ProcureTechSTARS with Vel Dhinagaravel, Founder and CEO of Beroe, the World’s Leading Provider of Procurement Intelligence and Supplier of Compliance Solutions
During his conversation with our CEO Lance Younger, Vel shared his thoughts on four-day weeks, authenticity, going digital, work-beach-houses, protecting the planet…Disclosure, and HoloLens.
1. How has Beroe evolved over the last 15 years?
We started Beroe 15 years ago, right out of grad school after my master’s degree under the guidance of Rob Handfield, a professor of supply chain management. We did a lot of work together on procurement and the supply chain. One of them was a large project for a technology company that wanted to understand how they could enter the procurement space.
They set up conversations with 50 chief procurement officers in 2003/2004, and we talked about their fundamental needs. Most of them did not believe that a new procurement technology was needed and had burned their fingers with some of the “big” investments, for example, in Commerce One in the 99/2000 timeframe. They said that market intelligence was the most significant gap. Across industries and regions:
This was interesting because most companies spend 40 to 60/70 percent of their revenue on external goods and services. However, if they are not putting their best foot forward, that is a big challenge; thus, we saw that as a significant business opportunity.
We did some follow-up analysis, which was undoubtedly quite eye-opening. We asked procurement organisations how much they were spending on supply market research compared to the amount of money that sales organisations spent on market research.
That is a very massive gap. We saw this as a tremendous opportunity and started Beroe, wherein I was the first analyst. It is always tempting to say we had this grand vision from day one, and we knew where we wanted to go.
One of the study participants was setting up a market intelligence capability. Thus, we offered to provide it with an outsource means. Since then, we have always been focused on procurement, always prioritising market intelligence.
Quite early on, we recognised that we could not be generalists; right in the first couple of years, each of our analysts would answer any question that came in. It was always company A, here is your team of three analysts, and company B, here is your five analysts. This meant that every analyst looked at different things each week, which did not make much sense. Thus, we built more of a category focus group. We considered our customers and ensured that if they had a plastic question, there was a plastics team in place. If they had metal needs, a metals team was in place, and many more, which was very important, it gradually became more and more granular, to the extent that we now have 400 spending categories, each with specialists.
We have also invested in technology which we launched four years ago.
That is a detailed summary of our journey. Procurement has seen a massive amount of change in how it operates and measures itself. We will try to align ourselves to that and to where we see procurement heading in the future.
2. What is Beroe’s mission and USP?
A lot of what we have been working on and what we are investing in, I can draw a line back to a dinner that I had with the head of procurement and the CFO of a large beverage company several years ago. The procurement organisation had delivered phenomenal results on savings and all the right things like diversity, risk, innovation, and customer service. Everything was fabulous. They had delivered more savings than targeted, and the sales organisation had missed a target by a mile. Nonetheless, procurement had their budget cut and sales had their budgeting increased, and I have seen this happen in so many different instances. Therefore, the CPO asked the CFO, half-jokingly asked what procurement needed to earn more respect. The CFO had a fantastic response, and that for me is what I have pivoted a lot of our business orientation around. The CFO said, “look at how sales organisations are measured, on revenue achievement, revenue targets, and revenue growth, among others.” There is a second dimension, which is the market share, a great equaliser. You can grow your margin by 20 percent, but everybody else did better than you if your market share drops. Thus, his simple point was, what is the equivalent of market share for procurement? What about talking about savings? You talk about savings against a baseline, measuring your savings against yourself from last year; it is just not very meaningful.
Therefore, if you do not have a good metric for it, you are in trouble, and most procurement organisations struggle with this.
An analogue mode is a discrete project-based mindset. Suppose the target is to deliver 100 million in savings. The procurement organisation breaks it down into 200 sourcing projects, each over half a million in savings; it adds up to 100 million. However, it does not add up to its competitive advantage. There is no guarantee that your cost structure is superior, and your speed is outstanding, and your resiliency ideal. There is just that 100 million to show for it. In addition, as CFOs can attest to, often none of those savings have shown up in the operating margins. The argument can be made that some of it got redeployed, but operating margins have not moved in most industries over the last 15 years. As procurement delivered 3, 5, and 7 percent savings every year, operating margins still have not moved even by 1 percent. For example, in the top 100 consumer products companies between 2005 and 2020, operating margins have averaged 18.7 percent plus or minus 0.2–0.3 percent. Nothing has changed.
