Last week, in a post on where Chrysler went wrong, I joked that the automaker may need to face the fury of supplier backlash after reneging on its supply management commitments. I never expected how true that statement might become. Or how soon.

Rumors surfaced yesterday that Tier-One automotive supplier Magna International Inc. may buy DaimlerChrysler’s ailing North American unit. The Detroit News reported that a Canadian labor union president acknowledged discussing a possible Chrysler acqusition with Magna officials. This was corroborated by comments from auto analysts at KeyBanc Capital that Magna was “seriously considering the potential purchase” of Chrysler.

The news comes less than one week after rumored talks for a General Motors takeover by Chrysler. It also follows a double-whammy of announcements for Chrysler’s massive restructuring plans and disclosure that parent Daimler-Benz was looking to dump the unit.

On the surface, such a dog-bites-man deal might seem unrealistic. As the world’s third-largest automotive supplier, Magna, which logged $22.4 billion in revenue last year — is less than one-third the size of Chrysler. And, despite being one of the most financially successful auto suppliers over the past decade, Magna’s engines have slowed recently. Just yesterday, the Canadian auto-parts maker reported its first unprofitable year since 1990, largely due to its reliance on business with ailing Detroit automakers. An acquisition of Chrysler may risk business with two of Magna’s biggest customers, GM and Ford Motor Co., which comprise 40% of the auto-supplier’s revenues. (Chrysler itself accounts for 21% of Magna’s annual business.)

However, a peek under the hood, suggests that Magna’s purchase plans are not unrealistic. Despite its recent performance, Magna is financially healthy with no debt. It has also managed an ever-increasing portion of vehicle module design and assembly on behalf of its customers, including Chrysler.

According to KeyBanc analyst Brett Hoselton, the acquisition of Chrysler is a natural progression for the next phase of growth for Magna (or any leading Tier One, for that matter). Magna has “reached a plateau as a supplier and niche contract assembler and that increased involvement in the design, research, and development of vehicles is the natural progression of its current capabilities,” wrote Hoselton in his report on the potential deal. The marriage would pair Magna’s engineering and production competence with Chrysler’s marketing know-how. (Can you say, vertical integration?) And the new company would be better positioned to ease labor issues and expand into emerging markets, particularly China — a region where both Magna and Chrysler are only beginning to build a presence.

The battle for control of Chrysler is far from over. But recent industry maneuverings portend severe impacts — both good (more available metals supply) and bad (increased supplier insolvency) — that will extend well beyond the automotive sector. Supply managers would be wise to audit their supply base to assess balance of trade and supply issues that may disrupt suppliers’ financial and operating health. Savvy buyers will use this new-found intelligence to negotiate closer ties (and lock in long-term discounts) with suppliers looking to offset their own risks and optimize asset utilization.

Concerns over finding, training, and keeping the best talent have reached an all-time high among supply management executives. On the spot to deliver continuous improvements in supply costs and performance and to contribute to corporate value in the form of improved risk management and innovation capture, supply execs report that their teams lack the skills to keep pace with these new demands. Even worse, those that have secured top talent are worried about losing it.

In recent weeks, the supply management talent crunch issue has been at the fore in Aberdeen Group reports, comments from ASU supply chain guru Professor Joseph Carter, and from leading purchasing talent coaches. Over at Services Safari, blog master Brian Sommer provides a list of leading indicators for when your employees may be considering a move. 

(Personal side note: Brian is a veteran technologist, consultant, and advisor to the world’s largest enterprises and software firms. I have had the pleasure of collaborating with Brian in the past, and can confidently say that he ranks among the the most knowledgeable experts on professional services and human capital management.)

Here’s Brian’s top warning signals that you may be losing your top talent:

• Employees who suddenly show an increased use of sick, vacation or personal days
• Employees who exercise stock options, particularly if they exercise all of their options
• Employees who get a new boss
• Employees who get a new boss and suddenly get a lower than average performance review
• Employees who get transferred to a new organization unit against their wishes
• Employees who have not had a material raise in 24 months

Brian is quick to point out that one of the leading reasons companies lose “A players” is due to incompetent managers. Says Brian: “Sadly, too many firms promote workers into management or executive roles before these people have demonstrated the ability to understand what truly motivates people, show flexibility when it comes to accomodating great people, and really understand their employees.”

