Friday, 23 December 2011

Commoditisation of e-Sourcing Software

December 22, 2011 2:11 PM | Categories: Guest Posts, Cloud

Spend Matters welcomes a guest post Market Dojo, a Bristol-based e-Sourcing solution start-up.

As technology advances, the most sophisticated products of the past become nothing more than amusing artifacts. Take the early versions of the car or the television or the mobile phone. My grandparents used to recount the stories of embarking on glamorous week-long trips across England in their open-top sports car, an MGB GT V8, barely meeting another car during their travels. A decade later they would be completely astounded when my father could answer his car-phone, installed at great expense, whilst blistering along a motorway.

Today I take my mass-produced hatchback across the country just to have a short meeting with someone, allowing an extra 30 minutes for traffic, whilst chatting away on my hands-free to a business partner who could be anywhere in the world. I pay little for the technology and I would never expect to have to pay any more than I already do. I take it all for granted, provoked by the commoditisation of technology.

In the mid 90's, FreeMarkets was founded by Glen Meakem and began to find huge traction from large enterprises such as BP, Heinz and United Technologies (amongst others). FreeMarkets were able to command prices as high as $250,000 for their innovative 'reverse auction' services, a price that mattered little to such large organisations given the money that they could save from the process.

If we fast-forward to the "noughties," reverse auctions began to shift into commoditised territory. The solution was presented as an à la carte menu, competition was rife and the cost of the service had been driven to a tenth of FreeMarkets offering. As the service became commoditised, it was increasingly difficult to base the fees on the value that the service created but instead to base it on a cost plus model, as you see with every commoditised piece of technology. Despite this, the savings from reverse auctions and the standard of the service were certainly on par to those achieved back in the 90's, only at a fraction of the cost.

This meant that large consultancies were struggling to compete and instead had to diversify into newer offerings such as category management and cost reduction programmes to incorporate a broader range of services. Niche providers sprung up in abundance, innovating their fee mechanism but doing little innovation of the service or software itself.

Historically there has been a strong bond between e-Sourcing software and e-Sourcing services. For example, there are only a handful of providers that offer software without also advertising their own provision of services. Granted the profit margin on services tends to be greater, unless you truly are offering highly specialised software, but in our view there is another key reason. The software that has been designed to accompany the services relied on the services to make it perform. The software was wrapped around a specific process -- a consultative process -- where it played the supporting role. Therefore, since the service element had become commoditised, it was assumed that the software had even less of a chance.

However what we are seeing today is e-Sourcing software breaking free of those chains. It is a new breed of software that guides a novice user through the process -- it educates them and advances as they advance. This has meant that the software has its own lease of life that can continue to add value to any organisation. It has become truly self-service.

Compare it to "gamification" if you like, whereby computer games, with their vast depth of complexity and sophistication, are able to gradually take their users on a journey. They start with the basics of walking before running, building up to aiming and shooting and so on until before you know it you are abseiling out of moving helicopter, commando-rolling onto a roof, dropping a grenade down a chute, hijacking a car and making your getaway!

There are many examples of this in other software markets. I'm sure you remember the annoying talking paper-clip that used to appear in earlier versions of Microsoft Office, appearing when you least needed it and suggesting something suitably opaque. There is the classic saying that no one taught you to use Amazon. Or iTunes, or the iPhone, or Facebook or even other software offerings like MailChimp, Zoho and Skype.

As we move increasingly into the realm of Software as a Service, there are a few key attributes that such SaaS companies share, or at least should share if they want the best chance of success. First, they are very clearly presented. Within a few seconds you can understand what they do and why you might use it. Second, they are very clear on costs, as ultimately if you think you might want to use it, your next question will be on cost. Third, they are very well designed, so that someone who casually makes the purchase via the web is able to use it successfully without any complicated interruptions from sales, marketing, accounts, help desk and so on. That is unless you would like such an interruption, as many of these companies do offer that assistance. The final attribute is that they are capable. The stated function or feature that they promise has been aptly delivered.

To us, this is what we mean by commoditised software. Is the market ready? Only time will tell!

