We believe that the concepts surrounding the traditional Quote-to-Cash (Q2C) process definitions are long overdue for an honest reassessment. With that, so are the systems that support Q2C.
Too much of what is covered by Q2C is based on outmoded, digitally-shallow, 1980s-era batch-style processes that reflect neither the needs nor the capabilities of modern enterprises. Continuing to consider 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 is 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 driven in part by the M&A and investment activity among companies whose products support Q2C (Steelbrick’s acquisition by Salesforce.com, Apttus receiving an infusion of investment funds, etc.). 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 it—CPQ (Configure-Price-Quote), Contract Management, and other categories—will be the next “silver bullet” and a critical step to dramatically improving accuracy of the sales process and reducing 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 rethink their Q2C approach on a larger scale in order to realize true strategic value in this area. In the research note attached below, we explore the reasons behind our belief that traditional Q2C has outlived its shelf life and is being slowly replaced by a more comprehensive, broad, and deep approach that we termed Prospect-to-Disclosure or P2D.
Definition of Quote to Cash
Quote to cash, noun: the series of steps between quote generation and revenue collection.
- Product configuration
- Quoting: creation of a quote for prospect/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 strike a careful 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 free of the legacy baggage—anchors that give stability to the large enterprises but also hold them back from moving faster. Often, it is not just the systems but also the processes and concepts themselves that, by inertia, 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 Q2C process is gaining corporate popularity. While this sounds logical, we believe that a rush to simply automate Q2C in its present form may be misguided and passes up a more important opportunity to redefine and replace this tired, old process with a broader, deeper, more modern concept that we term Prospect-to-Disclosure (P2D). We believe that organizations that pursue Q2C automation without looking at the greater 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 reduce and eliminate errors in the 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 and subsequent customer dissatisfaction and defections. So it is no wonder 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 silver bullet solutions 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 the necessary process checks and balances to verify the operational capacity to deliver on a given quote. CPQ (Configure-Price-Quote), a key ingredient in the Q2C process, promises to automate away some of the problems that persist in the absence of management control and process discipline. Without a doubt, the business challenges identified by Q2C and, by extension, CPQ are real.
Q2C rose to prominence in the era of business process reengineering and global ERP implementations. For most companies, this was the 1990s and early 2000s. The notion of a product was of 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 further and further away from these concepts and towards selling services and outcomes on a continuous basis.
Q2C in its legacy form is no longer the silver bullet it once was and continues to be portrayed as. Organizations that ignore the broader implications of P2D (Prospect-to-Disclosure) are likely to see only marginal improvement in reducing customer friction, sales force productivity, and revenue leakage. Those that take a broader look at a more comprehensive approach like P2D are will be better positioned to reap strategic benefits with meaningful positive impacts to their growth rate, margins, market share, and enterprise value.