November 24, 2014
Over the past few years, a significant change has been taking place in the way that tens of thousands of businesses operate. The future is morphing right in front of us. But few have taken notice.
Firms of all sizes today are adopting the best practices that large companies use to improve business performance in their marketing, sales, HR, IT and procurement functions. And, they are doing this without the expense of having to recruit, hire and retain the highly specialized teams of experts that large companies rely on to manage and maintain their best practice operations.
Adoption of these solutions to date has been primarily driven by cost savings. Cloud solutions are typically 60 to 70 percent less expensive than the Total Cost of Ownership (TCO) for on premise software. But TCO is just the opening salvo in the battle waged by cloud providers to deliver better business benefits.
To appreciate what the future holds for cloud users, we need to look beneath the surface of technology and examine the business models of the leading solution providers. What is it that has made vertically focused, business-to-business (B2B) cloud service providers so attractive to the technology giants that have been snapping them up in billion dollar deals? For example, SAP acquired talent management provider Success Factors in 2011 for $3.4B. This was followed by the acquisition of procurement provider Ariba in 2012 for $4.3B, and most recently, acquisition of expense management provider Concur in 2014 for $8.3B. Oracle and IBM have made similar acquisitions of B2B cloud platform providers over the past few years.
What’s going on?
Ok, I am a bit of a Trekkie, and the best way that I can think of to explain what’s behind this phenomenon is through a Star Trek reference. Many of Star Trek creator Gene Rodenberry’s sci-fi predictions have become a part of our everyday lives, from smart phones to Google Glass and the medical tricorder. He also, I believe, was prescient about the big data phenomenon that has fueled the wave of acquisitions for cloud-based computing companies.
Remember the Borg, that race of cybernetic aliens from Star Trek? If you are too young or not nerdy enough to know, the Borg are a collective species linked by subspace radio to a “hive mind” where decisions are made. The more species forced into “the collective” through assimilation, the more powerful the Borg became.
This is essentially the business model for cloud computing companies, with a few important differences. First, assimilation by cloud providers is achieved by persuasion rather than brute force. Second, data transmitted by assimilated members of the collective is anonymized, encrypted and protected by legal agreement and SLAs. And third, the mission of any cloud provider is not universal domination but continuous improvement of business processes and outcomes. If you overlook the ingredients needed for riveting science fiction entertainment, Rodenberry nailed the cloud and the importance of big data.
Reality Check: What does this mean for you?
For procurement professionals, cloud computing is ushering in a new era where the experiences of tens of thousands of companies can be baked into software platforms that never need “one customer at a time” upgrades. Through analysis of anonymized data streams, business processes, and transactions, business users without deep procurement expertise are able to make better sourcing, buying, and supplier management decisions. These same kinds of advantages are informing marketing, HR, legal and financial management decisions. Most important of all, procurement controls the rate of change and impact with their business partners and suppliers, which marks a fundamental shift from reliance on IT.
Good is no longer a static state.
One significant impact of the “collective intelligence” made possible through cloud computing platforms is “what good looks like.” It is no longer a static state. But one that is constantly changing as a result of predictive analytics derived from near real-time data.
It took more than a century for gold medal performance in the 100m Dash to improve 20 percent, thanks to better diets, conditioning, and coaching. Today, businesses can achieve similar levels of performance improvement in a matter of months.
Bigger is no longer as much of an advantage.
The second most significant impact of cloud computing is one that we have witnessed first-hand here at Shelby. Procurement Optimization is no longer available only to large companies and we have had to change how we deliver some of our services as a result.
Recently, a company with less than 100 employees approached Shelby to support their implementation of Coupa, a key cloud-based P2P platform. However, they couldn’t afford the support programs we offer to mid-size companies with 500+ employees. To accommodate their requirement, we created a “DIY” model to make expert support affordable. As a result, Shelby is now able to make implementation services available to the thousands of small businesses that, according to the SBA, account for more than half of all U.S. sales.
If you are looking for help in translating the power of cloud-based procurement into bottom-line business advantages, regardless if your company employs 10,000 or 100 people, contact us at firstname.lastname@example.org.
The Shelby Group