Tuesday, 13 December 2011

A UK Start-Up’s Viewpoint on the Paradigm Shift in e-Sourcing

We were recently asked to contribute our on-the-ground thoughts of the e-Sourcing market, as we witnessed it.  The original posting can be found here, although for ease we have included it below:

As a new entrant into the already crowded space of e-sourcing during a major economic downturn, it certainly makes for interesting times. After persevering though our first year, we can see many factors actually in our favour (and of course many against, but let's focus on the positives).

First, procurement continues to gain visibility within organisations, as we know that an efficient procurement strategy can mean the difference between profitability and receivership. Having been both an engineer and a buyer, it is pleasing to see these professions gaining more traction at a board room level, although still maybe not as much as we'd have liked.

Secondly, there is a strong focus on reducing costs. Perhaps that is stating the obvious; however with sales ever tougher under increasing global competition, procurement is the area where you can really recover that lost profit. To quote a figure commonly bandied about during my time at Rolls-Royce, "a one percent saving could increase profits by as much as ten percent."

Lastly, we perceive a paradigm shift in the e-sourcing market, which is why we chose to develop a SaaS (Software as a Service) application. As an aside, in our opinion, SaaS is just a re-branding of the type of companies formed during dotcom boom, except this time the internet infrastructure can cope with the delivery of their benefits.

The last fifteen years have definitely seen procurement technology come on leaps and bounds. It has evolved from pipe dreams to disparate applications to fully integrated ERP systems. These have been traditionally maintained by the local IT team and supported by a host of consultants with each required change to the interface or operating system costing the better part of an arm and a leg.

The shift that we thought we were predicting was the shift of this technology to online hosting, coupled with the rapid application of these e-Sourcing solutions to the SME and mid-tier market. In many ways we believed we were looking at the commoditisation (or "consumerization" as we learned to call it in the US) of the technology, embedded with more intelligence yet easy to use, professional and openly priced. We had thought that the larger companies were sewn up with the ERP behemoths who, even as we speak, are slowly moving to online hosting by development and acquisition. Parallels could also be drawn to the dotcom boom here, where large multi-nationals swept up the few successful e-providers who survived the bust bubble to give them that dynamic edge.

However, we seem to have got it wrong. We were too early -- although we have found that being ahead of the curve is not such a bad thing. What we have hit upon is a lot of interest from large tier one companies desiring a simple, online, and accessible solution which can be used in parallel with or sitting on top of their existing ERP solutions, even if those systems already contain e-Sourcing modules. This is most certainly due to the slower reaction speed and migration period to true SaaS solutions exhibited by the larger providers.

What is the reason for this? Our view would be the need for accessibility and easy adoption. Niche SaaS providers offer uncomplicated, pay-as-you-go products that are easily accessible and have been designed with the end user in mind to deliver very focused solutions. In our case, it is to provide in-house sourcing professional tools for e-RFQs and e-Auctions which can be switched on and off with no implementation costs and very little training. Obviously the large providers are adapting, trying to catch up with different pricing models to counter the competition from the smaller, more nimble SaaS providers. Ariba has demonstrated this most recently with their "free" license option. However, the change in the way software is being delivered, combined with the customers desire for an uncomplicated product, at least lets us put our foot firmly in the door and, in the end, we still have the small and medium tier to approach. All in all, interesting times.

About: Market Dojo provides accessible e-sourcing software. Find out more at www.marketdojo.com

Friday, 28 October 2011

Would we participate in a reverse auction?

Reverse auctions and even e-sourcing software has become a commodity product.  There are numerous players in this market offering broadly the same functionality.  Sure, some have a few more bells and whistles and others can integrate nicely with other e-procurement solutions, but on the whole there is little to distinguish between them aside from cost and aesthetics.

So, if I had responsibility as a buyer for a large company to implement an e-sourcing solution, why would I not consider conducting a reverse auction to settle the negotiation and how would I go about such a thing?

Well, if you look at the key ingredients for a successful e-auction, purely and simply it comes down to being able to accurately and robustly define what you need and to ensure you have enough capable and interested participants who can meet those needs.  

