There’s been lots of buzz around cloud computing applications — including right here on SandHill.com. The advantages for buyers are well-documented: on-demand delivery and subscription pricing models mean less investment, less risk and much faster time-to-value; more frequent (and much-less painful) upgrades and new releases; and, better performance and scalability.
What hasn’t been as well covered, though, is how cloud computing applications can solve core business problems. And what could be more core to business profitability than controlling non-payroll spending?
A closer look at the spending problem reveals several new solutions made possible by the rapid pace of innovation by cloud computing application providers; and how those solutions make smarter spending an achievable goal for businesses.
The out-of-control-spending problem
Raise your hand if you’re happy with how your organization spends money? Anyone? (“Bueller?”)
Ever shake your head at some of the waste and inefficiencies? What about your CFO? Nope. The CFO is chagrined, to put it mildly. Frustrated with poor visibility. In fact, the CFO likely has no idea where actual expenditures are for the quarter to date (he/she may have lots of “projections” though). Generally, the CFO finds out about cost overruns after the fact – often weeks after quarter-end.
How about your purchasing or procurement organization? Not a chance! They’re constantly trying to police employees to make sure purchases are only made for approved products, through approved vendors, through approved processes, and against negotiated contracts. No matter how hard they try, they cannot eliminate maverick, off-contract spending. They’ve tried carrots and sticks of all kinds, but employees still circumvent procurement processes all too frequently. And that’s just part of their challenge — their existing processes are complex, laborious, and inefficient. Pricing negotiated with approved vendors is often obsolete before the ink is dry. The list goes on and on.
What about the poor chaps in Accounting? They get to see all the dirt on the other side. Expense reports for items that should never have been purchased by the employee in the first place. They see expenses that are months old that should have been credited against previous quarters’ budgets (too bad the books are closed!). Travel and entertainment expenses that constantly bump up against company spending limits with receipts of dubious nature. And inexplicable “approvals” from managers who clearly don’t take the time to review expense reports with the diligence they deserve.
And what about your employees? Do they think the organization practices smarter spending? Not likely! The one time they order through the company’s approved vendors, they were frustrated by limited choices, high prices, paperwork, and long procurement cycles. More often, they bypass the “ask permission” process; put purchases on their own credit card, and “beg forgiveness” with expense reports later. Their management just about always approves the expense anyway, so why wouldn’t they?
How’d it come to this? Simple. Available technology does not suit the needs of the people who need to use it for the company to effectively control its spending. Even though procurement and expense reimbursement processes have the same impact on the company’s bottom line, most organizations employ completely distinct technologies and personnel to control spending. Existing technology was not designed for broad adoption throughout the enterprise. And when software is not easy to use, people won’t use it. That doesn’t mean they don’t spend company money — it just means they do it in ways that are hard to track, and control.
Luckily, new cloud applications enable companies to tackle the problem. Here are eight ways companies can leverage the cloud to rein in unnecessary spending:
1. Solve the adoption challenge
In spite of all its adverse affects on the organization, the “expense and beg forgiveness” approach has one big allure for employees: it’s simple. Like it or not, when looking to implement new processes and technologies, this is the litmus test for employees. Any processes that add more complexity, time, or hassle only serve to make the old way of doing things more appealing. And that’s a huge problem. Without the broad adoption of the tools and processes you put in place, you cannot get spending under control.
Employees should be able to work with a system that automates the process simply, so, for example, users can find and requisition the goods and services they need in just a few clicks. This should be intuitive for users; the more training and complexity involved, the larger the total investment needs to be to drive adoption, and the greater the savings you need to achieve to realize ROI.
Ease of use here doesn’t mean designing software so simple that employees can figure it out on their own; it means designing software so powerful that it’s smart enough to work the way your employees do. That means being able to answer, “What do you need?” quickly and easily so employees can focus on more pressing matters and quickly move on with their day.
2. Go mobile with your users
The e-procurement and expense management processes and technologies of the past were built on assumptions that users were located in the same facility, and had access to the same system. Those assumptions clearly aren’t valid, given the large number of employees that are frequently traveling and working remotely. And let’s face it, the more senior the employee, the more time he or she spends in meetings, and the more they communicate through email and mobile devices. If you want to practice smarter spending in your organization, you have to realize that your managers and executives are unlikely to log into the system frequently. They have to be able to fully participate in the review and approval workflows from the convenience of email and mobile devices.
At our company, a full 68 percent of manager review and approval transaction occur outside the system. They occur through email or mobile applications. That’s because managers can see all the details they need to review and approve a requisition or expense report in an email, and they can simply reply ‘approve’ or ‘reject’ and never have to log into the application. Further, they’ll see the budget impact of their decision before they have to make it, even from email. Or they can do the same thing via a dedicated iPhone application, prompted by push notifications alerting them that action is required.
Employees despise bureaucracy-related delays. With full mobile support, delays are minimized — and can be more than 30% faster than Aberdeen Research’s best-in-class benchmarks.
3. Crowdsource savings with your users
“Crowdsourcing” represents a new opportunity to make spending smarter, and bring purchasing best practices into the 21st Century. While crowdsourcing has applicability beyond the scope of spend management, for our purposes, we are defining crowdsourcing as the process of extending the responsibility for finding the best deals and saving the company money beyond the procurement or purchasing department to the entire employee population.
