Driving high performance procurement initiatives by Zycus

Research Report

Driving high-performance procurement initiatives

Financial Savings Management

Spend Analysis

esourcing

Contract

Supplier

Procure-

Management

To-Pay

Dear Colleague, Zycus is pleased to present Driving High Performance Procurement Initiatives, an exclusive research report on the tactics and technology combinations that work best for driving procurement’s spend and other business performance management initiatives forward. We often hear from our customers that winning genuine acceptance, adoption and support from internal customers and spend stakeholders is far and away the greatest challenge for procurement leaders looking to drive corporate performance improvement using procurement and supply chain levers. Our study — which garnered a remarkable participation rate of nearly 600 procurement professionals — provides valuable insight into how leading procurement organizations gain acceptance and support from complex corporate populations. There are no easy answers in the results, but we expect this report to help procurement leaders focus their energies on the most effective tactics and technology investments. At Zycus, we are passionate about ensuring maximum ROI for our customers’ procurement performance initiatives. We offer innovative product solutions that are easy to learn and use and which promote process automation and collaboration across enterprises. We are driven by these principles, which led us to pioneer the use of Artificial Intelligence for Spend Analysis way back in 2001! Zycus Procurement Performance solutions combine state-of-the-art functionality, ease of use, and superior responsiveness to customers to help enterprise procurement organizations analyze, plan and source using intuitive and objective processes. The research contained in this report focuses on what high-performing procurement organizations do to win stakeholder compliance, participation and procurement technology adoption. We hope you find it useful and instructive as you map your own journey to better business performance.

Aatish Dedhia CEO, Zycus Inc.

Introduction This exclusive procurement research report contains the results of an in-depth study — conducted by Zycus — that endeavors to identify which strategies and tactics work best when it comes to persuading people in complex corporate enterprises to:  Collaborate actively in strategic sourcing and spend management initiatives,  Comply with strategic supply contracts,  Provide consistent and constructive feedback on supplier performance and  Adopt and actively use preferred spending processes and process automation technologies. Nearly 600 procurement professionals participated in the study. The report begins with a set of performance benchmarks for what modern corporations have achieved thus far by way of: compliance to enterprise supply contracts and preferred procure-to-pay processes; stakeholder participation and support for procurement-drive performance initiatives; and adoption rates for various procurement automation technologies. Subsequent chapters zero in on the highest performers in each area to identify the strategies and tactics they are using to excel.

INSIDE this report Introduction & executive summary............... 4-5 Study benchmarks............................................ 6-9 Compliance drives savings........................... 10-15 Contract compliance.....................................10-13 P2P process compliance...............................14-15 Getting to voluntary compliance.................16-21 Page 3 | © 2011 Zycus Inc. All rights reserved

Sourcing participation................................... 16-19 Supplier performance participation...........20-21 Winning technology adoption.....................22-24 Summary recommendations............................25 Study demographics..........................................26 About Zycus.........................................................37

Driving high-performance procurement initiatives It is easy for an ambitious procurement leader to decide that enterprise spend management — driven by procurement — is a good thing for a corporation. It is also relatively easy to persuade top corporate executives to buy in to the idea. After all, what corporate leader would not jump at the chance to save millions — sometimes billions — in unnecessary spending?

Much less simple, however, is the challenge of converting a complex corporate entity from a culture of independent — often undisciplined or unscientific — spend decision making to one in which most people will, S pend each corporate they would their own.

dollar as carefully as

B e fully cognizant of the methods and techniques that lead consistently to the best sourcing and procurement decisions,  Be equipped, ready, and willing to use the tools that generate the best procurement decisions, and S incerely believe that collaborating to promote corporate profitability through disciplined spending Page 4 | © 2011 Zycus Inc. All rights reserved

and consistently executed sourcing and procurement processes is the correct — and only — way to behave. A common lament among procurement leaders is that winning genuine acceptance, adoption, and support from spend stakeholders is far and away their greatest challenge. In this context, the term spend stakeholder includes P+L owners, department budget owners, the hundreds — sometimes thousands — of day-to-day spend decision makers, suppliers, and even personnel within their own procurement organizations. With this in mind, Zycus, a global leader in procurement technology solutions, has recently fielded a broad study aimed at defining which tactics and strategies are most effective for persuading people in complex corporate enterprises to collaborate actively in strategic sourcing and spend management initiatives, comply with strategic supply contracts, participate in supplier performance

management endeavors, and adopt and use preferred procurement processes and technologies. The study itself was devised upon the assumptions that good benchmark indicators of corporate-cultural penetration for spend management would include: S takeholder compliance to both enterprise supply contracts and preferred procure-to-pay (P2P) processes, A ctive stakeholder participation in both strategic sourcing and supplier performance management processes, and

P rocurement technology adoption, use, and utilization rates (percent of total available functionality being used routinely). Nearly 600 procurement and supply management professionals — representing an estimated $370 billion or more worth of collective spending power — participated in the study. This research report presents resulting benchmarks, in-depth analysis, and recommendations for procurement leaders and their teams.

Executive summary

 Companies achieving the highest internal compliance rates to enterprise supply contracts and preferred procure-to-pay (P2P) processes employ a combination of policy, persuasion (business case/communication), performance objectives, metrics, monitoring, compliance reporting, and ease-of-use tactics.  Contract Management, Spend Analysis, and eProcurement technology solutions appear to be the most powerful enablers of procurement compliance tactics. Adopting a single solution extensively can engender compliance rates that exceed the industry average by some 25-33 points while extensively adopting an integrated set of solutions pushes the positive performance gap closer to 40 points.  Procurement organizations that win high levels of stakeholder participation in strategic sourcing and supplier performance management activities achieve compliance rates that are three to four times greater than those that neglect to engage internal stakeholders.  Effective tactics for winning stakeholder engagement include: persuasion (business case), clear and effective communication, obvious incorporation of stakeholder input into decision making, ease of participation, and consistent execution of standard, transparent, factdriven processes. Top three technology enablers for these tactics are: Spend Analysis, eSourcing, and Supplier Performance Management.  Organizations implementing procurement automation Page 5 | © 2011 Zycus Inc. All rights reserved