In terms of e-sourcing software, I would draft up the core features and functionality that I would look for in any capable vendor.  Now, I could do this the complex way and draft up a weighted RFI followed by a weighted auction to allow bidders who have “special” features to score more highly, but then why make this difficult.  Simply knock up the list of “must-haves” and make each participant verify that they can satisfy the requirements.  I would request a 2 hour web-demo with each participant to help me decide whether or not to include them in the bidding process.  Since the whole process will be run on “Buyer’s Choice”, I will decide post-negotiation which participant to award the business to, taking into account the price of their solution as well as the other features and service levels that they can be distinguished by.

Having done this, I have my list of capable and interested participants. To complete my requirements, I would also compile my commercial and contractual terms, such as length of contract, number of users, approximate number of sourcing events, suggested payment terms, my training requirements and so on.  This would allow my participants to submit accurate and sustainable quotations.

The next step is to conduct the negotiation and for this we could choose the reverse auction.  The interesting step here is to pick a platform on which to conduct the auction, as it would most likely be inappropriate to use the software of one of the competing vendors, even though I could probably source a free event from them!  Perhaps one of my earlier unsuccessful candidates would supply this, which would at least be something of a consolation for them.

With the auction and hence price negotiation complete I would be in the position to award the business, using my buyer’s choice to take into account all the other differentials.

So, would we as a company participate in such a process?  

The short answer is most certainly yes!  Whilst some organisations refuse to take part reverse auctions on the basis that they are too price-focused and that they drive you to prices that are unsustainable, we would actually be very keen to take part in any such opportunity as we know this is not true.

Firstly, the sales process is much shorter.  A buyer would be approaching us with a genuine interest to buy and has been given the green-light from above.  We would not have to spend much time at all writing proposals, reviewing proposals, re-writing proposals and so on!  Instead, the buyer has taken the time to lay all of this out for us in advance.  All we have to do is examine whether it is within our core capability and interest to supply it and at what price.  Since we know from experience that the entire reverse auction process and award decision takes approximately 8 weeks, this method is far quicker than the 6 months it can take in a traditional process.

Secondly we have huge belief in our business model and offering to the extent that we think we would perform very well under competitive pressures.  Should we not be successful, at least we have live and dynamic market feedback on how we compare to our genuine competitors.  If we continued to be unsuccessful against the competition then it would provoke us to carefully review our business, thereby mitigating the risk of longer term failure that would inevitably have occurred should we not have pitted ourselves against the competition.

As for the potential objections, sure the auction itself is focused on price however the award process is not.  During the process, as a participant I would be in regular dialogue with the buyer, building up the relationship, advising where the specifications are not quite right, being supportive, proactive and punctual.  Let’s not forget that the negotiation is still part of the sales process and so by demonstrating a high degree of professionalism and that you are a company that can be trusted, you are greatly influencing the buyer’s decision once the auction is over.   This can make the difference between success and failure, despite your ranking in the auction.

The only ground for objection here is that the auction is simply too effective as a negotiation tool.  With my buyer’s hat on, sometimes I do wish that suppliers I am negotiating with stopped offering me all these extra services and features that I don’t want and simply reduced their price for those that I am actually asking for!  This is where the auction is so powerful.

As for auctions leading to unsustainable contract pricing, this is where you need to do your groundwork and stick to it during the auction itself.  Sure, it can be tempting during an auction to submit that “one last offer” only to later realise you cannot commit to it, but it is in no one’s interest for this to happen.  The buyer is looking for a capable partner at the most competitive price level and we as a participant are looking for a new customer at a price level that allows us to grow.  There is certainly middle ground here where both parties can win.  Again, if you keep losing out whilst bidding on auctions, it is time to take a look at where you are leaking costs or to re-think which markets you should be competing in.  Perhaps all those additional service levels and quality accreditations are simply not important to your customers, or on the other hand, perhaps your run-of-the-mill offering is not specialised or distinct enough to convince your customers to partner with you.  An auction plus award decision offers genuine market feedback combined with specific personal feedback.  You can really use this to your advantage to improve your sales performance in future activities.  In fact, should you be successful in an e-auction, why not shout it from the roof-tops.   You have just positioned your company as one of the best in the market.  What a fantastic statement to make when you are next in a sales dialogue.

One final note is that we as an e-sourcing and e-auction software vendor, who encourages organisations across the globe to tender their business via this approach, really should be able to put our money where our mouth is and wholly support any buyer who would like to auction us.  

