Ariba as Innovation Engine--Observations from Ariba Live
on Apr 22, 2015
These are dynamic times for Ariba, as SAP figures out its Business Network strategy. Ariba Live provided a chance to see the key role Ariba plays in driving innovation forward for SAP.
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Ariba Live happened right after we published How a T&E Company Just Might Transform SAP. This was timely because this vision is not about Concur alone but about the broader Business Networks, of which Ariba is arguably the linchpin. Ariba has one of the largest sourcing and procurement networks, with over 1.7 million companies transacting $650B1 in commerce annually,2 and one of the functionally richest sourcing and procurement platforms available.
SAP, being the #1 enterprise software vendor, is a prime target of their competitors, who try to make the case against SAP being 1) too big and complex, 2) a closed system, and 3) saddled with 1990’s technology and can’t innovative. These criticisms, particularly the last two, are quite out-of-date and don’t match the current reality. I remind these competitors of Sun Tzu’s advice, “Never underestimate your opponent.”
Ariba’s Key Role in SAP’s Run Simple Imperative
There’s no doubt that SAP has a massive and complex portfolio of capabilities. Their Run Simple campaign can be viewed cynically as ‘just marketing,’ but I view it as an aspirational directive with considerable investments and attention behind it. Yes it will take time, but we are seeing significant movement in the right direction. This imperative elevates the importance of SAP’s cloud assets because of their simplified deployment model.3 Of course, Ariba plays a central role within SAP’s cloud pantheon. Further, Ariba has started incrementally migrating their applications to HANA cloud. They started last year moving Ariba Spend Visibility onto HANA and will continue with full reporting, global search, and more.
Ariba is also taking steps to open up their ecosystem, improving their integration with other ERP systems (including Oracle). Ariba will be doing a proof-of-concept later this year, using HANA Cloud Integration (HCI), to allow sellers to integrate their services onto the network, as well as to better integrate Concur and Fieldglass. The vision here is to cover the full breadth of spend—direct, indirect, contingent labor, services, and T&E—supporting multi-step scenarios by integrating these multiple systems, as well as services from suppliers on the network who have integrated into the Business Network’s APIs. This helps accelerate new business models as we move to increasing levels of outsourcing, contingent labor, and rich external services. Development and availability of these APIs will be an important step towards realizing the Business Networks goal.
Building Direct Procurement Capabilities
As described in Spotlight on Direct Materials Procure-to-Pay, direct materials P2P is quite different than indirect P2P. Ariba was originally founded to provide indirect/requisition-driven P2P functionality—workflow, catalogs, and supplier integration. Over the years, they have expanded their footprint to include more upstream functionality including sourcing, spend analytics, supplier management, supply chain finance, and of course the supplier network. Until recently though, they have not been very strong in direct materials/release-driven procurement, but now are starting to make investments in direct P2P, with release-based processing, VMI, forecasting, subcontractor purchase orders, and industry-specific functionality (leveraging SAPs industry knowledge). Rather than duplicating what is already in the SAP Business Suite, their strategy is to compliment and fill in the gaps required for inter-enterprise functionality.
Last year, Ariba partnered with Discover Financial Services to launch AribaPay, their B2B e-payment service. AribaPay automates one of the most persistent holdouts of paper-based commerce, payments made by checks, thereby providing much better visibility into the payment process (fewer phone calls on payment status), fewer errors and faster resolution of disputes, lower processing costs, less risk (no storing of bank account numbers), reduction in admin and AP labor, and better integration of payment into the P2P process.
The supplier can see the full tracking of payment status, the invoices, and line items with visibility back through the chain of events including the ASNs,4 GRNs, orders, and original RFQ quotes. Ariba continues to invest by improving supplier on-boarding, adding more bank partners, and opening up the payment API. As banks and logistics networks are added to the payment network, even richer information sharing and higher value workflows can be realized. Ariba will be adding evaluated receipts settlement (ERS) as well as invoice compliance for challenging countries such as Chile, Brazil, and Columbia.
Real-time Budget Management
Ariba has also integrated with financial budgeting systems to let requisitioners know at the time they create a requisition whether or not that purchase stays within the budget. If so, it reserves budget from the appropriate fund.
Ariba Spend Visibility aggregates spend data from diverse systems, classifies it, and can enrich it with other information. Ariba is now expanding it to other analytics beyond the spend data. They are opening up the API using HANA cloud platform’s shared reporting, data services, and development tools. This provides third parties, such as D&B, with an easier way to pull information from the network or add information into the network. We saw a quick demo of Spend Visibility on HANA using SAP’s data visualization platform, Lumira. The UI was clean, intuitive, and modern. The demo showed slicing, dicing, and drill down of invoice cycle time performance, and invoice rejections, which could be organized by customer, country, reason for rejection, and other dimensions. Everything was quite intuitive—click on any element to drill down, familiar filtering controls on the left. This was competitive with some of the best other spend analytics UI’s I’ve seen.
