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The Spend Table is where cost and spend intelligence gets served up fresh—and no topic is too spicy to tackle. Join three finance and procurement leaders for respectful debate (not head-nodding) on what really matters when managing software spend. All powered by real data insights.
Justin [0:00:00]: For as long as I can remember new spend was scrutinized way more than existing spend.
Justin [0:00:06]: But I'm actually seeing it in some situations start to flip a little bit because the legacy spend is almost viewed as like, oh, no.
Justin [0:00:13]: That's legacy that's outdated shouldn't we be using AI or shouldn't we be building this ourselves?
Justin [0:00:18]: It's kind of interesting, But what I heard you say is, like, hey, let's take this very systematic approach let's avoid those assumptions because, you know, Sure.
Justin [0:00:28]: You have some legacy spend that's that's really turned that AI corner in a really good way, but plenty of new spend struggles to prove the real ROI or has Justin alluded to your earth here comes with unforeseen and massive, like, budget implications.
Justin [0:00:42]: Right?
Justin [0:00:43]: So creating that fair process for all spend.
Justin [0:00:45]: Really, as you said to find your decision criteria to you make that choice that fits best.
Justin [0:00:51]: I think that's good.
Justin [0:00:52]: Because I do think that our stakeholders are kind of coming in with some assumptions.
Evan [0:00:57]: And just as though, it's a standard procurement engagement, are the duplicate functions or functionality feature sets of what's being proposed that already exist in house, or group should be asking those type of questions?
Evan [0:01:08]: And there should be clear examples of how this differentiates from an existing tool or if an the existing tool is rolling out something new, is this the best fit for us just because it's new and Shiny doesn't mean it's going to deliver all the results that we're looking for.
Evan [0:01:23]: And I think that's where AI can help prove some of this out or at least this world that AI is now creating, which is creating different sets of questions, reducing previous assumptions.
Evan [0:01:33]: We should absolutely be thinking about that.
Justin [0:01:42]: Alright.
Justin [0:01:42]: Evan, welcome to the podcast If you don't know Evan, just some kind of highlights.
Justin [0:01:47]: You know, he's just over the mountains where I am.
Justin [0:01:49]: You're on the Denver area.
Evan [0:01:51]: Correct.
Justin [0:01:51]: You're the director of Indirect procurement at frontdoor.com where you've been there for a couple years.
Justin [0:01:56]: And what was interesting
Evan [0:01:57]: actually you came up and
Justin [0:01:58]: you know this because I sent you an email about it, But you came up in conversation a few weeks ago because you play a lot in the indirect world, but you also have a lot of direct experience as well.
Justin [0:02:07]: Thanks for joining us today Evan.
Evan [0:02:09]: Yeah.
Evan [0:02:09]: Absolutely I appreciate that intro.
Evan [0:02:11]: And yeah, actually, we're just in the the last couple months had the opportunity to also expand.
Evan [0:02:16]: To that direct procurement side.
Evan [0:02:18]: So have sort of a overview of of all things procurement here at Frontdoor.
Evan [0:02:23]: So it's been a good experience did start though in the indirect space continue to focus on that.
Evan [0:02:28]: And I think there's a ton of opportunity there, but Yeah.
Evan [0:02:31]: The lens on the direct side absolutely helps with understanding where we're going, and what do we need to do to be successful.
Evan [0:02:37]: So it's been a good run.
Justin [0:02:40]: And, of course, we have Justin Etkin, who, usually, I will say is co-founder and COO here at Tropic, but as of today, he's no longer COO.
Justin [0:02:48]: He's now the CEO, Justin, we expect a lot more from you now in your CEO role.
Justin [0:02:53]: And it's part of this podcast included, just to be very clear.
Justin [0:02:56]: So you gotta you gotta really bring it up a notch.
Michael [0:02:59]: Higher expectations.
Michael [0:02:59]: I will do my best mister Shields.
Justin [0:03:03]: Okay.
Justin [0:03:03]: Awesome.
Justin [0:03:03]: Well, we're gonna jump right in.
Justin [0:03:05]: So we we have...
Justin [0:03:06]: It we're gonna start Macro.
Justin [0:03:07]: We're gonna go micro based on the the previous conversation we have, really excited about this one.
Justin [0:03:12]: One thing that we're noticing right now is AI moving faster than a lot of companies abilities to kind of establish rules around it.
Justin [0:03:22]: So, I don't know, Evan, and Justin, like, what are you seeing inside organizations right now?
Evan [0:03:28]: Yep.
Evan [0:03:28]: Basically, that a AI adoption, Right?
Evan [0:03:31]: It's it's out outpatient governance.
Evan [0:03:32]: And so while everybody wants to move quickly, and we think there's gonna be a ton of value from AI specifically, it's usually at the cost of understanding, what does this mean long term for the business?
Evan [0:03:45]: What's our data exposure, Are there other systems in place today that could potentially do this?
Evan [0:03:52]: I think people are just really excited about trying new tools?
Evan [0:03:55]: And the opportunity that lies within, and maybe are skipping some critical or foundational procurement steps along the way.
Michael [0:04:05]: Yeah.
Michael [0:04:05]: I think that we're definitely seeing the push and pull between a business priority around adopting AI to drive efficiency and productivity and the cost realities of what that can imply if left un mitigated or under resourced from a kind of management standpoint.
Michael [0:04:22]: Even over the last three months, I've seen such a stark change in perspective in ownership around this area where, you know, I think we reached kind of peak hysteria, probably back in the March and April time frame where the number of runaway ant philanthropic enterprise commits and costs were if you heard a new headline every single day.
Michael [0:04:44]: And since then, the rev version to much tighter controls much more reliance on procurement and It to actually kind of deploy and manage the spend in with a with a more kind of ROI centric mindset has been pretty spectacular to see the pace at which this has this this has evolved.
Michael [0:05:03]: But huge challenge and pain point that I can also corroborate on.
Justin [0:05:08]: As a procurement leader, do you see yourself as someone who's influencing?
Justin [0:05:11]: Is someone like, leading out here, like, maybe talk about, like, our unique positioning and the role that we should be playing.
Justin [0:05:19]: Ideally.
Evan [0:05:20]: Yeah.
Evan [0:05:20]: I mean, I think this procurement leader, you know, potentially historically or maybe it's still this the same way in in certain organizations as procurement looked at as back office functions sort of archaic in some ways.
