One of the takeaways from the CTRM Conference was the need to obtain value from every dollar (or Euro) of spend on software and technology. A lot of the discussion revolved around the economic environment, reduced trading profits, lower commodity prices and lower volatility and increasing costs, including the cost of compliance. There was also discussion of how to get a better TCO for a CTRM solution including delivering in the cloud, something that is gaining in popularity. We also looked at improving implementation and getting enhanced value from IT services. In all of these cost and value-centered discussions though, there was nothing about the cost of sale/purchase.
For both vendors and buyers, the cost of sale/purchase for a CTRM solution can be very high. The traditional RFI and RFP process, often involving an outside consultancy, is more often than, not a six-figure endeavor for the buyer and I have heard from a lot of vendors recently about how much it costs them to respond adequately to these procurement processes. It is plainly an area where costs can and should come down too.
I raised this issue last week in a catch up call with Ivan O’Toole of JustCommodity and, in particular, we talked about CTRM procurement costs in the Ags and softs arena. Ivan is a veteran of selling CTRM and ETRM solutions for a variety of vendors over the years. “I have witnessed the evolution of the vendor selection process throughout the late 90’s until the present day. My observation is that we are at the same point of maturity now with soft commodities as we were with the power and gas companies roughly ten years ago. I am not saying that the demands are less mature, (far from it in fact) but rather the capability of the Corporate IT service teams varies enormously on the buy side,” he told us.
Our point was that, with the move towards the cloud picking up steam, surely there must be a better, more cost-effective and streamlined sales cycle on offer, that could and would save everyone money. Mr. O’Toole agreed, but he also raised the issue of lock in periods “If the cost of sale remains high then we are caught in a vicious circle where vendors are less likely to offer smaller lock in periods for their software. We need to break this cycle with SaaS deployments.” The idea being that the only way for a vendor to recoup cost of sale is via an extended commitment from the buyer in the form of a lock in. In essence, the cost of sale is of course, passed on to the buyer.
The role of consultants is particularly key to making progress in terms of reducing the cost of sale/purchase. This price point is particularly sensitive in the Ags and Softs space Mr. O’Toole told us and he “sees the need for specialist selection consultancies more so than ever. Just as with the CTRM vendors themselves, the specialist consultancies need to adapt to a new role where selection is done quickly and efficiently. A selection consultancy needs to quickly gain an informed objective view of the maturity of the organisation they are advising. In essence they need to be realistic about a Corporate client’s ability to see through the long course of the CTRM delivery. If realism prevails they will know that the vast majority of buyers have neither the budget nor the appetite for big projects in this space. Quicker delivery and lower cost of support is the answer. This inevitably sets budgets for CTRM at 25%-50% of an equivalent ETRM project in 2008.”
We also agreed on the fact the current buying processes need to change. “In many cases, the more experienced consultancies can dispense with their standard cookie cutter questionnaire to the vendor market. It is simply no longer efficient to invite 6-10 vendors to complete long-winded RFI’s and demonstrate for up to a day each. Early short-listing via an RFI ‘light’ is in most places the right approach to take. Taking your preferred vendor to a POC earlier, especially if they can provide a high percentage of capability initially in a SaaS environment, is the most cost effective delivery mechanism,” he told us.
This is an area ComTech will be looking further at as it is clear that the cost of sale/procurement for CTRM software needs to come down across the board, but particularly in the Ags and Softs CTRM space. The move to the cloud and innovative usage cost models is helping to drive down implementation and support costs but the cost of sale/procurement remains an area where we frankly haven’t seen much innovation. While there is a cost/risk equation to consider in this area, there must surely be more cost effective mechanisms such as free trials and demonstrations from a long-list of vendors that can help reduce costs without increasing risks of a poor selection too much.
What do you think?