Too much of what is covered by Q2C is based on outmoded, digitally-shallow, 1980s-era batch-style processes that do not reflect either the needs or the capabilities of modern enterprises. To continue to think of Q2C in its original form and maintain its "sacred cow" status will, in our view, prove both detrimental and expensive. In our research and advisory practice we see a persistent theme of leading companies aiming to re-examine, re-define and re-engineer their core processes. In a number of instances the impetus for change was generated by the effort to improve monetization capability and agility.
There is intensifying industry noise surrounding automation of the Quote-to-Cash (Q2C) process. This has been in part driven by the M&A and the investment activity amongst companies whose products support Q2C – namely Steelbrick being acquired by Salesforce.com, and Apttus receiving an infusion of investment funds – among others. Across a spectrum of company sizes, industries and stages of maturity, business and IT execs are being led to believe that an investment into Q2C and products that support this activity – CPQ (Configure-Price-Quote), Contract Management and other categories is the next “silver bullet” and a critical element that can dramatically improve accuracy of the sales process and reduce customer friction. While there is no question that a focus on these product categories specifically and Q2C process automation in general can bring tactical benefits, companies need to re-think their Q2C approach in order to realize true strategic value in this area. In the research note attached below, we explore the reasons for why we believe that the traditional Q2C has outlived its shelf life and is being slowly replaced by a more comprehensive – broader and notably deeper approach that we termed Prospect-to-Disclosure or P2D.
Definition of Quote to Cash
Quote to cash, noun. - The series of steps be-tween quote generation and revenue collection. Involves:
- Product configuration
- Quoting – creation of a quote for pro-spect/customer
- Contracting - negotiation and approvals
- Order management/fulfillment of the order and provisioning of any services
- Payment receipt
- Dunning and Collections
Today’s business climate demands that enterprises find a carefull balance between speed, precision, compliance and innovation. Many of the greenfield opportunities are being annexed by start-ups that are able to deploy new strategies and processes that are free of the legacy baggage - the boat anchors that give stability to the large enterprises but also are holding them back from moving faster. Often times it is not just the systems but also the processes and concepts themselves that by intertia have been extended beyond a useful shelf life.
It is in this context of a search for growth that more and more organizations are looking at how they price, package, sell and deliver their products and services. Improving the “Quote-to-Cash” (Q2C) process is gaining in corporate popularity. While this sounds logical, we believe that a simplistic rush to automate Q2C in its present form may be misguided and obfuscates a more important opportunity to redefine and replace this tired old process with a broader, more modern and deeper concept that we term Prospect-to-Disclosure (P2D). We believe that organizations that pursue Q2C automation without looking at the broader P2D opportunities are at best likely to realize only incremental improvements in their business efficiency and accuracy.
On the surface, the notion of streamlining and automating the process of configuring a solution, assigning a price, generating a customer quote, contracting, fulfilling the order, invoicing and collecting payment is patently obvious. The business gains from such an initiative are clear. Sales organizations are under enormous pressure to not only generate results but also to reduce and eliminate errors in quoting and contracting processes. With rapidly evolving products, offerings and turnover in the sales force and channel partners, the error rate in quotes and contracts translates into unnecessary friction with customers and a huge negative impact on sales force productivity and billing accuracy. Even minor inaccuracies in this part of the customer relationship spectrum can lead to costly mistakes in order fulfillment, create customer dissatisfaction and defections. So it is no wonder that the siren call of a system that automates product configuration, pricing, and the quoting effort is alluring. Large, complex product catalogs with intricate dependencies frustrate sales channels that gravitate towards simplicity. Q2C projects appear as a magic bullet solution for finance, product, and operations teams that are struggling to contain a permissive “sales driven” culture that allows the sales reps to create one-off quotes and lacks necessary process checks and balances to verify the operational capacity to deliver a given quote. Alas – CPQ (Configure-Price-Quote) – a key ingredient in the quote to cash process – promises to automate away some of the problems that persist in the absence of management con-trol and process discipline. Without doubt, the business challenges identified by Q2C – and by extension – by CPQ are real.
Q2C rose to prominence in the era of business process re-engineering and global ERP implementations. For most companies this era was the 1990s and early ‘00s. The notion of a product was a physical product – and the leading ERP solutions were designed for discrete manufacturing enterprises with very linear thinking and processes.
Today’s business models are edging farther and farther away from these concepts and towards selling services and outcomes on a continuous basis.
Q2C in its legacy form is hardly the silver bullet it is often portrayed to be. Organizations that ignore the broader implications of P2D (Prospect-to-Disclosure) are like to see only marginal improvement in reducing customer friction, in sales force productivity and in revenue leakage. Those that take a broader look at a more comprehensive approach like P2D are more likely to reap strategic benefits with meaningful positive impacts to their growth rate, margins, market share and enterprise value.