 Well, it would be our pleasure!

About: Market Dojo provides business-to-business e-auction and e-sourcing software. Find out more at www.marketdojo.com 

Friday, 30 September 2011

Market Dojo vs. eWorld - Round II, September 2011

Over a year old and apparently a lot wiser, would we be able to take the time out to tackle Revolution’s second e-purchasing event of the year? Is it worth attending? Will there be value in a biannual event?

I must admit that whilst stuck on the M4 into London, admiring the Lucozade advert and the well placed broken down vehicle causing a 5 mile jam, I had second thoughts.

However, on arriving at eWorld just after nine a.m., all the concerns evaporated, along with the oxygen debt from the sprint from the station! My fellow co-founder had set up the stand and was engaged in deep conversation. There was already a great feel to it. Obviously we weren’t the only ones to agree on its value and decide to pop along. The floor was busy, everyone engaged in conversation and lots of smiles.

Clair Boffey and Revolution had managed to again squeeze us in at the last minute in a great position at the foot of the stairs to the seminar rooms. Our bright-coloured stand and viral videos were catching more than a few people’s attention. With the fantastic London backdrop it really did set the scene for a great day and we even managed a small interview for the events show-reel (which can be seen Here).

The whole day went in a bit of a blur. Admittedly there seemed to be fewer delegates than in March, which seems normal for an event held later in the year, but in the end we only had minutes to spare in between discussions and live demos. For an exhibitor, you would think that the main time for engaging with the delegates is between the seminar sessions, although many delegates took advantage of the quiet periods for more detailed chats on our solution and our unique view on e-negotiation.

The main difference this time, apart from our dashing red ties and balloons on the stand, was that we knew many people there and they also knew us or knew of us. There were friendly faces passing by to see how we are getting on, many new people who had heard of us and also even a few customers.

At one point, we had our third co-founder come and join us. As a new business breaking out in this market, we are very fortunate to have been able to generate a real buzz in the e-purchasing community and it is an exciting time for us all.

eWorld is certainly the right place to meet companies interested in e-Procurement and it once again proves itself with real value and many conversations to follow up, a number of which have continued from the previous event in March. The corner has certainly been turned and we really feel that we have arrived.

As the day drew to a close, we only seemed to become busier and before we knew it, we were once again the only stand left as everyone else packed away amidst the complementary drinks. It was a thoroughly enjoyable day and our only disappointment would be the lack of an after-show party – Revolution...maybe next time?!

About: Market Dojo provides business-to-business e-auction and e-sourcing software. Find out more at www.marketdojo.com

Tuesday, 20 September 2011

Why we are so grateful for the ‘cloud’

Last month we surpassed the milestone of our first year in business.  Understandably we were delighted, as we read previously that up to four-fifths of start-ups fail in their first 12 months.  Yet we feel we are truly on our way to becoming an established player in this market, with a client list that is expanding rapidly.  However, when we look back at how we started Market Dojo, there is one aspect that stands out when assessing what helped us reach this goal, and that is the use of cloud technology.

For those who are not familiar with cloud technology, and to admit such a thing is akin to never having watched a Star Wars film or never to have heard a Beatles song, our take on it is the use of software or an application over the web on a ‘pay per use’ or monthly basis which you can use straight away with clear benefits.  Think Facebook, LinkedIn, Twitter or YouTube.  No installation, no set-up costs, and in many cases no fee.  If you like just think of it as the dotcom boom version 2.0, only this time it is here to stay!

When you consider any business, you will find it will most likely have office infrastructure to some extent.  Such infrastructure might include a phone system, an e-mail system, a fax system, an accountancy system, a CRM system, a calendar sharing system, a data storage system, a web-hosting system, or even a customer support system.  Clearly there can be a lot of systems and many of these are non-core to your business, meaning time and money spent in these areas would be detrimental to other areas of your business.

 I can only imagine how much it might have cost us 15 years ago to cater for all these systems.  We would probably require a receptionist for the phones, a PA to manage the CRM, an on-site accountant, a very large printed calendar, an even larger filing cabinet and a staffed front-desk for our customer support.  We would then need a rather large room to host all this.

