Pens and cleaning contracts might not seem like a big deal. But, over time, such operating expenses add up, and often have a larger-than-expected impact on the bottom line, something that rarely escapes the attention of top executives. A new generation of spend management and e-invoicing technology can change that, and is making major inroads at large financial institutions in the U.S. and, more recently, in Europe. Can the rest of the banking industry be far behind?
Mike Arenth has been at his job in technology-rich suburban London for exactly one year today; and from here, he's seeing a shift in the way European financial multinationals get things done with data. It's something their American counterparts had going, have gotten away from, and may want to think about getting back to.
Arenth is the European general manager for Ariba, a 10-year-old software producer making products aimed at digitizing company spending - the entire process by which, among other things, those ball-point pens make their way from the office goods store to the company supply closet to the desk drawer.
To many people within contemporary corporations, those pens aren't pens, they're data. And they hit the bottom line. Seen this way, modern financial institutions, even the smaller ones, are sprawling beasts shot through with information and data streams: from pens to the hiring of janitorial services to the most complex billion-dollar multinational transaction involving fleets of well-heeled lawyers.
And if it's not an in-house transaction, they're settled with invoices. After a decade of growing pains, almost all of this business can be quantified and digitized. The data points run from procurement to payment. Spend management software and e-invoicing technology to speed things up and keep track is widespread at larger institutions in the United States.
But across the north Atlantic in Europe, which lagged behind the U.S. in this regard until recently (mostly due to a patchwork of cross-border regulations), a sudden spike in the adoption of this technology not only has software vendors rushing in, but is creating a change in the executive suite. Suddenly in places like Madrid, London and Paris, the chief procurement officer, armed with software and data, is gaining a much more important strategic voice in the company and dusting off the cloak of the much-maligned "back office."
"In America and Europe, the goals that procurement officers have in their agendas are pretty similar. Cost reduction. Supplier consolidation. Better grasp of what's being spent," Arenth says. "One of the key things I've seen is that procurement and sourcing professionals are getting a seat at the executive table at a quicker pace in Europe than they are in the United States." That means more integration into the larger business. For Arenth, who sells the software tools, it means a greater sense of opportunity for the technology in Europe than in recent years stateside. "They've got the ear of the chief executive or the chief financial officer, and understand that sourcing a procurement is a key strategic initiative. It's not part of a cost center, a back-office operation. It's part of the forefront in terms of strategy. It's happening in the states, too, but the pace here is greater. It makes it easier to drive through change."
Arenth and industry analysts point to outfits like the Royal Bank of Scotland as good examples, where firms have gone out and picked up talent from the manufacturing sector to bring those ideas in-house. In the past five years, RBS has become quite aggressive; not only does it have U.S. strategies in play through its $164 billion Citizens bank initiative, but it's built itself into one of the world's 10 largest banks. Under procurement chief Andy MacLellan, the firm's become a very efficient one as well, bringing in purchasing officers from the likes of Honda and, for example, reducing the number of U.K. cleaning contracts for the bank from 700 to six. MacLellan's team is now responsible for global purchasing operations, watching over $12 billion a year. Other chief procurement execs, such as insurance giant AXA's Alain Page-Lecuyer and Banco Santander's Javier Castrillo, also pick up laurels for both their tech prowess and clout.
What is happening, starting from about a decade or more ago in the states and then spreading to Europe and Asia, is related to the craze for data mining and customer relationship management software, only more tangible. Electronic settlement, supply and invoicing is a spectrum from the extremely basic Word document sent via e-mail which acts as an invoice to as robust as one can imagine, with digital contracts detailing hundreds of billable line-items and tax details sent back and forth between investment banks and outside law firms. Software firms are positioning themselves as horizontal players, creating e-bills for all different kinds of corporate uses to be carried on different networks. They're also making vertical plays, creating more complex and specific networks to apply to different departments or purposes within the corporation. Vendors are creating communities of suppliers which subscribe to their particular flavor of billing technology; when the vendor brings in clients, then they have a ready-built supply pool. Sunnyvale, CA-based Ariba's supplier network alone carries more than 140,000 different outlets. Some networks are more tailored, like Dallas-based Symphony SMS, which caters to telecom expenses.
As the services develop, it's clear how regulation, corporate culture and consumer habit are shaping software deployment, says Bruno Koch. Koch is a Zurich-based e-billing consultant with clients across Europe. European consumers are much more used to everyday electronic transactions-paper checks are non-existent and bills are paid by direct bank wire and by direct debit. Each of the top five invoice consolidation network vendors process between five and 10 million in invoices per year, according to Koch's figures. "Electronic invoicing in Europe goes with an isolated service. It's just the invoicing system, not more," Koch says. "In the Anglo-Saxon countries, it is more popular to have a combined service from order to invoice. In the U.S., the payment has much higher priority. Payment in Europe-especially in Germany, where it's 90 percent-is by direct debit. Presentment is sufficient."