Evan [0:05:33]: And so it's truly an opportunity to say, hey, we have some old processes maybe be in place today, or we wanna make some changes.
Evan [0:05:39]: And so, internally, at least from a procurement department perspective, I see it as an opportunity to, like, take that step.
Evan [0:05:46]: One because we know a lot of the basic rules.
Evan [0:05:49]: We understand rules of engagement, and we understand what it takes to actually get over that hump, let's say, from pilot to implementation.
Evan [0:05:57]: So we can test our own systems and be that sort of guinea pig for organization.
Evan [0:06:03]: But I think holistically, procurement sits at, like, at the right place within organization.
Evan [0:06:08]: We understand commercial terms.
Evan [0:06:10]: We understand data implications, the risk side, the financial implications of, you know, rolling out a new AI tool, we are connected or should be connected to those different bodies within the organizations that make things from source to contract.
Evan [0:06:25]: I don't wanna forget our friends legal.
Evan [0:06:27]: You should have a good relationship with those folks because they make the world work as well.
Evan [0:06:31]: So we sit very much at the intersection of where the business is today and where it wants to go and the connective tissue is how I look at it.
Evan [0:06:41]: So we should be driving those conversations and driving those processes to make sure that it's streamlined as much as possible without skipping over critical steps.
Justin [0:06:51]: Yeah.
Justin [0:06:51]: And this is the balance.
Justin [0:06:52]: I think, Justin you were talking about too.
Justin [0:06:54]: Right?
Justin [0:06:54]: Like, how do we procurement?
Justin [0:06:56]: How do we both encourage that experimentation while still protecting the business?
Justin [0:07:00]: Like, what is that speed?
Justin [0:07:02]: What does that balance look like?
Michael [0:07:04]: Yeah.
Michael [0:07:04]: One of the things that I think is particularly relevant for procurement in in the of the AI lens altogether is the pace of change basically requires what feels like new sourcing events in this kind of AI ecosystem, every few months at this point.
Michael [0:07:21]: Right?
Michael [0:07:21]: And normally, if you think about a typical enterprise renewal.
Michael [0:07:25]: When you're renewing your snowflake contracts.
Michael [0:07:27]: Right?
Michael [0:07:28]: Like, there's a a degree of predictability and understanding around what that looks like, and you can sign up for a new commit, let that over three years and procurement can go focus on other elements, other areas of the business to add value.
Michael [0:07:40]: But with L m's and AI tools in general, there's so much change happening from an infrastructure level and also from a commercial level that it's requiring an kind of ongoing iterative interim of involvement from procurement teams to stay close to the metal around what's happening from the vendor perspective stuff that they can lead the liaison to bring it back to the business users and teams that need to understand how we wanna optimize this from a cost standpoint.
Michael [0:08:05]: So I think that this has been a very unique period of time where those constant iterations and changes one the commercial models have encouraged procurement to take a much more active and proactive role within the organizations to keep the rest of the company abreast of what's happening.
Evan [0:08:21]: Yeah.
Evan [0:08:21]: I agree.
Evan [0:08:22]: I mean, you think about...
Evan [0:08:22]: And again, governance sounds like red tape, But in this way, I think it's just one it it mitigate risk.
Evan [0:08:29]: But then if you can create a repeatable process within this, you absolutely can ring these AI tools faster to market within your organization.
Evan [0:08:37]: I think to your point, Justin, you have to stay close to it.
Evan [0:08:41]: You have to have the right players in place, so I mentioned a few.
Evan [0:08:44]: You know, if your finance partners aren't a part of this conversation, you're probably gonna be one, you're you're wrong.
Evan [0:08:50]: But then two, you're gonna be disappointed down the line when, you know, there's spend overrun and people are asking, okay.
Evan [0:08:57]: What, what's the true value here?
Evan [0:08:58]: You stage your one thing.
Evan [0:09:00]: The supplier probably sold us on one thing, but where it really lie?
Evan [0:09:04]: I think you have to bring people along this journey, and that's an opportunity for procurement to take a lead role within this, Drive those those meetings, those specific you know, call templates or, however, you wanna manage the spend, the data.
Evan [0:09:18]: We'll tell you one thing, but you have to have that ongoing story of, okay.
Evan [0:09:21]: What what are we achieving through this new tool?
Evan [0:09:23]: I think procurement, absolutely, you can take that lead role?
Justin [0:09:27]: They can.
Justin [0:09:28]: I think it's gonna require some adjustments that we're gonna have to make.
Justin [0:09:31]: Even as recently as a few years ago, I really pride myself on running a procurement function where if a renewal was coming up, we're engaging ninety, hundred twenty days out.
Justin [0:09:43]: Like, if we're doing that, like, I'm feeling really good about life.
Justin [0:09:47]: But now we're sitting at this, like, perfect storm where we have the supplier landscape is changing faster than I've ever seen it.
Justin [0:09:54]: Not only that, but, you know, pricing and and packaging is changing really, really quickly.
Justin [0:10:00]: The needs of the business have evolved champions have changed, you know, budget orders are getting switched around, and you have, like, these Poc happening.
Justin [0:10:09]: So Sp continue to happen.
Justin [0:10:11]: And and then, of course, I think in some ways, like, buyer expectations and ROI requirements change.
Justin [0:10:17]: And so if we are trying to manage this almost like these renewal are this event and we're ninety days out we're a hundred and twenty days out we're six months out.
Justin [0:10:29]: I absolutely think that we are gonna get swallowed up and not be able to have that impact So the way I'm kinda thinking about this now is, like, this continuous process where it's less about the end dates and don't get wrong, That's certainly part of it because there are contractual commitments, but it's like, hey, what are these insights that are being pushed that we're seeing what are the gaps between, like, the problems that are being solved?
Justin [0:10:53]: What are the new suppliers we should be evaluating.
Justin [0:10:55]: And and so this becomes a continuous flow rather than these, like, you know, managing to an end date?
Evan [0:11:02]: No.
Evan [0:11:02]: I agree.
Evan [0:11:02]: I I know we're talking.
Evan [0:11:03]: You know, what what are some of the the pitfalls maybe to rolling out AI or what just something you need to be looking out for.
Evan [0:11:09]: But, you know, AI is obviously going to help what we do.
Evan [0:11:12]: And so how can we automate?