technology but failing to achieve high adoption, use, and utilization of their solutions show substantially (50-75%) lower performance for compliance and stakeholder engagement compared to companies that obtain high adoption and use.  Companies winning the highest technology adoption and use rates employ a combination of compulsory tactics — policy, usage monitoring, reporting, workflow management — along with ease of use (as a key solutionselection criteria), training, and ongoing mentoring.  While procurement technology adoption and use plays a big role in winning corporate cultural acceptance for procurement-led performance initiatives, few believe their organizations come close to fully utilizing the technology already available to them. Of note is the importance of seeing each of the three areas — compliance, participation, and technology adoption and use — not as discrete objectives, but as three legs of the same stool. The compliance leg is the key to achieving substantial and sustainable cost savings. The participation leg is the key to achieving spontaneous, voluntary compliance. And the procurement technology adoption and use leg serves as the prime mover behind the tactics and strategies that high performers say are most effective for creating a lasting corporate cultural transformation around the disciplines of spend management and other procurement-led corporate performance initiatives.

Study benchmarks Insofar as most corporations measure procurement’s spend management success in terms of cost savings, this metric was used to segregate the study population into five performance classes. The first part of this paper shows the cultural-acceptance benchmarks for spend management across all five of the cost-savings performance classes. Two of the series shown on this page and the next represent percentage estimates while the remainder are estimated scores given on a 0-10 scale (with 10 being highest). Numbers shown to the left represent weighted average percentages or scores for the total study

41% Weighted average contract compliance for total survey population

80%

population while numbers shown to the right in the charts represent weighted average percentages or scores broken out by cost-savings performance tier. Figures indicated as ‘best-in-class’ and shown in greater detail on pages 6 and 7 are for companies falling into the top cost-savings performance class with 30% or more accumulated cost savings or spend reductions attributable to spend management. Subsequent sections of the paper delve more deeply into three areas — compliance, participation, and technology adoption — to discern the approaches and tactics that appear to be yielding the best results among leading procurement organizations.

Contract compliance by cost savings performance tier

70% 61%

60% 50%

46%

47%

5-10%

11-20%

64%

40% 30% 20%

33%

<5%

21-30%

30%+

Savings attributable to spend management as a % of total spending

6.1 Weighted average procure-to-pay (P2P) process compliance score (0-to-10 scale) for total survey population

P2P process compliance scores by cost savings performance tier 5.5

5.8

6.2

7.3

6.6

Savings attributable to spend management as a % of total spending

study benchmarks

5.7

Stakeholder sourcing participation scores by cost savings performance tier

Weighted average stakeholder sourcing participation score (0-to-10 scale) for total survey population

5.4

5.9

7.8

6.4

4.2

Savings attributable to spend management as a % of total spending

5.8

Stakeholder SPM participation scores by cost savings performance tier 7.8

Weighted average stakeholder supplier performance management (SPM) participation score (0-to-10 scale) for total survey population

5.5

7.2

6.0

4.6

Savings attributable to spend management as a % of total spending

5.8

Technology adoption & use scores by cost savings performance tier 6.9

7.0

6.2

Weighted average procurement technology adoption and use score (0-to-10 scale) for total survey population

5.6 4.6

Savings attributable to spend management as a % of total spending

37% Average procurement technology utilization percentage (as % of total available functionality) for total survey population

80%

Technology utilization by cost savings performance tier

70% 60% 50% 40% 30% 20%

54%

21-30%

30%+

45% 38% 25%

<5%

5-10%

11-20%

Savings attributable to spend management as a % of total spending

study benchmarks A broad reading of the study benchmarks suggests, for example, that a $10 billion company, with $4 billion in annual spending and $1.2 billion in realized cost savings from spend management (30%) has typically succeeded at moving the meter on various cultural change indicators

as shown on this page and the next. Try marking your own organizational assessments on the same meters. If you are beating the benchmarks, keep doing what you are doing! If your company is relatively new to procurement-led spend management (less than 12 or 18

Contract compliance

P2P process compliance

(estimated on a 0-100% scale)

(estimated on a rating scale with 10 being highest)

40% 50% 60% 70% 30% 20% 80% 10%

100%

7 8

90%

Weighted average percentage for top

64% cost-savings performance class

7.3

Weighted average score reported by top cost-savings performance class

Stakeholder sourcing participation

Stakeholder SPM participation

(estimated on a rating scale with 10 being highest)

3 8

2 9

7 8 9

1 10

Weighted average score reported by

7.2

7.8 top cost-savings performance class

Weighted average score reported by top cost-savings performance class

Technology adoption & use

Technology utilization

(estimated on a rating scale with 10 being highest)

(estimated on a 0-100% scale)

3 2

40% 50% 60% 70% 30% 20% 80%

7 8 9

10% 10

7.0

Weighted average score reported by top cost-savings performance class

90% 100%

average percentage for top 54% Weighted cost-savings performance class

study benchmarks months into a transformation), treat these benchmarks as a roadmap for what must be accomplished if you intend to build a sustainable spend management culture that continues to deliver high savings percentages over time. If, alternatively, your enterprise is several years into a

spend management transformation â&#x20AC;&#x201D; but not moving up the cost-savings curve as steadily as desired â&#x20AC;&#x201D; the benchmarks may help to identify weak spots that can be addressed using the tactics and technologies outlined in the remainder of this report.

