Spend Analysis versus Spend Intelligence: More Than a Semantical Difference

Posted on August 11, 2009

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I believe the phrase “spend intelligence” to be misleading. To me, it sounds like a new take or sub-segment of business intelligence software applications which offer analytics and dashboard capabilities and sit on top of existing systems of record. The problem is that spend visibility and analytics is much more complex, requiring data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp.

The above statement is from a July 11th, 2006 blog post (no, not Procurement Insights) that reflects one of the main reasons why 85 percent of all e-procurement/supply chain initiatives fail to achieve the expected results.  Specifically, the reference to “spend visibility and analytics” as being “much more complex, requiring data cleansing, rationalization, classification and other efforts.”

Now in all fairness, this dismissive view of spend intelligence is representative of the limitations associated with traditional equation-based ERP applications in which the cycle to extract, let alone analyze meaningful data was onerous.  In other words, unless you understood the basic differences between an equation-based versus an agent-based approach to solution development you would quite logically make the same assumption.  You would be wrong, but you would be justified based upon your focus on IT or ERP-centric applications, and the limited framework within which they operated.

However, and to illustrate my point regarding the importance of having both a broader vision and understanding of the tremendous breakthroughs in solution architecture associated with agent-based application models, less than two months after the above referenced blog post the following excerpt from a September 1st, 2006 article titled “Spend Intelligence: The Next Wave of Spend Analysis” is telling:

“As corporate procurement organizations are charged with securing products and services of the best quality at the lowest possible cost, their enterprises are counting on them to be much more than just “order takers.” To accomplish that, procurement organizations must develop capabilities in spend intelligence.

Spend intelligence takes spend analysis a step further. It enables the enterprise to take what it knows from the spend data it has gathered and use it to act on forward-thinking initiatives.  In other words, spend intelligence provides actionable information.”

The key phrases here are forward thinking, and actionable information.  Both of which were not even remotely possible on a real-time, real-world basis within the context of traditional ERP-centric applications.  In fact, by the time you went through the painful cycle of extracting (the term pulling teeth comes to mind) information from an ERP system, and then cleansing, rationalizing, and classifying the information the data was outdated and for the most part useless in terms of providing relevant insight in the here and now.

The ability to simultaneously gather, analyze and apply spend intelligence on a real-time basis remains an elusive element for ERP-based applications.   For this reason, you need to look beyond the realms of what is known, and begin to understand the dynamic, real-time capabilities of solutions such as the ones offered by a Zycus.

Leveraging key elements such as advanced algorithms, Zycus has taken spend analysis the step further to spend intelligence.  In an effort to help bridge the gap in understanding the important differences between spend analysis and spend intelligence, the organization has sponsored the Spend Intelligence Resource Groups in both the LinkedIn and Ecademy social networks.

By focusing on the results that spend management technology can achieve, the objective of the groups is to identify through the collaboration of its members the best practices that lead to sustainable spend management savings.

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Semantical beliefs notwithstanding, there is a significant difference between spend analysis and spend intelligence that goes beyond the you say “po-tay-toe and I say po-ta-toe” lyrics of a popular song from a bygone era.   The Spend Intelligence Resource Groups will not only help you to understand those differences, they will also help you to leverage spend intelligence to maximize intelligent savings in what has become an increasingly complex global market.