Suppose a Category Manager is given a plastic bottle portfolio and needs to operate and manage this portfolio. In that case, they ought to be aware of every risk and every opportunity presenting itself, close to real-time, and address them immediately. That is what I believe procurement needs to move toward. This portfolio manager should be on top of that portfolio every day. I do not think it can be good to use the old model to manage 100 million in spending. My job is to run four major sourcing events over the year, which delivers a certain amount of savings. I believe this is an analogue model.
What does beating everybody mean? It may be that you consciously choose to pay a premium because you want to be the fastest; that is fine. On the other hand, you may wish for the least carbon footprint in aligning with the organisational goals, and I do not mind being more expensive; that is fine. That means that the measure has to be such that procurement can say, we are the lowest carbon supply chain in our industry, on any day of the year. That, for me, is continuous optimisation and digitalisation.
What are the tools that can be provided to support that?
You can be a digital solution, but you may be catering to an analogue world. For example, suppose you are primarily focused on enabling sourcing events. In that case, you can have the most intelligent AI with the most innovative solution. However, if you support an analogue world, you cannot enable the future just to support the past. That has been a critical thing in our journey at Beroe. Thinking about what the new digital world would look like and how we can be ready for it, how can we enable the shift to it.
The critical thing that comes to mind is that the number of decisions that the category manager makes every year must go from three or four to hundreds, maybe thousands a day. Therefore, how do you provide information to enable each of those decisions?
Our mission is quite simple.
Many of those decisions might simply be whether I need to adjust my supply base or contracts strategy. In maybe 99 percent of the cases, no decision is required; one has what they need, a good supply base, and a good contract structure.
The analogy I use is that of the medical or the healthcare space. Most of us, the consulting companies, the market intelligence companies, the platforms, and the sourcing suites, are all focused on the surgery or the medication, not on the diagnostics. A diagnostic system is a massive need for the procurement organisation to provide you an Apple Watch kind of experience. That is, where you can do real-time diagnostics on a category and take advantage of the opportunity that exists. I need to know how much inventory I hold versus everybody else by dynamically managing all those metrics. What is my price point, risk of my suppliers, risk in my supply chain, and the sustainability of my supply chain? Further, what is happening with my sourcing model? How much should I do globally versus locally? How much should I do with diverse suppliers if I have visibility into my situation against my competitor’s situation in real-time?
Two questions arise from this. First, what are the risks and opportunities? Second, how do you incentivise a Category Manager to a situation where they may do nothing if everything is all right or they have to do something. That is the significant mindset shift that CPOs need to create. Are we ready for a situation where the category manager says, I do not need to do anything? Now, I will stay on top of the markets; maybe I do not need to do a single-sourcing event, I do not need to change a single supplier, I do not need to do any of it because we are beating the market on all these factors.
3. What have been the most significant decisions in the Beroe journey so far?
BeroeLive was a considerable investment that we made as a company, so let me rewind to the launch of BeroeLive. When we launched it, we decided that we would provide a lot of our content for free, there will be a free layer, then a paid subscription layer. We focused on bringing in as many people as we could onto that platform, and we have more than 100,000 procurement managers that use BeroeLive.
We strongly believe that we need continuous feedback around performance; the only way to do it is through a crowdsourcing model; there is just no other way. Thus, it is okay when you have six months to do a sourcing activity in an analogue world, benchmark, check if this is the right price, how much inventory should I hold, or have weeks or maybe even months to do so? However, in a continuous, genuinely digital world, you need to benchmark in much more of a crowdsourcing model. Thus, how do we do that at scale? We have to have a vast community, so that is what we wanted before we got started.
When we launched, we had good services business, and it was growing profitably. There was nothing wrong with the business at all.
We did not see a way in which we would not move to the tech-based model. Of course, we saw sudden cannibalisation of our services because some of the things people were paying us to do in that service mode were free. It certainly was a considerable risk that we took. We are now at a point where that community is large enough and is thriving, to the extent that it is an essential source of input into LiveAI. Our benchmarking modules are the most important and the most unique of our modules. We will put all of our energy into thinking about using our analysts to enable this ecosystem of continuous optimisation instead of a project-based mindset.