Spend analysis adoption & use

Contract mgmnt adoption & use

(estimated on a rating scale with 10 being highest)

3 8

7 8 9

1 10

7.3

2 9

Weighted average score reported by top cost-savings performance class

7.3

Weighted average score reported by top cost-savings performance class

eSourcing adoption & use

eProcurement adoption & use

(estimated on a rating scale with 10 being highest)

3 8

7 8

2 9

average score reported by 6.6 Weighted top cost-savings performance class

SPM adoption & use

EIPP adoption & use

(estimated on a rating scale with 10 being highest)

3 2 1

3 8

2 9

1 10

6.7

Weighted average score reported by top cost-savings performance class

7 8 9 10

average score reported by 6.9 Weighted top cost-savings performance class

Compliance drives savings Metrics make compliant cultures

Stakeholder compliance — be it compulsory or voluntary — bridges the rather large gap between the cost savings that get encoded into strategic supply contracts and spending processes and the cost savings that actually materialize on a company’s profit line. Stakeholder compliance comes in three essential forms:  Contract — people buy preferred, lowest-cost products or services, according to contract, from preferred suppliers,  Performance — the company consistently realizes all benefits captured into contracts, be they rebates, volume price discounts, payment terms, supplier performance requirements, and so forth, and  Process — people adopt and use preferred, lowestcost buying and payment processes that serve the

80%

Contract compliance by cost savings performance tier

70% 61%

60% 50%

46%

47%

5-10%

11-20%

dual role of minimizing costs of doing business with preferred suppliers and driving contract compliance and performance. As the study benchmark figures show, companies falling into the top or best-in-class performance tier for cost savings attributable to spend management (with accumulated spend reductions of 30% or greater) report contract compliance rates that are, on average, two times greater than companies falling into the bottom (<5%) cost savings tier. The implication: doubling contract compliance may be associated, over time, with a six-fold increase in percentage cost savings realized from spend management activities.

What gets measured gets done

Tactics identified as most effective for driving contract compliance point strongly to procurement technology adoption as the bedrock for driving a corporate culture in the direction of ‘spend management as lifestyle’ versus ‘spend management as short-term annoyance.’ 64%

40% 30% 20%

33%

<5%

21-30%

30%+

Savings attributable to spend management as a % of total spending

For example, among companies achieving contract compliance rates of 70% or greater, some 60% cite ‘monitor and report’ among their top three most effective tactics. However, simply favoring this tactic is no guarantee it will deliver results. The ability to execute the tactic well is tied

Top performers’ top 5 tactics : contract compliance |

% of firms geting 70%-plus contract compliance who cite the tactic among their most effective

60% 49% 42% 27% 26% Monitor & report

Communicate benefits & business case

Compel with performance objectives & metrics

to technology adoption, which enables metrics such as off-contract spending, contract utilization, and contract performance (to terms) to be tracked easily, consistently, and accurately right down to specific departments and individual spenders. Indeed, for all companies that favor the ‘monitor and report’ tactic for driving contract compliance, the study data show a dramatic 44-point difference in reported contract compliance rates between companies with high adoption and use of contract management (CM) technology and companies with low adoption and use. A similar relationship emerges when the same test is applied to the third-place ‘compel with performance objectives and metrics’ tactic (see charts to the right on this page plus a more detailed graphic on the next page for additional comparisons). Overall, among procurement technology strategies evaluated in the study, the adoption and regular use of contract management (CM) solutions emerges as a clear leader in promoting contract compliance. Some 61% of companies falling into the highest contract-compliance tier also report high adoption and use of contract management technology. That compares to just 5% of companies falling into the lowest compliance performance tier, a difference of some 56 percentage points.

Facts matter

The second-most popular tactic for promoting contract compliance among companies achieving high performance is to ‘communicate the benefits and business case’ around spend management. First and foremost, this speaks to a need for good salesmanship and consistent internal marketing around spend management concepts and Page 11 | © 2011 Zycus Inc. All rights reserved

100%

Compel with policy

Make oncontract the easiest way to spend

How contract management (CM) techonology adoption & use affects contract compliance rates among companies favoring tactics specified:

80%

74% 60%

avg with high CM adoption & use versus...

Monitor and report

75%

avg with high CM adoption & use versus...

Compel with performance objectives and metrics

40%

30%

29%

with low

20%

with low

Contract management (CM) technology adoption & use vs. contract compliance 100%

5% 20%

61% High CM tech adoption and use

80%

60%

40%

20%

Med Low

LOW

MED

HIGH

Performance tier for contract compliance

Tactics + technology 100%

Contract compliance, weighted avg % reported by study participants using specified combination of tactics & technology

80%

High technology adoption & use vector Low technology adoption & use vector

66%

74%

70%

75%

76%

95%

78%

79%

24%

23%

60%

37%

40%

30%

29% 19%

20%

*N/A

+Spend Analysis

+eProcurement

Monitor and report tactic +Contract +Contract ManageManagement ment +Spend Analysis

+Contract Management +eProcurement

Study findings shown in this graphic illustrate how effective tactics for driving contract compliance rely — in turn — on implementing various procurement technology solutions AND driving high adoption and use of them. Companies that extensively adopt two or more integrated solutions report contract compliance rates that beat the study weighted average (41%) by some 35-37 percentage points and either double or triple the compliance rates being achieved by companies that invest in the technology but fall down on adoption.

successes. But making and marketing a strong business case for contract compliance comes down to having detailed and persuasive facts. Building a business case upon verifiable facts enables a procurement organization to go to spend stakeholders and say things like:  ‘In the spend categories we have placed under management so far, we have documented an X correlation between high contract compliance and savings realized,’ or  ‘These are the specific amounts of money that departments X, Y, and Z were able to reallocate in their budgets due to savings realized from high compliance to Page 12 | © 2011 Zycus Inc. All rights reserved

+Contract Management +Spend Analysis +eProcurement +Compel w/objectives & metrics tactic

+Compel w/policy tactic

*Zero participants report attempting this combination of tactics & technology in the absence of high technology adoption.

enterprise supply contracts.’ Because good business cases are so heavily reliant on believable data, it is no surprise that spend analysis technology figures prominently in the contract compliance picture as well. According to the study, some 49% of companies with the highest contract compliance rates also report high adoption and use rates for spend analysis technology compared to just 11% among companies with the lowest contract compliance. Companies that emphasize creating and communicating strong business cases while also achieving high spend analysis adoption and use report a weighted average contract compliance rate of 77%, according to the study. That is 36 percentage points above the overall study average for contract compliance and 41 points above the rate reported by

compliance drives savings

Spend analysis (SA) technology adoption & use vs. contract compliance 100%

11%

100%

21%

49%

80%

High SA tech adoption and use

60%

7% 18%

40%

80%

High ES tech adoption and use

60%

40%

Med Med

20%

eSourcing (ES) technology adoption & use vs. contract compliance

Low

LOW

MED

20%

HIGH

The imperative to measure compliance may also be at work here as — in the absence of more direct compliance monitoring and reporting capabilities — many companies will follow category spending data as a proxy for contract compliance (the logic: ‘if category spend is declining, then contract compliance must be occurring’). Two other technology categories showing notable positive relationships to contract compliance are eSourcing and Supplier Performance Management (SPM). This appears to be a function of the ways in which these solutions promote direct stakeholder participation in strategic sourcing and supplier performance management activities and will be discussed in greater detail starting on page 16 of this report.