Not surprisingly, Brian also offers a litmus test he uses with potential executive hires:

• When was the last time you invited a group of employees to your home for a casual meal?
• How often do you take employees out for a bite of lunch?
• How many of your employees’ spouses/significant others have you met (and spent some time getting to know)?
• Does your car/home look pretentious compared to those of your average employee?

Brian recommends that every manager and executive should be measured on how well they retain people. He says a successful manager should be able to retain staff at least one year longer than the industry average. The reasons are obvious: “When you retain people 12 months longer than average, then recruiting costs plummet and training costs fall,” says Brian. With many supply management organizations orchestrating transformational improvements, employee retention can make or break success.

It’s not surprising that last week’s SupplyNow podcast featuring Arizona State University Professor Joseph Carter’s take on the supply management talent crunch has generated tremendous feedback. In a spate of recent studies, supply executives rank recruiting and maintaining talent among their most pressing challenges.

I’m happy to invite Charles Dominick, Charles Dominick, president and founder of Next Level Purchasing and author of the Purchasing Certification Blog, back to Supply Excellence to share his take on the talent crunch and provide strategies for hiring, training, and retaining great talent.

I enjoyed the recent installment of SupplyNow, discussing the “Talent Crunch” in the purchasing and supply management field.  Like most crises, the Talent Crunch was caused by poor planning of those involved - both employers and practitioners alike.  I’d like to dedicate this blog post to exploring why there is a Talent Crunch and who is to blame.

The first group to blame is the employers who are suffering from the Talent Crunch.  In the aforementioned installment of SupplyNow, the panel discussed three factors involved in having an optimized team:  recruitment, development, and retention.  Employers who are losing talent as well as the employers who have to resort to poaching entire purchasing departments from other companies (and sometimes firing most of their existing staff) have failed in one – if not all three – of these areas.

To have long-term success, employers need to start with a strategy for retention and then work backward to a strategy for development and then a strategy for recruitment.  They need to ask, “Once we have the right people on the team, how are we going to keep them?”  The response to this question inevitably has to include promotion opportunities.  Ambitious professionals do not want to stay in the same position for 15 years.  They want to feel that they are moving forward.  So, if you want the continuity of having talented people for the long haul, you absolutely have to structure your department in a way that offers upward mobility.

But getting promoted isn’t something that should happen just because an employee has been on board for the requisite amount of time.  That person needs to qualify for the position and have the skills necessary to succeed in it.  That is where development comes in. 

Employees should be trained not just to be able to achieve excellence in their current job, but to be prepared for the next step up.  If the existing staff is not qualified for an open, more senior, internal purchasing position, it is the management team’s fault for failing to develop them.  After all, if you have employees who have been with the organization; know the processes, products, and services; and are in-tune with the organizational culture, finding an appropriate candidate in-house should be easy.

Having opportunities for professional development and upward mobility then makes the recruiting process easier.  You’ve created an environment that will appeal to the movers-and-shakers.  At that point, you need to get your message in the right place and have the right processes to identify the differences between the best candidates and all other applicants.

The second group to blame is certain individuals who work in the profession.  Despite what the term “Talent Crunch” may connote, there is actually not a shortage of individuals with purchasing experience who are interested in getting new purchasing positions.  (more…)

Once the darling of the U.S. automotive industry, Chrysler is now getting more bad press than Britney Spears. After years of decreasing sales and disappearing profits, Chrysler last week announced a massive restructuring plan. At the same time, rumors arose that parent Daimler-Benz is actively shilling the North American unit.

The Details

Chrysler Group last week announced that it will cut 13,000 jobs and close a slew of manufacturing plants over the next three years in an attempt to restore profitability by next year. But Daimler-Benz’s aggressive moves to sell off Chrysler suggest that claims of profitability in 2007 are wishful thinking, at best.