Evan [0:11:14]: And this is how we're thinking about things within our organization is we anticipate more work.
Evan [0:11:20]: And and, frankly, I welcome more work coming towards us.
Evan [0:11:22]: That means we're we're getting involved early, getting involved often and we can make bigger influences or, you know, bigger impacts the organization.
Evan [0:11:29]: So how do we how do we make that all work?
Evan [0:11:31]: You have to automate the low value tasks.
Evan [0:11:34]: Right?
Evan [0:11:34]: So you hear about that quite a bit.
Evan [0:11:35]: Yes, You have to identify what those use cases are.
Evan [0:11:38]: But if you can automate more and more work, again, low value work.
Evan [0:11:43]: So your team can can focus on some of these bigger conversations, you know, frankly, all the better, and and that's really the only way that procurement will continue to evolve, continue to become that strategic partner within new organization because, I think as a procurement professional, that's what ultimately...
Evan [0:12:00]: What I'm seeking, but I think that's what majority of people would say is we wanna be involved.
Evan [0:12:05]: We wanna be that internal consultants and in order to do that, your team has to have the capacity to do it.
Michael [0:12:12]: What I'm seeing is a couple of different vantage points around this kind of automation plan.
Michael [0:12:16]: I think automation can take a couple of different lenses.
Michael [0:12:18]: Like, one would be funneling as much as we can through procurement and building more automation, you know, within the function to be able to accomplish more within every day.
Michael [0:12:28]: And I'm also seeing the more...
Michael [0:12:30]: Like, automation to mean creating better, kind empowerment across organizations such that procurement can become more of a team sport and business stakeholders that otherwise would think about just tossing something over the fence to procurement are now collaborating in a way and being empowered and enabled by procurement to have better intelligence have better awareness and ownership of of this function.
Michael [0:12:54]: So they can, kind of be a party to the outcomes that the business is trying trying to drive.
Michael [0:13:00]: So...
Michael [0:13:00]: And I don't know if you if you have, kind of see differences between those two different styles of automation or or if they both kinda play...
Evan [0:13:08]: No.
Evan [0:13:08]: No.
Evan [0:13:08]: I mean, I mean, I think it's you know, we're talking far and wide in terms of organizations.
Evan [0:13:13]: Right?
Evan [0:13:14]: There's some organizations that can absolutely invest in these type of tools in these type of concepts and bring them some light.
Evan [0:13:20]: I've also worked on, you know, worked in smaller teams.
Evan [0:13:24]: You know, procurement teams of three, that it's very difficult.
Evan [0:13:28]: So that was, you know, an exercise in automating those low value tasks.
Evan [0:13:32]: I think as you continue to mature, dry value.
Evan [0:13:35]: I think you can get those investments for greater automation, I think Justin what you're were referring to, which is self serve options, the real smart intake and orchestration tools that I think are critical, but not just allow procurement to be better at what we're doing, but I think allows other parts of the organization to be better.
Evan [0:13:54]: So if legal has visibility into certain things, they can weigh in earlier that makes our job easier at the same time, empowers them to to be a part of the conversation same thing with It and risk.
Evan [0:14:07]: As we're thinking about, we wanna connect the dots cross start to finish.
Evan [0:14:11]: So our Apt team now gets a say in what...
Evan [0:14:14]: What's going to happen.
Evan [0:14:15]: And ultimately, if we can have all those parts at the right time doing the right thing, and we can become more efficient meaning things are getting done faster than all the better.
Evan [0:14:24]: And then that's the way you should think about it, but understand and and cognizant the fact that every organization is different and their evolution is going to be different.
Justin [0:14:34]: So let's get a little tactical for a second here.
Justin [0:14:36]: So if someone a stakeholder, someone on your team, you know, or someone you work with brings you brings procurement this exciting new AI tool.
Justin [0:14:46]: What questions asking?
Justin [0:14:49]: What what steps are you taking?
Evan [0:14:52]: One thing that we're quickly learning and and have now for the last few months is...
Evan [0:14:56]: You know, there's a potentially different scrutiny provided towards new tools versus existing tools.
Evan [0:15:02]: Right?
Evan [0:15:02]: So, like, existing tools are also coming to the table and saying, hey, we have a new AI feature.
Evan [0:15:07]: Would you guys like to trial it.
Evan [0:15:09]: I feel like we're potentially slightly behind a little bit on that front because we feel like, okay, This this vendor has gone through our G process.
Evan [0:15:18]: They're gonna go and this tool is gonna be evaluated just to ensure that it's secure.
Evan [0:15:22]: But from a financial standpoint and some of the things ongoing, you know, we don't necessarily have all the guard rails in place there.
Evan [0:15:30]: I think for the AI tools that are new are coming to this table.
Evan [0:15:33]: We're much better asking some of those questions.
Evan [0:15:35]: So from a procurement standpoint, I mean, clearly, we wanna understand what the value is.
Evan [0:15:38]: Right?
Evan [0:15:38]: What problem we're solving with this new tool?
Evan [0:15:41]: What do we what do we look to achieve?
Evan [0:15:43]: What data is going to be use?
Evan [0:15:45]: So from a not modeling perspective, do we have a understanding of what's gonna happen there?
Evan [0:15:49]: Do we have certain commercial and and legal terms included within the first proposal?
Evan [0:15:54]: To talk through caps to talk through tier so that we can scale this appropriately, and then, you know, what does exit rights look like.
Evan [0:16:02]: So we should be asking those questions pretty much every engagement.
Evan [0:16:08]: And that's something that, you know, I'm drilling in to the heads of my team members.
Justin [0:16:13]: Yeah.
Justin [0:16:13]: I'm glad you brought this up because for as long as I can remember, new spend was scrutinized way more than existing spend.
Justin [0:16:22]: But I'm actually seeing it in some situations start to flip a little bit because the legacy spend is almost viewed as like, oh, I no.
Justin [0:16:29]: That's legacy that's out outdated.
Justin [0:16:31]: Shouldn't we be using Ai?
Justin [0:16:32]: Or shouldn't we be building this ourselves?
Justin [0:16:34]: It's kind of interesting.
Justin [0:16:35]: But what I heard you say is, like, hey, let's take this very systematic approach let's avoid those assumptions because, you know, sure.