This takes me to why we are so grateful for the cloud.  At Market Dojo we have embraced the best of today’s technology to turn us into a professional company, as ultimately that is what we wish to extend to our clients.  

Our phone system is Skype, where you rent a phone number by the month and only pay for your usage, most of which is free.  This includes video conferencing, file sharing and instant messaging for everyone in our company and gives us a global presence by allowing us to rent or cease renting international phone numbers when we like.   Whilst Skype is not strictly cloud, as you do install software, you can log in across the world from any computer that has it or that you can download it to, so in many respects it is very similar.

Our CRM is Zoho.  We only pay per user per month.  It integrates with our other applications, including Skype, which means no repetition.  Within our own software development we have the approach of “Don’t Repeat Yourself” (DRY) which any business would be wise to apply to administrative tasks as well.  Zoho also caters for the customer support system on the same basis.

Data storage and sharing, calendar sharing and e-mail is all with Google Apps, which is completely free and is as robust as the google.com website, even though everything is still in beta!

Our accountancy software is Clearbooks.  Again, pay per month per user.  We can even add our accountant to it so that they never even need to set foot in the office, as we can upload all our receipts and invoices to Google Docs.

We don’t have any need for a fax system, but if we did there are plenty of cloud systems out there that charge per use. 

And finally our web-hosting is all with an external hosting provider, secure and backed-up daily, paid monthly of course and with zero set-up costs.

The advantages that cloud technology has brought to us are simply enormous.  The most obvious one is cost.  If I were a sole trader, I would be able to set up and manage all of this for less than £600 a year.  I would need no training and no upfront capital expenditure.  To ‘house’ all of this technology, all I would require is a computer, in fact no, a smartphone.  It would take me all of about 3 hours to set up and I would be happily catered for until I was running a global empire, at which point some apps might start to creak at the edges.

The main risk that companies quote for not examining the cloud as a serious solution can be easily mitigated.  Data security is a major and very understandable concern.  However, with such a broad choice of hosting providers on the market, you can always source a provider that offers the necessary level of data protection, whether for personal use or for the Ministry of Defence.  You can also find cloud-based data back-up providers! 

Another major objection is reliability.  Today though, the internet is probably less likely to fail than your internal LAN and with an increasing number of companies providing networks that are dual-hosted, these risks are diminishing.  In fact, you can actually end up with a more reliable solution than your own internal network.  For your servers, do you have back-up generators, CCTV, a fire suppression system, 24/7 security patrols, CESG accreditation, dual-hosting and multiple internet providers?  This is certainly what we look for in our hosting provider.

When you compare the old approach to starting a business and the new with all the technology that is now available to us, the two are worlds apart.   You don’t need capital expenditure for office infrastructure, nor the staff to manage it, nor the space to house it.  You don’t need a hardware refresh, nor have costly upgrades as you grow or as old technology becomes redundant.  There is a valid question over whether you need an office at all.  And best of all, you only pay for what you use.

Just like you do with us!

Tuesday, 23 August 2011

Do e-Auctions reduce the quality of supply?


Last weekend I attended a fantastic Indian wedding at Addington Palace, where many years ago Henry VIII courted Anne Boleyn.  I certainly hope the bride for this wedding manages to keep her head!

Anyhow, during the reception lunch I was interrogated by a friend of mine in the banking industry about the concept of the reverse auction.  Whilst he completely understood the concept as a means for efficiently negotiating the market price for the required goods and services, he was very dubious about how the quality of supply was maintained.  

Just as I was about to launch into my rhetoric about specifications, approval processes, qualification criteria, trials & samples, ongoing category management and so on, another friend of mine stepped in to share his thoughts.  

This friend works as a Product Technologist at Sainsbury’s.  Recently he was involved in his very first e-auction.  When he was first alerted to the procurement team’s intentions, he too was sceptical, as e-auctions to him at that time meant beating up suppliers to the lowest price, regardless of quality and capability.  

However, the procurement team sensibly brought him into the process and he was given the role to ensure that the invited suppliers were suitable and capable to supply.  He carried out this work, which is his usual day-job, by conducting the thorough audit and inspection processes on all suppliers who were invited to bid.  This included requesting and assessing samples of the products, ensuring compliance to the food standards, ensuring compliance to health and safety processes, auditing the quality control procedures, even the complete disassembly of factory equipment to inspect all the cavities and voids inside the machinery for leftover food!