(Rumors abound that ailing General Motors is considering acquiring Chrysler. But such a union is complicated by GM’s own problems coupled with labor and regulatory hurdles. A more likely scenario would have Chrysler bought by another foreign automaker, possibly even a Chinese manufacturer.)

What went wrong?

Lackluster product innovation and cultural challenges were largely to blame for Chrysler’s downturn. However, part of the automaker’s ails can be attributed to a wholesale abandonment of the core supply management principles that had once differentiated the brand.

While emerging from bankruptcy under showman Lee Iacocca in the 1980s, Chrysler adopted highly collaborative supply management approaches, including co-development, joint waste-removal/productivity improvement initiatives, risk-reward sharing, and outsourced production of complete vehicle assemblies.

These approaches, borrowed in part from the Japanese and ascribed to largely out of necessity, fueled Chrysler’s now legendary revival. As an editor at Purchasing Magazine, I was lucky enough to delve into these then-novel supply management approaches with the Chrysler supply management team, including CPO Tom Stallkamp, who was later named company president. Stallkamp brought a new level of supplier collaboration to U.S. shores with his now famous SCORE (Supplier Cost Reduction Effort) program, which solicited business-improvement concepts from suppliers, and the “extended enterprise,” which increased supplier responsibility for design and supply decisions and assembly manufacturing.

However, SCORE and much of Chrysler’s supplier collaboration spirit was scrapped after Daimler-Benz acquired the company. Since, the new-co, Daimler-Chrysler has made supply management blunders once reserved for other automakers from Detroit:

• Cost myopia: Soon after acquiring Chrysler, Daimler abandoned the collaborative SCORE program in favor of a more simplistic and combative approach of demanding price- and cost-concessions from its suppliers. (Can you say, “Pull a Lopez?”) The move alienated many of long-time suppliers and failed to give Chrysler a cost advantage against most of the world’s automakers. In fact, recent auto-industry reports indicate that Chrysler has joined GM and Ford in being among the least profitable automakers. Together the Detroit squad make $2,400 less profit per vehicle than Japanese automakers.
• Inferior stepchild complex: Daimler also quickly abandoned one of the early selling points for the Chrysler acquisition – the promise of sharing pats and vehicle architectures between Chrysler and Mercedes-Benz models. Company officials were concerned that Mercedes buyers would abandon the high-scale brand if it shared attributes of the more pedestrian Chrysler. Hmmm. Sharing of parts between mass-market Toyota models – such as Camry and 4Runner — hasn’t tarnished the image of Lexus, which is now the largest selling luxury brand in the U.S. It also hasn’t hurt profitability for Toyota.

The fate of Chrysler is still in the balance. However, Chrysler should serve as a morality tale for supply managers. The automaker had achieved supply management excellence and used it for competitive advantage. However, in an effort to be a global powerhouse, Daimler-Chrysler got greedy (and lazy), falling back on old-school, hard-hitting supplier management tactics. And it is now paying the price.

Chrysler’s experience (and, quite frankly the experience of all Detroit-based automakers) proves there’s truth in the old adage: “Hell hath no fury like a supply base scorned.”

Yesterday we identified some of the practices of the top-performing supply management organizations in the mid-market. Before that, we examined the pressures forcing mid-market companies to step up their supply management capabilities — and the challenges that stand in their way. Today, we’ll showcase the real-world supply management transformation of Le Chase Construction, a $500 million construction company.

Like a growing number of mid-market companies are discovering, the New York-based construction firm was driven to improve supply management performance in response to tougher scrutiny of is sourcing and supply chain performance from one of its key customers. Looking to enhance efficiencies and reduce costs across its entire supply chain, this large customer assisted Le Chase in adopting some of the best practice approaches it had used, including the deployment of an e-sourcing solution.

