Emptoris "Procures" Zeborg's Spend Management Expertise Part Three: Challenges and User Recommendations




Challenges

Emptoris, Inc., a privately-held provider of e-sourcing solutions that support the strategic sourcing needs of global 5000 companies, early in 2003 announced the completion of financing from new and existing investors totaling $20.5 million. Menlo Ventures led the third funding round, with participation from new investor HarbourVest Partners and all existing investors, including NETinvest, from previous two funding rounds. Emptoris then pledged to use the funds to finance further expansion of the company in a number of areas, including sales, marketing, product development and penetration into new global markets.

In September, Emptoris announced the acquisition of Zeborg, one of the world's leading spend analytics firms. As a result of the acquisition, Emptoris, with more than 50 global 5000 customers, and notable sourcing applications and services, believes it is now positioned as the leading strategic sourcing software provider in the procurement and sourcing applications market. In addition to acquiring Zeborg's software and services offerings, Emptoris will inherit the company's sales team as well as global 1000 clients from a wide range of industries, including seven of the world's largest banking and financial services companies. Zeborg's customers include American Express, Cigna, Fleet Boston Financial Corporation, KeySpan, and Owens Corning. Zeborg has reportedly processed over $480 billion in corporate spend data and over 350 million transactions from over 100 data systems. On the other hand, Emptoris customers include Boeing, GlaxoSmithKline, Motorola, and Samsung America.

However, despite a good fit at first glance, the enlarged install base, and improved cross-selling opportunity, some challenges and product gaps are yet to be overcome. One is to conduct possible product rationalization and integration, to orchestrate sales forces, and organize services strategies, given the constituents' different expertise and culture in the past. In addition to the above-mentioned army of direct and indirect competitors, the combined company's possibly biggest challenge remains a still ongoing lack of awareness of the need for sourcing/spend management. While many people have realized the power of e-commerce on the consumer side, there is still plenty of education to be conducted by all the SRM vendors as to prove how much leverage their applications can bring to corporate buyers.

To that end, pre-Zeborg Emptoris has also relied on systems integrator/consulting partners to both help it evangelize the offering and to contribute with necessary consulting, including helping customers create cross-reference tables, or providing services such as identifying potential suppliers and setting up bidding events. Emptoris still provides its own services built around the project management module that help companies standardize sourcing best practices across the enterprise, while for more intricate types of services it leverages partners such as Cap Gemini Ernst & Young, Deloitte Consulting, and ICG Commerce. However, Zeborg's consulting-oriented offering may cannibalize these partners' piece of revenue pay and strain the relationships in the future. On the other hand, Emptoris ironically needs to expand its partnerships with the likes of the big four, particularly for further worldwide market penetration. Additionally, although strategic sourcing is still an emerging market, few vendors have demonstrated domain expertise with industry-specific software. However, that should not lull Emptoris into "generalist complacency," and it should start crafting its more vertically-oriented product strategy, which may again lead us to the help from consulting partners.

This is Part Three of a three-part note.

Part One detailed the event.

Part Two discussed the market impact.

Other Challenges

The combined company will also need to bolster its design and engineering/PLM functionality either natively or through strategic alliances, and provide flexibility of its product to accommodate the changing business practices, integration and standards. Manufacturing companies that fail to coordinate engineering with strategic sourcing and procurement will likely underachieve the potential benefits, given that only by enlisting suppliers, engineers, manufacturing, and procurement into a concurrent design process of early interactions can the best results be achieved. A good example of realizing the need for letting suppliers provide design improvement ideas rather than a stock-keeping unit (SKU) item is Agile's recent acquisition of sourcing vendor Tradec. To meet more collaborative, diverse, and dynamic relationship capabilities, the future product will have to support a distributed application architecture that enables business process flows based on intricate business logic and roles of participants and their trading organizations. Although the Emptoris product offers distributed application architecture today, some product development rationalization will have to take place to maintain this philosophy as the company moves forward.

The competition is not to be neglected either, given a bevy of competitors is trying to stand out with their value proposition of niche functionality or low-cost pilot deployments. Particularly Frictionless Commerce, which has made a slew of similar announcements recently, including $14 million in third-round funding, a new optimization module called Frictionless Sourcing Optimizer, and most importantly, a number of new large customers.

