The Future of Procurement Is A Funnel: Why Sourcing Software Will Follow Salestech

Edmund Zagorin

Sales was once considered an art, something based on relationships, personal charisma and a rolodex of influential contacts. Not anymore. Particularly in Silicon Valley, what we’ve seen over the past ten years is sales teams have fully adopted the mentality of participating in a growing arms race -- not just in terms of using Salesforce and LinkedIn, but in terms of leveraging huge databases of business contact information, automated lead nurturing, social pre-targeting and sales development outreach. This is the “sales cloud”, or if you prefer, the “sales stack”, and every year the companies that know more about their prospects are able to book more demos, sign more contracts and measurably expand their market share. Today, we are at the cusp of a massive digital tipping point in procurement departments, and as companies realize the massive cost reductions that are possible through optimization initiatives, a fundamentally new approach to procurement will become the norm: the funnel.

This arms race begins when procurement leaders start describing procurement cycles using the language of “buying opportunities.” Why? Because buying is an opportunity for enterprise value. A buy can deliver great pricing and terrific value, or it can cost far too much and deliver far too little. That’s risk, and another word for risk is: opportunity. And if the evolution of salestech has taught us anything, it’s that the best way to manage opportunities it through a funnel, with stages, where projects at different stages are given a score and then different activities become levers to make each of those scores better over time, resulting in a higher win rate and a better overall business.

In SaaS sales, this way of thinking includes the creation of a new role within top sales organizations: the role of “Sales Ops”. Sales Ops is essentially a function that drives productivity in the sales process by managing distinct optimized workflows in the sales cycle, using ideas that were developed by Salesforce.com. The iconic text here is a book called “Predictable Revenue” by Aaron Ross, and the idea is pretty simple: switching between different daily work tasks takes a lot of time, and that time is very valuable for the people doing the switching. Therefore, organizations (even pretty small ones) can get a lot of value by siloing Sales Development Representative functions (cold outreach) from Account Executive functions (quoting, dealmaking, closing). The de-coupling of these activities enables specialization, and because professionals in each of these roles have fewer responsibilities, they can achieve higher levels of efficiency without sacrificing competence.

 

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So what does this mean for the next ten years of procurement? Our prediction is that a similar segmentation and optimization mix will occur: Source-to-Contract functions will become more divergent from Procure-to-Pay, with their own management and platform focused on opportunities. And we will see the creation of a parallel job function to Sales Ops: Bid Ops. (This is, in fact, why we named our company Bid Ops: our crazy idea of using cloud-based software to apply funnel-based optimization principles to the procurement process).

 

At many procurement orgs, the Bid Ops Manager will be responsible for making sure that the trains are running on time and that they position the buyer for maximal pricing leverage given the pool of possibilities that their sourcing team has placed in their funnel. By treating the Source-to-Contract cycle like a funnel, managers can allow their team to specialize, with everyone having a chance to show leadership in improving a smaller part of the process without having to switch what they are doing (and lose valuable momentum in the process).

 

The problem with procurement isn’t that it’s too complicated -- it’s that most procurement professionals -- much like so-called “end-to-end” procurement software platforms -- are always asked to do too much, and therefore cannot specialize, which means they cannot optimize. The old saying goes: Jack of all trades, master of none. Given increasing procurement workloads, the local maximum can sometimes be: did you get the project off your desk? Did you get that bid out the door? That doesn't sound like a winning definition of success, not by a long shot, if driving excellence is truly the goal.

 

The rise of agile thinking in software development -- breaking problems into small pieces and finding the best value prop tool or approach to each set of tasks -- has come to dominate sales, and it is only a matter of time before it comes to procurement. Because like sales, understanding the levers that drive outcomes in a segment of the procurement cycle is the vital precondition to unlocking those 10x gains productivity. And while 10x productivity anywhere is great, that same productivity applied to cost-savings initiatives can come to define a company’s competitive advantage at scale. Those who begin tracking the leading indicators of savings and value in their sourcing funnels earlier stand to become winners as digital transformations pick up steam.