Le Chase shared its early experiences with e-sourcing in a webinar last year. (You can download a replay here.) Not surprisingly, one of the first e-sourcing initiatives the company conducted was a $200 million construction project for the key customer noted above. Said Bill Schrouder, project engineer for Le Chase: “We were challenged to gather RFP responses in a timely and efficient manner. In our traditional paper-based mode, it was a huge task to prepare and distribute the documentation and specifications required for an effective RFP. It was also challenging to analyze the responses to make total best-value sourcing decisions for highly-specialized services.”

With its first e-sourcing project, Le Chase was able to reduce sourcing burdens and cycles dramatically. “It’s a very efficient, Web-based tool that saves us and our suppliers an extensive amount of time in communication and document control,” said Schrouder. ”We can easily post documentation and architectural specification in Le Chase’s standard nomenclature for a variety of suppliers for different trades.”

Schrouder adds that the use of e-sourcing for the first time provides Le Chase’s extended project team “immediate access to an online repository of supplier information.” e-Sourcing has also helped “increase the level of supplier participation” in Le Chase’s construction bid projects.

Le Chase is now using e-sourcing to other spend categories. ”Although initially drive by our cusotmer, we [e-sourcing] has provided us with better supplier management, better supplier participation, and significant dollar savings. The ROI we’ve seen has more than covered the cost of the tool.”

Le Chase is just one example of a growing number of mid-sized enterprises that are making pointed investments in resources and technologies to improve their supply management cost structures and performance. With globalization, inflation, and energy costs on the rise, more mid-market firms will move to make supply management a core competence. Supply Excellence will continue to bring you stories from the frontlines of this mid-market transformation.

Monday, I provided ballast for recent findings from Spend Matters that insufficient (and, at times, non-existent) supply management capabilities are putting mid-market firms at cost and operational disadvantages.

But such reports only tell part of the story. They provide an historical perspective and overlook the telling trend that mid-market firms are now hiring and investing for the purpose of improving their supply management performance. Evidence: a recent Aberdeen Group report on the subject found that more than half of mid-size companies have either launched initiatives to formalize and improve strategic sourcing capabilities within the past 12 months or will embark on such programs within the next year.

Key drivers for what Aberdeen calls the supply management “echo boom” among mid-market companies include increasing pressures to reduce costs, compete globally, and respond to tougher executive and customer scrutiny of their existing supply management capabilities. According to the report:

“Most mid-size enterprises missed out on (and bore the brunt of) the first wave of supply management automation and improvements, being forced to compete as suppliers in price-based reverse auctions and drive year-over-year cost reductions in the face of rising energy and commodity prices. With continued pressure to reduce costs and compete in global markets, many mid-size companies view strategic sourcing improvements not just as a priority, but as a necessity for survival.”

Recognizing mid-size enterprises’ resource and budget constraints, Aberdeen recommends that mid-size firms employ the following practices:

• Develop and enforce standard sourcing procedures company-wide: More than two-thirds of mid-market firms either lack formal sourcing procedures or only use strategic sourcing approaches for their most critical spending. Standard procedures ensure consistent results, minimize regulatory and supply risks, foster knowledge transfer, and elevate the skill set of the entire procurement organization.
• Hire sourcing and commodity expertise, including consultants: Mid-size enterprises reported that their companies lack general strategic sourcing principles as well as domain expertise for key spend categories and supply markets. Top performers have aggressively hired sourcing and commodity experts. They have also used outside consultants to help define and improve their sourcing processes and performance.
• Improve access, quality, and analysis of corporate spending: Top perfomers in the mid-market have prioritized improving spend data accuracy and analysis, with most using or planning to adopt commercially available solutions and services to aggregate, classify, and cleanse spend data for analysis.
• Enlist executive support for resources and policy changes: Top performers in the mid-market cited executive support from the CFO and SVP of supply chain as the leading contributor to their success. Such support is critical for securing the requisite budget and resources to augment staff and fund sourcing automation investments. It also helps drive mandates and policy changes to ensure business unit support.
• Leverage supply management automation: Mid-size firms recognize the important role sourcing and supply management automation can play in helping to reinforce process standards, improve productivity, and increase negotiation and knowledge sharing capabilities. The Aberdeen report also found that mid-size firms were more likely to adopt broader solutions that combined sourcing and compliance (e.g., contract management) capabilities on a single, integrated platform. Aberdeen also found that more than half of mid-market firms will employ sourcing and supply management capabilities in a SaaS mode.

