Hey CFOs - this should be important to you!
Accounts Payable Optimization, Source-to-Pay, E-procurement, Invoice Process Automation
This blog post is going to be a bit of a rant - wait, perhaps all of my posts are rants. Well, I hope not to disappoint but it’s friday (as I write this) and I should be doing something else but I’m feeling inspired so please bear with me and/or vicariously enjoy this cathartic moment - not my primal scream, just a little self-therapy.
Years ago, in school, I remember being taught that customers don’t know what they want. Now, I know it’s a cliché and wrong as many times as it’s right but it does bring to mind a few things I’ve learned over the past 12 years selling purchase-to-pay solutions. Number 1 is that customers know what they want but not what they need. I say this based on two facts: First, I can’t tell you how often I’ve heard customers say they wish their vendor had been able to really advise them on best practices, had been able to challenge them and tell them not just how to digitalize their existing process but actually transform their process, making it not a matter of the same sh*t moving faster but rather, new thinking and more effective processes. Second, this whole digital revolution we are experiencing is all based on quality data - which can be exploited to positive gain (examples: automated processes, predictive analytics, real-time reporting, global reach, scale, roll-outs, the list goes on).
So why do organizations keep sabotaging themselves when starting their purchase-to-pay or source-to-pay digital transformation projects by focusing first on accounts payable automation? Isn’t it strange that we in Europe, who pride ourselves on our amazing healthcare which increasingly works to encourage preventative health practices - do not continue this (cultural) behaviour in the B2B space? Preventative measures include treating or preventing causes rather than going after symptoms of ill health. So when leadership in an organization decides to tactically ‘fix’ problem areas rather than building strong foundational processes, I admit, I’m struggling not to point it out. This behavior is especially prevalent in the Nordics and unfortunately, the low hanging fruit is in finance (which is downstream in the process from sourcing and procurement).
The point is this: organizations repeatedly build their process foundations last and it’s killing me. We need to change the hive mind thinking that says the right approach is to start downstream and work your way up the process flow? How does this make sense to anyone? Procurement is your ground zero and AP is entirely reactionary AND dependant on the quality of the data and the processes within Procurement. So what’s going on? Why do most projects in the Nordics start this way? Don’t forget, in the USA and DACH regions, it’s procurement first and these are two global growth centers who might know some best practices of their own.
It’s simple, when you start your purchase-to-pay project with AP and then look at procurement as an afterthought, you run the risk of selecting a vendor who is strong in AP but weak in Procurement. You might think, well, sure, but if we go with procurement first, we would likely select a vendor strong in procurement and weaker in AP. True, that’s a possibility but here’s why the former is a worse choice than the latter: though the AP process is a pain, the gains you can make with a highly efficient AP process are incredibly minor compared to what you could gain with an equally effective procurement process. AP success is measured through FTE reduction and transactional cost savings. You can only layoff an AP manager once and once you transition from paper to e-invoicing that saving is captured. But a world class procurement department on the other hand can, year after year, produce savings in the 3% range against your total spend. In addition, when procurement is done well, your AP process actually works at it’s best.
I worked 9 years for an AP focused P2P provider and life was great when the prospect had an AP first view. But you know what? The amount of times we ever successfully delivered procurement and full P2P was few and far between. Do yourself a favor - step back and think about how to build a house. Then apply that thinking to your purchase-to-pay or source-to-pay project. The foundation for your success is not bricks but data. What holds everything in place is not mortar but your process - the e-procurement software which is your first point of engagement with your suppliers and their content/data.
Ah - I feel much better. Have a great rest of your day and as always, feel free to contact me to tell me how you wish you could get the last 5 minutes of your life back.
If you are looking for a reading recommendation, I’d draw your attention to the white paper: Cash Agile - the new paradigm for source-to-pay. It articulates well where the new value drivers are in the process and where commoditization is showing diminishing returns.
Rowan has more than 10 years of experience in the purchase-to-pay arena. During this time, he has managed the go-to-market for a diverse set of portfolios including Accounts Payable Automation, B2B Networks, Financing Services, eProcurement and Product Information Management.
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