Let’s take air travel as an example of how crowdsourcing could work, though the principle could just as easily and directly apply to virtually any manner of products and services. In most organizations, travel is booked through pre-approved agents. Today, no matter how great the deals negotiated with preferred carriers, an employee could spend five minutes online, and more often than not, find a better deal. To take advantage, though, the employees would have to go outside the approved process to buy the item.
With crowdsourcing, users can go to practically any website, find the best deals on the item they want to buy, and with a single click pull that item into the normal requisition and approval workflow. It allows you to put the knowledge of your employees to use to save the company money, and turns every employee into a company-purchasing agent motivated by saving the company money.
We already do this in our personal lives. People know, especially now, that they can beat contract prices very easily by doing a basic amount of research online. Let’s face it – the information is out there and there’s no way to stop it. Spend management initiatives built around a “need to know” mindset that controls the flow of information are doomed to fail. There’s just no way hold back that wave.
4. Collaborate and compare for greater savings
There’s no denying the world of online shopping has fundamentally transformed the balance of power in purchasing. Historically, it simply wasn’t realistic to shop around to dozens of retailers to price a given item. Now it is, and, as a result, buyers have a huge amount of control. They can quickly compare the prices and shipping costs before making a purchase decision, and they can easily share what they’ve learned, and experienced with other people. Shoppers can leverage sites that offer consumer reviews, deliver ratings, compare models, and much more to make well-informed decisions about which item will best meet their needs.
Smart spending in the enterprise incorporates these same dynamics: comparison engines that pull external data into internal purchasing processes, and collaboration and sharing mechanisms for users to review, rate, and comment on the suppliers with whom they’ve done business, so everyone else in the organization can benefit from your experience.
5. Use dashboards and alerts to stop overspending
Smart spending inherently requires transactional visibility into spending. Line-of-business managers, finance, procurement — everyone benefits from real-time visibility into company spending. With some cloud based spend management apps, approved users can access spending dashboards that drill down to very granular levels of detail — the originating purchase order or expense report, who approved it, who requested it, and more. They can see which budgets are being consumed the fastest, and set alerts when certain spending thresholds are reached. They have all the data they need to course-correct before it’s too late.
6. Focus resources for continuous improvement
Continuously monitoring operational metrics over time and striving to improve them is a key component of smarter spending, but only half the story. A company can show quarter-over-quarter improvement in key metrics, but without market data to compare against, have no idea if performance is good, bad, or somewhere in between.
For example, a procurement manager may see that his organization is rejecting 2% of requisitions. Certain avoidance savings can be calculated from that number. But is it enough? What is the typical rejection rate for other companies of similar size? It may be that two percent is right in line with the industry, but it may not be. What if a 12 percent rejection rate is more the norm? Wouldn’t the CFO want to consider implementing stricter spending approval policies? Think how much easier it would be to get buy-in from senior management for new spending initiatives when procurement is armed with statistics like these.
With benchmarking information, procurement and finance professionals will be in a position to compare their performance against the market, learn from the community and apply smarter spending practices at their organizations. Industry and aggregate intelligence can provide striking data in terms of relative strengths and weaknesses. While having internal metrics is key to establishing baselines and tracking improvements, industry benchmarks can usher in profound intelligence for where the focus of improvement efforts should be in the first place.
This type of innovation is only possible in true cloud computing applications with multi-tenant architectures that allow the aggregation of data across customer instances so actual benchmarks can be calculated.
7. Employ checks and balances to control spending
Most companies take an “all or nothing” approach to auditing expense reports. Either they review every expense report, or they review none. It’s not practical to audit every report, so don’t! Smarter spending practices would involve using technology to score each and every expense report, and employee, to identify suspect or fraudulent patterns that warrant further attention from the accounting department and employee managers. Each expense report is assigned an intelligent audit score based on the employee’s historical patterns and details of the current report — the higher the score, the higher the risk of non-compliance with the company’s expense management guidelines.
Highly-scored expense reports should be automatically routed to accounting for review, and appear as “To Do” items when the accounting managers log into the system. From there, auditors can easily review each expense line, including supporting documentation, for quick disposition. If fraudulent or non-compliant behavior is suspected, the employee’s full history of expense reports is just a click away.
8. Create a cost-conscious culture
Ever sit next to a guy you know is bilking the expense reimbursement process for more money than he’s due? It’s demoralizing, contagious, and frighteningly common. Inflating mileage, expensing phantom taxi rides, meals at $1 below company guideline — these are just a few of the tricks employees will use to capture a few extra dollars. They do it because they don’t think it matters, and to some extent, might even believe they should do it “because everyone else does.”
Of course, all people aren’t dishonest. Quite the contrary, most employees care very deeply about their companies. They just feel powerless to make an impact. To create a truly thrifty culture, you need to recognize good behavior and punish the offenders. With our application, Coupa, we do this with a patent-pending innovation called “Frugal Meter” that flags expenses when they deviate too far from the category norm at that particular company. When the submitted expense is well below the category mean (say, when the employee take a $12 shuttle from the airport instead of a $64 taxi ride), they will see a “Thanks for being frugal” badge appear on their expense report. And when they take the $130 limo instead of the $64 taxi, they’ll see a completely different note — one that says, “Seems a little high.” And because the badges are dynamic — based on category averages — they are much harder for employees to manipulate.
Smart is as smart does
With these simple information technology solutions to common spending management challenges, CFOs, procurement professionals, and employees can take the necessary steps to improve spending practices at their companies. The best part is that with their rapid innovation cycles, these new solutions are just the tip of iceberg when to comes to the new business value delivered by cloud applications.
Rob Bernshteyn is CEO of Coupa.