Business & Technology Nexus

My wife is a family practice physician. Her clinic, FINALLY, is installing an electronic medical records system. I can’t tell you the number of times I’ve felt sick to my stomach while walking through her clinic looking at wall after wall of floor-to-ceiling files. It’s an in-your-face visual reminder of the information silos that prevent physicians from understanding a patient’s condition holistically & achieving better patient outcomes.

That’s why I’m a pretty big fan of Obama “calling the US healthcare system out” on being antiquated and ill-equipped to meet the needs of patients. From petty bickering keeping physicians from establishing common standards of care and treatment, to their all-to-often allergic reponse to technology, the time has long-since come for change.

And change does indeed seem to be on its way. In  fact, the mandates for change seem to be translating into a $19B “Obama Flood” of business for EMR software vendors and implementation specialists. And since often these systems are implemented (even at a small clinic) for more than $100K USD, there’s a lot of money about to change hands in pursuit of a much-needed modernization of our healthcare infrastructure.

I’ve been intrigued, as a procurement guy, how clinics and hospitals and other points-of-care are going about choosing their new systems. There seem to be a good number of website “lists” of EMR software systems available – and I think that’s a good thing. But I wonder if decisions like these are made more through face-to-face referrals from sources of trust. Even if so, some basic research by IT staff and clinic managers can ensure that organizations find the system that offers the best value and best matches their requirements.

How to buy complex systems in an opaque market, where vendors do not necessarily disclose complete information about their capabilities or their price, can be quite challenging. If you are currently researching an EMR system for your point-of-care facility, what are you doing to make sure you’ve found the right one?

As usual, a day late and a penny short due to the overwhelming interest in my new startup Coupa, I’m pleased to bring you my view on what the “Top 3″ issues are holding purchasing departments back.

First, some housekeeping. Michael L. of Sourcing Innovation came up with the idea for this series. Imho, he provides an increasingly valuable service bringing up topics of conversation across blogs dedicated to Purchasing. Despite his Saturday posts, which are “rhymey” in a Weird Al Jankovic meets Lawrence Welk (youngsters may have to look this one up) kind of way, I’m still glad to know him. :)

So what are the Top 3 Bugaboos I think are most relevant to Purchasing Departments today? Procurement Central’s view is:

• Cost
• Complexity
• Compartmentalization

I’ll call these the Three C’s from here on out.

The First ‘C’ – Cost – Never one wanting to err on the side of subtlety, I want to start with the basics. A good Purchasing department controls corporate buying. Its goal is to provide great service to the company while minimizing spending. So any Purchasing department worth their salt is looking at the amount of money they spend per year & the amount of time spent spending the money (did you get that) and is constantly seeking to improve. Now it’s important to mention here that most firms do not have a lot of leverage over their supply base. So negotiating for best value, while important, is more of a process than an art form. On the other hand, the basic blocking and tackling productivity gains that are possible through good automation are right up their alley.

It’s funny, a few old grizzly Purchasing guys shared an inside secret with me – that they sandbag and sometimes milk the savings. They don’t save everything the first year so they can keep on demonstrating value to the CFO. And while that’s too bad, it is true that working the First ‘C’, Cost, is a continual challenge.

The Second ‘C’ is Complexity. In systems, in processes, in organizational structure, and in the Purchasing department’s own objectives.

For most organizations there’s just no need to get fancy in the Purchasing domain. Sure, if you’re a manufacturer and you’re making huge strategic decisions like whether or not to bank on China, how to optimize supplier contracts to hedge against demand fluctuations in global markets, keeping it simple might mean failing to evaluate game-changing opportunities. But for the rest of us, the Purchasing function and its role in the organization are far more straightforward.

On process, fight complexity and resist the urge for customizing procedures such as approval paths for special situations. Make the exceptions exceptional. For systems, error on the side of solutions you know your organization will understand vs. the system with 10,000 features. And measure progress with no more than 3 variables – and preferably just 1. You will likely underestimate the value of focusing the organization on a single, specific purpose.

The Third (and final) ‘C’ is Compartmentalization. Here is where Purchasing Departments often fail to invest heavily enough in communication and outreach with the rest of the organizations in the company. Systems can help ensure groups collaborate, but your people, with an emphasis on customer service while fulfilling your group’s mission, will really make the difference. Examples of groups you should meet with monthly include: Facilities, Operations, Manufacturing, Real Estate, HR, Engineering/R&D, and even Sales. You may not think you’ll have anything to talk about, and yet issues will surface that will help the entire company operate more effectively. And, importantly, you’ll be building the relationships you need to effectively pursue your Purchasing programs.

So there you have it: Cost, Complexity, and Compartmentalization – Three C’s that just might be holding back your Purchasing department.

Thanks again to Michael for organizing the blog series. And, as always, feel free to send me your thoughts and opinions to dave at coupa dot com.

