If you’re managing a company, a division or a department and you have to find a way to cut costs, show improved profitability or otherwise find some way of boosting reported earnings even a smidge, the sad truth is that there is never a single line item in the P&L statement captioned “fat and waste” that you can pencil out and be done with it. I was thinking about this recently as I was being briefed by Coupa, which offers spend management software.
Like most of managing, “better” is achieved by addressing a lot of little stuff. “Watch the nickels and the dollars will take care of themselves” is one way of putting it. But for most managers, addressing a lot of little stuff can be much too time consuming to be worthwhile unless you apply some sort of automation – either by having IT systems take over manual tasks, using IT systems to provide alerts when exceptions occur and manage their follow up, or some combination of the two.
For the past year many US corporations have be able to show robust profit margins as a result of the drastic retrenchment they put in place as a result of the financial panic during the fall of 2008. However, as the economy recovers, executives and managers will be challenged to find ways to expand while maintaining or improving their profitably as they add back less productive people. Keeping tight control on spending – especially the administrative, indirect kind – is one way to do this.
Spend management software – a category that includes outlays for administrative supplies and equipment (that is, anything that is not part of the cost of goods) as well as travel and entertainment (T&E) expense – has been around for more than decade but there are still plenty of companies – especially small and midsize organizations – that can benefit from adopting it. There have been a few major impediments to their doing so. Initially, the cost and hassle of managing an on-premises solution made this an option for larger organizations. However, this is a category that has largely moved to a SaaS delivery model and part of applications available in the cloud computing software industry. Second, there is a lot of inertia that keeps people thinking that it is cheaper to use spreadsheet or paper-based systems. Third, companies have not always been able to keep enough people using the system enough of the time to make it worthwhile.
As to the last item, one of the things that impressed me most about Coupa’s design is that it has a natural flow, incorporating many design features that make it easy for people to use. In this respect it follows the new paradigm for software design – it molds to the way people normally do things, rather than forcing users to adapt to a structure and flow dictated by the constraints of the software. It has the capabilities companies need for expense management so that managers can automate the process of watching the nickels. It monitors budgets; enabling managers to set spend alerts to warn when a specific threshold has been reached so they don’t go over budget. It can monitor spending for signs of fraud and automate expense report reviews to allow audit by exception. Rather than forcing employees to use only approved vendors and catalogs, it allows them to quickly get approval if they find a better deal. The benchmarking capabilities make it possible for executives to compare how they are doing; both in terms of what they’re paying for purchases as well as the efficiency and effectiveness of their processes (Are some managers too lenient in granting policy exceptions? Is it taking too long for others to give approvals?)
Spend management software is one those categories that continues to catch on – although it’s been at a slower pace than I thought five or ten years ago. It’s a category that makes sense in a challenging business environment as companies try to contain costs, and in good times as they look for a competitive advantage. Coupa’s offering also includes spend analytics, which Coupa incorporates into its offering. I expect the market for the software will continue to expand as more midsize and even smaller companies increasingly take advantage of cloud computing offerings through SaaS, which eliminate the up-front cost and IT management requirements that have prevented these organizations from using this capability in the past.
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Robert D. Kugel CFA - SVP Research