Tuesday, July 27, 2010

Analysts Define Business Value and Imperatives for Cloud-Based B2B Ecommerce

Transcript of a BriefingsDirect podcast on the value of building and exploiting cloud-based communities for advanced ecommerce business processes.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: Ariba.

Dana Gardner: Hello, and welcome to a special sponsored BriefingsDirect podcast, coming to you on location from the Ariba LIVE 2010 conference in Orlando, Fla. I’m Dana Gardner, Principal Analyst at Interarbor Solutions. We’re here with a group of IT industry analysts and Ariba executives to explore the business implications for ecommerce in the cloud-computing era.

As more services, applications, and data are developed for, and delivered via, cloud models, how do business to business (B2B) commerce and procurement adapt? Or, perhaps we have the cart in front of the horse. Are the new requirements and expectations of modern, global business processes, in fact, driving the demand for IT solutions that can be best delivered via cloud models?

Either way, the promise of cloud aligns very well with the sophistication of modern B2B ecommerce and the pressing need for speed, agility, discovery, efficiency, and adaptability. Ecosystems of services are swiftly organizing around cloud models. How should businesses best respond?

Please join me in welcoming our distinguished panel to help answer these and other top ecommerce and cloud questions. We’re here with Robert Mahowald, Research Vice President at IDC. Welcome to the show.

Robert Mahowald: Thanks very much, Dana.

Gardner: We’re also here with Mickey North Rizza, Research Director at AMR Research, a Gartner company.

Mickey North Rizza: Hi, Dana.

Gardner: Tim Minahan, Chief Marketing Officer at Ariba.

Tim Minahan: Hey, Dana.

Gardner: Also, Chris Sawchuk, Managing Director at The Hackett Group.

Chris Sawchuk: Hi, Dana.

Gardner: Let me go to you first if you wouldn’t mind, Robert. I posed the question as to whether it is the technology that has made cloud computing possible, and now businesses are adapting to that. Or, is it the other way around? Are the business demands, in fact, making cloud computing more attractive? And why?

Mahowald: It’s a little bit of both. Actually, there is a lot more possibility now for collaborative commerce, when business applications have built a scenario where a lot of our data and application functionality exists outside of your organization. In that situation, it becomes far easier to source new partners and customers, leverage and trust data that lives in the cloud, and invite authenticated partners to enter into that kind of exchange.

So, it’s a little bit of both. It’s easy to see the way that the cloud has grown up and become more capable to support some of the business requirements that we have. At the same time, many of our business requirements are changing to adapt to a growing wealth of solutions in the cloud.

Gardner: Okay, Mickey, from your perspective, what’s going on with the IT enablement versus the needs and requirements in the field? As we’ve heard at this conference, wouldn't the notion of boundarylessness, the cross-organizational commerce, perhaps be better adapted to a cloud model?

Looking at the cloud

North Rizza: We’re actually finding companies are spending more time looking at the cloud. What happens is that you have your trading partners specifically around the sale side and the supply side of the organization. If you start looking just across your own businesses and internal stakeholders, you realize they can actually work together, get the information they need, and spend a lot of time on their business process, using just basic technology and automation components.

But, when they start looking at that extended network, into their trading partners, they realize we’re not getting everything we need. We need to pull everything together and we need to do it more quickly than what we’re doing. We can’t wait for on-premise, behind-the-firewall type applications. We need something that’s going to give us both the service and the technology and allow us to work in that trading-partner community in a collaborative environment.

In a recent study we just did, we found that 96 percent of the companies in that study are, or will be, using cloud applications. Within that, we see 46 percent are using hybrid cloud solution. That solution is really around the cloud technology, optimizing across their IT investment and on-premise, typically around enterprise resource planning (ERP), but there are many other instances as well. And then, they're tying that back in to the cloud services, where it’s actually extending the capabilities from their IT standpoint. And, that’s 46 percent out of the 96 percent within that.

The next bucket is 41 percent around the private cloud. That’s really around the aspect of just optimizing across IT with technology only from the cloud application standpoint, not putting those services in. The reality is that we’re actually missing the standpoint that could take it to the next step. We think there are some great opportunities here for companies to move forward.

Gardner: Tim Minahan, you've announced at Ariba LIVE the Ariba Commerce Cloud. Clearly, the technology is allowing new and different things, but I suspect there are some significant business drivers. What do you see as the business drivers enabling these cloud models for not just the IT people, but also the business side of the house?

Minahan: What we're seeing now is that we’ve really entered the state of new normal. We’ve just gone through a major recession. Companies have taken a lot of cost out of their operations. It's cost reduction in the form of laying off employees, and reducing infrastructure cost, including IT cost.

If you look at most of the studies out there, the CEOs, CFOs, and COs, are saying, "We're not hiring that back. We are looking for a new level of productivity, and more agility. To do so we're going to rely much more on external trading partners, which means we're going to need to collaborate with them much more.

"We're also going to look at alternative IT models to help support that collaboration outside of our enterprise, because our ERP investments do very well at automating information and process within the four walls. It stops at the edge of the enterprise and, at the end of the day, we do business. We buy, sell, and manage cash with our external trading partners and we need to automate and streamline those processes as well."