Justin [0:16:44]: You have some legacy spend that's that's really turned that AI corner in a really good way, but plenty of new spend.
Justin [0:16:50]: Struggles to prove the real ROI or has Justin alluded to your her here comes with unforeseen and massive, like, budget implications.
Justin [0:16:58]: Right?
Justin [0:16:59]: So creating that fair process for all spend really as you said find your decision criteria, to make that choice that fits best.
Justin [0:17:07]: I think that's good because I do think that our stakeholders are kind of coming in with some assumptions.
Evan [0:17:13]: Yes.
Evan [0:17:13]: And, you know, Look at this, just as though, it's a standard procurement engagement are there duplicate functions or functionality feature sets of what's being proposed that already exists in house, or group should be asking those type of questions, and there should be clear examples of how this differentiates from an existing tool or if an existing tool is rolling out something new is this the best fit for us just because it's new and Shiny doesn't mean it's going to deliver all the results that we're looking for.
Evan [0:17:42]: And I think that's where, I think AI can help prove some of this out or at least this world that AI is now creating, which is creating different sets of questions, reducing previous assumptions, we should absolutely be thinking about that.
Evan [0:17:57]: We should be thinking about what does this mean long term what is the real deliverable that we are looking for?
Evan [0:18:02]: And can we measure it?
Justin [0:18:05]: Yep.
Justin [0:18:05]: Just, I'm gonna put you on the spot for a second here because you're our data king and you have access to a lot of insights from across companies can you speak holistically about, like, piloting, proof of concepts, trends we're seeing there relative to kind of the old legacy, like, software just pilots, I guess?
Michael [0:18:29]: Yeah.
Michael [0:18:29]: Definitely.
Michael [0:18:29]: I think that one of the first things that I saw when native AI application started to take hold was a very clear awareness that pilots were gonna become massively important to justify ROI.
Michael [0:18:42]: Because so many AI solutions, their claims are around either productivity enhancements, you know, you can do more or less people, you can...
Michael [0:18:51]: Your existing people can have far more output and return on on their time invested.
Michael [0:18:57]: And so these claims with AI solutions become much easier to actually evaluate in a test case concept where the savvy procurement leaders that we work with, create the right mechanisms of place to actually evaluate the ROI of those pilot periods so that we can have a a clear justification for expanding that pilot into a a broader kind of engagement.
Michael [0:19:21]: Loss of these companies are thinking about outcome based pricing or models or, you know, some usage based models of pricing that will have a direct relationship between the inputs and the outputs that are coming through through those machines.
Michael [0:19:34]: And setting up an infrastructure that allows for rapid experimentation and pilot testing with clear ROI guidelines allows for a much more seamless pilot to purchase process that gets the right types of solutions in place in a company so they can start benefiting from the the return.
Michael [0:19:52]: So not everyone has figured it out, but it's definitely...
Michael [0:19:55]: The first thing that I saw was some of our our most savvy and sophisticated procurement teams that we're buying a lot of AI tools was this very rapidly implemented piloting system to start testing and learning.
Justin [0:20:06]: This just feels like a new skill set for procurement.
Justin [0:20:09]: Right?
Justin [0:20:09]: Because I've heard...
Justin [0:20:10]: I mean, Evan you probably been to some of those conversations and conferences in things like, yeah, But it's, like, death by a thousand Poc.
Justin [0:20:17]: And and what I aunt Justin say is, like, this needs to happen.
Justin [0:20:22]: Like, we don't wanna get that experimentation.
Justin [0:20:24]: Maybe maybe what we do wanna get is scale.
Justin [0:20:26]: And I think that's Justin that's what you were talking about is, like, enable those pilots enable those proof of concepts, that have newly clear gating decision criteria of whether this go just hold on out on that based off of those data points, but that skill set of doing this effectively doing this.
Justin [0:20:46]: You know, so we are measuring ROI.
Justin [0:20:47]: Like, that's maybe something where we haven't had that experience of doing that at scale before at big quantities least before, and that's something we we need to get comfortable with.
Evan [0:20:59]: I, would agree.
Evan [0:20:59]: That takes me to, you know, what is the future skill set of the next procurement professional?
Evan [0:21:04]: I think you have to be able to articulate use cases.
Evan [0:21:06]: You have to articulate ROI.
Evan [0:21:08]: You have to speak intelligently to a financial partner as well as understand the implications from a legal perspective.
Evan [0:21:14]: Right?
Evan [0:21:15]: And so I think there's aspects of it that, you know, good teams do today, but it's just gonna go to the nth degree as you think about AI, and again, the speed to which we wanna test these things out.
Evan [0:21:26]: I'd also you know, a question for for you all, sitting maybe on the on the other side is, you know, how well are you sort of training or maybe a better word it is coaching procurement and or some of those business units to articulate the value?
Evan [0:21:41]: Right?
Evan [0:21:42]: I think there's sales approach, and then there's...
Evan [0:21:44]: Okay.
Evan [0:21:44]: I can relate it to your specific organization.
Evan [0:21:48]: How well do you feel like you're coaching people to be able to send the message internally?
Michael [0:21:54]: Yeah.
Michael [0:21:54]: Totally.
Michael [0:21:54]: I think the next your first comment around the skill sets that are required.
Michael [0:21:57]: I think that it's never been more true that the solutions that you choose as partners can't become a competitive advantage if brought on deployed and actually scaled appropriately.
Michael [0:22:07]: And there's never been more options that and opportunities to select from these different solutions that exist.
Michael [0:22:14]: And so that's an an added point around why the ability to rapidly pilot test and learn about the efficacy and value of these different our solutions becomes not just a, like, cost center based decision, but a lot of these things can really drive profit center, you know, type behavior and not creating me stage gates or restrictions that prevent the innovation is critical to see the fruits of all the all the labor.
Michael [0:22:40]: Going back to your question around, like, how are we training and coaching people, you know, I think that this this whole notion around being able to rapidly experiment and iterate integrate we take a...
Michael [0:22:49]: We very much guide our customers into the idea of dual sourcing.
Michael [0:22:54]: Like, one of the big things that we've, you know, we've encouraged everyone is, like, yes.
Michael [0:22:58]: Ant philanthropic seems like it's been absolutely crushing it.
Michael [0:23:02]: And all you wanna do right now is like, go all in on philanthropic scientist as long a commit, I know, as you can and get great unit costs.