There has been changing management required because analysts used to think of themselves as business advisors that would work with 12 to 18 customers in a year on great deep projects where there was a lot of collaboration and joint problem-solving. We still have a significant service business, which, if anything, has grown significantly since the time we launched BeroeLive. We reframed the analyst’s role to keep the data set alive that feeds into hundreds or thousands of subscribers. Analysts enable supply, demand, input costs, prices, risk, and many more on a real-time basis. Now, the analysts commercially understand that they allow hundreds of subscribers and potentially enable thousands of decisions. However, it feels less satisfying because, compared to being deep into 10 to 15 big business problems, you feel like you are building and maintaining a data set in a little bit of seclusion.
Regarding thinking about our technology partnerships and our data partnerships, two things have to happen if you want to enable every sourcing decision. Firstly:
Historically, we have been poor at partnerships and have gotten a lot better. Therefore, we have partnerships with dozens of data partners that feed into our platform and resell the data through us. Second, we have also gotten very comfortable with situations where customers want to decide on platforms like Coupa. Customers want them to have the federated content, excellent; we do not want to force them to say, you have to come to the Beroe ecosystem to decide.
4. What do you look for in the perfect customer, and what do they look for in you?
As we have grown older, our relationships have become much deeper than they used to be, although the extent of interaction has probably dropped. This is mainly because customers can get many of the answers through self-serve, or they can go on to BeroeLive. We also have Abi, our digital assistant. Ask her a question, for instance, should I have a 12-month or 24-month contract? Abi understands that question, and she can pull all the relevant data provided the information is available. The category manager does not need to have those three, four, or five conversations with us. We still have complex questions and interactions, but we have made the basic market information self-serve.
Thus, we like that.
In terms of perfect customer, I think that there is no such thing. An ideal customer is somebody that is transparent. What frustrates me more than anything with customers is whether they focus more on trying to trip you up rather than jointly collaborating on decision enablement. That has probably been the most frustrating thing for me, and thankfully it is a small number of customers, a small number of companies that operate in that sort of mode.
A perfect customer is quite simple; somebody who values you is transparent with you and is candid regarding feedback, good or bad. Wrong input has been instrumental for us; I appreciate that a lot more than positive feedback.
5. What are the foundations of a great team?
I think this is one of the things that is unique about us, amongst all companies. We looked at things three, four years back, and we said:
One of the things that I always wanted to do was move away from that very traditional dollar per FTE model. We did that before we launched BeroeLive. We based our commercial model away from $1 for our model, and we went to $1 per category model. We offered this commercial model, which we referred to as Infinity. Customers grew; it was a big success, and customers loved it.
However, in the services industry, everything is focused on the $1 per hour model. Thus, sometimes there is almost an incentive for inefficiency. I always thought that was terrible because it leads to just putting incentives at cross purposes with customers.
We always wanted to switch that model. We changed the measurement of our entire organisation from input-based to output-based. We kept sending the message that we do not care when you come into work, we do not care where you work, and we do not care what times you work. Here is the set of outcomes that we expect from you.
If a person is focused on a particular spend category, then they are doing project after project. By moving to this model, our belief was to build a specific data set or particular IP that will help them do the next project faster and more accessibly. That started happening right away. We looked at it and said, okay, our productivity is going up considerably. That has been a massive thing for us.
In 2017/18, we looked at it and noted that everybody understands productivity, which is the most important thing. Now, what can we do to boost productivity? We had different ideas regarding better knowledge management, among others, and we implemented all those ideas. Then we struck upon one idea where we said… “you know what, how many hours a day? Is somebody really in the zone?” When somebody is working five days a week, maybe they are only doing 10 hours of really high-quality work. Then the question was, “how can we increase that 10 to 12 or 13 or 14?” We recognised very clearly that it is not by working one extra day, so we decided to go to a four-day work…and we did this in 2018.
We went to a four-day workweek across the company, all levels of the organisation, including me, and we said Fridays are off and work Monday to Thursday 32 hours.
Our employees are a lot more empowered, take on responsibility, do not need to have somebody micro-manage them, and are much more productive and much happier. Therefore, our employee retention rates have gone up. Our satisfaction scores are up by 30 percent from a few years back. This is, from a people perspective, a unique thing for us.
It is not about doing those three or four projects a month. It is about how do you create an IP that is enabling thousands of decisions.
Thus, coronavirus disease 2019 (COVID-19) did not change much for us because we already had, at that point, about 25 percent of people working from home. Therefore, it was easy for us to make the transition.
