Welcome to the Era of BSM - Business Spend Management
Business Spend Management (BSM) is a unified set of business processes, supported by software, that encompass procurement, invoice management and expense management—all the ways employees spend money—as well as the related processes of contract lifecycle management, supplier information management, inventory management, advanced sourcing, budgeting, and analytics; all enriched by cross-company community intelligence. BSM together with ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), and HCM (Human Capital Management) collectively and exhaustively address the core operating processes of every organization.
The business world seems to love acronyms, maybe nowhere more than in the technology industry, and maybe none so much as the TLA (three letter acronym).
Acronyms certainly enhance recall, and they save time, space and effort in communication. Of course, they are shorthand for the name of something and as such, they help define it, creating a common understanding such that people can connect mentally to the thing without having to describe all of it.
If you can give something a strong, meaningful name, and encode it into an acronym that stands the test of time, it’s a good indicator that you’ve done something powerful in your industry. That’s why we are laying claim to the acronym BSM, for Business Spend Management.
It’s time for our category of information technology, and the work of professionals in this field, to have a name and a TLA that can stand together with ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), and HCM (Human Capital Management). When you add BSM to the other three, these functions collectively and exhaustively address the core operating processes of every organization.
Not Just BS Software Marketing
Is this just Bullsh*t Software Marketing? No, but one could argue that it used to be. BSM was previously claimed by vendors of Business Service Management, “a category of IT operations management software products that dynamically links the availability and performance events from underlying IT infrastructure and application components to the business-oriented IT services that enable business processes.”
In March of 2016, Analyst firm Gartner pronounced Business service management dead, stating that it “has not delivered on its promises of prioritizing, communicating and focusing I&O (Infrastructure and Operations) resources on the functions critical to the business.”
I’m not here to dance on the grave of business service management, but there is a point to be made. The promise of business service management was unkeepable. No single solution could keep up with the pace of technology change and monitor and manage all the data and technology in the enterprise, and no TLA could change that.
But, TLAs such as ERP, CRM, and HCM have achieved lasting traction in the marketplace because they accurately represent marketplace needs and solutions that deliver real value. These names matter because they encourage companies to think bigger and more holistically about their processes, and practitioners to think bigger and more broadly about their roles within them.
In each case, the name and acronym represent the crystallization of an evolution. Each sector started with technologists building solutions to address various pain points in a process. As these point solutions succeeded in the marketplace, they extended and/or combined to tackle adjacent and ancillary processes, eventually creating an interoperable system that was greater than the sum of its parts. This new solution delivers lasting value because it increases process efficiency and offers new visibility into a single source of truth for an end to end process. When that happens, it then becomes worthy of its own name.
That is what happened in ERP, CRM and HCM, and what is happening now in BSM.
How did this all begin? Let’s take a brief journey back to the 1960s:
ERP: The Granddaddy of Them All
Caption: SAP R/2
ERP is the granddaddy of all enterprise technology solutions. It has its roots in the inventory control (IC) systems of 1960s. This inventory management software morphed into the Material Requirements Planning (MRP) systems of the 1970s, which helped manufacturing companies integrate their inventory of parts and products into production schedules. In the 1980s, they evolved into MRP II systems that integrated additional data relevant to the manufacturing process, such as employee and financial requirements.
Gartner coined the term ERP in the early 90s when vendors such as SAP, Oracle and JD Edwards further extended MRP II by adding modules to connect more business processes, such as core financials, human resources and CRM. These were all integrated to a centralized database.
This represented a new value proposition, and throughout the 90s and early 2000s, in a bid to own the total business systems topology within the customer organization, ERP vendors continued adding modules, creating mega suites that could connect virtually every known business process.
I experienced working with ERP first hand while at Andersen Consulting in the early 90s, first programming utilities in SAP R/2, an original mainframe version of ERP, and then deploying SAP R/3 client-server ERP modules for companies around the world. SAP ERP had all the key modules needed to run a company, from FI (Financial Accounting), to CO (Controlling), to SD (Sales and Distribution), and beyond. The software was very complicated, but once deployed; my sense was that it was going to be around for the long term.
Fast forward a couple of decades, and in 2013, Gartner coined the term Postmodern ERP, basically saying that while ERP systems will continue to the be the technology backbone and system of record for most organizations for the foreseeable future, cloud-based best of breeds could add more flexibility and business value in many areas. While they didn’t pronounce ERP dead, or even close to it, adding the adjective “postmodern” is a tacit acknowledgement that the promise of the ERP mega suite for all business processes has become, if not unkeepable, less strategically desirable.
CRM: Meanwhile, on the Customer Side . . .