Michael [0:23:08]: But just remember that this space is changing so dramatically and so rapidly that the last thing you wanna do is go in in one solution and then be stuck when there could be innovation that's happened in the next three months, six months that might change the...
Michael [0:23:24]: You change the tune very meaningfully.
Michael [0:23:26]: You know, like, with the releases of the new frontier models like Fable and and others, like, the possibilities are just becoming so so insane for what AI can handle, and you wanna be able to set up the infrastructure in such a way that you can be able to change, switch and test and experiment from an infrastructure standpoint, and procurement can help encourage that from a a commercial business standpoint just to make sure that their teams are aware that, look, these prices are changing dramatically.
Michael [0:23:54]: Open AI is cutting their unit costs that they can try to earn back share with philanthropic, let's be cognizant in around how we set up our systems such that we can keep the mall ability around who we're really investing in who we're trusting for for these keyword workflows.
Justin [0:24:08]: Justin, can you get a little more tactical there?
Justin [0:24:10]: Because I'm thinking about, like, procurement people might be sitting there nodding in their head?
Justin [0:24:14]: But what is that structure of of the contract then look like?
Justin [0:24:18]: Is it just simply shorter term month to month, avoiding, like, big commitments or is it...
Justin [0:24:24]: Or is it a little bit different?
Michael [0:24:26]: I think there is a a very clear pressure right now that exists between trying to minimize unit costs around your tokens because it's going straight to cost of revenue for many software businesses, while also maintaining that mall.
Michael [0:24:38]: Right?
Michael [0:24:38]: So if your CFO is coming to you and say, we need to reduce our costs with AI so that we can keep our gross margins intact.
Michael [0:24:46]: Procurement may take that as a demand to say, okay.
Michael [0:24:49]: Let's make a massive commit with this one provider go all in and the instruction to the, you know, engineering team would be, like, we need to focus everything with this model provider because that's gonna provide us the best economics.
Michael [0:25:00]: But the reality is in the pushback that I think procurement can can give is we're in early innings around this evolution right now.
Michael [0:25:07]: And before we, you know, push all of our chips in with one of these providers.
Michael [0:25:11]: We wanna make sure that we maintain flexibility, and therefore, we don't wanna jack up our commit and inside ourselves up for something that we can't necessarily.
Michael [0:25:20]: Whether we don't have good confidence in in attaining.
Michael [0:25:22]: We do wanna still be in a position where we under commit maybe a bit based on utilization.
Michael [0:25:27]: But make sure that we are keeping a good pulse on what that kind of consumption towards commit looks like so that we can be prepared to renegotiate to reset baseline lines and prioritize the mall over the all in cost focus at this moment.
Evan [0:25:43]: Yep.
Evan [0:25:43]: Yep.
Evan [0:25:44]: I I like that.
Evan [0:25:45]: I I like it.
Evan [0:25:46]: I mean, the folks listening, you know, having those those tiered structures in place.
Evan [0:25:51]: Right?
Evan [0:25:51]: So kind of starting smaller that ramp up, that ramp up group being sort of that that pilot who's now ready for production grouping, start there, and then have an idea of...
Evan [0:26:03]: Okay.
Evan [0:26:03]: What's the next group that we're gonna phase in?
Evan [0:26:05]: Talk to the vendor to talk to the supplier about?
Evan [0:26:08]: Okay.
Evan [0:26:08]: What is the next group or tier look like from a pricing perspective.
Evan [0:26:12]: So you have you have an understanding and you have predictability of what you could get yourself into.
Evan [0:26:16]: But, you know, again, to to Justin's point going all in with long term commitments.
Evan [0:26:22]: I think you should you should be able to push back on that request just because this space and there's so many examples out there, but the space is changing so quickly.
Evan [0:26:31]: So how do you ramp up, how do you adopt in a way that you feel like people are really good use it because as I'm sure organizations have have seen, you can throw an AI tool out there.
Evan [0:26:42]: One group uses it extensively every day.
Evan [0:26:44]: Another one touches it once a week once a month.
Evan [0:26:46]: And so just your adoption of a tool it's hard to measure, but one thing that, you know, you should actually take into account when thinking about commercial terms.
Michael [0:26:56]: We always know that procurement can play this role of productive friction within an organization.
Michael [0:27:00]: And while the pressures might exist for the engineering team, like, we want everyone on clock code or Codecs or Cursor or whatever it is, like, Asap because the proximity games are gonna be there.
Michael [0:27:10]: The role that that procurement should be playing is exactly what you mentioned.
Michael [0:27:13]: And is, like, let's partner with our It teams and our our leadership to make sure that we're facing this out in a way that allows us to maintain the right controls and awareness are what's gonna happen as we start to expand usage.
Michael [0:27:26]: That's a very clear and tangible role that Think procurement can be playing as we think about these deployments for potential runaway cost type vendors.
Justin [0:27:35]: That's interesting.
Justin [0:27:35]: You know, we touched on this a little bit, but we talked about how obviously, AI is changing how products and services are delivered, and now we're seeing...
Justin [0:27:45]: You know, as you mentioned, Justin a lot of these, like, pricing changes.
Justin [0:27:49]: You...
Justin [0:27:50]: Even with from a a specific supplier month to month or certainly renewal to renewal.
Justin [0:27:55]: And that includes not just, but the legacy Saas providers and even non Saas providers.
Justin [0:28:01]: Right?
Justin [0:28:01]: And so as we move from these traditional licenses from a traditional time of material contracts, what are you seeing at and and and justin in terms of, like, what are they moving to?
Justin [0:28:12]: And then how can we as, you know, buyers and procurement leaders and finance folks, how can we adjust our strategies to that.
Evan [0:28:22]: Yeah.
Evan [0:28:22]: I how Mind just kicking it off.
Evan [0:28:24]: I mean, in terms of what we're looking for.
Evan [0:28:26]: Right?
Evan [0:28:27]: The outcome based, it's the measurable value.
Evan [0:28:30]: You're looking for the outcome based.
Evan [0:28:32]: We are.
Evan [0:28:33]: Right?
Evan [0:28:33]: And I think it's derived from the fact that AI is is very variable just in the way that it that a way this operates.
Evan [0:28:40]: And then take that a step further.
Evan [0:28:42]: We've been discussing what it can do from an efficiency standpoint.
