Modern Spend Analysis – It’s Not About Build Versus Buy but Creating Balance
When it comes to B2B technologies, organizations of every size are faced with the decision of building knowledge or tools internally versus going to a third party. Often referred to as “build versus buy,” the dilemma raises the fundamental economic question of how to best allocate resources for achieving the optimal return on capital and time invested.
For procurement, the build versus buy predicament has become a common one, especially when it comes to spend analysis. The logic goes something like this … let’s evaluate how spend analysis software products in the market measure up against current requirements or existing in-house solutions by evaluating the trade-off between features and cost. And like any other technology initiative, if you develop a requirements analysis via RFI/RFP based on weighted scores, you can rationally expect to answer whether it makes more sense to build or buy.
Using a “build versus buy framework” with well-defined technology requirements could be considered a sound approach if you think of it as a technology problem. But spend analysis strategy is not simply about buying technology. It’s also about assessing the skills and talent of internal resources in their ability to take on a combination of business processes and technical data tasks for managing ongoing and growing data management requirements related to procurement’s objectives.
Today, procurement organizations that decide to manage and build spend analysis in-house or just acquire a business intelligence (BI) tool for spend analysis face the risk of building internal spend analysis competencies at the cost of having to manage tactical and often repetitive data management activities that can take precious time and resources away from more strategic activities and don’t meet wider organizational and strategic goals.
It can also require significant investments in high-demand data science resources and other emerging technologies related to machine learning and AI to create more repeatable processes and accurate results. And even with advanced BI platforms and emerging tools in data automation and data science, experience and knowledge in spend data cannot be overemphasized for achieving successful outcomes.
So in an age where we are always looking for something new, one approach that has stood the test of time is the concept of people, process and technology. Adapted from the classic model designed by Harold J. Leavitt in 1965, it’s been over a half a century since the introduction of this concept as a method to identify the key components for business success and change management.
As an adaptation of the original Leavitt Diagram, below is a version of the diagram for spend analysis that can be used to illustrate the elements involved in deciding on a spend analysis solution.
For those in the process of deciding to build or buy a spend analysis tool, the advice is not to limit the thought process to either build or buy, but to look to understand the value of spend analysis in its entirety and where a third party can fill in the gaps within an organization.
So in the context of an organization’s environment (e.g., industry), here are some questions procurement should seriously consider when deciding on a spend analysis. Whether it be all in-house, outsourced or a hybrid of both, ask yourself the following:
- Business Process – What is the spend analytics process and policy today?
- People Skills – Who is primarily responsible to clean, categorize and upload data today?
- Organization – How thinly stretched are high-demand resources in the organization, such as data scientists/data analysts needed for engaging in a new spend analysis initiative/solution?
- Technology – What existing solutions exist/are already being used that may compete with any new spend analysis initiative?
- Business Process – What are the expected process benefits of spend analysis in terms of effectiveness and efficiency in identifying savings (i.e., ROI)?
- People Skills – What is the “total cost” of the technology solution? Consider both the technology cost and internal and external resources required to ensure the accuracy and appropriateness of the data within a spend analysis tool?
- Organization – Who are the ultimate end users that will be expected to adopt any new visualization to spend data? What has been their experience with procurement technology in the past?
- Technology – How easy is it to incorporate emerging technologies like AI, machine learning or RPA to improve efficiency and effectiveness?
Providers with decades of experience understand the best approach to spend analysis varies from one company to the next. Some organizations leverage all the spend analysis solutions we offer, while others have augmented their teams to rely squarely on SpendHQ for the spend data–intensive/optimization services. Regardless of approach and based on the dynamics shared earlier, the strongest recommendation is to focus on what you are consistently capable and effective at delivering within your internal procurement and IT teams, and partner with a trusted provider like SpendHQ for creating balance in those areas you aren’t.
To learn more about the ideas we propose here, join us for a roundtable – Enabling Procurement’s Digital Transformation: Not Build vs. Buy but Balance at ProcureCon IT in Denver on Wednesday, June 19. If you are planning on attending or still thinking about it, I encourage you to join us to discuss this hot topic.