As mentioned earlier, Emptoris will have many large enterprise suite providers on its heels too, which will at least result with the price reduction pressure, which is likely to hurt smaller pure-play vendors than large diverse enterprise players. To that end, while Oracle, SAP, and PeopleSoft might have been remiss to deliver deeper SRM applications, they have nonetheless been closing the gap with many SRM functions, which may be enough to convince their existing customers to at least postpone decisions and wait for more capability from their principal enterprise applications provider. The fact is that even many SRM vendors have yet to expand far beyond simpler capabilities like spending analysis, RFQ, bidding analysis, negotiation, contract development, category management, cost savings tracking, specification management, and supplier performance management. More intricate capabilities like cost estimation and target costing, knowledge management (KM), market analysis, the make versus buy analysis, value engineering, supplier design collaboration, buyer-supplier joint cost reduction projects, etc. are still mainly provided through complex not-automated, once-off consulting engagements.

The future of e-sourcing involves greater integration between sourcing systems and other important systems, such as financials, PLM/product data management (PDM), and SCM. Thus, we believe that Emptoris, and all its SRM peers alike, must continue to provide flashy and functional portal user interfaces, connectors to other enterprise systems (e.g., portlets, applets, etc.) and Internet exchanges connectivity through partnerships or acquisitions. Further, in the SRM specialists' favor might be the fact that IT-wary resellers will not always be amenable to dealing with heavy-footprint large enterprise systems, and will prefer lighter and more agile albeit deeper point solutions.

User Recommendations

Combined respective Emptoris and Zeborg customers, while being alert, should consider this event as a move toward a more viable position for their IT investment, given the combined company stands a better chance to provide more elements of supplier relationships management, particularly in the realm of strategic sourcing.

Prospective customers in the "new" combined Emptoris entity's core industry verticals should look favorably on the acquisition in the long term, albeit there will always be a few rough spots on the path until then. Users should not expect a unified suite of applications to be available before some time in 2004, and should challenge the company to commit to a more certain product development and migration strategy roadmap. Consequently, until the merger is consummated, users evaluating the above individual products should keep themselves informed, and consider generally available (GA) functionality only. Meanwhile, evaluate Zeborg if your company is looking for a vendor with strong spend analytics product and practitioner-level domain expertise in strategic sourcing, particularly for indirect procurement spending categories, until the blending with the Emptoris' direct materials experience fully takes place. Conversely, large manufacturing companies with large procurement expenditures should evaluate Emptoris's offering as a possible way of optimizing their spend and supplier/product mix. The solution might be overkill though, for the companies that are buying basic commodities with one major specification and from a few suppliers. However, it is a completely different case for companies that would like to let users differentiate themselves on criteria different than price, such as warranty terms, payment terms, brand, and quality.

Users should ask the following questions when evaluating the Emptoris-Zeborg combined offering:

  • Are there any price advantages offered to existing clients who elect to purchase/migrate to the future integrated products?

  • Will (and when) the applications share a common server platform and user interface?

On a more general note, the initial step for companies thinking of investing in SRM is to develop their overall business strategy regarding their procurement channels. The most important point for prospective buyers of SRM technology—or any technology—is to do a very thorough analysis of their existing systems, where their corporation's business needs will be in the next few years, and how they intend to integrate the systems (given that mapping data from one place to another is the most arduous, expensive, and time consuming part of the whole process, and one of the major reasons for the failure of many IT projects) before even talking to any vendor.

There are huge benefits to gaining insight into corporate spending, especially if the scope of screening is manageable from the start. Ineffective spend management processes will prevent any organization in its attempts to contain enterprise costs. An integrated approach to spend management must include gathering information from all spending processes and constituencies (e.g., financial, purchasing, IT, and other departments) to effectively manage the spend. The situation to obtain consensus is also important and not that easily obtainable in case of sourcing based on multiple attributes either. Given different constituencies are differently affected by attribute tradeoffs, it is important to find a middle ground between stakeholders coming from many departments like design engineers, marketing personnel, logistics managers, buyers, finance, legal department, etc., which all can also come from different locations (e.g., corporate office, local subsidiary, or distribution center) and consequently have different agendas and approaches.

For a detailed discussion of SRM see "The Hidden Gems of the Enterprise Application Space.".

 
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