Ardent’s Analysis: Coupa Acquires VMS Provider DCR Workforce

Last Tuesday afternoon, leading business spend management and cloud solution provider, Coupa Software, announced that it had acquired the “technology assets” of Vendor Management System (“VMS”), DCR Workforce (“DCR”). Terms of the deal were not announced. The acquisition enables Coupa to enter the high-growth “services procurement” market in a direct way and continues the recent streak of smart acquisitions by the company, including Spend360. The acquisition provides very strong synergies and allows Coupa to capitalize on their strong earnings announcement (made on the same day this acquisition was announced) and the resulting stock price increase.

DCR Workforce, which is based in Boca Raton, Florida, is a leading player in the Contingent Workforce Management (“CWM”) space. And, while it is significantly smaller than the big “Big Two” VMS’ (Beeline and SAP Fieldglass), it has a solution that can more than hold its own, with many notable clients including. DCR Workforce, has been on the rise for several years as a direct result of its product innovation and strategic roadmap, as well as its executive team’s determination to provide a robust, end-to-end platform that can manage all facets of CWM. With its differentiators, particularly its Smart Track xCHANGE talent network, scenario-building analytics and predictive reporting, and its deep mobile functionality, DCR has risen to prominence on the back of its technology. Thermo Fisher, Lockheed Martin, and Welch Allyn are counted among DCR’s client base.

Ardent’s Deal Analysis

At a high level, the move makes great sense for the fast-growing and quickly-evolving Coupa, that has experienced strong growth and success over the past several years and risen to outpace many rivals and become the clear top challenger to the industry’s gorilla, SAP Ariba. Coupa intends to re-brand DCR as “Coupa Contingent Workforce” and take advantage of the DCR’s strong services procurement and SOW management capabilities. On a conference call last week, Coupa’s VP of Product Strategy and Innovation, Donna Wilcek, told us that the DCR acquisition represents “a natural way [for Coupa] to meet the growing needs of our customer base in regards to this evolving segment of the market.”

  • Two SOW management and services procurement tracks. Coupa’s immediate plans for DCR, as told to us this week, is to allow Coupa clients two distinct paths for SOW and services (as noted below). This strategy will allow those users that have a deeper “mix” of contingent labor (beyond temporary staff and directly-sourced talent) to enhance visibility into services-based spend, understand the impact of key SOW-based projects, and ultimately ensure that these projects and services are captured in the Coupa system.
    • Users who require basic functionality for managing this area of CWM will utilize Coupa’s Service Maestro offering.
    • For more complex contingent labor (and larger SOW/services projects), users will leverage Coupa Contingent Workforce – we expect this offering to become the default choice for all large enterprises.
  • DCR’s impact on supply management activity. The very crux of CWM over the past several years is the move away from the simple and transactional to the strategic, value-added nature of non-employee labor that is now impacting a wider scale of enterprise operations. It will be interesting to see if the company can align the strategic impact of DCR’s VMS technology (which includes enhanced visibility into talent, the ability to forecast talent demand, better align non-employee workers with critical projects, etc.) with Coupa’s other offerings, most notably, its eProcurement solution.
  • Maintaining DCR’s original leadership. The Coupa team will also “acquire” owners Ammu Warrier and Naveen Dua, two industry veterans with proven experience to innovate and advance solutions in a highly competitive market. Warrier recently appeared on the Contingent Workforce Weekly podcast and stated her company’s longstanding perseverance in pushing the envelope of talent and workforce management technology, especially in the wake of the “evolution of work.”

Ardent’s Market Analysis

How does this impact the Future of Work? The news of this acquisition follows another busy, transaction-filled season of shifts within the contingent workforce management (CWM) software industry, from New Mountain’s acquisition of global VMS provider Beeline to SAP Fieldglass’ burgeoning Digital Network.

Many of the key technology players in this industry are helping to prepare their users for the continued evolution of how work is done. From artificial intelligence and human capital-led functionality to on-demand talent engagement, the contingent workforce technology arena looks markedly different than it did just a few years ago. As early as mid-2016, there were several major players that all contributed differentiated value to the market. In the span of two years, we’ve experienced major consolidation, which signals that another era may be at play…one that sees contingent workforce management becoming a critical piece of the enterprise’s strategic operations.

One clear and resounding attribute of the future state of work lies within a trend that has been affecting the business world for nearly a decade: the continued growth (and utilization) of non-employee talent. Prior to the economic crisis a decade ago, the average company’s workforce that was considered “contingent” or non-employee hovered around 15%-to-17%. By 2010, that number nearly doubled. Today, nearly eight years later, Ardent’s research has found that 40% of the global workforce is comprised of non-employee talent.

The non-employee workforce of 2018 is not merely a supporting strategy to fulfill specific demand; today’s contingent workforce is truly a value-add, critical piece of overall enterprise operations. Many freelancers and independent contractors have the ability to deliver insights possessed by very few others (since many have deep skillsets in a specialized field), while professional services are often an unheralded measure for recurring projects and needs across the organization. Combined with the traditional temporary workers staffed via agencies and vendors (which also includes high-volume staffing), and the rise of robotics, and, companies today have a non-employee workforce that is just as talented and crucial as the traditional FTEs that roam the office hallways.

In the 2017-2018 State of Contingent Workforce Management research study, Ardent found that 96% of businesses perceive their non-employee workforce as a critical attribute of the overall enterprise. This stat proves that one key element of the Future of Work is rooted in the idea that the evolution of talent, as well as the very perception of that talent, can contribute to the supreme goal of work optimization. Contingent workforce management is now increasingly strategic in several ways: from the influx of agile and on-demand talent to the work optimization benefits of CWM-led technologies, CWM programs today hold incredible value to the greater organization particularly if it can leverage the capabilities and competencies that deliver operational benefits to the greater organization via top-tier talent.

The CWM market is increasing in size and it is increasing in impact and Coupa is wise to tap directly into this space. When taken individually, SAP’s acquisitions of Ariba and Fieldglass have been hugely successful. Today, however, they continue to succeed more as individual solutions than as a combined offering (To be fair, operating within the SAP ecosystem can be an extraordinarily difficult proposition). Enterprises that combine the two are solutions are more frequently doing so in an incremental way and generally not looking at the combined solutions as a single suite. It will be interesting to see what, if anything, Beeline, the largest standalone VMS does in response.

Final Thoughts

Since CEO Rob Bernshteyn took the helm nearly a decade ago, it has been full steam ahead for Coupa. And this past decade has seen the emergence of an active and very aggressive company that has shaken up the industry and launched a hugely successful IPO. Coupa has blazed through the industry frequently leaving partners, rivals, and others in its wake, but all the while it has been able to capture sizable mind-share of procurement professionals and a significant market share of the procurement software industry. Coupa’s strategy has been to acquire smaller, lesser-known (and frequently under-performing solution providers) with a strong core technology and roll them in under the Coupa flag. While we do not consider DCR to be an under-performer, it mostly fits the bill of a company that will benefit from the scale and sophistication of a larger sales and marketing operation and one that was somewhat constrained by a founder/owner-operated mindset. To fully capitalize on the opportunity, Coupa must show that it can successfully combine a traditional eProcurement solution with a VMS offering and help push this market forward, convincing procurement executives that there is real value in linking eProcurement and a VMS and establishing the pair of solutions as a new type of suite.

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