Aberdeen found that mid-size enterprises employing the above techniques reported more than four times greater procurement cost savings, better supply performance, and greater profitability than industry peers. You can view the full details of mid-market supply management approaches and results by downloading a complimentary copy of the complete Aberdeen report, Strategic Sourcing in the Mid-Market: The Echo Boom in Supply Management, here.Tomorrow we’ll conclude this series by examining the supply management approaches and results of one mid-market company. 

We interrupt our regularly scheduled programming to bring you the latest episode of the SupplyNow podcast series. Brought to you through a partnership between Supply Exellence and Spend Matters, this third episode delves into some of the hottest supply management topics:

• The Talent Crunch: World-reknowned supply management guru Professor Joseph Carter of Arizona State University examines the current supply management talent shortage and provides his recommendations for recruiting, training, and keeping top talent.
• Adoption Strategies: This episode examines successful results-based adoption approaches for supply management initiatives and systems.
• Sustainable Supply: Spend Matters blogmaster Jason Busch and I debate the financial and operational benefits of adopting environmentally and socially responsible supply management practices.

Last week, Spend Matters Jason Busch shared insights from his show-of-hands survey of an audience comprised largely of Mid-West companies from the “larger end of the mid-market” (an oxymoron unto itself). Despite this rather unscientific method of polling and sample selection (about 35 attendees at a  seminar hosted by a group purchasing organization), Jason’s findings were representative of the broader mid-market:

1. Supply management “technology adoption even in larger middle market companies remains low.”
2. Many mid-market firms “are embracing a category partnering / sourcing approach to working with” GPOs before they invest in broader technology roll-outs across their spend categories.
3. There’s a great degree of skepticism towards ERP capability and direction, at least within this group of larger middle market users.

While I might take debate with the second point (this was a seminar hosted by a GPO, after all), Jason’s findings echo those of other recent studies of supply management trends among mid-sized enterprises.

An Aberdeen Group benchmark of supply management, supply chain, and finance executives at more than 130 mid-market companies found that the typical mid-size firm applies disciplined strategic sourcing to only about one-third of total spending.

What’s the problem? Aberdeen uncovered four hurdles to effective sourcing and supply management at mid-market firms:

• Lack of formal sourcing procedures and organizations — less than 40% of mid-market firms lack a formal strategic sourcing group. Eighty percent of mid-market sourcing efforts either lack formal procedures, are decentralized, or only use formal approaches for their most critical spend.
• Lack of sourcing and commodity skills — mid-market companies lack basic strategic sourcing principles as well as category expertise.
• Insufficient sourcing or supply management automation – more than 80% of mid-market firms use a hodepodge of homegrown sourcing automation and offline communications to facilitate sourcing and supplier management projects.
• Little spend leverage — mid-size enterprises often lack the spending clout to aggressively negotiate best-pricing and terms with suppliers. 

Such inadequate competencies limit the ability of mid-size enterprises to leverage already diminutive spending volumes, assess supply market opportunities and costs, and drive cotinuous improvements in supply costs and performance. Case in point: Aberdeen to estimates that “Insufficient sourcing is costing mid-sized firms in the U.S. $134 billion in missed savings opportunities annually.”

However, these challenges only tell part of the story. Tomorrow we’ll investigate how mid-market companies are ramping up to address the supply management challenge. We’ll also examine the supply management approach and results one mid-market company was able to achieve.

In the meantime, download a complimentary copy of the Aberdeen Group report,  Strategic Sourcing in the Mid-Market: The Echo Boom in Supply Management.

People love lists. It doesn’t matter what the subject. Lists rule.

