Change it!

Sep 17, 2016

Do you know how much you are spending on procurement? Is it time to change your companies approach to software and other IT tender processes?

Working for a SaaS company in today’s markets, has become relatively straight forward when compared to just a few years ago.

Many companies recognise that using ‘_______ as a service’ allows them to remain competitive, and flourish on ‘razor thin’ margins, by streamlining processes when it comes to utilizing software for both internal operations/processes, as well as client facing tools. And here’s why:

The clouds covered the market and the rules changed

Cloud based software was perfect for small businesses and individuals, to utilise in order to minimise large initial expenditure on a new project or venture. This proliferated to suit larger organisations, which could no longer afford the large capital expenditures of purchasing large IT stacks. The main drivers for this were:

  • High implementation costs (up to 5x the cost of the product)
  • Lack of interoperability
  • High in complexity, leading to poor end-user adoption
  • High cost of ownership
  • Hard to measure business benefits

Source: TSIA- Technology services industry association

The cloud based SaaS model taught companies that they could successfully pressure existing IT suppliers into becoming more involved with the companies’ actual requirements, as well as post sale. The cloud showed that companies did not have to be tied down with complex systems and foot the bill for costly upgrades. They also started realising that as a customer, they could reduce their expenditure risk by linking their tech spending budget to business value realization, and come away from up-front payments to ‘pay as you consume’.

So what were the fundamental changes?

The risk in purchasing, shifted from the customer to the supplier:

In the old ‘CapEx’ model, Customers were paying the price to own the asset. The price was set, and the supplier guaranteed payment. All the risk rested with the customer!

The cloud-based model sees the software provider front a lot of the costs. Platform trials and demonstrations are now expected. Training and support are also part of the on-boarding processes. There has been a shift away from sales people, with the role of ‘solution architect’ more appropriate, to facilitate client on-boarding. A company can go through all of this resource if they choose, and still walk away from the product or offering without having to spend a penny!

Complexity has had its day:

Customers now resent the costs of managing technically complex systems that have been purchased from existing suppliers. Complexity reduces the effectiveness and productivity of the company as a whole. Budgets can be burned up quite quickly in training and management alone.

So what does this mean?

The cost benefits for this new trend in procurement is pretty evident, but it’s not just simple cost saving and limiting capital expenditure.

Users of ‘_____ as a service’ become better consumers:

This model offers smarter and more intuitive/simplistic systems. They have all the same complexity and functionality as traditional stacks; it’s just hidden away until the user is competent and confident in taking on these additional functions. You only need to look at the rapidly growing use of ‘app stores’ with software providers. This is great as users now only use and pay for what they need/consume. As time goes by with usage the user can scale up their software requirements, as they are comfortable to do so.

Ok, so the ‘___ as a service’ has changed the landscape for suppliers…. Has it changed the way procurements are ran?

The short answer is yes and no..

Here at E-Sign, we see smaller to medium size companies readily taking advantage of the ‘________ as a service’ model, and drastically simplifying their procurement processes using a ‘try before you buy’ methodology that also assists with consumers getting to grips with the ‘pay for what you use’ practice.

However, this is not the case with all businesses. Our own internal research has shown that typically larger companies (and .gov departments) still dedicate significant costs and resource to tender platforms and internal manual processes that do not allow for realization of the benefits that ‘______ as a service bring’.

Why?

Procurement processes can be as rigidly inherent within an organization as that large piece of software we discussed earlier. The problem with this is that although the actual value proposition ‘_______as a service’ brings is different, the standard procurement processes used, have not changed within many companies. Procurement processes are still built on cumbersome and aging methods that do not really align to the new offerings on the market.

As part of E-Signs’ day-to-day operations, we are often asked to participate in tender processes. And we receive (quite often) ITT’s (invitation to tender’s) and PQQ’s (pre-qualification questionnaires) that can be between 50-120 pages long. That’s before the actual tender document itself! They are filled with a long list of requirements that come more from a compliance and existing processes perspective.

The supplier can weigh up if it is of benefit or value to pursue such tenders, and either diverts resources to continue or simply walk away, giving them control over their budget. However, for those running the tender it is a different matter.

Research by Faithful Gould found that a typical tender process costs on average between £23,900 and £45,200

So, how do we change our procurement processes?

An overhaul of your procurement processes can be difficult to achieve but once accomplished the ROI can be immediately realized.

The goal of looking for any new piece of software should be focused around what you need it to do. What is the problem it will solve? How can it make life easier for us? Not simply the ‘compliance requirements’. These alone will not get you the benefit or the best service on the market.

Here is a table to help getting you thinking about how to run your next procurement:

Derived from illustrations of consumption economics: J.B Wood

The above illustration shows that there has been a significant shift from the need to deal with sales people during your tender, and more to the role of a ‘solution architect’. Larger organizations, and in particular government departments, are still running the standard processes that see them meet the same sales reps from the same companies doing the tender rounds, who are using the same ‘foolproof’ tender sales playbook.

If you really want to change from the same practice that has and will continue to burn your budget, here are a few things to remember.

  • The standard tender template (especially if it involves capital expenditure) has had its day
  • Anyone trying to sell to you based on the standard tender template has had his or her day!
  • The ‘______as a service’ provider will work with you to get you the solution you actually need and want
  • The risk and costs for on-boarding rests with the ‘______ as a service provider’
  • The level of service should be consistent pre and post on-boarding with no cost for support
  • The mentality ‘no one ever got sacked buying ______’ needs to go.
  • Collaboration is key. Not the hard sell.

At E-Sign this is the foundation on which we have built our lasting relationships with both partners and clients. We work with you to find the right solution you need.

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