40%

MED

HIGH

Supplier performance (SPM) technology adoption & use vs. contract compliance 100%

Meanwhile, adoption and use of eProcurement technology — which can be used to drive spend decision-making to contracted suppliers, items, and services and to monitor individual/departmental spending activities relative to contracts — emerges from the study as another technology enabler for driving contract compliance. As shown in the figure on page 12, companies that ‘monitor and report’ contract compliance in conjunction with

LOW

Performance tier for contract compliance

companies where spend analysis technology is present but poorly adopted.

Low

8% 17%

45%

80%

High SPM tech adoption and use

60%

Med 20%

Low

LOW

MED

HIGH

Performance tier for contract compliance

well adopted spend analysis and contract management solutions, show contract compliance rates in the vicinity of 75%. Adding a well adopted eProcurement solution to the mix adds a few more percentage points (78% compliance) while adding a policy imperative to the mix can drive the figure well above 90%.

compliance drives savings

Of note is that the study also tested eProcurement adoption and use alone in conjunction with the number-five tactic among high performers of ‘making on-contract the easiest way to spend.’ The logic: Well-managed eProcurement systems with heavy emphasis on supplier and spendcategory enablement for eProcurement (one-stop shopping) plus intuitive user interfaces that mimic consumer onlinebuying experiences might naturally attract high usership while also enabling spend activities and decision making to be monitored at very detailed levels and driven in directions desired by the enterprise. But while the study finds a somewhat positive relationship between the tactic, the technology and compliance results, the impact is much less notable than the monitoring, metrics, and business-case routes. This suggests that many companies may still have a way to go on eProcurement execution before they will be in a position to treat ‘easiest way to spend’ as a primary driver of contract compliance. Surprising, also, for a relatively weak relationship between technology adoption and contract compliance is the technology category for electronic invoicing and payment (EIPP). While one might hypothesize that locking down the payment process would boost contract compliance, survey results are less clear. On the one hand, some 41% of high performers on the contract compliance metric also report high adoption and use of EIPP technology. On the other hand, some 20% of the lowest performers on contract compliance also report high adoption and use of EIPP technology, suggesting the two are less likely to go hand-inhand.

P2P process compliance

As an indicator of cost-savings performance, the study finds stakeholder compliance to preferred procure-to-pay (P2P) processes to be somewhat less important than contract compliance. While companies falling into the highest cost savings tier report relatively high preferred P2P process compliance (scored at a weighted average of 7.3 on a 0-10 scale), companies falling into the lowest cost savings tier are not all that far behind, reporting P2P process compliance at a

weighted average score of 5.5 on the same scale. There is also a fairly high percentage (24%) of survey participants who opted out of this question, suggesting that many companies have not yet reached a point of establishing preferred, low-cost P2P processes much less paying close attention to compliance. This may reflect a notion that efficiency savings from adoption of low-cost processes are generally nonrepeatable and relatively small in comparison to savings generated from such spend management activities as demand aggregation, strategic competitive sourcing, and demand or consumption management. It may also be a function of the fact that most companies already limit procurement and supplier payment methods, to a certain extent, through routine financial controls (PO-invoice, procurement card, check request, expense report). With that said, there is a hint in the survey data that compliance to preferred P2P processes may become more important as companies move up the spend-management maturity curve. For instance, while the difference in weighted P2P compliance scores from savings-tier one to tier two is just three tenths of a point, the difference between tiers four and five accelerates to seven tenths. Insofar as the study derives much of its data from peoples’ perceptions and a relatively simple scoring technique, that difference may be too small to be noteworthy. But it makes sense that maturing procurement groups — those that have exhausted many of their easier opportunities to save through competitive sourcing — would need to cast a wider net, focusing more on efficient, cost effective processes. What is more, controlling the process controls the information that comes out of it, enabling better views

P2P process compliance scores by cost savings performance tier 5.5

5.8

6.2

7.3

6.6

Savings attributable to spend management as a % of total spending

Top performersâ&#x20AC;&#x2122; top 5 tactics : process compliance |

% of companies scoring 7 or higher (0-10 scale) that cite the tactic among their most effective

45% 38% 31% 30% 26% Monitor & report

Compel with policy

Make preferred P2P process the easiest way to spend

into spending. Early on in a spend-management transformation, a company may be able to generate actionable views of spending by patching together data from a wide variety of procure-to-pay work streams (or by simply ignoring certain streams where the patch work proves too difficult). But uncovering more esoteric cost-savings opportunities as time goes on requires more timely, accurate, granular, and complete views into spending. Those views are much easier to generate when all or most spending flows through a very small set of welldefined processes that are designed with the idea in mind of consistently capturing and classifying spend data.

eProcurement (EP) technology adoption & use vs. P2P process compliance 100%

0% 24%

69%

80%

High EP tech adoption and use

Compel using automation and workflow technology

Compel with performance objectives & metrics Communicate benefits & business case

Among high performers on the P2P process compliance metric, the tactics voted most effective (shown on this page) look very similar to those for contract compliance and suggest a heavy technology-adoption component. Insofar as eProcurement technology typically embodies a companyâ&#x20AC;&#x2122;s preferred low-cost P2P process for controlling distributed purchasing activity and enables direct monitoring of individual and departmental spending activity and usership, a high correlation is to be expected between eProcurement adoption and use and preferred P2P process compliance. Indeed, 69% of companies with the highest scores for P2P process compliance also report high eProcurement technology adoption and use. That compares to 0% of companies with the lowest P2P process compliance scores. Adoption and use of electronic invoice presentment and payment (EIPP) technology also seems to have a greater impact here as 42% of high performers on the P2P process compliance metric also report high adoption and use of EIPP technology compared to just 7% of low performers (a six fold difference).