Evan [0:28:46]: So you you absolutely believe especially when you think of, like, time material contracts or sal, you're thinking of the automation of labor.
Evan [0:28:53]: Right?
Evan [0:28:54]: So now vendors are bringing in AI to do work faster.
Evan [0:28:57]: That's gonna play into this whole calculation and why T might not make the most sense, but you're looking for outcomes.
Evan [0:29:06]: You're looking for those measurable value points that you can you can go back to and you can say, okay, Did we achieve this yes or no?
Evan [0:29:13]: Doesn't necessarily matter how you got there?
Evan [0:29:17]: But that's that's what I think the market's moving to.
Justin [0:29:20]: Do you feel like there's gonna be some resistance to that sort of outcome based pricing specifically?
Evan [0:29:25]: Sure.
Evan [0:29:25]: Right?
Evan [0:29:26]: It's a different it's a different way of thinking.
Evan [0:29:27]: It's gonna challenge teams to think about work differently.
Evan [0:29:31]: I think You have to go into it, understanding what are you really looking to achieve?
Evan [0:29:36]: Why is that important, can I put a number against that?
Evan [0:29:39]: Because if not, I think vendors...
Evan [0:29:41]: If you don't have an understanding of what you're truly after and isn't reasonable or not, I think there's gonna be some inflated pricing, proposals out there that may have some sticker shock.
Evan [0:29:53]: But again, I think if you can ground yourself and the vendor can ground themselves.
Evan [0:29:58]: And what is that baseline?
Evan [0:29:59]: We're operating at today.
Evan [0:30:00]: What are the things that we're looking to get out of this?
Evan [0:30:03]: And what's the economic value of that outcome?
Evan [0:30:06]: Think if you could tie those things together?
Evan [0:30:07]: You know, price tag may now look so shocking once you put those those numbers together and it would just initially on a piece of paper.
Michael [0:30:18]: Yeah.
Michael [0:30:18]: I'd be curious to see how this evolves in twenty twenty seven because, you know, so much of twenty twenty six to me has felt, like the AI slash fund budgets.
Michael [0:30:27]: Right?
Michael [0:30:28]: Where it's, like, you know, testing all of the these different tools Like, oh, we, like, over consumed our outcomes by a hundred percent, you know, whoops.
Michael [0:30:35]: But, right like, it's okay because, you know, we're...
Michael [0:30:37]: We gotta test and learn with with AI.
Michael [0:30:39]: And I think that I know a lot of companies.
Michael [0:30:42]: A lot of our customers are starting their budgeting cycles for twenty twenty seven right now.
Michael [0:30:45]: And this like concept of right?
Michael [0:30:47]: Well, we know that we had to make a bunch of trade offs in twenty twenty six to fund a lot of this unexpected AI costs.
Michael [0:30:54]: We have to do better in twenty twenty seven.
Michael [0:30:56]: We don't have the same kind of, like, flexibility and our boards and our CFO are gonna expect us to be much more dialed around what our cost expectations are, and I think that some of these things like outcome based pricing and consumption based pricing that we're we're permissible a lot through twenty twenty six under the guise of testing and innovation, etcetera, are gonna become much more scrutinized in twenty twenty seven.
Michael [0:31:24]: And the expectations of vendors are gonna become much more rigid.
Michael [0:31:28]: And if the story of, like, oh, well, we just delivered so many more outcomes, Like, shouldn't you be happy about the costs as part of that?
Michael [0:31:36]: I think that those will be viewed less favorably in twenty twenty seven as they were in twenty twenty six.
Evan [0:31:43]: Sure.
Evan [0:31:43]: Yeah.
Evan [0:31:44]: And I I think you're right.
Evan [0:31:45]: In terms of just, hey, people were excited, and I think, you know, somebody from the business could articulate or we could at least, you know, describe what the problem is and how they think the solution can help fix it and generally, what the what the benefits going to be.
Evan [0:31:59]: And I think they were like, okay, well, as long as you keep it within a certain spend, go off and do great things.
Evan [0:32:05]: I think you're right.
Evan [0:32:06]: That's gonna cool back a little bit.
Evan [0:32:07]: And again, where procurement can sit.
Evan [0:32:09]: But I don't think it should be in silo by any means.
Evan [0:32:11]: Again, I mentioned some of the teams that used to work with.
Evan [0:32:13]: I think Fp and A is going to play a bigger and bigger role in understanding, okay.
Evan [0:32:18]: Help me forecast this.
Evan [0:32:20]: Help me think about how do we conduct, you know, systematic check ins to ensure that we are driving towards this measurable outcome.
Evan [0:32:29]: I think there'll be some of those gates in place.
Evan [0:32:31]: And it's not just give you a one person show to say, hey.
Evan [0:32:34]: I built this business case with their new vendor.
Evan [0:32:37]: Here it is.
Evan [0:32:38]: Just give me x amount of dollars minus ten percent.
Evan [0:32:42]: You guys can keep that, and we'll let you know if we overs spend.
Michael [0:32:46]: I think this goes into one of the...
Michael [0:32:47]: You know, the area.
Michael [0:32:48]: I know.
Michael [0:32:48]: I know, Evan you've been spending a lot of time with this is just like, the skill sets for teams that are managing procurement when it comes to AI and what's gonna have to be different.
Michael [0:32:56]: And, you know, what this immediately signals to me is more junior or or sourcing managers, people that are in the day to day with these different vendors are gonna be...
Michael [0:33:04]: Have to develop toolkit kits around deal structures and commercial arrangements that protect the business while also still encouraging growth and performance and all the things that are true around cons...
Michael [0:33:16]: More prevalent consumption and a outcome based pricing.
Michael [0:33:18]: And so I don't know how you're...
Michael [0:33:20]: Have you started even having these conversations with your teams around, like, best practices and structure that that might be more novel to them versus the traditional seat based approach.
Evan [0:33:30]: Here.
Evan [0:33:30]: I very much challenge my team to go out and consume as much information as possible I'll research ten conferences, listen to webinars to figure out what's the topic of the day other companies doing in order to try to do this as well.
Evan [0:33:44]: Because I think we're all learning together.
Evan [0:33:46]: I don't think we're gonna solve this, at least Frontdoor not gonna solve this in in the, you know, in a matter of weeks in terms of what is best practice So I think consuming as much as as you possibly can.