Whereas ERP systems rose out of a focus on operational efficiency and productivity and later added other functionality, a different evolution was taking place with customer-facing systems.
Decades before there was a CRM industry, salespeople kept their customer information on paper cards in Rolodexes. As technology improved in the 1980s, Robert and Kate Kestenbaum pioneered the discipline of database marketing—the analysis of customer and prospect lists for the purpose of targeting customer communications.
Caption: Contact Management technology, circa 1973
The mid-80s saw the rise of contact management software—essentially, electronic Rolodexes. In the early ‘90s, sales force automation (SFA) systems applied information technology to many of the functions of database marketing and combined them with contact management to connect pre-sales activities such as telemarketing, lead gen, preparing quotes and orders.
Around the same time, customer service and support (CSS) software was being developed to handle post sales activities, but the information stored in that database wasn’t linked to any other system.
In 1993, after failing to convince Oracle CEO Larry Ellison to sell their sales application as a standalone product, Tom Siebel and Patricia House left the company to create Siebel Systems. Within a couple of years, Siebel and some other vendors had developed a product that was commonly called enterprise customer management (ECM) or customer information systems (CIS).
Siebel later acquired customer service technology company Scopus, bringing together all key customer touchpoints to manage the whole customer relationship lifecycle, calling it CRM. This accurately represented the new value proposition—a unified process and a single source of the truth for customer data.
I joined Siebel in product management in 2001. I remember the slide from training that explained what CRM was. What I loved about it is that it was grounded in a strategy that made sense for the market, and was told in terms of what Siebel was uniquely positioned to deliver. I was all in.
At the time, it was the best in class CRM technology, delivered in a client/server on-premise model. But, Siebel began facing heavy competition from SAP and Oracle, and while attempting to defend its turf in the enterprise, Salesforce.com emerged with cloud-based Software-as-a-Service that addressed that same marketplace need for SMBs that couldn’t afford big enterprise class software. Eventually they pushed up market and came to dominate the enterprise CRM market in the years following Siebel’s 2006 acquisition by Oracle.
Siebel was an important company because until they brought it all together, there was no holistic way to use information technology to create and manage a relationship over the entire customer lifecycle. They defined customer relationship management as we now understand it and demonstrated that best of breeds could do a better job of handling a particular end to end process than ERP add-ons. Even today, it remains a winning value proposition.
Re-Applying the Model with HCM
After I left Siebel, I joined the early team at SuccessFactors to see if we could apply the Software-as-a-Service model and the same functional unification approach to another set of key use cases: Managing how companies engage with employees.
The idea of applying information technology to human resources functions also had its roots in the 1970s, but was limited to systems that performed basic tasks such as tracking hours or administering payroll. With the rise of ERP systems, some HR functionality began to be offered in add-on modules, but it wasn’t until Dave Duffield and Ken Morris founded PeopleSoft in 1987 that HCM began to emerge as a category in its own right.
Though PeopleSoft started with HR and offered it on a standalone basis, eventually they added modules that allowed it to function as an ERP system, placing them in competition with SAP, JD Edwards, (which they merged with in 2003), and Oracle, who acquired them in 2005.
Meanwhile, in the late 1990s and early 2000s, cloud technology unleashed a new round of innovation in the category, making HR technology accessible to smaller companies that didn’t have ERP systems and opening it up for users outside of HR so that managers and employees could perform many tasks on a self-service basis.
The cloud also spawned a host of best of breed startups for various functions such as recruiting, applicant tracking, benefits administration, performance management and more.
At SuccessFactors, which began as an employee performance management company, we introduced a product called Employee Live Profile, a cloud HR system of record that could have served as the entrée point to a company’s core HR system. We planned to work our way toward offering a fully integrated HCM solution from a single cloud vendor.
Caption: Employee Live Profile
But, the big ERP vendors began snapping up the best of breeds to create their own end-to-end cloud-based solutions. SuccessFactors was bought by SAP in 2012 and now leads the market with Employee Central (an evolution of Employee Live Profile), but Workday has become a fierce competitor and arguably has ultimately done the best job by building out a cloud native and complete end to end system.
Pattern Recognition: Business Spend Management Addresses Pain Points
We can all see the patterns: People build information systems to address various pain points. As they succeed in the marketplace, they extend or combine those systems to tackle adjacent and ancillary processes, eventually creating an interoperable system that is greater than the sum of its parts, because it increases process efficiency and offers new visibility into a single source of truth for a set of end to end processes. When that happens, it becomes worthy of its own name.
This is what I believe is now happening with Business Spend Management (BSM).