60%

40% Med

20%

Low 0%

LOW

MED

HIGH

Performance tier for P2P process compliance

Suppliers play a bigger role here as well, according to the study. For example, 44% of companies reporting high P2P process compliance also report high supplier adoption of their EIPP technology and 37% report high supplier adoption of their eProcurement technology, supporting the idea that the more a P2P process can be made to behave as a one-stop shop for spend stakeholders, the greater the adoption and use of the process (and/or solution) will be over time.

Getting to voluntary compliance Participation fosters acceptance

While a combination of policies, performance objectives, metrics, monitoring and reporting plus high adoption of supporting procurement technology makes a powerful formula for obtaining compliance to spend management contracts and preferred processes, they are not the end game when it comes to achieving a corporate culture change that truly embraces and buys in to enterprise spend management. Indeed, few procurement leaders will tell you they wish to spend the rest of their careers policing peoples’ behavior. On the contrary, what they really want is to embed best spend management processes and practices into their enterprises and move on to more important, value-adding and corporate performance-enhancing work such as supporting innovation and new product introduction, managing supply chain risk, improving working capital performance, and optimizing flows of goods and services throughout global supply networks.

Stakeholder sourcing participation by cost savings performance tier 5.4

5.9

The key to getting there is encouraging active stakeholder participation in strategic sourcing and spend management processes and stakeholder ownership of spend management decision making. Going all the way back to the early days of enterprise spend management in the 1980s and 90s, the popular wisdom has always been that — when spend stakeholders participate actively and enthusiastically in the drafting of requirements, evaluation and selection of suppliers, design of processes that make their work easier, and ongoing measurement and management of supplier performance — they are more likely to voluntarily abide by the decisions made. They are also more likely to champion spend management causes to others in their organizations and to carry the disciplines over into other areas of spending.

The study data certainly support this thinking as companies falling into the top performance tier for cost savings attributable to spend management (30% or greater) score cross-functional participation in spend management scores activities at nearly eight on a 0-10 7.8 scale compared to around 4 for companies falling into the lowest cost6.4 savings performance tier.

4.2

Savings attributable to spend management as a % of total spending

In the meantime, companies reporting the highest participation rates in cross-functional strategic sourcing processes also report contract compliance rates that are 3.1 times greater than companies with the

getting to voluntary compliance

weakest cross-functional participation. And companies that win high participation rates in supplier performance management (SPM) endeavors report contract compliance rates that are 3.6 times higher than companies with poor SPM participation rates. The implication is that spend management organizations who win active and enthusiastic stakeholder participation in spend management decision making and supplier performance management have an opportunity to spend much less time and resources on compulsory management of stakeholder compliance. For example, an exceptionsonly monitoring and alert system might replace more burdensome, detailed and frequent tracking of individual spending behaviors without losses to compliance or realized cost savings. With that said, however, the study finds that winning strong and consistent stakeholder participation remains a challenge for many enterprises with nearly half of study participants grading participation at 5 or lower on a 0-10 rating scale.

Contract compliance....

3.1x

75%

Some 62% of companies with high scores for crossfunctional sourcing participation also show high scores for spend analysis technology adoption and use. That compares to just 21% for companies with middle-of-theroad stakeholder participation rates and a mere 6% for companies reporting the lowest cross-functional participation scores. Similarly strong relationships between technology adoption and cross-functional participation show up Page 17 | © 2011 Zycus Inc. All rights reserved

70%

72% 65%

60%

50%

47% 39%

40% 32% 30% 23%

21%

20% 0-2 3-4 5-6 7-8 9-10

Effective tactics

The tactic voted most effective by companies that do well with promoting stakeholder participation in strategic sourcing is to ‘communicate benefits and business case.’ Once again, the ability to make a powerful business case for spend management in specific spend categories — one that can convince influential spend stakeholders to volunteer their time and brainpower for strategic sourcing efforts — appears heavily reliant on having credible data, which leads back to such technology enablers as spend analysis.

3.6x

80%

By cross-functional participation score (0-to-10 scale)

0-2 3-4 5-6 7-8 9-10 By supplier performance managmenent (SPM) participation score

Spend analysis (SA) technology adoption & use vs. sourcing participation 100%

6% 21%

62% High SA tech adoption and use

80%

60%

40% Med

20%

Low

LOW

MED

HIGH

Performance tier for sourcing participation

Top performers’ top 5 tactics

companies scoring 7 or higher (0-10 scale) : sourcing participation | %thatof cite the tactic among their most effective

41% 39% 37% 37% 36% Communicate benefits & business case

Communicate clearly and effectively throughout process

Ensure peoples’ opinions count heavily in process

for both the eSourcing and Supplier Performance Management (SPM) solution sets. Companies achieving the highest rates of cross functional participation and collaboration in sourcing activities are nearly three times more likely than those achieving intermediate participation rates and 6.8 times more likely than those achieving the lowest rates to also have high adoption rates for eSourcing technology. This is likely a function of the fact that — while often misjudged as a device focused solely on driving down supplier pricing — fully functional eSourcing technology is designed in direct support of the most effective tactics determined in the study for promoting stakeholder participation in strategic sourcing processes. For example, the second-most popular tactic for winning stakeholder participation is to ‘communicate clearly and effectively throughout the sourcing process.’ While this can be done without eSourcing, the technology is very much intended to create virtual, collaborative workspaces for such activities as,

Make it easy for people to participate

Base decisions on facts (vs. intuition or opinions)