Evan [0:33:57]: And then, again, I think one of the very first topics that we discussed is why is that a good thing to be in procurement today, specifically around the AI revolution?
Evan [0:34:06]: I think we just sit in the middle of a lot of what is happening within the organization.
Evan [0:34:10]: So Similarly, if you're broken into different categories and category management or category managers, those individuals should be sharing best practices or things that they're learning through an engagement with everyone else in the team.
Evan [0:34:25]: Right?
Evan [0:34:26]: So you should be skill up your team just through real life examples.
Evan [0:34:30]: Additionally, I mean, I think there's some critical capabilities of the next procurement professional or the ones that you have in place today that you wanna continue to grow with and they have to be they have to be adaptable.
Evan [0:34:43]: They have to be willing to undergo some of these changes.
Evan [0:34:46]: They have to be a consumer of of knowledge and and really want to learn because this is just such a a huge learning curve for not just procurement but everyone.
Justin [0:34:58]: I have to admit that I was having a conversation with a a finance leader last week at a very large organization, and and he was telling me how he's loving this, you know, world of AI because he and their teams, they have this repository.
Justin [0:35:11]: They have this sharing where someone will create an agents it's really cool and say, hey, here's a prompt to use.
Justin [0:35:17]: Here's an agent I created, and they put it based in a library type of a thing, and then everyone gets about.
Justin [0:35:21]: Oh, I wanna use that and then they kinda adopt it for themselves.
Justin [0:35:24]: And here I am sitting on this, like, island of some sorts team of one, and I I have to admit that, like, there's even a fo going on.
Justin [0:35:32]: To be honest with you.
Justin [0:35:33]: Well, Invite you.
Justin [0:35:35]: We got we we've got the T.
Justin [0:35:36]: And you wanna be in
Evan [0:35:37]: part of our
Michael [0:35:38]: shared cloud skills, we can we got you then.
Michael [0:35:40]: You.
Michael [0:35:40]: Don't worry.
Justin [0:35:41]: Whoa.
Justin [0:35:41]: I didn't know about this.
Justin [0:35:43]: Okay.
Justin [0:35:43]: Well, this this is great.
Justin [0:35:44]: But, no.
Justin [0:35:45]: I...
Justin [0:35:45]: That's what I saying, Evan I love.
Justin [0:35:46]: I love what you're talking about because we need more of that, like, sharing going on because I think a lot of times people like me are figuring this out in a silo or maybe trying to, like, cohesive together, but it's not evan being like, hey, evan.
Justin [0:35:59]: Here's something I built and, you know, check it out.
Justin [0:36:02]: And I'm like, oh, my gosh.
Justin [0:36:03]: This is amazing, you know, and I can't just like, pull it over.
Justin [0:36:06]: So...
Justin [0:36:06]: And as a procurement leader,
Evan [0:36:08]: I mean, while I want my team to engage with, you know, AI as much as possible.
Evan [0:36:13]: There's a point in time where the cream is going to rise to the top.
Evan [0:36:18]: Now, I think as a leader, you shouldn't empower your group with you know, specific tools, discuss use cases, figure out, you know, what's gonna be possible and and help either prompt them to solve these or, you know, think differently about the current challenge.
Evan [0:36:33]: And so through coaching through that sort of one I wanted engagements, you should be able to learn what are those challenges and and help the group think through those differently and if they analyze the, you know, the answer that help support that.
Evan [0:36:46]: But at the same time, there's there's that points of...
Evan [0:36:49]: Is this person willing to learn, Are they willing to change?
Evan [0:36:52]: Are they going to be within the team of the future?
Evan [0:36:56]: I think those are things that leaders should be challenging themselves on answering?
Michael [0:37:02]: I think right now, it's probably the best time as a professional where if you're high agency and, like, an early adopter, the opportunities in front of you are...
Michael [0:37:10]: Can be so quickly accelerated relative to your peers.
Michael [0:37:13]: And because it's it's AI.
Michael [0:37:16]: Naturally, at this stage where things are very much learn for yourself and, you know, the changes are happening so quickly and the people that are high agency and and interested in trying to keep up and learn how to constantly reinvent their processes and their knowledge base are the ones that are gonna benefit most.
Michael [0:37:33]: Now it doesn't mean that the rest are totally are gonna be out of work.
Michael [0:37:37]: I think it's just a...
Michael [0:37:38]: The phase that we're in very much rewards the high agency people in this kind of undefined more test and learn type mindset to find the best and most effective use cases for this novel technology.
Evan [0:37:50]: Yes.
Evan [0:37:50]: I think you should be provide that room for people to test and, you know, frankly in times fail.
Evan [0:37:56]: Right?
Evan [0:37:56]: So it's it's an opportunity where there's not a lot of black and white.
Evan [0:38:00]: There's not a lot of guard rails in terms of, you know, what's acceptable and what's not.
Evan [0:38:04]: So here's your opportunity to go out and test some things to learn what worked and what didn't share those, But, absolutely, I think it's it's a very, very fun time to be a part of this, you know, this revolution.
Justin [0:38:18]: Evan, I'm guessing you're you're happy where you are.
Justin [0:38:20]: Hypothetically, let's say you accepted a a new job and and the the the, you know, the mandate was to go and build out a team, of procurement function, procurement team, etcetera, when you're hiring in this market today.
Justin [0:38:33]: What are you looking for What
Evan [0:38:35]: are you what are you looking for
Justin [0:38:36]: right now?
Justin [0:38:36]: Like, it's it's probably a little different than it was a few years ago.
Evan [0:38:40]: Well, and, again, I I mean, I mentioned, you know, there's big organizations, small organizations, Some organizations that are probably diving much deeper than what I've even described much further along in their journey and others that are not.
Evan [0:38:51]: But I think there's still some some critical and foundational, like, skill sets or things that that people could discuss real life examples with.
Evan [0:39:00]: And I think just using any technology.
Evan [0:39:02]: Right?
Evan [0:39:03]: I mean, not specifically AI, but how did an individual use technology to better process to make a better or faster decision that helped, you know, scale a function within the organization.
Evan [0:39:15]: I think there's there's plenty of I think ways that you can articulate that of the use of technology.
Evan [0:39:20]: But I think that's, you know, a very initial question on my interview agenda.
