How Much Might Supplier Assurance Be Worth?

My attention was grabbed by this story about Indian software firm SirionLabs raising USD12.25mn from investors to develop products that will assure complex contracts with the suppliers of services. CEO Ajay Agrawal makes a valid point when he observes that large amounts of money get spent on deals to procure services, but the auditing of those services may be inadequate. As a consequence there is a risk that the services that were paid for may not match the services actually supplied, and I can understand why firms like Vodafone might be clients of SirionLabs. However, I also felt an uncomfortable sense of déjà vu. A lot of what Agrawal said mirrors what was said about revenue assurance in the early days, and Agrawal even refers to his products providing ‘revenue assurance’ for his customers, although he was vague about whose revenues (and whose costs) he was seeking to assure. That is because SirionLabs offers products that provide assurance to both the supplier and the customer, whilst promising they will both be better off!

Take a look at the marketing spiel on their website, starting with what they write about protecting the consumers of services:

Sirion Supplier Governance for buyers of complex services

Drive 15-20% higher value in your complex services relationships with supplier governance automation and advanced analytics.

Buyers get limited visibility and control over suppliers’ performance with traditional supplier governance approaches. As a result, inaccuracies in performance and invoicing go undetected, causing loss of value of up to 20% of ACV (Annual Contract Value) in complex services engagements…

…Reduced value leakage. Stop value leakage up to 20% of the Annual Contract Value.

Whilst this is what SirionLabs promise to give the suppliers of services:

Sirion Revenue Assurance for suppliers of complex services

Enhance profitability, transparency and reduce risk in large enterprise accounts through revenue assurance automation and advanced analytics.

Key developments in the sourcing landscape (the emergence of multi-sourcing, shorter deal cycles, and cloud computing) have exposed the limitations of traditional revenue assurance models that rely on manual processes designed around disjointed enterprise systems. As a result, most suppliers face revenue leakage, strained client relationships and increased compliance risks in their large enterprise engagements…

…Reduce revenue leakage by as much as 10% of ACV and boost gross margins.

That must be an amazing product, which lowers the costs of customers by 20 percent whilst simultaneously increasing the revenues of suppliers by 10 percent! Did it not occur to them that the supplier’s revenue leakage might cancel out the customer’s value leakage?

Errors can go both ways. A proper audit may find mistakes in favor of the customer, and mistakes in favor of the supplier. Eradicating mistakes is generally good for both parties; the price and measurement of what is supplied should match reality, if the businesses are going to enjoy a healthy sustainable commercial relationship. So I support any efforts to automate assurance like this. But clearly you cannot have a situation where both parties expect to be significantly better off as a result of these audits. Maybe there will be a one big winner, or both sides can gain victories which cancel out, but you cannot have two big winners. So there is some simple dishonesty involved in selling this product unless SirionLabs is encouraging its clients to only check for the errors that favor them. That would lead to the absurdity of both the supplier and customer of services both paying SirionLabs for a separate installation of their software so one can check the other and vice versa. A more sensible approach to partnership would involve both parties working together to eliminate error – and if they do not want to work like that, then why has one outsourced important and complex services to the other?!?

The most obvious problem with these numbers is that they were clearly pulled out of somebody’s backside. 10 percent! 20 percent! No evidence is provided to support these figures; the real world does not generate such conveniently round numbers. And surely they should be the same! Or is SirionLabs saying that any supplier may make mistakes which could be worth plus or minus 10 percent, but some will deliberately cheat their customers for another 10 percent, whilst all customers are essentially honest?

There is some value in assuring complex deals with suppliers. Well-run businesses want the amounts paid to be correct, without mistakes or cheating on either side. But the marketing surrounding this latest round of venture funding leaves us no wiser about the real value of correcting all those mistakes. After all, the SirionLabs CEO observed that the annual value of outsourcing deals is USD1.1 trillion, meaning that a typical 10 percent error rate would equate to USD110 billion. That would suggest the USD12.25 million raised by SirionLabs is a comically small investment to address that scale of error!

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.