Analysts say the bigger point is to be able to analyze and manipulate the data, to marshal the information and make decisions based on it. Good spend management software creates a database even as it spits out invoices, and this data can knit a far-flung company together by showing where its spending is fractured, inconsistent, redundant. And this is where the playing field levels a bit. Ariba claims its software can manage the whole supply loop digitally, from requisition to order to invoice to payment within hours. A big sticking point here for cross-border transactions has been over the value-added tax, which is different in each country. Arenth says Ariba's network is now modified to take this into account, and does so automatically, eliminating a headache. Combine this with the willingness of everyday people in Europe to use electronic transactions, and there's a lot of growth potential for richer spend management software in the European markets, and much energy in the back office, says a jovial Javier Urioste.
Urioste's both been a part of and observed these trends at top levels-until a few years ago he was high atop JPMorgan Chase as chief procurement officer in charge of global supply, from 2001 until the end of 2004, when Jamie Dimon stormed back from temporary exile in Chicago. Urioste had come over to JPMorgan Chase from IBM. He was brought in to create a contemporary procurement organization, and, of course, to save the bank money. Those were pretty lean years.
By selling the CIO on using spend management software and by using it aggressively, Urioste says, the firm was able to transact with the vast majority of Chase suppliers in a secure, expedient and uniform way. "The benefit didn't come from the expense side as the ability to understand the spend, dissect it, analyze it and develop strategies with which to deal with the supply base," he says. For instance, Chase-like every other big corporation-deals with travel costs in the millions. "That expense was managed by 300 totally disconnected travel agencies," Urioste says. "No idea who spends what with whom. We were able to capture all that, and to drive practices and policies. We went to two providers. We were able to manage minute details, even down to the type of taxis you were taking in New York and London. And reduce the spend by millions of dollars. Just like that."
Urioste's now a part-time high-level consultant, splitting time between the U.S. and Europe, and he thinks with the American financial services industry having record-breaking years, data management impact on basic cost control isn't seen to be as vital as it once was. "Technology is a single common language, and introduces a disciplined approach to the process of supply management. The European CPOs are using that very smartly. It's an issue that is perhaps not as significant in the U.S. because we are one country," Urioste says. "In that sense, firms in the U.S. are retrenching, going back to a more hands-off approach. Less integration, less consolidation. The U.S. basically has reverted to procurement as purchasing and back office."
Well, maybe not so fast, says Jeff Hodge, DataCert's point man in Covent Garden, the heart of London. "The thing that strikes me is how superficial e-billing is in Europe at the moment," Hodge says. DataCert would be one of the "vertical" players; its software is aimed at automating and digitizing the complicated invoicing and spending going on in corporate legal departments. From his perspective, the e-billing that's going on in Europe is not robust enough. "What you have is companies deploying their existing systems to essentially move small bits of metadata along with an image of an invoice. In my mind, that's not materially valuable to someone wanting to understand and analyze a services business."
This may be prone to the counter-argument that it's not the size of the data, but what you do with it, which is essentially the same clash that bogged down the CRM software sector for so long. "The real value is long term, in collecting and analyzing data. The strategic benefits build up over time," he says. "Corporate legal departments see this as drinking from a firehose. There's so much information, they come back and ask us to help them understand it. And being able to validate against business rules is important, too."
Whether one takes a broader view of spend management and e-billing or Hodge's more absolutist position, these transatlantic back-office trends set a contrast of corporate style and strategy and, perhaps, show opportunities. Hodge himself figures Europe to be the much more robust market in terms of spend management software uptake in the next three to five years. What also looks pretty clear is that being able to invoice electronically, compile user data and get a clear picture of it, is going to make business much faster and easier for real cross-border players. "Last year, we made our biggest strides," Rose Battaglia says from her New York office. "The bank is looking at it from a global perspective."
Battaglia manages legal and compliance spending in New York at Deutsche Bank's investment banking operation, as well as for asset management and private wealth management. Last year her U.S. operation went through 12,000 invoices, and about 5,000 were done electronically. She wants them all digital by the end of the year. She uses DataCert in New York, and soon enough the firm will be rolling it out to Frankfurt and to Asia. "Think about the impact of getting an invoice through quickly. Business gets easier. If there's a deal going on somewhere else, we tend to use that part of the firm whoever got the first deal in. But if you get smart about this, hopefully you can leverage on a lot of the work that was done abroad. The fact is you should be able to save some costs there." (c) 2007 Bank Technology News and SourceMedia, Inc. All Rights Reserved. http://www.banktechnews.com http://www.sourcemedia.com