Some of these inspections were carried out unannounced at 3am, where the unfortunate factory manager, still endowed in a dressing gown and PJs, drearily took his visitor around the facility, visibly shaking from the haranguing experience.  However, you can see that a 24 hour facility needs to demonstrate 24 hour compliance.

Combining the quality and manufacturing aspects alongside the purchasing rigours such as financial validation, past performance and tight specifications ensures that the suppliers are thoroughly audited and know what they are bidding for and to which requirements.

The result of all this diligent work is that during the course of the auction, there was no doubt that the suppliers involved were truly capable to supply the required products. This left price as the only factor to investigate and the auction was a very effective and efficient method to do this.  The auction could even be run on a ‘winner takes all’ basis, since the significant elements of the award decision had already been catered for during the preparation phase.

Now, not every organisation has the available resource to dedicate a quality control expert to the 6 to 8 week process.  However, in this case the return on investment was so greatly in favour that drawing upon multi-skilled resource from other areas of the business should be the norm.  Certainly this is something that we would recommend.

I was able to sit back and enjoy my friend’s experience. It certainly echoed the sentiments I felt about e-auctions many years ago and how they greatly enhance the procurement process for the benefit of any organisation beyond just price.   

Even more enjoyably, it kept the banker quiet!

About Market Dojo:

We offer Business to Business e-Sourcing software [RFQ’s and Auctions] to help companies save time and money when negotiating for their goods and services.

Our guiding philosophy has been to develop cloud-based software-as-a-service (SaaS) suited for the in-house professional. 

It is designed around three core ideas: 
  •  very easy to use (no training costs)
  • embedded professional processes (ensuring success)
  • transparent pricing (great value)
Our software costs just £1,000 per sourcing event or £5,000 for a single-user annual licence to run as many sourcing events as you wish. 

For more information please refer to www.marketdojo.com

Wednesday, 3 August 2011

Our Press Release (A bit late!!)

Market Dojo celebrates their 1 year birthday!

Market Dojo, an innovative Bristol-based software company, recently celebrated their first year in business.  The company, incorporated on the 2nd August 2010, is looking to soon become global with potential clients in Greece, Peru, US and Germany.

Co-founder Alun Rafique reflected, “It has been a fantastic year in which we have learned a lot and come a long way.  We’ve been very surprised by the level of interest that we have seen, not just from the small-to-medium sized companies but also from the larger enterprises.”

Market Dojo offers easy to use, professional e-sourcing software to help businesses save time and money on their purchases. The key benefits of their software include increased efficiency, centralisation of information, repeatability, transparency and auditability of the sourcing process.

To date Market Dojo has helped their clients average savings of approximately 30% from e-auctions alone, as well as bringing major efficiency improvements for all involved.  The more standard Request for Quotation activities have seen similar results, which is all the more significant given each client averages 15 new sourcing activities a month. 

Even more impressively, their clients have generated an average return on investment with Market Dojo of little over 2 weeks!

Alun Rafique looks forward to the next year with huge enthusiasm, “We have laid a great foundation for the future.  We have established the business and proven the benefits of our product, so it is now a case of expanding the sales and marketing activities to bring the benefits to many more companies.”

About Market Dojo:

We offer Business to Business e-Sourcing software [RFQ’s and Auctions] to help companies save time and money when negotiating for their goods and services.

Our guiding philosophy has been to develop cloud-based software-as-a-service (SaaS) suited for the in-house professional. 

It is designed around three core ideas:  
  •          very easy to use (no training costs)
  •          embedded professional processes (ensuring success)
  •          transparent pricing (great value)
Our software costs just £1,000 per sourcing event or £5,000 for a single-user annual licence to run as many sourcing events as you wish.

For more information please refer to www.marketdojo.com

Key contact: Co-founder Alun Rafique, 0117 230 9200, alun.rafique@marketdojo.com.

Friday, 29 July 2011

Why should you go for Best of Breed?