Consider the overwhelming response to the Supply Excellence expose on the Top 5 Supply Strategies. Or the spate of recent predictions from the blogger and analyst communities on what 2007 might hold for supply management. Not to mention the countless magazine covers at airport newsstands featuring lists ranging from The UK’s Most Eligible to Five Steps to Six-Pack Abs to People Magazine naming George Clooney the Sexiest Man Alive for the second time. (No comment. Too easy.)

Most lists promote the biggest or best. Don’t know why. Must be the rules laid down by the list police.

But rules are made to be broken. I personally think you can learn as much – if not more – from failures or mistakes as you can from best practices. Truth be told, in my nearly 20 years in supply management, I’ve seen more of what doesn’t work than what does.

I’ve taken the liberty to assemble a list of the Top 5 Worst Supply Management Moves of All Time:

1. Ignacio Lopez: I realize this is a person and not a strategy, but this former General Motors CPO has become synonymous with shady supply management practices. Lopez became infamous for his decision to tear up valid contracts and threatening to fire suppliers unless they acquiesced to double-digit price reductions. (An action that tagged GM as the most-hated customer of automotive suppliers.) Lopez was later accused of corporate espionage when he defected to Volkswagen, allegedly with GM secrets. To this day, the phrase “to pull a Lopez” sends shivers through supplier circles.
2. China: China has become a euphemism for low-cost country sourcing – and, some might argue irrational exuberance. Conventional (read: CEO) thinking was that Chinese suppliers offered prices 30% to 50% cheaper than more developed regions. (Even after factoring in landed costs, China sources still looked like a comparative bargain.) This spurred a mad frenzy to source from China – often times without well defined plans for assessing and managing suppliers there or for getting it if relationships went south. But by making China the world’s manufacturer, we may have unleashed a monster. China is now the biggest consumer of key commodities, such as copper, oil, and gold. This is causing shortages and driving up prices for supply management groups around the globe. Worse yet, there are signs that China’s bargain basement status may soon be threatened. The culprits: currency concerns, logistical challenges, and skilled labor shortages. The Economist reports that “most multi-national operations in China must contend with 20% - 30% annual staff turnover rate” with supply chain talent among the most scarce in the region. And prognosticators like businessman Sir Anthony Jolliffe argue that things could get worse: “I see China as a 10-year wonder because wages are going up: seven percent of people have an income of more than $100,000. What will happen when that goes up to 15-20 percent? How will China address the imbalance of wealth?” The point: don’t place all your eggs in one supply market basket. Diversify and constantly readjust your portfolio to balance performance and risk. And start investigating new low-cost regions, such as Brazil, Africa, and a revitalized Japan.
3. e-Marketplaces: I’m sure I’ll get heat on this one. People will claim that certain retail and energy marketplaces still survive and are processing more transactions than ever. True. Yet, few can dispute that e-marketplaces failed to live up to their initial hype. Of the thousands of online marketplaces launched, only about 30 survive today – with just five of those representing half of the market volume. And you’ve got to agree that the idea that CPOs from fierce competitors could create an effective virtual purchasing environment was misguided at best. Supply management is a competitive differentiator. (Just ask Honda or Toyota.) Commoditizing this activity with your chief competitor may have temporarily elevated market caps for certain e-market ventures. But it certainly didn’t help the competitiveness of participating parties or their suppliers in the long run. In the supply management realm, decisions to found or join e-marketplaces were based more on the hopes of a quick stock-market payoff rather than sound business improvement principles.
4. Reverse auctions: I’ve heard some argue that reverse auctions have set back the supply management function 20 years. There is some truth to this statement. Early auction tools were focused solely on creating price-only market transparency and competition. Some early users also abused these tools, failing to instill integrity in the negotiation process. However, today, many reverse auction solutions support the negotiation of multiple price and non-price factors. Some even include options for more collaborative bidding, allowing suppliers to offer alternative bundles and offers. And there are market protections to ensure both buyers and suppliers to clearly define and comply with rules of engagement and award. In fact, when used appropriately, reverse auctions instill greater integrity and fairness into buyer-supplier negotiations than traditional offline methods. Reverse auctions give suppliers a better understanding of requirements and award criteria, providing a level of comfort that they will be rewarded fairly for bidding more aggressively.
5. Supply management blogs: At last count there were more than 20 blogs dedicated to the purchasing/procurement/spend management/supply management discipline – each with different angles. Many provide useful tips and best practices on supply strategies. (Hopefully you feel Supply Excellence falls into this category.) Others play the role of Page Six for the supply management technology market space. And some are merely extensions of a vendor’s storefront, openly promoting new features and functions of their latest wares. Truth be told, there’s valuable insight and information in almost all of these blogs. However, there aren’t enough hours in the day to scan them all. Instead, try using helpful tools like RSS feeds and e-mail Updates/Newsletters which push new posts and summaries to your desktop. (Warning: Shameless plug. Be sure to put Supply Excellence on your RSS feed or get Updates on my latest posts directly in your In Box.)

