With multi-dimensional complexity, strategic depth, and the need for foresight, the sourcing and procurement of enterprise software is often compared to a game of chess—in three dimensions. So how do you become a Grand Master? Chief Procurement Officer expert Brad Veech joined Judy Stubbington, VP, finance and operations at Rimini Street, and shared all the right moves. Checkmate.
From scouting, to selection, to sealing the deal, most IT leaders know that the enterprise software procurement decisions they make today will have outsized impact tomorrow. But not every IT leader knows the secrets to ensure organizational success, as the role of technology sourcing in driving business success has never been more critical. That’s why I was pleased to recently join a Q&A with author and software procurement expert Brad Veech.
In my nearly three decades in finance, I’ve consistently focused on delivering solid results, and that entails staying current with and executing best practices. And when it comes to enterprise software sourcing and procurement, I can think of no better person to elicit best practices from than Brad.
As Head of Technology Procurement at Discover Financial, Brad brings nearly three decades of IT sourcing experience across diverse industries, and has a track record of improved business outcomes through the use of effective negotiations, supplier development, and partnerships. Veech is the author of “Software: The Silent Killer of Your Company’s Budget” and is a frequent keynote speaker at sourcing and procurement events. If you’re a CPO or involved in software sourcing and procurement in any way, Brad shares some great lessons in our Q&A.
CPO past, present, future
Judy: You’ve been a leader in procurement for more than 25 years. What changes have you seen and what do you expect to see for the CPO role? What was the approach in the past, what are the best practices today, and how must CPOs adapt and evolve to be successful in the future?
Brad: The CPO of the future will need to come from a technology sourcing background. Of course, there are other significant categories in the CPO’s typical portfolio to oversee, but none are growing as fast and can expose the level of risk that the technology category can.
It becomes a real challenge when the suppliers utilize an executive, especially a CPO, as a contact point for escalation, and their lack of technology contacting creates benefit to the supplier’s deal. CPOs and their executive leaders need to be trained on the sales tactics used by the suppliers; they keep changing the rules of engagement. What got the leader into their role, has changed drastically since they attained executive status.
Procurement: High-stakes art & science
Judy: What does successful technology sourcing entail? What are the risks to organizations lacking procurement expertise, what’s at stake, when should procurement get involved with projects, what types of projects, etc.?
Brad: The category of technology procurement is growing, and becoming the largest teams in indirect spend, which probably makes sense. Find a project that doesn’t have technology embedded in it. Subject matter expertise in the tech sourcing area is critical. IT procurement has the most complicated contracts, sold by the highest trained salespeople, so, obviously procurement should be brought in as early as possible. Unfortunately, the salespeople are trained to keep that from happening.
From good to great
Judy: What does a great CPO know that sets them apart? What do they know and how do they know it (skills, curriculum, background, etc.) If you were hiring a CPO, what would you look for and why?
Brad: Great CPOs are leaders that understand their categories and teams. Building teams with a bunch of the same styles and personalities does not create a great team, it is diverse thought processes and questions that grow and mature a team. They need to understand their leadership style and allow others to help them succeed. No CPO is going to understand everything in their span of control. They need to hire true SME’s and trust them. I have seen too many Procurement leaders focus on trying to be the smartest person on their team, and that never works. They need to hire people who are smarter than they are, but that takes a relationship-focused leader to have the confidence to lead experts.
Measure to manage
Judy: How should procurement performance be measured? Is it more than just cutting costs & driving ruthless deals?
Brad: Obviously, savings is a critical part of the measurement for any procurement group. But the lack of a clear “savings” definition has typically created many problems and internal disagreements. The CPO needs to be the champion for this effort, so the rules are clearly defined and don’t change mid-year, or even every year.
Think about the scenario where a new finance leader gets appointed and does not agree with the definition currently being used (if there is one) of savings, and decides to change that halfway through the year. The CPO needs to stop that and be a negotiator of situations like this.
My opinion is, and has been for years, that while savings are an important measurement, cost avoidance is more important. Deals that create good cost avoidance are protecting the long-term value of your company’s agreements. If the company only cares about savings, they are creating a situation where the procurement team will do deals that front load the cost exposure to meet their goals. It creates opportunities for bad behavior.
