deliver business outcomes.

Gardner: I agree that this has wide implications across many industries and across many facets of any particular business. Just to focus on what Tradeshift is doing with Go, what’s interesting to me is that they’re combining accessible, but pertinent, real-time streamed travel data, analyzing that in the context of a data environment. But they’re also adding human travel agents, empowering humans who are very skilled in order to present very rapid returns for fairly complex business problems.

What is it about this combination of machine and human that is pushing boundaries today?

Mitchell: I like how they went about this solution. First of all, they started with the business problem and the outcome, especially in mid-market organizations, but also for large enterprises. We want to focus on making the process of buying and traveling much easier and much more intuitive, but still obviously with some of the controls that you need to have in place.

The problem is that a lot of these processes have been very siloed across multiple places. So you have your travel and expense reports, we have our purchasing cards (P-Cards), maybe an e-procurement system here and there, or maybe an e-invoicing. So you have all these different little channels that are dealing with bits and parts of the problem, but it hasn’t really come together as one kind of seamless experience.

Seamless experience

The only way that you can make that experience seamless is to have this combination of domain expertise around the process, the software to kind of support it, and then more and more this area around cognitive and the skills and being able to empower humans to do this process better.

Probably more of the repetitive tasks that those humans were previously doing will be more bot-enabled rather than human-enabled. That’s going to happen over time, but ultimately, that frees up the humans to do higher value-added activity, rather than just these rote tasks.

Gardner: My sense is that it will start with rote, but it could very easily move up a value chain of intelligence. The other interesting thing to me is that they're using a messaging application, which people are very familiar with, and brings it to a democratization level, where almost anyone in the organization can take part.

Furthermore, what’s interesting is the ability to act on it very rapidly. So, when you create a virtual credit card, you're able to pay for something as rapidly as you're able to find it. It really brings decision-making and execution down to a fundamental level of whoever in the business needs to act can act, and it removes all those middle layers. To me, that’s a fairly impressive productivity benefit.
Millennials are entering the workforce. They're highly messaging based.

Mitchell: What’s nice about it is that if you look at the changing workforce now, Millennials are entering the workforce. They're highly messaging-based. So, it’s really accommodating a multichannel world. The new UI with the changing workforce is going to be messaging-based, but just because it’s quick, easy, and real-time, and it’s in a metaphor that they’re familiar with, doesn’t mean that your need for controls goes away.

The platform capabilities that Tradeshift is increasingly bringing to bear have the ability to take these little atomic levels of services around whether I do a budget check in real time, how do I take what you’re asking for and turn that information into a commodity code, a merchant code, or into being able to translate all this complexity on the back end.

That doesn’t go away. You're just shielding the end-users from it and allowing them to work in a style that’s familiar to them. Too often, it’s been a trade-off between ease of use and high controls. If you can bring those two together, especially for this changing workforce, that’s a huge win-win.

Gardner: We hear a lot these days about the need for more productivity in our economy in general in order to create a better standard of living and increased wages and so forth. It seems to me that for many years, maybe generations, big businesses had an advantage over smaller business. They've been able to integrate processes, have efficiencies of scale, and buy and sell at scale.

But now, when you look at some of these technologies like Tradeshift has brought to bear, maybe mid-market and small companies will get an advantage. They can be fleet, agile, and use these services and cut their costs, while being innovative all along.

Do you share my sense that maybe this is a day and age where the smaller companies have an advantage?

Level of orchestration

Mitchell: Yes, and no. I would probably vote for the school of piranhas over the shark any day, but for those piranhas to win they have to be able to assemble with each other at will. That requires a new level of orchestration and standing up business processes to get those going, rather than what’s been available in the past.

So, taking a traditional enterprise architecture and trying to stand up these cloud-enabled, API-driven services in the cloud that are getting increasingly intelligent isn't possible with the older technology.

I'm with you, and it does require a new class of technology to stand-up these new value chains and these business networks.

Gardner: I suppose there's nothing really stopping even the largest companies from bringing some of these atomic services to bear inside their organizations. Yes, you have to change some processes, but it seems to me that they might not have a choice when their competition gets there first.
Look at what’s happening to the supply markets. They're getting digitized, and the supply chains are getting digitized.

Mitchell: Absolutely. There is so much activity going on right now around digital supply chain and digital disruption. Look at what’s happening to the supply markets. They're getting digitized, and the supply chains are getting digitized.

So, who were the folks who are really responsible for helping the organization tap innovation from those supply markets? Hopefully, procurement is taking a leadership role in doing that. There's a real fork in the road here for procurement to say "Look, it’s time to help us educate our stakeholders about how these value chains are going digital. How can we tap that?"

By the way, procurement is a service provider, too, and you are only going to get so much budget. So, if you can figure out some disruptive ways to carve off stuff that makes absolutely no sense for you to be doing on an ongoing basis, you can really help automate that away, so that you can focus your time on really going deep in certain categories, in innovation projects, and really doing things are really going to make a difference.

The biggest cost in procurement is the opportunity cost of wasting your time on low-value activities, such as cost-center stuff, and not really doing the true profit-center innovative kinds of things. Ultimately, you have to evolve or you're going to die. "Stay above the API," some people say.

Gardner: It sure seems like we’re now in a period where procurement can rise and become an evangelist within organizations for innovation across many different dimensions of the business that could have vast savings, but also put them in a highly competitive position when they could otherwise be disrupted.

So, to the procurement people, "Go get them," right? [See related post, ChainLink analyst on how cloud-enabled supply chain networks drive companies to better manage finances, procurement.]

Can't do it alone

Mitchell: Absolutely. And you have to work with IT and everybody else and work with your suppliers, too. You can’t do it alone, but what’s nice is that you’re finally starting to see some better options out there -- a much bigger utility belt of tools that you can use to kind of make it happen, because otherwise, it’s just not possible.

Gardner: Last point, Pierre. It seems like it’s incumbent upon organizations to get a bit more experimental. There's such a wide variety of new services coming on board. They might not want to take a bite the whole enchilada, but do you share my opinion that being experimental, doing pilot projects, trying new things is extremely important these days?

Mitchell: Absolutely. This whole notion of self funding is that it’s just become part of the new normal. The idea is what can you actually do in the short term that can add some new incremental value, demonstrate credibility, engage your stakeholders, and in doing so, unlock getting to the next level, where now you can build upon that, or if it didn’t work, you redirect, but you need to work towards a long-term vision.
You have to work with IT and everybody else and work with your suppliers too. You can’t do it alone.

This is the part where platforms, architecture, and thinking some of the stuff through is important, so that you can do stuff in the short term and get some business results, but you want to work towards a more flexible and open architecture so that you have options. Because in procurement, and for the stakeholders, it’s all about having options and flexibility. That’s what enables agility, being able to have those options.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: Tradeshift.

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