Cloud computing, mobility, social media, big data and now artificial intelligence are dramatically reshaping how we live and work. We've felt their impact first as consumers, then in the business world in customer facing functions such as sales and marketing. Now, technological change is finally making its way to the back office, to finance, and procurement.
Procurement is about enabling employees to shop for what they need to do their jobs, but within certain rules and subject to approval by managers. It's always been a challenge to get employees to stay within the rules, and it's even more so now that the internet has so dramatically changed our expectations of what shopping should be like. Technology builders are responding by making business shopping almost as easy as consumer shopping, while at the same time turning business spend management into a strategic driver of business value. Here's how:
1. User centricity
Cloud computing has caused a big shift in how we build enterprise technology. The old approach was to build for administrators, with end users taking a back seat. Yes, there was an interface and some sort of organizing scheme, but for most employees, asking them to use the procurement system was like sending them to Costco for a loaf of bread and some eggs. They ended up frustrated and went out and bought what they needed in some other way.
Today we build for the end user first, and there's nowhere in business where that has a bigger impact--first because everyone in the company must be able to interact with the system, and because there is direct connection between user adoption and the bottom line.
To give a very simple example, if you buy a pen through the procurement system for the pre-negotiated, discounted price of $0.80, versus going to the store and buying it for $1.00, your company saves $0.20. If you decide to go buy it for $1.00 and expense it, your company loses $0.20, plus whatever it costs to process it as an expense.
Simply providing a system that makes it easy for employees to raise a requisition and managers to quickly approve it, anytime, anywhere, even on a mobile phone, has had a huge impact on helping companies manage their spending more effectively.
Even with the most user-friendly procurement software, there will always be spending that happens in other ways. People expense things, or they order things and an invoice shows up. Historically companies have supported each process with separate systems, often operated by separate departments.
But, it doesn't matter what process you use to spend money. It doesn't go onto your P&L as line items for money spent through procurement, expensed, or invoiced. That would be ridiculous. It gets broken out into categories which are supposedly all neatly organized, understood, and managed, but never really have been because the spending is in three different systems and there's been no easy way to get a common view of the data. Bringing all three spending processes together in one technology platform leverages the synergies between them.
For example, an employee might submit an expense report or present a vendor invoice and get a notification back: "We have a contracted vendor for this product or service, so next time please use them."
Or, spending on printing across the organization hits a certain threshold, so the sourcing organization gets a notification that says, "Hey, different departments are spending all this money on printing from different companies. Consider sourcing this category."
Up until recently, it has been a slow, manual process to get to those kinds of insights. When you can bring all your spending together in a single technology platform, creating visibility into a single source of the truth, you can approach spending holistically.
When you have mass user adoption and a convergence of all spending in a single platform, it generates a tremendous amount of data about who is spending the company's money and how. Now you can get a complete, structured data set, and generate meaningful reports, insights, and recommendations on how to operate more efficiently in the future.
But that's not all. Cloud vendors have amassed huge data sets based on transactions across all of their customers. My own company, Coupa, has accumulated data on close to $1 trillion in business spending transactions. By mining aggregated, anonymized data from all our customers, we can offer customers benchmarks, insights, and prescriptive recommendations that individual companies wouldn't be able get simply using their own data.
4. Artificial intelligence
To get to these benchmarks and insights from our data, we faced many of the same challenges that companies have long faced internally around normalizing their spending data. Even with all of your spending in the same platform, people use different names for different vendors, items and categories.
Let's say you're buying PCs from Microsoft. One person might enter the vendor name as Microsoft, and another might write Microsoft Corp. One might call the item a PC and someone else calls it a laptop. One might categorize it as IT, and another as office equipment. And when they don't know what to call it or where to put it, they throw it into Misc., which is unfortunately a big spending category at many companies.
Sorting all this out to get insights from the data has been a slow and manual process, but now we can use machine learning to normalize and categorize the data. We can teach a machine that Microsoft, Microsoft Corp., Microsoft.com and Micrsft are all the same vendor in the IT category. Then you can aggregate all of your spending with Microsoft and get the full picture of how much you're spending with them.
Using artificial intelligence to spot patterns in huge data sets is already helping companies do a better job detecting and preventing expense and invoice fraud, and at helping them identify and vet new suppliers. There will be many more use cases that we haven't even imagined yet.
We've see a huge wave of innovation for consumers, and for business technology that helps companies bring in revenue. Comparatively little has been invested in technology to help companies manage their spending.
The world is going to continue to get hyper competitive. Top line growth and competitive differentiation will become harder and harder to achieve. That means savings and operational efficiency will become increasingly important to a company's bottom line. So will the ability to look at spending data to gain supplier insights that can help you out innovate the competition. Cloud, mobile and social technologies are helping generate these enormous data sets that we can apply artificial intelligence on top of to help meet these challenges.