Our first newsletter of 2024 comes with a personal twist: January 2024 marks my one-year anniversary at Zip.
If we haven’t met before, hello! I’m Nick, Zip’s head of research. That unusual title is a nod to my past life as an analyst. Before Zip, I spent 8 years reading, writing, demo-ing and advising on all corners of procurement technology at Spend Matters.
Working as an analyst has some cool perks. You get to sit above a market, observing new innovations with the scope of technological omnivore. When you’re lucky, you even get to see trends right when they begin — often far before the general public learns about them.
But analyst life is not without its drawbacks. Observing and influencing trends is fun, but you can also feel like you’re on the outside looking in. Sports commentators get a bird's-eye view of the field, but they don’t get to hit that walk-off home run.
That’s why I wanted to come down from the press box: to get a piece of the action. But I am still a researcher at heart, which influenced my other motivation for coming off the sidelines. I had some theories on what was going on in the market that I wanted to test in the real game of procuretech.
What I found surprised me. I’ve summarized my first year of learnings in three lessons below. They all follow a general theme and sum up to what I’m calling The One Prediction I Will Make for 2024. And it has some pretty wild implications for where procurement technology is going as a category.
1. Finance and Procurement Teams are Still Struggling with the Basics
One of my first nudges to explore the “dark side” of the procuretech market came from an experience at the user conference of a large source-to-pay suite vendor.
At one of the keynote sessions, the vendor presented the typical conference updates on roadmap. This was 2022, and the world was still cautiously emerging from its post-COVID crisis period. Topics like ESG support, supplier risk intelligence and supply chain visibility were all Very Important Topics that year, as I and other analysts had unanimously declared.
When the presentation ended, I turned around to ask a client, an organization that had recently kicked off implementation with the conference host who had happened to be sitting behind me, what he had thought of the presentation. He gave me a measured look and said, “That was all very nice, but it doesn’t help me with any of the problems I’m actually dealing with right now.”
What was his team struggling with if not for 2022’s Very Important Topics? It was actually the basics. His team’s supplier onboarding process was slow and onerous for the stakeholders in his distributed organization. This made their supplier data, already a bit of a mess, untrustworthy to the point that they were considering a supplementary vendor to build a supplier data foundation underneath the S2P suite itself.
What’s more, they were also confident that a fair amount of spend was still slipping past their process into the “maverick” bucket; headstrong line-of-business users said the process to request or make purchases was onerous.
This is a theme I have heard repeatedly in the last year working with Zip customers and prospects exploring the intake management market. They had made hefty investments in procuretech solutions hoping to transform their organizations, only to stumble on the fundamentals.
This experience is not unique to large enterprises with $1 million implementations, by the way. I’ve seen it everywhere.
Sure, I’ve seen Fortune 500 companies manage their contract renewals with a giant spreadsheet and an intricately-coordinated monthly MS Teams broadcast even though they have a contract repository in their S2P suite. (The checkbox for renewal notifications was not made mandatory during implementation, and thus most of the renewal dates and terms were not accurately tracked.)
But I’ve also seen finance teams or small, first-time procurement teams struggle to realize the promised efficiency gains of a P2P implementation. They may be dealing with a smaller volume of requests and data, but the burden of administration slows them down anyway.
As just one example, I’ve worked with an accounting team that typically spent 30 minutes tracking down receipts and requisition details just to create a single virtual card. Multiply that by one or two dozen per month and you can feel the strain of squinting through blue light deepen as you slog through yet another unnecessarily complicated month-end close.
This doesn’t have to be this way. Which leads me to my next lesson.
2. Source-to-Pay Was Designed to Solve the Wrong Problem
At Spend Matters, I covered a bunch of different areas — contract lifecycle management, risk and fraud analytics, ESG and sustainability, and, of course, the requisite suite and platform vendors. My first assignment, though, was startups and emerging tech.
These vendors were the small and sometimes innovative companies that didn’t yet have the momentum to merit a deep dive from the more senior analysts. So I spent a lot of time hearing pitches from what Spend Matters at that time called “Nimble” vendors — companies that were fast to implement, offered a simpler user experience and were generally more affordable.
In analyst world, Nimble vendors were classed in a lower tier than the big suites and ERP platforms. Sometimes they had a set of niche capabilities that were more advanced than their larger counterparts, but overall most of my peers across firms considered suites to have more breadth and depth than upstart specialists — a necessary starting point for any serious procurement transformation project.
Yet the vendors who were succeeding in the market played by a different set of rules. Many of the fastest growing, most popular vendors were ones that best fit my “Nimble” category. They didn’t have the complete list of “necessary” features to score perfectly on an RFI, and yet they were being added to procurement tech stacks at a rapid clip, either alongside established suite solutions or as rip-and-replace alternatives to previously implemented modules that had failed to gain traction.
