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- February 10, 2014
- Finance & AP
Last month Coupa released PayStream Advisors' seventh annual look at the “state of the state” of eInvoicing use. The report, Electronic Invoice Management: A Move to the Middle is based on a survey of 300 AP and procurement professionals at U.S. based companies ranging in size from $250 million to $2.5 billion in revenues.
We chatted with Henry Ijams, one of the principal researchers, to get his view on the results of the survey and what the key takeaways are. Henry has been following the eInvoicing marketplace for the past twelve years.
Coupa: What’s new in this year’s report?
Henry: We're seeing more activity in the upper-middle market, especially from organizations that have not previously participated in EDI or enterprise-level automation. What’s
driving this shift is largely access and cost. Today's solutions are much more accessible, with software as service and cloud delivery models. The low entry fee and pricing structure of these models make automation more attractive for organizations that don't have the technology resources or the budgets to do large implementation projects.
Coupa: So, this is something they might have wanted to do before, but it was out of reach?
Henry: Not only out of reach, but also many organizations simply weren't ready. PayStream tracks what we call "Purchase-to-Pay Maturity." In order to move towards automation, organizations generally have to have centralized processing and leadership that is focused on process change.
Electronic processes mean things have to be done differently: We are not going to route paper around anymore and let signature-based approvals drive the day. Rather, we're going to set up automated processes that don't require human intervention on most transactions. The full purchase-to-pay process, starting with when the order is created all the way to the payment, can be touchless.
In our maturity index, organizations need a vision to change the core business process from "I need something, just go out and buy it," to "I need something. Let me self-select what I need and let the tool help guide how the procurement should happen." It’s about pushing more of the decision-making to the front end of the procurement process.
We are seeing more maturity around self-service purchasing and vendor payment. Maturity typically has been driven by payment, as in: "Let’s centralize disbursements," followed by "Oh, now we can centralize receipt of invoices," leading to "Oh, if we're going to do that, then why don't we have centralized requisitioning?"
Coupa: Is that a good way to do it?
Henry: That's a great way to do it. Even better, organizations that are late to the game, who currently push lots of paper, today can jump directly into a fuller, broader purchase-to-pay automation.
Prior to this, we had different solutions attacking different elements of the problem. An electronic payment solution like purchasing cards would manage the payment opportunity. Imaging and workflow systems managed inbound invoices. An electronic invoice network would try to get electronic invoices from suppliers.
Now, with purchase-to-pay tools like Coupa and many others that are offering a full suite of solutions, companies can move much faster up the maturity curve.
Coupa: Are you saying they can do it all in one big bang?
Henry: They can. We used to caution not to do that. But with the availability of technology and a rapidly growing solution provider community that knows how to coach organizations through it, it's becoming more common to add more automation in the first phase.
Coupa: It sounds a little dangerous. Can people handle that much change all at once?
Henry: Well, not every organization. We always look for alignment of leadership, with a core question being "Are purchasing and payables working in concert on a common vision?" Increasingly, we see “purchase-to-pay” as part of today’s dialog, but not always as part of the organizational structure.
Coupa: So, the tools are available, but it requires a change in thinking to bring these two siloed organizations together into a more unified operation.
Henry: Companies typically have to go through some soul-searching about the value that each of the organizations is bringing, and what is the core of each role. The way roles shift with technology is probably the most interesting question.
If we automate something, then we don't need the same level of business process review because we are now counting on systems and processes that are baked into the technology. Controlling risk, for instance, can be largely automated with alerts and reporting .
That's the exciting part of purchase-to-pay. Obviously, there's a shift away from manual work and data entry, and we see reluctance in some managers around that. We also see others who are trying to rapidly shift their departments from transactional to analytic.
Managing of payments, keying and routing invoices can be between forty to sixty percent of an accounts payable specialist's time. Controllers and finance managers want to make those folks into value-added analytical resources who can do other things in their finance organization--things that may not even be part of accounts payable or procurement today.
As our economy improves, it's hard to find good resources to do manual, transactional work. Gen-Y and Millennials generally are not interested in those types of roles at all. These are the folks who grew up with technology in their hands from the cradle, and they do not want manual, data-entry jobs.
So it's not so much, "Hey, automation is going to impact my job." It’s, “When you retire, we're not going to be able to find somebody to do that job”
That's a really interesting twist. Because it used to be "Oh, I'm going to lose some of my key people to automation." Now, it's exactly the opposite. You're going to be able to keep people and enable them to do what they should be doing, which is add value to the organization.
Companies generally don't eliminate jobs because of purchase-to-pay automation. They reassign or re-deploy.
Coupa: Interesting. Were there any companies in the survey that stood out in your mind as capturing the essence of what you see going on now?
Henry: Yes. We love some of what we see Eli Lilly doing, and Home Depot. We also found some very exciting innovation in mid-market organizations who have gotten ahead of the curve, companies like Argo Turbo.
Coupa: What's exciting to you about what they're doing?
Henry: As they move along the curve of automation, they are ever more interested in information processing as a way to move towards improving their business processes. They are constantly exploring new ideas and asking things like, "How can we reduce exception rates? How can we reduce the need for approvers to have to touch something more than once?" How can we increase our rate of touchless transactions?"
They are asking new questions such as "If we're paying electronically, can we get a discount?” They’re changing their business around this new tool.
When somebody is first learning to drive, they don't know what they can do with the car. But once they know how to drive, they realize "Oh, wait. I can use this to go in different directions. I can really travel." It's similar with automation. Once they've been given the keys, they go on what we call a continuous drive for innovation.
Coupa: Was there anything that surprised you in your research?
Henry: What really surprised us is the uptick in automation that we've seen from two years ago. We had pretty good growth in the marketplace in 2011. But as the economy has shifted and we're back to driving improvement and change, we're seeing a really noticeable spike in interest in e-invoicing adoption and automated processing.
In our survey we ask about their usage of technologies. We've seen significant growth in technology adoption the past two years and it seems to be accelerating, especially in the middle market.
For instance, this year, we saw a four point jump in organizations consideration of approval workflow solutions. That's up nearly eight points in the past two years. Not all companies will adopt the solutions, but the idea is gaining momentum.
At the same time, we're seeing Purchase-to-Pay reach into a wider size range of companies, not just giant enterprises, but also mid-market companies that are regionally or locally-based.
Coupa: Does the large percentage of companies that still rely on paper processing surprise you at all?
Henry: We've grown accustomed to it. It tells us why this is such a dynamic marketplace, attracting new technology and new entrants each year, because we still have such a long way to go.
While the larger organizations may be well along the maturity curve, they're really much harder to change. It takes them much longer to get from stage one to stage four, which we call the "collaborative phase." For smaller organizations, while there are many that still haven’t started, it's much faster for them to move their ship.
Coupa: So, do you think the fifty-plus percent of organizations that still have manual processes should be worried about who's going to do these jobs ten years down the road?
Henry: I would say five years. When the economy reaches full employment, maybe in two or three years, it's going to be very difficult, as these folks retire, to replace them.
Coupa: Is that the most compelling reason to do this?
Henry: No, not at all. The most compelling reason for automation is more about the information that can be unleashed once you have all of the data. Today, when we think of a purchase, we're only capturing a fraction of the data about what we purchased. You can't run any analytics on it. You know which supplier it is, but you don't have the granularity of what you actually purchased. So, the real excitement is improving the information about purchases to enable better decisions.
Without automation the questions are, "How do I pay this" and "When do I pay it?" not, "Should I have purchased that" or "Could I pay this faster and get a discount?" Once you have full access to all the data, you can answer very different questions.