July 19, 2017

Supplier Innovation – Think like a VC when Buying Enterprise Software

There is a lot of talk these days about Supplier Innovation as the next big thing in procurement. For the most part I would tend to agree with all the advocates out there. Whilst I don’t think it is the solution to every problem, it is definitely an exciting approach that should make a significant, positive difference in the next five to ten years.

So that being said, why not start by thinking of supplier innovation when you are thinking of your next enterprise software purchase?

Is it about risk?

If you want to give disruptive providers a chance in the enterprise software space you need to see it as an advantage when they tell you they are small.

One of the main reasons we haven’t seen a lot of innovation in Enterprise Software is partially due to the fact that procurement and IT cannot balance real risk and innovation and therefore default to a position of bigger is better. Retreating to the perceived safety of a brand name like Oracle or SAP, when in fact the mentality of a VC could be far more suited to buying large enterprise software. Approaching the buy with a very different set attitude.

After all, if you are just doing the same old thing, you’re stagnating and your competition is moving on ahead of you.

Buying bigger isn’t always better in Enterprise Software

I came across an interesting article yesterday about Hertz and Avis, which shows how Avis used its position of not being the biggest to its advantage. It came out with a very valid campaign “We try harder” because we can’t afford not to.

Whilst it’s not exactly the same in Enterprise Software, there are many parallels that can be drawn as to why buying small is always going to be to the advantage of the large organisation

What are the most important factors to assess when buying software?

  1. Responsiveness to
  • Change requests,
  • Tech Support
  • Advice
  • On-site visit requests
  1. Skill
  2. Knowledge
  3. Attitude
  4. Rate card
  5. Project Manager, who?

 

  1. Experience
  2. Financial Security
  • Balance sheet
  • Cashflow
  • Shareholders
  1. Innovation
  2. Relationship management
  3. Support window
  4. References

 

Now if you look at all of the above attributes there are actually very few which actually work against being small – mainly just the balance sheet. In almost all the other criteria there will be more advantages to have a small provider.

Think of the following:

  • Relationship management – you will be much closer to the executive and product management teams.
  • Influence – you can help drive the roadmap and innovation in line with your priorities.
  • Customer service – just like Avis couldn’t afford to, a smaller player will work much harder to retain and please its customers.
  • Adaptability – they will be far more likely to accommodate your specific requirements within a much faster time frame.
  • Responsiveness – The decision making is going to be a lot faster. A big software player makes decisions the same way any large organisation does – slowly.
  • Financials – bigger is no longer safer. The average life expectancy of a Fortune 500 company in 2015 was 15 years, in 1955 it was 75 years. Does losing 20 or 100 million a year seem safe? Costs are always proportional – a smaller company has less needs and is probably more disciplined with its spending.

Think like a VC and remove unnecessary roadblocks

There is no point to chasing after innovation if you are not willing to be part of the ecosystem. Being a customer of a young disruptive company, you should see your organization as an investor just like a VC. The only difference is that you can do a lot more to help your investment and also de-risk it. You are actually far more strategic and important then an investor will ever be.

How can I reduce my risk?

  1. Promote your provider heavily to other companies in your industry or in your supply chain. You all work with big suppliers and the more customers they get in your segment the more valuable it is to you.
  2. Help them out by doing joint press releases, webinars and case studies. When a VC invests in a company it becomes like an ambassador and tries to help it grow.
  3. Spend more money with them! The more you spend the less risky it is for you because that provides them with liquidity to grow but also helps you innovate. Why not set aside an annual innovation budget where you give it to them but it has to contribute to your specific needs or features?
  4. Promote them internally within your organisation by making introductions to other departments and stakeholders. Normally one person in a large organisation being the champion is not enough, what happens if they move on? Ultimately, more adoption into other areas is another win-win strategy. In most cases software has specific capabilities which will have a broader applicability.

 

The opportunity is significant for large enterprises who are prepared to make the adjustment in thinking and in doing so embracing the concept of being a strategic investor as well as a customer.

It’s a totally win-win scenario because you have immediate benefit from your efforts and investments. I am pretty sure this model of supplier innovation can probably be applied to other segments as well of a joint customer-investor scenario – heck take it a step further and take some form of convertible equity if they go belly up!

You may find this article from ATKearney, Disruptive Procurement: Reinventing and Transforming the Procurement Function, useful, it outlines in detail nine new opportunities for procurement. Important in the changing landscape since the recession.

Sometimes a win win scenario is just that.

by Costas Xyloyiannis

Chairman & CEO

With HICX since its formation in 2004, Konstantinos has been instrumental in building it into a leading Supply Base Management company. He is responsible for setting the company’s strategic direction as well as overseeing the growth and expansion, strategy, planning, execution and overall performance of the company.
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