We have always had information technology support for many of the underlying processes in Business Spend Management. But, it has never had a proper name because like HCM and CRM before it, the market has consisted of a fragmented collection of ERP add-ons and best of breed point solutions, and the industry’s thinking about it has also been fragmented.
There have long been procure-to-pay (P2P) and source-to-pay (S2P) ERP modules. In the late 90s, B2B e-commerce innovation first began, and companies such as CommerceOne, VerticalNet, and Ariba were taking off. I was at McKinsey at the time, and my colleagues there were thinking and writing about those companies, but narrowly, in terms of being better alternatives to the procurement modules of ERP systems.
SAP made a play in the space and called it SRM, for Supplier Relationship Management, which is an important concept, but still only a subset of Business Spend Management. After the downturn of 2001, the only remaining survivor was Ariba, who tried to define its space as ORMS (Operational Resource Management Systems) before being rolled up into SAP for $4.3 billion in 2012.
In order to be collectively exhaustive around all areas of business spending, BSM would have to include invoice management. Here again we have best of breeds for invoice scanning and invoice workflow that are disconnected from where the buying actually takes place.
It has to also include expense management. This category was pioneered as a standalone solution by Concur in 1993. Similar to what we saw with HCM, in the past few years there has been a wave of innovation driven by the cloud, and now the landscape is dotted with startups offering solutions for the SMB market and best of breeds that tackle booking, or expense submission, or rewards programs, or some other aspect of the process in some novel way. Concur itself was rolled up into SAP for $8.3 billion in 2014.
Clearly, SAP recognized that components of BSM were worth assembling. But, up until Coupa, there has never been a platform that has been able to address all of a company’s spending on one unified cloud platform, including not only procurement, invoicing, and expenses but also spend analysis, supplier management, contracts management, sourcing, and all other ancillary processes that support spending company money. There has also certainly never been a way to aggregate, normalize, and sanitize cross company data, in a way that could help each customer get smarter about the way their organization spend company money.
A Ridiculous P&L
Why is this so important?
It doesn’t matter if you spend money through the official procurement process, whether you buy something and submit it on your expense report, or you call and order it and the vendor sends you an invoice. At the end of the day, it’s all just money spent. It doesn’t go onto the P&L as line items for money that is spent through procurement, expensed or invoiced. That would be ridiculous:
Naturally, it gets broken out into different categories of spending, categories which are supposedly all neatly organized, understood, and managed, but never really have been because the spending is siloed in three different systems that handle three different processes and there’s been no easy way to get a common view of the data.
That is partially why we have to give this space a broader name—because we have to think bigger and more holistically about spending. Certainly, there have always been people that were thinking this way, but there was a lack of technology innovation to support them. That is no longer true.
Re-Re-Applying the Model with Business Spend Management:
We are reapplying the model that I had the privilege to contribute to at Siebel and then at SuccessFactors. When I first encountered Coupa in 2009, it was a uncertain startup working on a small business-oriented, open-source based procurement system that might have been easier to use than existing systems on the market. That’s critical, because getting everyone in the company to use the procurement system is the key to getting the spend, and the data, all in one place. But, they were still thinking of procurement as a separate business process.
I thought we could create a pretty interesting company around a transactional core, built on a single code base, encompassing all three paths to spending: procurement, expenses and invoicing; and develop our vision from there.
Our first task as technology builders was to build those three core modules—procurement, expenses and invoicing—to help companies get all of their spending in one place. That alone is greater than the sum of its parts.
Our early customers were 100 percent procurement, but today, the majority of our new business is outside of core procurement, validating both the market need for a comprehensive solution for all spending, and the value we can deliver against it.
For example, you submit an expense report and you get a notification back: “We have a contracted vendor for lodging, 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, employees are spending a lot of money here; maybe you should think about sourcing this category.” Historically you could not automate things like this because the information would be different systems. That is a key benefit of interoperability, and a single source of the truth for spending data.
The value proposition become infinitely more powerful when you start to render prescriptive recommendations based on community intelligence. “You are about to contract with supplier A, and the community has had lot of disputes with this supplier and a great deal of late and broken shipments. Perhaps, you should consider Supplier B.” “You are spending 30% more on this commodity than the customer community in your industry. Perhaps, you should renegotiate your company contract.” These are just some simple examples. The beauty of this approach is that with more data gathered, the smarter the surfaced recommendations.
Business Spend Management: Gimme an “S”
Why is BSM the name? I’ve thought long and hard about each word.
“Spending” is not the first word, but it’s the most important word. It’s the meat in the middle of the sandwich.
The world is going to continue to get hyper competitive. No one will be able to hold back the tide of globalization for long. Top line growth will continue to get harder and harder.