I received a heads-up in late January from Scot Case over at the Green Electronics Council that President Bush had signed an Executive Order requiring all federal agencies to buy EPEAT registered “green” computers.

Given that estimates are US federal agencies buy 7% of the world’s computers, this is a big deal. And I think it’s great!

Now someone needs to explain to me, in small words please, how on Earth US federal agencies can possibly need 7% of the world’s computers…

Although many organizations like to pretend they never stoop to performing any non-strategic, transactional work, let’s face it – they do. Ill-formed requests come in, and often times they’re important. Whether a price check or a complex buy, the question is how to involve a professional buyer (at the right time and in the right way) to maximize company efficiency and optimize for better outcomes.

My mind has been turning to the notion of a buyer “Line Item Veto.” The thinking is that buyers could use an increase in their authority and ability to help the company make better decisions. All too often they get involved way too late to help – and sometimes so late that they simply slow down a bad process en route to a bad outcome.

Systems don’t help with this issue. Those I’m familiar with direct buyer involvement to the “last hoop” in a queue of approvals and signoffs. Yet to review a problematic transaction at the end of the line is WAY TOO LATE in the approval cycle to be helpful.

The flaw in logic (in my opinion of course since I’m being controversial & anti-establishment here) is that by pushing the review to the last possible moment you can ensure the number of items requiring attention by the buyer is the least possible. But I doubt this happens, and it’s far more likely that each transaction, thoughtfully garbled by approvers as well as the requester, becomes much harder to unwind and correct, just like the strings of holiday lights I have to untangle each year.

So consider getting your buyers involved earlier, even if you fear a higher workload. You may find each transaction takes much less work “to fix”. And if you’re already working this way, drop me a line and let me know your experiences..

-Dave

I’ve posted quite a few times on SaaS before. Some posts have been positive, while others have been more challenging.

But there’s one truth I think we can all agree on – that the pricing model of SaaS is fundamentally different and very challenging for traditional vendors to match.

Software license pricing is a very interesting area – as the business models themselves end up acting as a strong motivating force for very different styles of software development. But before we get into the psychology of pricing, let’s walk through the 3 basic approaches:

1. Bits-in-a-box Version-specific Perpetual License

Consumer software is sold this way, almost exclusively. Companies build a product, like Textmate 1.5 or Microsoft Word 2004 for the Mac, and sell you the right to use that software till the end of time. More and more, companies will use the internet to provide you minor updates for free, but these updates have more to do with controlling the firm’s support costs than anything else.

When a new version comes out you might receive a discounted price for an “upgrade” to the new version. But you may just cruise along on the old version if that proves good enough for your use. It’s up to the company to entice you to upgrade, presumably by building an impressive set of capabilities you determine you just can’t live without.

Support for consumer software products has been, for the most part, assumed. In the first place, if you are selling a product to hundreds of thousands of people for $20, you better not offer something that leads to them all wanting to call you to figure out some thorny technical problem. So, over time, people have gotten use to buying without the expectation of implicit support. And “bundled support” with the perpetual license, has become more and more paltry.

2. Introducing the Annual Support Contract

Software vendors have yet to offer the same quality and reliability in business software as they do for consumer software. And employees of the company buying the software, quick to protect their interests and standing, require significantly more assurances around a software buying decision. Enter the annual support contract. With it, software companies offer an array of telephone and web-based support, sometimes even including on-site presence.

At Oracle, this contract included a curious clause – as long as a customer stayed current on their support contract, both minor and major revisions of the software would be available “free of charge.”

In this way the customer pays for the current version via their perpetual license purchase, then for ongoing development with a portion of their annual support payment.

I assert that the Oracle model, while very fair to current customers, reduces the incentive to upsell its current customers on new versions of the software, and thereby decreases pressure to make more than incremental progress. Instead, it places an emphasis on new customer acquisition & on competent support thereafter.

3. Subscription – you know, like the Wall Street Journal

SaaS has been called “revolutionary” because it removes the burden of systems management from customers – instead relying on centralized, assumedly more expert resources to manage maintenance and updates efficiently. And we’re all used to SaaS – we use it via Google Maps, via Yahoo! Mail, and other B2C web services.

But in the enterprise space, SaaS tends to come along with something just as radical – the “end of the perpetual license.”

I’ve gotten in trouble in the past at describing SaaS as a “software rental service” – but the analogy holds here. But instead of thinking of software as “like a house” (which tends to appreciate over time), think of it instead as “like a car” (which tends to depreciate over time). So why not rent?

Knowing your software vendor’s preferred licensing model can give you insight into their likely future behavior. In the enterprise, there’s a definite shift away from a high up-front fee for an enterprise license fee, especially for big businesses concerned with the high degree of shelfware (software bought but rarely used i.e. sitting on the shelf).

The last point here, predictably, is that while SaaS made it popular, subscription licensing can work for on-premise software too. And for many businesses, subscriptions may just be a better way to go.