We were having a meeting the other day with a vastly experienced ex-CPO of many FTSE 250 organisations, whose counsel to us was that we should look at developing a fully integrated eProcurement toolset if we were to have a chance of working with FTSE companies. Given our current direction, it did get us thinking about the whole best of breed versus enterprise solution debate.

The main advantage of best of breed is that is allows customers to select the ‘best’ product for each requirement, rather than going for one tool that can satisfy every requirement in perhaps a sub-standard way. Time and again we have seen certain modules of these enterprise solutions gathering dust within an organisation simply because they are not a best fit yet organisations are paying the software companies for supporting these unused features. In worse cases, best of breed applications are still brought in to do the very same task, only better, leading to the company paying for the same requirement twice over.

It is frequently cited that enterprise solutions have less integration costs. However in many cases it can be far more costly to implement an ERP solution onto the current IT infrastructure and then to bespoke it to fit the specific requirements. Perhaps if there were any true SaaS ERP applications out there at the moment then maybe the implementation costs would be much less. However adopting a best of breed route opens up the choice in the market considerably, which in turn increases your negotiation potential, in the same way that a buyer might devise ‘Lots’ for a tender process. This becomes particularly prevalent when it may come to switching your provider, as the fully integrated solutions will be extremely challenging to dislodge, whereas you can phase out individual best of breed applications gradually.

Furthermore integration costs can be cut drastically, in terms of price, time and complexity, through the use of clever cloud-based integration tools that remotely link SaaS applications. Boomi, Pervasive and Cast Iron are some example solutions for this. Suddenly the potential to integrate best of breed solutions becomes even simpler, and all possible via the web, thereby greatly increasing the flexibility of this approach.

From our side, the first major hurdle we would have to overcome to become an enterprise solution is that we would need to develop the other modules, such as spend analytics, contract management, P2P, SRM, SIM, project management and so on. This would create huge development costs on our side, costs which would of course be transferred over to our clients. It would also mean our maintenance and upgrade schedules would be vastly more complex as our team has to keep an eye on tens of thousands more lines of software code, much of which cannot be refined in isolation but must be looked at as part of the bigger picture. Naturally, as soon as this happens, cracks appear in previously excellent products, functionality starts to suffer and the user experience is greatly diminished due to the increasing number of options that the user is presented with. It is no surprise that best of breed applications are more streamlined than the larger ERP solutions, as they only have to handle 99% of the capability. As soon as attempts are made to plug the final 1%, which can move them further into the ERP domain, the application becomes unwieldy.

Instead we could partner with best of breed vendors in each of the key areas, using cloud integration tools to integrate our respective solutions, and then our team can focus on our key strengths and plans, and our partners can focus on theirs. We could even have multiple partners within the same product type, for example contract management, so that we could present our clients with several possible solutions from the all-singing, all-dancing right down to the very basic.

The partnership between applications can create huge value. Just a casual glance through the Google Apps Marketplace and you can find thousands of best of breed applications, designed specifically for simple integration with Google Apps. Google could have kept all their software behind closed doors and prevented third parties from branching out. However Google recognises the innovation and perfection of solutions that is created by promoting such an open network of best of breed applications. We certainly use a number of these applications, such as Zoho and Oggchat, and thanks to the way that these applications can feed off the functionality of Google, the costs are extremely low and integration was a doddle.

So, the next time you are looking for a suite of solutions to cater for your procurement needs, please do bear in mind the best of breed approach and use it to create your own solution to perfectly fit your needs whilst keeping your options open for the future.

Monday, 11 July 2011

The psychology of what we buy - Part 2

In the previous posting we saw how advertisers began to sell meaning.  In this post we examine how the selling of meaning and symbols was refined so that marketers could target different types of people. Again today this seems an obvious tactic but for a large part of the 20th century this was not the case. This sophistication was not as you would assume, dreamed up by a crack team of marketing ideas people in a mad men style office, but rather came about half by accident out of attempt, ironically, to combat consumerism itself.