 Conducting event results analysis and final decision making in highly transparent, consistent and structured ways. Meanwhile, a great way to ‘ensure people’s opinions count heavily in a strategic sourcing process’ (the third most popular tactic for promoting participation among high performers) is to give stakeholders a structured means for registering their opinions, for reviewing others’ opinions, and understanding clearly how a sourcing team’s collective set of opinions influences a sourcing event’s outcome. When an eSourcing tool is web based — allowing access

eSourcing (ES) technology adoption & use vs. sourcing participation 100%

8% 19%

54% High ES tech adoption and use

80%

60%

 Requirements definition and approval,  Requesting and gathering of information and proposals from suppliers,  Communicating timing, rules, and other parameters around sourcing events to all stakeholders,  Asking and answering questions, and Page 18 | © 2011 Zycus Inc. All rights reserved

40% Med 20%

Low

LOW

MED

HIGH

Performance tier for sourcing participation

Tactics + technology 10

High technology adoption & use vector Low technology adoption & use vector

Sourcing participation, weighted avg score (1-to-10 scale) reported by study participants using specified combination of tactics & technology 7.3

8.0

7.6

8.3

8.5

4.4

4.5

8.6

4.6

4.6 4.0

3.0 2

Communicate benefits & business case tactic +Supplier Performance Management

+eSourcing

Study results shown in this graphic illustrate how

+Spend Analysis

popular tactics for promoting spend stakeholder participation in sourcing processes are made more effective when companies implement supporting procurement technology solutions AND drive high adoption and use of those solutions. Companies that extensively adopt several integrated solutions score stakeholder participation at nearly triple the participation levels reported by companies that invest in supporting technology solutions but fail to drive widespread adoption and use of them.

from anywhere at any time — it frees the strategic sourcing process from both time and place constraints, enabling greater team recruitment and participation possibilities. eSourcing also enables more people to participate in more discrete ways, for example, contributing to and reviewing only the specific portions of suppliers’ proposals that are most relevant to their jobs. Taken together, such features ‘make it easy for people to participate’ in a sourcing process (the fourth most popular tactic cited by leaders in winning cross-functional participation in sourcing processes). But simply deploying technology in conjunction with tactics is clearly insufficient for obtaining results. As the graphic on this page illustrates, driving technology adoption and use is a must. For example, companies favoring the number-one tactic of ‘communicating Page 19 | © 2011 Zycus Inc. All rights reserved

Base sourcing decisions on facts (vs. intuition or opinions) tactic +eSourcing

Ensure peoples’ opinions count heavily in process tactic +eSourcing +Supplier Performance Management

+Spend Analysis +eSourcing +Supplier Performance Management

benefits and business case’ around strategic sourcing — in combination with high adoption and use of eSourcing — score cross-functional participation, on average, three points higher than companies with eSourcing that is poorly adopted. But, where eSourcing adoption really seems to differentiate is with the tactic of ‘basing sourcing decisions on facts’. In that case, the difference in crossfunctional participation scores between the highest and lowest adopters of eSourcing technology is nearly four points. While it is interesting to see what companies leading on cross-functional participation in sourcing consider to be their most effective tactics, it is also interesting to see the tactics they consider to be least effective: training, careful selection of people for sourcing teams, close adherence to project management disciplines, and minimization of time

Top performers’ top 5 tactics

companies scoring 7 or higher (0-10 scale) : SPM participation | %thatof cite the tactic among their three most effective

39% 37%

37% 33% 32%

Make it easy for people to participate

Communicate benefits & business case

How Supplier Performance Management (SPM) technology adoption & use affects stakeholder participation scores (0-10 scale) among companies favoring tactics specified:

7.5 6

Communicate/ ensure that people understand how their input affects decisions, actions, and other outcomes

with high SPM tech adoption & use versus...

Make it easy for people to participate

4.2

with low

7.9 with high SPM tech adoption & use versus...

Communicate, ensure people understand how their input affects decisions, actions & other outcomes

3.8

with low

required to participate in strategic sourcing activities. The implication in these findings: As long as spend stakeholders believe the sourcing process is valid, have clear visibility into how the process is being executed, trust the process to generate positive outcomes for their organizations, and feel their input is taken seriously, they will be quite happy to contribute their time to collaborate actively with procurement.

Employ a standard, transparent and consistently executed process

Ensure that peoples’ input/ opinions count in decision making

Stakeholders care about performance

If eSourcing adoption can help to promote corporate cultural adoption of spend management disciplines, Supplier Performance Management (SPM) technology adoption may do an even better job. The study finds 51% of companies winning high stakeholder participation in their supplier performance management endeavors also reporting high adoption and use of SPM technology compared to just 2% among the lowest performers and 16% of intermediate performers on the participation metric for supplier performance management. Top performers’ most effective tactics for promoting stakeholder participation in supplier performance management activities are shown on this page. The study data suggest that introducing SPM technology to the mix makes each of these tactics more effective to varying degrees with the most notable impact showing up in how the technology enables procurement to ‘communicate and ensure that people understand how their input affects decisions, actions and other outcomes’. As the figure on this page shows, companies favoring the tactic and also reporting high adoption and use of SPM technology score stakeholder participation at nearly 8 on a 0-10 scale compared to a score of less than 4 for low SPM technology adopters. Important ways in which SPM technology supports the tactic of connecting stakeholder input to real actions and

participation fosters acceptance

Web-based solutions allow people to participate on their own schedules and make it easy to request input on only the supplier performance factors that are directly relevant to specific stakeholders.

decisions include:  Enabling systematic blending of quantitative and qualitative data inputs,  Enabling supplier performance metrics to be customized at a spend category level but also rolled up to consistent supplier rankings that can be applied in sourcing decision making, and  Enabling identification, ongoing management, and communication around supplier development efforts aimed at diagnosing and correcting supplier performance problems and also driving continuous performance improvement. For many of the same reasons discussed around eSourcing, SPM technology also appears to have a strong impact on ‘making it easy for people to participate’ in supplier performance management processes. Webbased solutions allow people to participate on their own schedules and make it easy to request input on only the supplier performance factors that are directly relevant to specific stakeholders. So, for example, an office manager might be asked to evaluate an office supplies provider on things like supplier responsiveness, leadtime, on-time delivery and order accuracy, while an accounts payable stakeholder might be asked to evaluate only on invoice accuracy, and a spend category manager might be asked to evaluate on performance to pricing terms, and so forth.