Michael [0:39:27]: How are you, Evan, are you confronting the, like, similarly, like, there's there's the adopters of AI, but then there's the, maybe over adopters and you're now having to, kinda think through what's original thought versus regurgitation and, like, how important is that as part of building a team and growing talent today.
Evan [0:39:47]: Yeah.
Evan [0:39:47]: Mean a fantastic question.
Evan [0:39:49]: Right?
Evan [0:39:49]: Because I mentioned, you know, an interview question talking through, how does you use technology or Adapt technology to make your your life better and or more efficient.
Evan [0:39:58]: I think specific to AI because in many cases, it can give you an answer.
Evan [0:40:04]: It may not be the most appropriate or the right answer.
Evan [0:40:08]: Its job is to deliver an answer to you.
Evan [0:40:10]: There's a struggle I think happening even today where people are over indexing on the use of AI.
Evan [0:40:16]: To either provide what they think is the right answer to provide answer, that sounds maybe a little bit more professional articulate.
Evan [0:40:24]: In some cases, they're over indexing towards those those answers or there's recommendations.
Evan [0:40:30]: And frankly, that's, you know, opinion of outsourced information and and data points there.
Evan [0:40:36]: And so I am absolutely cognizant of trying to coach my team on when is the appropriate time to use AI to help it summarize or make messages more concise.
Evan [0:40:47]: And at the same time, keeping their own voice.
Evan [0:40:50]: So it is a constant feedback loop of, hey, this is sounds great.
Evan [0:40:56]: Can you rewrite it in a way that sounds just like you.
Evan [0:40:59]: Right?
Evan [0:41:00]: Or I like these three points?
Evan [0:41:02]: These three in my mind, I know did not necessarily come from these individuals that I say, help explain this in a totally different way as though a first grader, you were explaining to a first grader.
Evan [0:41:15]: And and that's gonna be critically important.
Evan [0:41:17]: Something we mentioned was ant philanthropic creating a watermark that's not visible to us potentially reviewing some text, but it can be detected by systems that shows, hey, this was primarily or majority written by AI.
Evan [0:41:33]: And so I think there is this there's this world where in the next few years, people are just going to be so inundated or just over the fact that what they are reading is purely created bay AI with very little original thoughts, and there's going to be sort of a recycle of...
Evan [0:41:51]: Alright.
Evan [0:41:52]: Where where do we start from?
Evan [0:41:54]: How do we just get people in the room to discuss?
Evan [0:41:57]: And how do we ensure that our team members are actually getting smarter through AI and not just leaning on it to give them the answers?
Michael [0:42:06]: I think the push from teams to say, use AI.
Michael [0:42:08]: Right?
Michael [0:42:09]: Like, Now there are so many different ways that an individual can use AI.
Michael [0:42:13]: And I think that the hope in a lot of cases from the mandates from companies to use AI is, like, binding process efficiencies to make your day to day faster.
Michael [0:42:24]: It's not intended to become a crutch to replace critical thinking and original thought, as a user of AI, Obviously, like, there's many times where I go to AI to write me something as a starting point and you, I can always feel the desire to say, oh, man, how easy would this be to just copy and paste and are thing, but that doesn't necessarily make it the the right choice.
Michael [0:42:46]: And I think that for the younger generation, who is becoming much more AI native.
Michael [0:42:51]: They're gonna have a much harder time understanding the difference around appropriate of when to use AI generated content versus critical thinking and an original content, and that they're gonna...
Michael [0:43:01]: That's the role that we play as mentors and you, leaders and managers to help enforce and drive accountability around the areas that we really need to feel that origin imagination and where we can encourage and enable more of the automation and efficiency that AI can power, but make those distinct and clear and understandable for someone that might be kind of convoluted both in their minds.
Evan [0:43:26]: Right, a hundred percent degree.
Evan [0:43:27]: Right?
Evan [0:43:27]: And that is, you know, when you think about the future state leader, that's gonna be a critical skill set of said leaders is the ability to really coach mentor in this direction.
Evan [0:43:37]: Right?
Evan [0:43:38]: Because end of the day, I think is extremely effective when they're in the room, be it a virtual room or a physical room and and discussing what they're seeing making recommendations, asking those tough questions or prompting questions.
Evan [0:43:52]: I don't see a place for a computer to be, you know, in that room asking those same things.
Evan [0:43:57]: Or in individual sitting in front of their computer having to ask their clogged, their their c copilot or or the like for the answer.
Michael [0:44:05]: You have absolutely t AI yet.
Michael [0:44:07]: So we'll, you'll have to, you'll have the reserve best until...
Justin [0:44:11]: So it sounds like Evan, you're you're building out a team, you're building at a team of people who are are humans who speak like humans who think like humans, but who leverage the technology to to to be more efficient.
Evan [0:44:24]: That's important.
Evan [0:44:24]: Right?
Evan [0:44:25]: Now.
Evan [0:44:25]: Not to say from a younger generation, like, I think AI will absolutely assist in ups skill folks faster.
Evan [0:44:32]: Right?
Evan [0:44:32]: So no longer they're gonna take you two to three years.
Evan [0:44:35]: I I don't believe.
Evan [0:44:36]: Sitting in one category, understanding all the specifics there.
Evan [0:44:40]: I think the technology is going help them become you know, this this called a a mid grade player in a matter of months, which I think is gonna be fantastic.
Evan [0:44:50]: Right?
Evan [0:44:50]: So when you think of continuity teams, succession planning, and the like, that's where technology can absolutely assist.
Evan [0:44:56]: So that's the exciting part I think is the is the next next set of individuals come into procurement.
Justin [0:45:03]: Yep.
Justin [0:45:03]: Well, awesome.
Justin [0:45:04]: Well, thank you both for your insights today.
Justin [0:45:06]: This has been interesting.
Justin [0:45:07]: It's actually given me, you know, hope, I think sometimes is so easy to feel like we're being left behind in some ways.
Justin [0:45:14]: And and, you know, I'm still bringing my human self to work, So I don't know maybe maybe I'm I'm I'm doing better than I think I am.
Justin [0:45:20]: But Evan, thanks for joining us today.
Justin [0:45:22]: Justin, pleasure as always.
Justin [0:45:24]: And with that we'll wrap up.
Justin [0:45:25]: This episode.
Evan [0:45:27]: Alright.
Evan [0:45:27]: Gentlemen.
Evan [0:45:28]: Thanks so much.