Disclaimer: This list is based on my experience and does not necessarily reflect the beliefs or opinions of Supply Excellence sponsors. However, I highly encourage readers to comment on this list. (In fact, I have a number of other worsts that I was tempted to add to the list myself.) Feel free to add some of the worst practices you’ve seen in your own experiences.

I get many questions about the future of enterprise applications. Will ERPs swallow the best-of-breed software providers? How will new technology approaches, such as services oriented architecture (SOA) and Software as a Service (SaaS) disrupt traditional installed software models?

I have shared my thoughts on these subjects both in private and on Supply Excellence. However, since my transition to the software provider world, my recommendations are often taken with a grain of salt. That is why I base my posts and opinions on the real-world experiences of enterprises like you and the research and sage counsel of the leading industry analysts and luminaries.

In this spirit, a new post on the Software Critic from Erik Keller provides answers to the above questions on the future of enterprise software. (By way of background, Erik is a true veteran and visionary of the information technology (IT) industry, having held various senior and founding positions at well-known advisory and consulting firms, including Gartner and Saugatuck. Most folks in the IT sector know of Erik. And those that haven’t have probably made technology decisions based on his research. So, when Erik notices a trend, most tend to listen.)

In his post, Erik equates the dynamics facing enterprise software providers (and, by osmosis, software buyers) to those that have effected the music industry in recent years. Specifically, new, On Demand delivery and flexible pricing models initiated by Apple iTunes (and emulated by others) have shattered long-held foundations of music licensing and distribution. Few would contest the point that this iTunes-inspired model (”accessing and paying for only the music I want, when I want it”) is the future of the music industry.

Erik argues that the same dynamics are in place in the enterprise technology sector. He says demographics are putting old-school, ERP- and large-integration-project-loving CIOs out to pasture. And “a new generation of web-savvy downloading kids” will become the new CIOs, business managers, and buyers. “Are they going to be looking for traditional stuff or will they be looking for something online? I think you can see where I’m going with this.”

Erik goes on to warn software companies that failing to embrace these new disruptive technologies could relegate them to the fate of Tower Records, a nostalgic brand that failed to accept that the market wanted a new, more efficient model that better mapped to their needs.

Many would argue that this shift has already occurred in the IT world. The last decade has seen IT decisions shift away from the centralized IT command-and-control of the 1980s and 1990s to the business line executives — such as CPOs, VPs of supply chain and procurement — who are laser-focused on accessing technology that can drive data and process efficiency and effectivness required to meet their business goals.

Upshot: the days of investing in technology for technology sake are over. More often than not, today’s technology buyers are the business line executives. And they have a clear purpose in mind: rapid deployment, rapid adoption, and rapid results — with minimal costs and burdens. And, if possible, with minimal need to secure scarce IT resources.

New technology development and delivery models, especially SaaS, are delivering on these new-world preferences and needs. (Aberdeen Group’s On Demand Supply Management Benchmark Report does a solid job of quantifying SaaS benefits in these areas. You can access a copy here.)