C reating highly visible relationships between quantitative (objective) and qualitative (subjective) data inputs, E nabling consistent, systematic setting and movement of supplier performance benchmarks, E nabling generation of balanced supplier scorecards with weighting for various key performance indicators, G iving suppliers a role in self evaluating and responding to stakeholders’ input, and C reating clear connections between supplier performance data and the actions that result (performance improvement and development work, for example).

Supplier performance (SPM) technology adoption & use vs. SPM participation 100%

2% 16%

51%

80%

High SPM tech adoption and use

60%

40% Med

Employing a ‘standard, transparent and consistently executed process’ for supplier performance management is another tactic voted most effective by top performers on the SPM participation metric. Supplier Performance Management (SPM) technology enables the tactic by,

20%

Low

LOW

MED

HIGH

Performance tier for SPM participation

Winning technology adoption Bigger challenges, less consensus

Much procurement technology has been created in the past two decades with the intention of enabling various aspects of enterprise spend and other forms of corporate performance management. And while the technology continues to gain sophistication and has potential to

80% 70% 60% 50% 40% 30% 20%

somewhere in the vicinity of 58% of available technology functionality at this time. Companies at the low end of the cost-savings scale claim to be using an average of 25% 27% of available technology for typical and power users alike, while companies at the high end of the cost-savings scale place technology utilization in a range of 54% - 57%, depending on Percent of total available SM technology being type of user. There appears used routinely by typical users and power users to be a slight divergence between typical and power users in the early stages of spend management transformation, but the gap closes as companies gain maturity and move progressively up the cost savings performance scale. <5% 5-10% 11-20% 21-30% 30%+ Savings attributable to spend management as a % of total spending

deliver enormous benefits to corporations, there is evidence in the study that it may have begun to outrun the organizations for which it is intended. For example, when asked to estimate the percentage of total available technology functionality being used routinely by typical users in their organizations, the weighted average response generated across the entire study population is just 37%.

Of course, utilization of technology begins with adoption and use. And while the study finds that procurement technology adoption has big roles to play in driving both stakeholder participation and compliance to spend management initiatives, there are other reasons to focus on promoting technology adoption, not least the delivery of ROI on a corporation’s technology investments, but also in terms of,  I dentifying performance improvement opportunities,

 I mproving productivity,

Tech adoption scores by savings tier Total study population

<5% savings

5-10% savings

11-20% savings

21-30% savings

30%-plus savings

Spend analysis

5.9

4.3

5.9

6.8

7.3

eSourcing

5.2

4.4

5.0

5.5

6.1

6.6

eAuction

3.7

3.0

3.5

3.8

4.6

5.5

Contract mgmnt

5.9

4.2

5.4

6.0

7.1

7.3

eProcurement

5.6

4.1

5.2

5.9

6.7

6.6

EIPP

5.6

4.8

4.9

5.6

6.5

6.9

SPM

5.5

4.2

5.4

5.9

6.9

6.7

SIM

5.3

3.7

5.0

5.6

6.7

6.4

Overall

5.8

4.6

5.6

6.2

6.9

7.0

 Automating nonvalue-adding work,

top three, only 36% of leaders on the technology adoption metric do the same.

 Managing and bidding more spend categories,  Making efficient markets that include more suppliers, expand sourcing organizations’ geographic reach, and so forth. Overall, the study population scores procurement technology adoption and use at just shy of 6 on a 0-10 scale, while companies in the lowest savings performance tier score technology adoption and use between 4 and 5, and companies in the top savings tier score it at 7 (with spend analysis and contract management scoring somewhat higher and all other procurement technology solutions scoring somewhat lower). But what are the key drivers of technology adoption and use in business enterprises? Of all the cultural change areas looked at in the study, this one shows the least consensus among leaders around which tactics are the most effective. So, for example, ‘monitor and report usage statistics’ is the most popular tactic, but where 60% of top performers on the contract compliance metric chose the same tactic as one of their Page 23 | © 2011 Zycus Inc. All rights reserved

Perhaps one survey participant puts his finger on the challenge when he writes in that: “You need more than three to work.” Others point out that technology adoption can be very much a function of internal cultural diversity. For example, engineers, who are typically more tech savvy may be more likely than other types of professionals to adopt technology. “Our issue is in the corporate cultures are very different throughout our organization and technology adoption is based on internal organizational expectations,” remarks one study participant. If there is a thread running through the top five tactics for technology adoption and use, it is about balance. On the one hand, it is about compelling adoption and giving managers clear visibility into technology usership and abilities to prompt usership where it may be lacking. On the other hand, winning adoption and use appears to be about implementing solutions that are intuitive and easy to learn and use, and supporting those choices with appropriate training and ongoing mentoring and marketing. The second most popular tactic — ‘offer strong workflow

Top performers’ top 5 tactics

companies scoring 7 or higher (0-10 scale) : technology adoption | %thatof cite the tactic among their most effective

36% 32% 31% 28% 23% Monitor & report usage statistics

Offer strong workflow/ management capabilities

Select easy/ intuitive solutions

management capabilities’ — is the equivalent of saying ‘look for solutions that give us the power to keep processes moving forward and to control how and when people enter into and participate in spend management processes.’ Two other tactics came very close to making the top five. The first is ‘cultivate power users/mentors’ who can drive usership both by example and real-time assistance for people who are more reluctant or struggling to learn new systems. The second is ‘ensure strong correlation between technology and processes.’ In other words, select solutions that have been developed with direct input from real people executing real business processes and/ or which can be easily configured to automate existing work processes (rather than asking processes to change dramatically).