Supply Chain Transparency—Helping End Forced Labor
During the keynote, Justin Dillon, CEO of Made in a Free World (MIAFW) talked about how over 20 million people are still working in slavery, providing forced labor worth $150B in ill-earned profit. To tackle that, MIAFW has built Forced Labor Risk Determination and Mitigation (FRDM) tools, comprised of a Global Slavery Database, FRDM dashboard (using a company’s own purchasing data), company-specific action plan, and network of MIAFW members to trade with. Ariba announced they are working to integrate FRDM with the Ariba Network, from sourcing through to ordering. In the future Ariba is looking to provide registration and certification services for sellers, helping buyers to make the right supplier selection decisions. At the conference, Ariba gave a donation of $10,000 to MIAFW.
AIG—Increasing Spend Under Management
Some of the best lessons at conferences come from the customer case studies. AIG’s VP and Global Head of E-procurement Solutions and Operations, Jim Gillespie, gave a great talk on the challenges of getting spend under management for this $64B global company. They leveraged Ariba Spend visibility to analyze $10B of spend from 60 different feeds. In addition, they use Fieldglass and Concur to manage contingent labor and T&E expenses respectively. A lot of the challenges are due to their sheer size. It takes time to roll things out on this scale, but it is bearing fruit. In 2009, Jim’s organization saved the company about $50M. By 2015 they were generating about $310M in savings. They have now reached about $5.4B in spend under management (including $2B in legal expenses), with goals to add at least $1B more.
A company’s indirect catalog can never have every item that every requisitioner will ever need. As a result, in some companies up to half of indirect spend is off-catalog and completely unmanaged. To tackle that ‘long tail’ of spend, Ariba is implementing Ariba Network Spot Buy. If someone can’t find what they want in their company’s own catalog, the system will suggest items from eBay. This allows the purchase to stay within the system, providing visibility and some degree of control for off-catalog purchases (for example only allowing items from eBay-certified providers and/or from certain categories of goods). This is being actively tested by over 6,000 users at a few large Ariba customers.
Initially, they are integrating with eBay,5 using this to learn and test out different strategies. Ultimately they will make these APIs available to integrate any network and in fact are already in talks with several other networks beyond eBay. They did not mention names, but one can imagine integrating Amazon, Alibaba, and perhaps major retailers (e.g. Staples) and distributors (e.g. Grainger).
Spot Buy can be viewed as part of Ariba/SAP’s network of Business Network vision. Here you are integrating other networks into the Ariba Network in a relatively standardized way (integration of catalogs, orders, status requests, shipment notifications, payments, etc.). Ariba is learning from this not just about the technical integration, but also business integration, such as how to share revenue, how to mutually support the customer, and how each network can add it’s unique value for the customer.
User Interface / User Experience
Tim Minahan, Ariba’s CMO, said that improving the user experience is by far the most important area of innovation for them. He said, “The User Experience changes we have planned represent a generational change. We are going through a very fundamental paradigm shift, not just in the UI, but the whole experience.” Their approach includes ‘work anywhere’—enabling interactions where and when desired, ‘learn in context’—in-context guides and community expertise, with peers helping each other, sharing best practices and what works or not; and modern UX6 Principles—such as responsive design, and using Fiori-based7 interaction paradigms to provide consistency across applications. Tim said, “By the end of this year, the user experience will be very different.”
Ariba showed a demo of a new user interface for P2P which they expect to launch in the next 90 days. The demo login was via a quick swipe of the fingerprint reader and six big tiles filled the screen: Shop, Approve, My Requests, etc. Clicking on Shopping showed recent items bought, promoted items. They also had kits, which are bundles of content frequently bought together, for example a New Hire kit … very convenient. Searching featured Google-like type-ahead and showed preferred items, as well as spot buy from eBay. With just two clicks they added an item to the cart and submitted the req. I’m a stickler for well-designed interfaces and at least at first glance this looked good to me—clean, intuitive, convenient.
Circque du Soleil—Going Global
Circque du Soleil is the largest theatrical producer in the world. They run 18 shows concurrently around the world and sold over 11M tickets last year, more than all of Broadway combined. Their Sr. Director of Supply Chain, Nadia Malek talked about Circque’s global procurement challenges. Much of what they buy is unique, like fake monkey fur, clown noses, specialty lighting. In 2012, before embarking on automating procurement, they worked first on procurement policy, taking into account their culture, and ability to deploy. They chose to implement Ariba Sourcing first, because it gave a quick ROI. They also use Ariba Network’s supplier discovery to find local suppliers around the world for their traveling shows. Ms. Malek said that their strategic objective is to“make it easier to come to procurement than to go around it.”