6. As we emerge from COVID-19, what will you be doing differently?
Many of my ideas have been confirmed, and I always thought we could operate 100 percent work from home remotely; I always thought that was possible. However, I guess I probably would not have made that leap without COVID-19; thus, it has been a great catalyst that way.
I think that social interaction is required, so we are considering moving to a model where one group of people will come to work every day. That is about 20 percent of our workforce. The other 80 percent come in once in two weeks, along with the rest of their colleagues. Therefore, for example, on the first and third Monday of every month, the metals team will gather everybody together to spend the day together to create the innovation effects of multiple people sitting together. That way, it is going to be more effective than having everybody together for ten days.
We will not need that much space. It will be a lot smaller. I keep telling our HR head, and maybe we do not go back to one of these corporate buildings, perhaps just get a beach house. Our largest hub in Chennai, India, is next to the second longest beach in the world. Beautiful.
At least half of the day will be more social, with team building, bonding, and much more.
7. What is the vision for Beroe in the future, and what will be essential to achieve it?
I will be a bit controversial and say that I do not believe procurement has any role in increasing revenue, in finding new ways to generate revenue. I think that there is a lot of CPOs that talk about that. That is a distraction from your focus.
As long as you are doing that, it is good enough.
I think all CPOs have painted themselves into a corner by saying I will deliver 5 percent savings year on year, as that dries up at some point as you cannot do 5 percent savings each year. Because of that, procurement also tries to go to top-line growth and to drive the innovation agenda. I do not think that it is a good approach. There are other better-positioned teams to drive revenue and innovation, and procurement can help enable that.
Procurement can have a much more significant impact than it does today within the competitiveness agenda. Thus, I am always passionate about supporting procurement to do that.
In five years, we have gone from being a service-based company with 200 paying customers to having 11,000 companies on the platform of which about 2,000 of them pay us for the access, and others are in the free zone.
My passion is to get to 20,000 companies with more than 100 million in revenue, to support each of them with their decisions, to gain more geographies and more industries than we have today — by becoming a part of daily life for each of those categories’ managers. By doing that, we enable fantastic companies to do amazing things. We are proud that we work with so many of these companies that are now making these lifesaving COVID-19 vaccines, and I think anything that we can do to enable them to be better is a blessing. The more we can do with that space, the more I think we are getting closer to our mission of enabling sourcing decisions.
Five years down the road, we will be further along the journey; that journey does not end in three years or five years or more…it is ongoing. I believe that there is tremendous potential for procurement. For people supporting procurement, it is a great space, providing that the definition of success can be reoriented from savings; I think savings is a terrible metric. I have told every CPO that I know this, and everybody agrees, but nobody changes the metrics, there is a lot of momentum behind just keeping savings as the focus, but there must be change.
I think it is quite clear that our decisions certainly are impacting the health of the planet and the role ecosystem. Sustainability is extremely important. There needs to be a way to convert it into dollars and cents; you have to be able to quantify the cost. If that does not happen, sustainability will never become institutionalised and just be an add-on metric. Very little will change unless it is ingrained into financial engineering and calculations.
If you tell every procurement organisation that they have to increase the level of sustainability, but simultaneously, the budget for next year in terms of spending will be 5 percent less, you are essentially creating a system that will send mixed signals, that is, I want to cut costs, no matter what.
The thing that also worries me is that organisations that are setting a target for a way out in the future are getting rewarded by the stock market. Further, the ones that put a much closer target are getting punched. For example, in the food industry, the companies that have been the most aggressive with short-term targets have been killed in the stock market. On the other hand, the ones that are said, by 2050, we will be carbon-free have done exceptionally well.
8. How are you doing good for the planet?
It is a great question. We probably were not very carbon-intensive to start with; our most enormous footprint was office space. Thus, shrinking our footprint and potentially using a lot more natural cooling that will help.
There will also be a significant impact in terms of travel. For example, one-day business trips for one meeting, I do not think that is ever going to happen again. If there are trips, that will be to meet maybe ten customers simultaneously; those changes will happen, so I think our carbon footprint will automatically drop through that too.
We also have a team, a business unit called Beroe Green, and I started 20 years ago, where we do sustainability, water footprint carbon footprint calculations. I always thought that procurement had a significant role in that space.
