Confirmation Bias and Business Cases

Confirmation Bias and Business Cases

Posted by Ian Burdon in e-invoicing, Electronic Invoicing 17 Dec 2013

Recently I had the pleasure of being with both Pete Loughlin and Peter Smith of Spend Matters Europe at an eInvoicing roundtable event in London on 9 December. The event was both enjoyable and frustrating.

Before I share some reflections on the event and to avoid any doubt, I say immediately that I support the use of eInvoices – but I am also sceptical about the way in which the debate is being framed.

One of the oft-repeated assertions during the roundtable was that the business case for e-invoicing as an activity in its own right is “overwhelming”. One commenter from the floor said at least twice that the government is “sitting on” several £billion in benefits which, I presume we were to infer, would be available if only the UK Government would adopt eInvoicing.

I do not believe this to be the case, at least in the terms it was presented.

Purchasing Insight logoThere are three distinct reasons why I do not believe it. The first is that this type of statement fails to distinguish between efficiency gains from process and actual bottom line savings. There is clearly a case to be made for the former but the case for the latter is not made, or at least not to that scale.

The second reason is because the unspoken assumption in the calculations is that there are purchase orders to match against. This must not be assumed. In far too many public bodies the response when an invoice is received in any form is to have to hunt for the purchase order (often discovering that there wasn’t one because the requisitioner had ordered on the phone) and also look for the reciept of the goods or service. The accounts payable team is left to work out who placed the order, with whose approval and by what authority, from which budget and under which commodity code, at what price or on what terms and conditions etc. etc. In this case the fact that the invoice has been received by electronic means is of no significant benefit at all and certainly does not unlock several £billions of efficiency gain. Shuffling sunk costs around between budget heads is not a saving, it is smoke and mirrors. This is why earlier attempts at efficiency programmes were forced to distinguish between ‘cashable’ and ‘non-cashable’ savings.

The third reason is that I detect an overdose of confirmation bias in the discussions. Confirmation bias is a shorthand way of saying that people see what they want to see and, crucially, exclude what they don’t want to see. This is partly why inconvenient truths about invoices being part of a process are minimised (the other reason is that those pushing the case for eInvoices have generally never been responsible for accounts payable). It is no doubt coincidental that the strongest advocates for eInvoice as a stand-alone activity are the companies which offer stand-alone solutions. This mind-set does the case for eInvoicing no good at all.

Ian Burdon can be found on twitter @IanBurdon

  • Eran Livneh December 19, 2013 at 2:28 am /

    Glad to see someone calling it like it is: “the fact that the invoice has been received by electronic means is of no significant benefit at all.”

    The real bottom-line benefits can only come from automation of the procure-to-pay process, in which the invoice is just one step (although an important one).

    Well said Ian!

  • Tim Cole December 20, 2013 at 12:50 am /

    I fear there may actually be ‘confirmation bias’ within this article. I fully agree that the complete process should be automated to achieve full benefits. I have long advocated this and we support over a dozen different document types within our electronic document exchange platform (Tradex). However, even though I share your concern that e-Invoice only solutions distort the focus away from the much larger opportunity, it is simply not the case that e-Invoices on their own do not unlock tangible benefits – or that they rely on a PO to deliver benefits. There are plenty of case studies that confirm this and yes, the Government could unlock significant benefits through the adoption of e-Invoicing. Clearly, there is more to be gained – but please let’s not deny reality. e-Invoices are often a first step … and a welcome one which we should support as we encourage ever-greater electronic exchange and automation.

  • Richard Fitzwilliam December 20, 2013 at 3:40 am /

    Totally agree to this Ian, refreshing for it to be called out.
    Part of the meeting was a discussion around the “size of the prize” with vendors trying to remain professional but licking their lips at the same time.

    The hard savings for Einvoice only is around data entry. With enough analysis you could calculate some savings on exception handling. Add a vendor portal to reduce the queries. At a stretch you could argue the cleaner data will help spend analysis if such a program exists. Last time I looked thigh they were struggling to even provide a simple volume of invoices.

    Einvoicing on its own is a first step but has minimal benefits. The uk gov should look at a wider P2P program – that’s what is happening in the private sector. The real reason this will never happen is it hands the “prize” to a few players (one of which is not chief lobbyist OB10 or our chairs present company). As an outsider I see einvoice only companies struggling to find revenue and survive and they see this as their great white hope.

    Another item which has concerned me is why public sector einvoicing has been tied to interoperability. Maybe I missed the meeting where all the vendors got together and decided it was a good thing to tie the two together. They haven’t managed to fix it between themselves in the past 10 years so why tie it to a public procurement initiative?

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