Making procurement click at most companies involves handling the req to check process as easily as possible. That’s why @ Coupa we’ve spent so much time with our initial releases trying to get the usability “right”. But beyond drag-n-drop, streamlining, and consumerizing the application, procurement flows must recognize the nuances of “what” an individual is trying to buy.

A 1-time engineer-to-order part is a lot different than a PDA. And a complex services buy is another thing entirely. So you can learn a lot in your eProcurement software evaluation by shrugging off the abstractions and going with your actual use cases to see how the software “fits” your business.

[One thing you learn, as a software vendor, is how the whole idea of verticalizing Procurement software is a fallacy. The use cases dictate software functionality, and those use cases can and do cross industry verticals in unexpected ways. Said another way, once you've handled Simple Fixed Price Services, you've handled it, regardless of whether it will be used in Public Sector or Aerospace. Now on the margins you can find exceptions where truly vertical functionality creeps in. And certainly Direct Materials Procurement should be treated as a special and important case. But at the core much of Procurement is a horizontal application category. ]

So my recommendation is to not get caught up in an exhaustive feature-function list in your next evaluation – instead stick to flows that keep the context of what you are trying to achieve. Build up your use cases on what you’ve bought in the past — and if that’s not available take your best guess. Buy a lot of complex services with SOW’s you want to track through payment? Ask your prospective vendor how their software can handle that flow.

Sticking to category use cases gives your vendor the ability to meet your requirements without being straight-jacketed. And using them can make sure you hit the targets you are signing up for with the project.

Good luck!

Fresh off its record fund-raising drive, the Clinton Foundation is looking to manage the delivery of its expanding programs as efficiently as possible. I noticed several open Procurement positions, including this one:

Africa Regional Manager, Procurement – The Regional Manager will be responsible for ensuring countries have access to high-quality, low cost ARV and laboratory products offered through the Clinton Foundation, with the ultimate objective of ensuring swift ramp-up of high-quality ARV Treatment to patients.

I’m sure the resumes are flowing in. It’s not often people get the opportunity to use their Procurement proficiency in something so obviously altruistic. If you choose to apply, best of luck!

Nothing new to say – here’s their press release. Please refer to my previous post on last quarter’s numbers as it applies equally “well” to the current quarter.

Jason Busch over at spendmatters tucked a whopper into a seemingly innocent Friday-goodbye-post – that Oracle just might buy Ariba. And why not? Ariba’s priced at less than 2.5x revenues, even with its recent 2-day stock rise. (hmm.. rumor buyers beware, they’re not always true!)

The Oracle “standard issue acquisition plan” is to chop off G&A, cut combined R&D, and capitalize on new customer relationships to cross-sell and up-sell. Combine that “standard” plan with the added bonus of applying Freemarkets consulting expertise on Oracle’s much-bigger installed base to improve utilization, and off you go. There’s also the prospect of monetizing the Ariba Supplier Network more fully, although that really doesn’t fit into Oracle’s tried-and-true business model.

Well, fact or fiction, this rumor is pretty interesting. If true it sure would fit Oracle’s “let drain the swamp” pattern of buying any and every applications vendor out there “of sufficient size” to steal the mo’ from SAP. And the strategy, with Oracle stock up to over 19 bucks a share, sure seems to be working. Your move Walldorf.

-Dave

I got into a discussion recently about the value of outsourcing the establishment of contracts and pricing for an enterprise’s goods and services. And red flashing alarm bells went off in my head. Wait, I said, that’s just like Healthcare GPO’s here in the US. Popularized in the 90′s, today the shift is away from them. And for good reason – these middleman are sticking it to hospitals. At least according to a detailed report issued July 20th, 2006 by the International Center for Corporate Accountability. Some highlights:

“The genesis of GPOs can be found in the common and quite essential activity where a number of small organizations combine their purchasing power to gain buying leverage…”

“GPO’s, whose role should be to create efficiencies and economies in the delivery of services, have grown at the expense of the hospitals and their patients”

“..the Medicare anti-kickback safe harbor allowed the GPOs to charge an administrative fee of 3% from the suppliers on all purchases made by their member hospitals. However, various government investigations, private lawsuits, and reports in the news media indicated that in a significant number of instances, GPOs administrative fee had significantly exceeded the 3% level envisioned by Congress and ranged from 5% to as high as 18%.”

This report is an interesting read for those considering working through middlemen instead of negotiating their own contracts. With a good understanding of the profit margins, or better yet, an agreement on flat-fee based subscription, enterprises can save time and find great values. But any business model that involves a % markup on each SKU has to be suspect. Let’s face it, a 1% markup on prices for 10MM in spend is a lot of money to be paying. Unless the vendor can prove his pricing still beats what you could have negotiated on your own.

I would love to hear your own stories about working with GPO’s – either in healthcare or anny other industry. Comment here or drop me a line at drstephe at gmail dot com.