Posted by Wendell Perumal ● Aug 10, 2020 8:12:37 PM
Smart Ecosystems: The Rise Of Best-Of-Breed Procurement Software
If you’re like me, you’ve been working from home recently. Take a look around your kitchen. If you purchased your appliances at the same time, it’s possible that they were all built by the same manufacturer.
On the other hand, you might have a kitchen full of appliances from different manufacturers. A best-in-breed approach could mean you own a Bosch oven, a Miele dishwasher and a Samsung refrigerator. Aesthetically, they don’t quite match, but you know that the best oven manufacturer doesn’t necessarily make the best microwaves on the market.
If you’ve taken the best-of-breed approach, in effect you have built yourself a kitchen “tech stack”, or technology ecosystem.
This article will explore the trend away from a single system that aims to do it all, towards digital ecosystems that feature best-of-breed point solutions, sometimes working hand-in-hand with a core legacy platform.
The Evolution of Digital Procurement Systems
The digitisation of procurement technology has moved through three stages, each building on the one before.
- Single systems: Known as enterprise software or ERPs, these massive, cross-functional systems emerged in the 1990s as large organisations began moving processes from paper to digital. The market came to be dominated by players such as SAP and Oracle. Whatever the merits of standardising an entire enterprise on one software product, procurement teams were often left with no choice but to use the included procurement module, whether or not the functionality met their needs.
- Bolt-on solutions: A bolt-on is a third-party module that works alongside a core ERP system to replace the ERP’s integrated module. Examples in procurement include Coupa, Ariba, Zycus and Jaggaer. These specialist solutions were seen as much more fit-for-purpose than the ERP, although challenges emerged around integration and complexity. Generally, bolt-on e-procurement solutions promise to manage the end-to-end procurement life cycle without the need for additional software. In that regard, they are not unlike a mini, procurement-focused ERP.
- Ecosystems: The past decade has seen the emergence of niche players - often highly specialised, with enhanced capability in areas like buyer compliance and supplier discovery. While not promising to address every part of the procurement life cycle, they allow procurement teams to take a best-in-breed approach: creating a tech stack of lower-cost, specialised parts, all of which can integrate with each other, with finance systems or ERPs, or bolt-ons.
Increasingly, organisations are adopting this best-of-breed mindset. According to Gartner, the days of end-to-end procure-to-pay suites are coming to an end, with only 59% of respondents in the 2019 Magic Quadrant indicating that they use a sole solution for procure-to-pay processes.
Similarly, Forrester has declared that the ERP era is over: “The ERP model of a single integrated suite to handle every process for every division within the enterprise [does] not work, for many reasons. [Instead], leaders need a new, eclectic strategy based on a handful of modern, open, smart, flexible SaaS platforms”.
Of course, the big ERP vendors have large installed bases and plenty of resources for product development and acquisition. It would be wrong to count them out. But the next decade is shaping up to be one where ERPs, bolt-ons and deeply functional best-of-breed solutions not only coexist, but integrate and complement each other, giving users the flexibility for the first time to build the procurement ecosystem they want.
Benefits of Digital Ecosystems
- Control: An ecosystem approach enables procurement to create a customised, ideal solution that suits their business, with tools built for specific needs.
- Staged transformation: A part-by-part approach to building a procurement ecosystem gives organisations the option to spread out the cost and change-management involved in digital transformation. Begin with business-critical processes and modules and go from there.
- Flexibility and agility: Ecosystems are all about choice. Procurement teams have the flexibility to not only build a best-of-breed tech stack, but to swap out parts of the stack as their needs change. This approach avoids vendor lock-in.
- Competitive advantage: There is no competitive advantage to be found in using the same software as everyone else. The hand-picked nature of a procurement technology ecosystem makes it one of your organisation’s unique points of difference.
- No need to start over: Legacy systems can be incorporated if necessary.
- Complexity: An ecosystem is sometimes perceived as more complex than a single system, with users worried that they will have to learn to use multiple systems. This can be overcome with the hub-and-spoke approach (see below) in which only the main platform needs to be mastered by most users.
- Integrations: By far the most common argument against the best-in-class approach is that disparate products will not integrate or share data with each other. In the last few years, integration technology has advanced in leaps and bounds. It’s transforming the way systems work; it’s transforming the role and value of data; and it’s transforming the user experience. This is giving procurement teams more flexibility and more choice. It’s now about ‘Smart Ecosystems’
To put it bluntly, every specialist software provider worth its salt knows that for the product to be a success, it will need to integrate smoothly with other parts of the procurement ecosystem, including legacy systems. Integration drives visibility, and the flow of data, workflows and processes. It’s now a lot easier, faster and cheaper than you might think to achieve secure connectivity between systems.
Creating a digital ecosystem: The hub-and-spoke approach
Gartner points out the risk that organisations will end up with “a jigsaw puzzle of hundreds of applications” in their technology ecosystem. The answer is to have a stable foundation or core which acts as the hub, while other parts of the ecosystem are the spokes. This approach helps allay concerns around complexity and removes the need to juggle between several applications during a sourcing event. In practice, this simply means that communication and data-sharing between parts of the ecosystem take place in the back-end, with everything accessible via a single platform.
Procurement is not alone in this transformation journey – a similar trend is playing out in #fintech, #marketingtech, and #HRtech, all of which are shifting to the digital ecosystem or tech-stack approach.
Wherever you are on your digital transformation journey, moving to an ecosystem approach will enable a robust, interconnected system for procurement that is capable of continuous and sustainable development.
Whether it’s your Source-to-Contract ‘hub’ that talks to point solutions, or is itself a ‘spoke’ in a larger procurement stack, VendorPanel has the flexibility to work with ERPs, bolt-ons, and other parts of the digital ecosystem. In part two of this article we will illustrate VendorPanel’s role and integrability within the digital ecosystem.