Ariba continues to expand its globalization capabilities, such as the EU data centers in Germany and Netherland announced last year, which now have about 60 customers live. More important is the way Ariba is re-architecting itself for globalization. They are working on decoupling the compliance pieces for invoicing, archiving, and taxes. They will provide APIs to call out to the signing of an invoice as a service, for example. The way invoices are signed in Brazil differs dramatically from the EU or US. In Brazil, it has to be signed and validated by the govrnment before being sent to the buyer. In the EU it has to be digitally signed and archived for five years or more.
By opening up these APIs, Ariba can let an external service take care of executing these details. This is important because these regulations change all the time all over the globe and that part of the system needs to be continually maintained by someone with knowledge of and ability to monitor each specific country’s or region’s regulation and update their service as things change. In fact, SAP has a team of over a thousand people out in the various countries that does this type of globalization for other parts of SAP. Now Ariba will be able to leverage that expertise via its globalization-as-a-service interface. This allows Ariba to focus on the areas where they have expertise—sourcing and procurement process and spend coverage, and let SAP’s globalization team and other external partners focus on the compliance and globalization piece. In a sense, this is part of Ariba/SAP’s network strategy; the ability to integrate together networks of expertise and services to create a more holistic integrated end-to-end service—in this instance, it is Ariba’s procurement network integrating with ‘compliance expertise networks’ around the globe.
Coach—Creating Value Beyond Just Savings
Coach is an iconic brand. Founded in 1941, they have $4.5B in revenue, third party spend of about $2B with 7,000 suppliers. Coach’s Divisional VP for Indirect Procurement, Carl Hernas spoke, saying they have been using Ariba sourcing and P2P for about 6-7 years, achieving good savings. During this period they launched seven ‘waves’ (groups of sourcing projects). But they realize that can’t continue forever without also considering a more holistic view of value and efficiency.
They started with sourcing to capture savings, next P2P to automate, standardize, and control spend. Now they are looking to re-write the role of procurement to find value, which comes from many places. For example, in procurement for store construction such as lighting, fixtures, millwork, and marble; they do not just do the sourcing, but also help with SKU rationalization, value engineering, and construction design efficiency. Similarly with packaging, where Coach has very high quality requirements, they did spec optimization, volume consolidation, global sourcing, and distribution optimization to get significant results.
I think one of the most important things Ariba talked about at the conference was their emphasis on ‘co-innovation,’ working closely with customers and partners. They said, “We want to work with you as design partners, with deep collaboration to learn about your problems, and validate and iterate solutions with you.” They are doing that in Mobile with three partners, Spot Buy with four partners, and Collaborative Supply Chain with eight design partners. Ariba seems to be embracing the design thinking concept. In fact, Ariba is creating a dedicated role just to facilitate co-innovation, helping product managers organize and run workshops and dialogs with customers and other co-innovators.
Perhaps the most challenging and important area this is being applied to is figuring out their Business Networks strategy, the network of networks. And defining what that should be, such as tying in logistics or talent management or other areas. This is a new frontier and customer involvement and continual feedback will be critical to getting it right.
After my face-to-face meeting with Ariba’s new President, Alex Atzberger, I decided that SAP put the right man in charge. Alex has a global perspective, having lead SAP’s growth in China, the Middle East, Russia, and elsewhere. He is also Chief of Staff to SAP’s CEO (Bill McDermott) which includes driving SAP's Board governance and aligning the corporate functions to CEO priorities. This gives him great access and visibility at the top of SAP. Alex was part of the team that made the decision to bring on Concur, so he really understands the logic and potential synergies. That will be critical in helping Ariba integrate with the ‘new kid on the block’. Very importantly, Alex has worked at startups and seems to have an entrepreneurial mindset. The Ariba employees I talked to seem to genuinely like Alex so far. This bodes well for Ariba in this time of transition.
Dynamic Times at Ariba
My overall impression is that these are very dynamic times for Ariba and SAP. There is a lot going on: The acquisition of Concur; New leadership; Formation of Business Network group and formulation of the Business Networks strategy; Integration of Concur, Ariba, and Fieldglass; integration of other networks. SAP’s Business Networks is a work-in-process. They are figuring it out and learning by doing. But I believe they have the right vision, the right direction, and a solid team in place. If they can continue to execute on that vision, they are well positioned for the future.
2 On average, every minute a new supplier joins and over 12,000 transactions occur on Ariba Network. Every day there are a million and a half catalog searches and over $1.8B of commerce. -- Return to article text above