We have a significant presence in India, and there has been a tremendous amount of urbanisation in most states. Everybody is gravitating to one big city like Karnataka. Karnataka, Chennai, where I am based, is where everybody has to come to, and obviously, that means that the ecosystems, water supply, traffic, and many more all start becoming constrained. I strongly believed that if people have an option where they can work in their own town, they can make the same amount of money, they will take it. They can have the same sort of career goals and opportunities, they would choose to do that, or a good chunk of them would choose to do that.
COVID has taught us that it is a possibility because if you look at our employees, everybody went back to their home towns in May last year. I realised that we had employees from 25 Indian states and 100 different towns and cities… which is amazing. All this work from home will be enriching their local ecosystem, contributing to that community rather than Chennai.
I have always liked areas in the UK, Scandinavia, and the U.S., these well-developed villages and small towns, often in the middle of nowhere, with a thriving community built around one factory or one company.
So that I think is the long-term sustainability opportunity in front of companies like Beroe has these large workforces that can work remotely. The next question is, why big companies force people to come to Bangalore. The traditional view used to be that customers want to visit. I do not think a customer will come and spend one week visiting your facility. All those visits are gone. That is not just because of the number of COVID cases in India, and it is just, nobody is going to do business travel they like they used to.
INSTANT VEL INSPIRATION
1. What is your favourite book, podcast, blog, or magazine?
My favourite book changes every couple of years, which is good; it means I think I have evolved as a human being. I read a lot, typically two books per week, and I read a varied set of books, very few business books, I read biographies. I love books.
2. Who is an inspirational leader for you?
I subscribe to the thinking that:
You do not see them. They are the ones that deliver the best results.
3. What is your favourite app or piece of technology?
I have gotten into HoloLens. Microsoft makes it, and it is stunning.
COVID-19 is one factor, but I think the HoloLens will make the concept of commute and the concept of business travel and the concept of office, all of that go away. Just virtual reality, augmented reality. I think it is hugely important in what is going to come. I believe that I am fascinated by the HoloLens because even in conversations that we have with our customers, we can start getting into that immersive technology.
Michael Crichton, who wrote Jurassic Park, also wrote Disclosure in 1994, which used to be one of my favourite books growing up, a fantastic book and so far ahead of its time. It was set in Seattle in a tech company with augmented reality where you would put on “HoloLens,” and you can see everything virtually. You can just touch a button, and then the view automatically expands.
I think that there are so many ways to have a virtual reality kind of assistant to support, like Abi, our digital assistant on Beroe, utilising VR. Imagine you are wearing the lens, and it shows supplier issues, or the best price. That is when you will be doing your best work for those two hours.
4. What is your favourite way to celebrate success?
I think that most people that know me would say I do not celebrate success enough. I celebrate success by going and finding another tough problem to solve that we could succeed in, finding another mountain to climb. Yeah, that is how it is!
KEY TAKEAWAYS
1. Procurement must move from analogue to digital. Digital is less about technology and more about the attitude of continuous optimisation as against discrete optimisation.
2. When you measure savings alone, you incentivise your procurement organisation to operate in an analogue mode.
3. Think about what it is that that new digital world will look like and how you can be ready for it, and how you can enable a shift to it.
4. Get up and be smarter about how you structure your work, so the work becomes simpler.
5. Why sit in a corporate building with all this air-conditioning instead of where you get the sea breeze?
6. We all want to make sure that we make the decisions today that protect the planet.
7. The best leaders are the almost anonymous ones.
About Beroe
Beroe is the world’s leading provider of procurement intelligence and supplier compliance solutions. We provide critical market information and analysis that enables companies to make smart sourcing decisions — leading to lower costs, greater profits, and reduced risk. Beroe has been providing these services for more than 15 years and currently works with more than 10,000 companies worldwide, including 400 of the Fortune 500 companies.
About ProcureTechSTARS
Our industry is moving forward faster and faster, empowered by innovative, progressive digital procurement solutions created and led by inspiring teams. ProcureTechSTARS are the digital procurement company CEOs and founders leading the change; they are entrepreneurs, engineers, and architects collaborating to transform procurement and the enterprise. In an open conversation with these leaders, Lance Younger will be discussing the highs and lows of building the future now, the challenges they have faced, their perspective on accelerators and hot topics, and what keeps getting them up in the morning (and keeps them up at night).