What that means is operational efficiency will become more and more important to a company’s success. We’re already seeing customers who have made extraordinary gains in operational efficiency and are saving tens and even hundreds of millions of dollars by putting their spending through the Coupa platform.
That is nothing to sneeze at, and still we feel like we're only scratching the surface. This is about something bigger than operational efficiency and savings, but those are essential.
Business Spend Management: Gimme a “B”
Why “Business?” Arguably, Organizational Spend Management would be more all- encompassing. But, even if your organization is governmental or not for profit, you still have to adhere to standard business principles. You have to buy things to operate, and you have to create a profit and loss statement with two parts.
The top part is revenue—the money you bring in. But the top part of the statement is meaningless without the bottom part. You could make a ton of money, but if you consistently spend more than you bring in, you’re eventually going to have to change the way you do business.
There is also the peculiar view that somehow the spend side of the equation is not as critical to business as the revenue side. That is simply not true, ultimately. Perhaps, the time has come for those that manage spending to be seen rightfully as the “Business” impacting professionals that they are.
Business Spend Management: Gimme an “M”
You could also make an argument that there should be an “O,” for Business Spend Optimization. Certainly, optimizing the value of all the money you spend is the ultimate goal.
What we've observed over the last nine years is that organizations often don't even know what they’re spending money on, across a host of key categories. With spending in three different buckets and often improperly categorized, it’s hard to normalize and aggregate the data. Because legacy systems are hard to use, adoption is low. Procurement negotiates great contracts, but few are using them. Employees are expensing things because it’s too hard to make a requisition and/or it takes too long to get approval. “Miscellaneous” is often a large spending category in many organizations. Because of the way that folks have historically approached these processes, and because of the technology choices they’ve made, that’s the state of most of the world when it comes to managing spending.
We have to start by managing, but supporting optimization is where we’re heading.
Community Intelligence is the Key
The key to optimization is data – and not just any data. The advantage of the cloud is that the data from all of our customers is partitioned but also resides centrally. We are using machine learning to normalize anonymized data from what is fast approaching $1 trillion in cumulative spending transactions that have run through our platform, and we are just beginning to tap into what we call community intelligence.
Caption: Coupa Community Intelligence
We see this as an incredible source of future value for both our company and our customers, because not only is top line growth going to get harder and harder, differentiation is going to get harder and harder. What that means is that innovation becomes more and more important.
We are at a very exciting time in the history of technology because we now have huge specialized data sets, the computing power and the data architecture to effectively handle them, and machine learning and artificial intelligence to be able to spot patterns and deliver prescriptive insights that our customers can use to develop new business models.
For example, let’s say you run a restaurant chain, and you have a produce supplier that delivers weekly. Community intelligence from vendor management software could alert you to a local supplier that delivers daily, giving you both fresher produce and more refrigerator space to add other items to your menu. Conversely, it could prevent you from doing business with a supplier that’s got a host of problems you probably couldn’t learn about just from pulling a credit report.
For example, using data from the entire community, we can detect and alert you to a much wider range of expense, invoicing and procurement fraud patterns, helping you appropriately target your audit resources.
With visibility into such a large and growing data set, and the ability to mine it for insights, a whole host of possibilities open up.
Business Spend Management: Our Vision
We set out to develop the most comprehensive suite of spend management applications ever created, with an open, cloud based architecture, matched by an open spirit of collaboration and an unwavering focus on user centricity; delivered in the most accelerated time frames possible.
This has been no small endeavor.
We are now proudly in the top right of almost every analyst quadrant, and wave, and navigator related to the space, but the one in which we aspire to lead is the one that does not yet exist: BSM.
Looking back, we see that it’s been a long climb to get to this point in the journey, and we are aware that we have arrived here by standing on the shoulders of all the technology innovators that have gone before us, and with the support of our growing community of customers.
Looking ahead, we see something new and bigger than what has gone before. Automating procure to pay is only one element. Managing employee expenses is only one element. Efficient invoice management is important, but it’s not big enough. It’s all of those things together, and more: contract lifecycle management, supplier information management, inventory management optimization, advanced sourcing, budgeting, analytics; all working seamlessly to deliver Value-as-a-Service with prescriptive insights across the platform, as never before possible.
We believe that while Business Spend Management describes it best, we will not define the value of BSM alone. We will define it together with our customers and partners who share our vision of using information technology to address the long-standing challenges of managing company spending, and who innovate and co-develop this vision with us.
Let’s blaze a new trail of lasting value in the new frontier of Business Spend Management. Welcome to the era of BSM.
Looking back, we see that it’s been a long climb to get to this point in the journey, and we are aware that we have arrived here by standing on the shoulders of all the technology innovators that have gone before us, and with the support of our growing community of customers.