HIPPIES ENGINEER MODERN MARKETING

Now we advance to the early 60’s having examined the inception of psychoanalytically-based advertising in the post-war years. The 60’s gave birth to a huge counter-culture which included a radical student left, one of the primary objections of which was the manipulation of the American people by the methods introduced by Bernays.  The groups protested that by appealing to the unconscious desires of consumers firms were not only engaging in deceptive practices but were causing the American people to become docile, homogenized and unexpressive of their individuality.  Their theory was that people had been conditioned unconsciously to desire mass produced products and thus the desires of their true selves were being ignored and eroded.  The militant efforts of these groups were unsuccessful in changing society but from their failure would come a new method of subversion that would ultimately form the basis of the next orientation of the economy.

Having found direct action ineffective, many of these groups turned to the belief that it was possible to dismantle what they saw as consumerist systems of control by expressing their own inner selves in disregard for the desires thrust upon them by firms.  This was the me generation: I am special, I am unique and my individualism cannot be expressed by owning the same type of “[insert generic mass produced good here]”.  The problem with selling these groups meaning was that their values and thus desires were wholly different from the Americans of yesteryear.  This ideal coincided with a snowballing set of beliefs and practices in psychiatry which advocated the realisation of the inner-self amongst individuals.  This movement was incredibly widespread and by the 70’s over 65% of American consumers saw themselves as unique individuals. 

NEW CONSUMERS  

For the first time firms were now confronted with consumers who did not want to have a unanimous set of desires fulfilled by a homogenized range of products.  To understand how these new consumers could be marketed to, firms turned to the leading research company SRI who conducted in-depth questionnaires with the goal of ascertaining the core value of the new consumer group.  Their findings were the groundwork for many types of market segmentation used today.  What they discovered was that within the new ubiquitous individualism of their respondents there were in fact patterns. These patterns were further collated until distinct types of consumers were created, based upon their values and beliefs.  These types were so radically different because they segmented markets on a physiological and lifestyle-based criterion instead of the typical age, gender and social class segmentation.  SRI found many groups completely transcended previous segmentation and could be found in any social class.  This approach was slowly taken up worldwide; groups were discovered like experientialists whose goals were to enrich their inner-selves through experience.  

ALL BUY MY SELF      

The result of this was to provide a new model of consumer to be utilized by business.  This model differed from both the rational economic man and Freud’s easily persuaded irrational beings.  This new perspective allowed for the variability of individualism and would address the needs and desires of a multitude of types.  Previously the problem in addressing these desires would have been that in production it was only profitable to mass produce.  However new technologies in computing now meant that short runs of many varied products could be produced cheaply as was required to fulfill the needs of differentiated free individuals.  This type of production began a second paradigm shift in the way that goods were sold to consumers.  Goods were now sold to consumers as emblems of their own individuality based on the groups that SRI thought they belonged to.

However it is worth noting that these goods, although now tailored to the differentiated individual, were still selling symbols.  But instead of firms mass producing goods and then symbolically linking those goods with the generic subconscious desires of the masses, they now acknowledging individuality.  We see this type of marketing around us all the time.  Have you ever heard “Those Starbucks guys are so pretentious, they think they’re so mature and stylish”, well with all the style and maturity they’ve purchased you would hope so.  The person uttering this statement will then typically go to a less popular coffee chain and purchase a mug of steaming authenticity with a delicious blend of individualism.  We can see in this example how a product so commonplace as coffee can be sold to two entirely different types of people by linking it with their perception of their inner-selves.

This process of selling us ourselves goes on in nearly all markets.   Here is an exercise to demonstrate: go into your room, if you have your own room, or any place that you consider “your part” of where you live, typically where your clothes are.  Now take an inventory of all your possessions but next to each write a statement of what your perception of that product’s personality would be if it were alive.  For example my Macbook is clever, alternative and smug and has excellent personnel hygiene.  When you add all these perceptions up you will find the sum of your buying has its own cogent personality and if you want to find where that personality came from you need only consult with your mirror.  This is because as consumers we now buy to express our individuality.

CORPORATE FISHERMEN

In this set of articles we have chartered the progress of marketing in its utilization of psychology to sell meaning to consumers.  We have seen how the waters of our subconscious were untapped as a selling tool, when firms appealed to the tiny man on the boat for rational decision making.  We have seen those same waters tugged at by Edward Bernays as he took advertising to the moon by linking products with our submerged irrational desires.  Today though it is acknowledged that to sell effectively a firm must not appeal to the sea but to individual fish within it.