The other metric procurement leaders need to pay attention to is that the savings and avoidance goals are team goals. The savings opportunities are based on what deals any given individual gets to negotiate. So, you could have one person in the team that only does a few deals a year, but they are all large and have greater savings opportunities than another person who does several deals a month that are smaller but no real opportunity for savings. Make your goals team goals, no individual goals to create a stronger team who supports one another.
Renewal pitfalls and peril
Judy: Among many “gotchas” in software procurement, are any as fraught with peril as renewals? Especially in an inflationary environment?
Brad: The first step in any renewal process is to review the contract. This is the only way to vet and validate the key data points at the crux of any renewal. Performing a contract analysis helps you with the critical knowledge to enable action when opportunities are identified.
Then there is the renewal date. Unfortunately most companies pay attention to their contract renewal date, which is a good data point, but the notification period from the renewal date is far more important. Once you miss the notification period, you have lost a lot of leverage and are at the mercy of the supplier.
I am seeing lots of “inflationary” first quotes coming in, but typically we are holding renewals flat and up to a 3% increase. These companies pocketed so much money during covid, with no travel, there is no valid reason for them to be trying to get crazy renewal rate hikes. They are using the media as a way to make more margin on their revenue. Tell them to stop spending so much on sales and marketing and they could reduce their rates.
Most common mistakes
Judy: What are the typical/most common mistakes you see in procurement, and how best to avoid them? What about software support?
Brad: The two biggest mistakes I see made frequently are sort of related. First is not engaging the stakeholder about what success looks like for their project. I see far too many procurement people that get a deal to go work, and they have done so many deals that are similar, they assume they know what the end result should be. Without understanding exactly what the company needs this project to do, to extract value out of the deal, you have to know what success looks like for the project.
The second most common problem I see is communication. I know, it is the biggest problem period in corporations everywhere, but procurement people are the connecting point to stakeholders and several other groups. You have to be a great communicator to your stakeholder, IT, finance, legal, risk/compliance, onboarding, etc.
Several times I see the procurement person go heads-down on a project, and doing all the right things, except communicating what is going on with the project. The most common escalation I get is someone calling/emailing me and telling me their project went into a black hole. They have no idea what is going on or if it will be done on time. That is why I created the Daily Procurement Planner, it helps procurement people stay focused on what is important to work on, and communicate, communicate, communicate.
From a CPO perspective, The most common problem I see is a lack of understanding the complexities that go with technology sourcing. Most of the CPO’s have not had exposure to technology sourcing, as it takes many years to achieve their success, and tech sourcing is relatively new, so the complicated agreement and licensing models are foreign to them. They then tend to rely on supplier relationships to help with the deals, and that does not work as well as it does with more commoditized categories.
I don’t think we are too far away from having a TPO (Technology Procurement Officer), or CTPO, if HR wants to put “Chief” in front of it.
Let there be light
Judy: Finally, let’s talk about the CPO’s role in “illuminating” shadow IT. There’s plenty of risk in the shadows—security, budgetary, compliance, licensing, privacy, etc. How do successful CPOs assist bringing this to order? Any tactics/strategies you’d recommend when it comes to shadow IT?
Brad: Shadow IT, or rogue spend is in every organization. The turnover in any organization makes it a hard fight to win. Mandates to use procurement work, but that has to come from the Procurement leader and be supported by their peers. If the other leaders do not support everything needs to go through procurement, it will never happen.
The budget concerns and risk concerns are real in shadow IT. I hear about application rationalization projects every week from companies around the country. Tech sprawl happens so easily because of the way suppliers allow for the initial engagement. For example, click to download or zero cost proof of concept projects. The CPO needs to work with their counterparts to make it hard for people to implement new solutions into the environment. They should shut off credit cards for certain categories of spend, don’t allow downloading of applications onto company equipment, etc.
The risk involved by allowing solutions into our environment without being vetted from a security or compliance perspective is crazy in this day and age. Procurement leaders should have control of the asset management team, or build one if it does not exist, and use that as an opportunity to expose the rogue solutions, duplicate functionality and shelfware that is in the company. This will go a long way in building the trust for procurement to be considered a partner to the business, and not just a tactical process.
Learn more: Discover how to drive IT cost efficiency and procurement ROI with Rimini Street’s strategic enterprise support for IT procurement and sourcing.
Read more: Get valuable advice on how to negotiate your new software agreements and those annual renewals in Brad’s book, “Software: The Silent Killer of Your Company’s Budget.”