The most prominent example that sticks out in retrospect was Scout RFP, which Workday acquired in 2019 for $540 million. Scout RFP was not in analyst terms a “best-in-class” sourcing solution; it lacked advanced capabilities like deep cost modeling and category management support, autonomous negotiation bots or the heavy mathematical foundations the enable “true” strategic sourcing decision optimization in the vein of legacy vendors like CombineNet or Trade Extensions.
Based on the way I and many other analysts looked at the market, Scout’s rapid rise and acquisition did not compute. It seemed on the surface simplistic and did not advance the market in the direction it had been trending.
The reality was that Scout and other Nimble vendors were innovative — just not in the ways that legacy vendors were. Instead, they focused on solving a different problem from what previous vendors did.
The problem? Getting everyone to actually adopt the process in question and maintain that adoption over time.
3. Source-to-Pay Was Over-engineered
If we think about the long arc of the source-to-pay market, the thesis of many legacy players has been that successful procurement evolution is dependent on a top-down, mandate-driven transformation. Savings and efficiency gains will come from standardization, improved compliance and “correctly designed processes.” And everyone will, after an appropriate period of training with empathetic “change management,” learn to correctly follow the process as laid out in this nice PDF document, which we have conveniently posted to our company’s intranet.
To facilitate this approach, vendors leaned on all of the features you expect to see in a comprehensive S2P RFI: catalogs, clause libraries complete with fallbacks to fallbacks, e-auctions with game theory-infused optionality for how to run events, level-49 punch-outs, supplier onboarding templates that tell you the criminal record of every employee who has every worked at the company so you know the full risk partnering with that company.
I'm joking, of course, but this is what I mean when I say that source-to-pay was over-engineered.
The emerging consensus in analyst world these days is that features like catalogs and e-auctions are nice to have but not essential. B2B marketplaces are replacing the need for catalogs, complete with all of their maintenance burdens and complex navigation for end users; e-auctions are now viewed with caution as an effective tool for securing lower bids but one that also burdens suppliers and de-emphasize the participation of stakeholders in the sourcing process. Some have even gone as far as saying that generative AI could kill off the CLM space.
Said another way, the 2020s approach to source-to-pay will be bottoms-up, not top-down. It will emphasize first and foremost the ease of navigating and adopting procurement processes. And these processes will be built on a flexible, open platform that allows for cross-system integration and continuous refinement of workflows.
My One Prediction for 2024
This brings me to my working theory of procuretech one year into running the bases instead of comparing batting averages.
My prediction is this: by 2030, source-to-pay will have morphed into procurement orchestration.
In 2024, we will see the true start of an evolution in the source-to-pay market. The source-to-pay suite as it was built in the 2000s will begin to be rewritten on a new paradigm.
The general theme will be that the S2P becomes fundamentally workflow-driven, with process adoption and advanced user guidance as the “core” of the S2P experience — for both procurement users and casual users.
- Those workflows will be user-configurable by design (no-code), and they will underlie every process that procurement touches.
- AI-based experiences will be the norm, with intelligent guidance for end users and previously niche capabilities like semantic risk analysis seamlessly embedded into common workflows.
- And crucially, these workflows will be highly cross-functional. Procurement teams will acknowledge the interwoven nature of their own workflows and emphasize the need to integrate IT and GRC reviews, legal processes, FP&A linkages and more all into streamlined procurement workflows.
I say this based on personal experience, not calculation. I’ve spent the past year working with organizations who were early adopters of the “intake” trend. Many of the most advanced early Zip adopters have a fundamentally different procurement DNA; they had looked at their current tech stack and realized something was missing. In some cases, these vendors had even built their own systems for procurement intake and cross-system process orchestration, often at great personal expense to get their processes to “work” correctly.
Problem solved, right? Your S2P suite may work 80%, but to get the elusive 20% you just need to apply intake on top of S2P.
The trouble with that is the ease of use and adoption you get from intake is just step 1. Once you have that adoption, you need to do something with it — drive cost savings, optimize workflows, surface and reduce risks proactively, generate insights that give you something to say at that big table you’ve earned your seat at.
If intake is just about simplifying workflows and adoption, you’re not going to get that elusive 20% of value you’re looking for. Intake needs to also be about taking a point of view on how to better orchestrate the end-to-end process. This means that intake is merely the correct starting point — “one front door” — to a fully integrated process, whether that process resides in the platform of your procurement orchestration vendor or in another application.
In 2024 you will start to see a proliferation of intake and orchestration vendors. They will market themselves as “add-ons” to current tools. Yet in three years, none will exist that perform “only” intake and orchestration; they will all either move down the stack to develop overlapping source-to-pay coverage or merge with established S2P suites to accelerate the shift to procurement orchestration. Because to deliver the full, long-term ROI they are offering, they will need to take you beyond step 1, preferably with the documented experience, engineering chops and continuous innovation to take you beyond basic process improvements.
What exactly does that look like? Defining the future state of procurement orchestration will take an entire newsletter of its own. So keep an eye out for it later this month!
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