There's a recurring pattern in the history of enterprise applications that explains why, as I described previously in part one, the categories of ERP, CRM, and HCM have achieved lasting traction. People build information systems to address various pain points. As they succeed in the marketplace, they extend or combine those systems to tackle adjacent and ancillary processes, eventually creating an interoperable system that is greater than the sum of its parts, because it increases process efficiency and offers new visibility into a single source of truth for a set of end to end processes. When that happens, it becomes worthy of its own name — traditionally, a three letter acronym (TLA).
This is what I believe is now happening with the new TLA of Business Spend Management (BSM).
We have always had information technology support for many of the underlying processes in Business Spend Management. But, it has never had a proper name because, like HCM and CRM before it, the market has consisted of a fragmented collection of ERP add-ons and best-of-breed point solutions, and the industry’s thinking about it has also been fragmented.
There have long been procure-to-pay (P2P) and source-to-pay (S2P) ERP modules. In the late 90s, B2B e-commerce innovation first began, and companies such as CommerceOne, VerticalNet, and Ariba were taking off. I was at McKinsey at the time, and my colleagues there were thinking and writing about those companies, but narrowly, in terms of being better alternatives to the procurement modules of ERP systems.
Recognizing the components
SAP made a play in the space and called it SRM, for Supplier Relationship Management, which is an important concept, but still only a subset of Business Spend Management. After the downturn of 2001, the only remaining survivor was Ariba, who tried to define its space as ORMS (Operational Resource Management Systems) before being rolled up into SAP for $4.3 billion in 2012.
In order to be collectively exhaustive around all areas of business spending, BSM would have to include invoice management. Here again we have best of breeds for invoice scanning and invoice workflow that are disconnected from where the buying actually takes place.
It has to also include expense management. This category was pioneered as a standalone solution by Concur in 1993. Similar to what we saw with HCM, in the past few years there has been a wave of innovation driven by the cloud, and now the landscape is dotted with startups offering solutions for the SMB market and best-of-breeds that tackle booking, or expense submission, or rewards programs, or some other aspect of the process in some novel way. Concur itself was rolled up into SAP for $8.3 billion in 2014.
Clearly, SAP recognized that components of BSM were worth assembling. But, up until Coupa, there has never been a platform that has been able to address all of a company’s spending on one unified cloud platform — including not only procurement, invoicing, and expenses, but also spend analysis, supplier management, contracts management, sourcing, and all other ancillary processes that support spending company money. There has also certainly never been a way to aggregate, normalize, and sanitize cross-company data, in a way that could help each customer get smarter about the way their organization spends company money.
A ridiculous P&L
Why is this so important?
It doesn’t matter if you spend money through the official procurement process, whether you buy something and submit it on your expense report, or you call and order it and the vendor sends you an invoice. At the end of the day, it’s all just money spent. It doesn’t go onto the P&L as separate line items for money that is spent through procurement, expensed or invoiced. That would be ridiculous, as you can see from the table below:
Naturally, it gets broken out into different categories of spending, categories which are supposedly all neatly organized, understood, and managed — but never really have been because the spending is siloed in three different systems that handle three different processes and there’s been no easy way to get a common view of the data.
That is partially why we have to give this space a broader name — because we have to think bigger and more holistically about spending. Certainly, there have always been people that were thinking this way, but there was a lack of technology innovation to support them. That is no longer true.
Re-reapplying the model with BSM
We are once again reapplying the model that I had the privilege to contribute to, and described to you in part one, at Siebel and then at SuccessFactors. When I first encountered Coupa in 2009, it was an uncertain startup working on a small business-oriented, open-source based procurement system that might have been easier to use than existing systems on the market. That’s critical, because getting everyone in the company to use the procurement system is the key to getting the spend, and the data, all in one place. But, they were still thinking of procurement as a separate business process.
I thought we could create a pretty interesting company around a transactional core, built on a single code base, encompassing all three paths to spending — procurement, expenses and invoicing — and develop our vision from there.
Our first task as technology builders was to build those three core modules to help companies get all of their spending in one place. That alone is greater than the sum of its parts, as we'll see in a moment.
Building the value proposition
Our early customers were 100% procurement, but today, the majority of our new business is outside of core procurement. This achievement validates both the market need for a comprehensive solution for all spending, and the value we can deliver against it.
For example, you submit an expense report and you get a notification back from procurement:
We have a contracted vendor for lodging, next time please use them.
Or, spending on printing across the organization hits a certain threshold, so the sourcing organization gets a notification that says,
Hey, employees are spending a lot of money here. Maybe you should think about sourcing this category.
Historically you could not automate things like this because the information would be in different systems. That is a key benefit of interoperability, and a single source of the truth for spending data.
The value proposition becomes infinitely more powerful when you start to render prescriptive recommendations based on community intelligence:
You are about to contract with supplier A, and the community has had lot of disputes with this supplier and a great deal of late and broken shipments. Perhaps, you should consider Supplier B.
You are spending 30% more on this commodity than the customer community in your industry. Perhaps, you should renegotiate your company contract.
These are just some simple examples. The beauty of this approach is that with more data gathered, the smarter the surfaced recommendations.
In the final part of this series on Monday, I'll sum up why we believe our vision for Business Spend Management defines something that's new and bigger than what has gone before.