Compel with policy

Of note is that the number three tactic of ‘selecting easy/intuitive solutions’ — selected by 31% of the top performers for technology adoption — is not to be confused with the much lower ranked tactic of ‘emphasizing simple functionality’, selected by just 7% of top performers. The distinction is important, as the leaders are saying that functionality should not be sacrificed with the hope of gaining adoption. Rather, the search for appropriate solutions should simultaneously emphasize state-ofthe-art functionality and intuitive, easy-to-learn user interfaces. Forcing technology adoption and use as a matter of policy comes as a surprise among the top five most effective tactics, but speaks to the difficulty of winning technology adoption, especially in organizations where technology selections have proven to be poor fits.

Technology adoption & use scores by cost savings performance tier 6.9

7.0

6.2 5.6 4.6

Savings attributable to spend management as a % of total spending

Offer extensive training

As one study participant describes it: “For some technology elements, we have 100% usage/compliance through edict, but the functionality is poor. What we really want is for existing and new systems to be easy to use, employ appropriate business processes, and deliver measurable results.”

Recommendations If stakeholder buy-in and support is a problem for your procurement organization (or you are just starting out with spend management), it is definitely time to create and implement systematic strategies for driving stakeholder participation, compliance, technology adoption, use, and utilization. Summary recommendations to come out of the Zycus study include:

Monitor and report. This is a top-five tactic in

Promote and measure participation.

three of the five cultural transformation areas looked at in the study. Look for technology solutions that present strong capabilities for creating credible compliance and technology-adoption metrics that can be used in employee performance management systems and reported publicly at appropriate management levels.

Unless you want to spend the next several decades closely monitoring and frequently reporting on spend management compliance, be sure to promote participation in spend management activities at least as assiduously as you focus on compelling compliance. Over time, a corporate culture that participates routinely in spend management decision making and supplier performance management will not need to be measured closely for compliance.

Implement policies. ‘Compel with policy’ shows up as a top-five tactic among top performers in three of the five cultural transformation areas tested in the study. While it may be tempting to avoid the work of obtaining governance changes, those who are succeeding with stakeholder buy-in clearly see this as a step worth taking and one that goes hand-in-hand with the ‘monitor and report’ tactic (without which, policy can easily be seen as a ‘toothless tiger’).

Market and sell. Communicating benefits and business case shows up as a top-five tactic in four of the five cultural transformation areas looked at in the study. Doing this well involves using rigorous spend analytics in combination with credible compliance and other success metrics such as cost savings to formulate, sell, and continually market the benefits of procurement-led spend management to corporate populations. Emphasize ease. The word ‘easy’ appears among top performers’ most effective tactics in all five of the cultural transformation areas looked at in the study. Make sure the compliant way is the easiest way. Use technology to make participation easy, and select technology that is fully functional but easy to learn and use.

Emphasize consistent execution of well designed, highly transparent, and fact-driven decision making processes for all things spend management. This is especially important for enterprises that prefer less heavy handed approaches to spend management cultural transformation, emphasizing voluntary versus compulsory shifting of behaviors. Page 25 | © 2011 Zycus Inc. All rights reserved

Invest in solutions — Spend Analysis, SPM, eSourcing, eProcurement and Contract Management — that directly support key tactics outlined in this paper. In selecting solutions, emphasize: ability to monitor behaviors and generate metrics; quality and validity of information outputs; ease of learning and use; state-of-the-art functionality; configurability to existing work processes; accessibility (from anywhere, anytime); powerful workflow management, and ability to enable discrete stakeholder participation. Create specific strategies for driving technology adoption, use and functional utilization. Use a combination of policy, usage metrics, ease of use, usefulness to existing work management processes, and adequate training to produce desired results. Integrate. The study shows clearly that companies achieving the most significant results for spendmanagement cultural transformation use multiple tactics and solutions in concert with one another. Integrated technology suites where functional solutions are designed to work together, hand off information easily, and minimize data permutations, offer the best opportunities for generating accurate, consistent, credible performance objectives, metrics, and actionable visibility into enterprise spending behaviors.

Study demographics The study questionnaire was deployed online through a variety of channels; there was an incentive to participate, and participants were asked to self qualify for the study on the basis of being actively working in the procurement and supply management professions. Data presented in this paper are based on completed studies; however, participants were given an option to opt out of questions that were not directly applicable to their organizations, so sample sizes vary for different data points presented. Demographic breakdowns for total survey sample are shown on this page.

Enterprise size by annual revenue Donâ&#x20AC;&#x2122;t know or private: 9% >$2 billion: 44% <$500 mil: 21%

$500 mil to $1 bil: 14% $1-2 billion: 12%

Enterprise mandate for spend management?

40%

Spend management maturity assessment 1-5 scale 38%

N/A: 8% 30%

29% No: 22%

20%

16% 10%

Yes: 70%

11% 6%

Job title Other: 5%

Just starting

Global best-in-class

Geography

Exec/VP/CPO: 9% EMEA: 9%

Agent/buyer: 23%

Other: 2%

Director: 21%

North America: 89%

Manager/spend category manager: 42%

About Zycus At Zycus we are 100% dedicated to positioning procurement at the heart of business performance. For more than a decade we have been the world’s most trusted leader in Spend Analysis. With our spirit of innovation and a passion to help procurement create even greater business advantages, we have evolved our portfolio to a full suite of Procurement Performance Solutions — Spend Analysis, e-Sourcing, Contract Management, Supplier Management, and Financial Savings Management. Behind every Zycus solution stands an organization that possesses deep, detailed procurement expertise and a sharp focus on being responsive to customers. We are a large — 600+ and growing — company with a physical presence in virtually every major region of the globe. We see each customer as a partner in innovation and no client is too small to deserve our attention. With more than 200 solution deployments among Global 1000 clients, we search the world continually for procurement practices proven to drive competitive business performance. We incorporate these practices into easy-to-use solutions that give procurement teams the power to get moving quickly — from any point of departure — and to continue innovating and pushing business and procurement performance to new heights.

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