Gardner: Chris Sawchuk, some of your research has pointed up the need for doing things differently. Do you see these cloud models as repaving the cow paths, or are we entering into something that's a bit more transformative in terms of both how IT responds to business and also how business conducts itself?

Sawchuk: There are a couple of things. You said something about the repaving of cow paths. I think we are moving into an era where processes are becoming more and more commoditized. If you look at what's happening with process redesign, we're not where we need to be yet. But, if you look at the needs of where we're going, what the cloud does is provide an environment for more collaboration and more visibility.

Gardner: Let's look at this now from the perspective of how business applications are adapting. We're very much aware the business process has become an emphasis, but how does that change the notion of installing a business application versus subscribing to a service? What is different now between a business application and the business process, and aren't the business processes the more important of the two?

Different services

Mahowald: We're seeing a couple of different kinds of services develop around SaaS services. We're seeing tactical services that enable the application service to be delivered, and then domain services that actually consume the services and bring it to buying companies.

You might think of an accounting service that provides human capital skills on top of the software-as-a-service (SaaS) service. We call that software within a service, and it provides expertise that doesn't exist in the application. It helps some user companies actually offload and outsource that capability. It's a big dynamic and we see the combination of those people skills and the SaaS service coming together in a way that's very impactful for business.

Gardner: Mickey?

North Rizza: Let me just add something else. If you look back at the way business typically has been done, it's been across functions. You see functional areas coming together across an enterprise, and that's typically where the business processes have stopped.

You've also seen the applications come out even from the ERP standpoint in the different pieces that come together to marry that entire ERP system. What you see happen is that every function has a piece of that. You see the various markets that have developed supplier relationship management (SRM), customer relationship management (CRM), and what not, out there in the marketplace.

What's now evolved is that those business processes really go end to end into that trading partner network. What you are finding is that you can use those applications, but you don't necessarily have to use those applications. You can use the services that go with it.

What you're doing is driving value. At the end of the day, all you want to do is deliver a value, and that's what's happening.

The point is that you're actually making some cost-value trade-offs, lowering your overall cost and extending some of this into your partnerships and your trading partner community. What you're doing is driving value. At the end of the day, all you want to do is deliver a value, and that's what's happening.

Gardner: When we saw SaaS becoming popular, it was really taking a business application and putting it up on the Web. But now with cloud, we're thinking about ecosystems, multiple partners, looking at supply chains. So it seems to me, Tim, that the business process ecosystem is perhaps the killer application, if you will, of cloud computing. Why does that fit so well into the procurement function?

Minahan: That's absolutely right, Dana. Robert and Mickey hit on it as well. SaaS was all about a new delivery model for an existing business process. When you move into cloud, when you move into some of these collaborative processes around supply chain, and procurement, and the financial supply chain, it really involves multiple parties. It's really about business process transformation, a business process that's shared among multiple trading partners.

To do that, it’s not just the ability for everyone to share a common technology platform upon which they can collaborate around the process, but rather everyone needs to be digitally connected in a community, so that they can add new trading partners or remove old trading partners, as their needs change.

Finally, the really interesting thing as you blur the lines between applications and community, is the ability to drive capabilities, the ability to drive the right business process. When you register and log on to Amazon to place an order, you don’t think about the buying process. The buying process is already optimized for you end-to-end, from discovery and qualification, through getting feedback from community and expert opinion to make sure you’re making the right buying decision and then being able to actually execute the transaction. That's the same dynamic that's beginning to occur in the business world, as you look about these networked or cloud-based business process models.

Gardner: Another thing we see in the market is that when the social networks gravitate to the cloud, suddenly collaboration takes on almost in accelerated pace, perhaps even a multiplier effect.

The collaboration aspect

North Rizza: What we’re finding from the AMR side of the equation is that we started looking at this from both the suppliers and the customer aspect and putting the clients where they actually sit within this collaboration aspect.

First, many of them are focused just on the transaction. They're looking at the order-to-cash cycle. They understand what the transactions are. They use their ERP system. They understand how the bills get paid.

There’s still paper process. A lot of money is sitting in there on the paper side of the equation, and they really aren’t connecting the dots. What they are recognizing, specifically over the last couple of years, is that they need to do a better job on managing order-to-cash.

They get a couple of things out of that. They actually get acceleration of working capital. They're able to work better with their trading partners and they start connecting the dots to say, "Gee, it isn’t just all about the transaction but also how we are managing that cash, the terms that we have with our particular suppliers and what that trading partner network looks like."

If they start to get that piece underway, they start looking at. "Wow. We’ve got other aspects we’re really doing business." From a sourcing aspect, we’ve got bidding events, auctions, performance, and score cards and we’re exchanging information and looking at 360-degree views.

It's all about, "This is win-win. This is how we’re going to get there. This is how we’re going to change the market."

We’re also sharing demand forecasts. We’re looking at contract manufacturers. We’re understanding the issues around them, and we become much more integrated and much more collaborative to share those pieces of information. So, we start building relationships with our trading partners.

It's not all about just collaborative practices, as we call it, in a transactional value, and "do as I say, not as I do." It's all about, "This is win-win. This is how we’re going to get there. This is how we’re going to change the market. And, this is what we need you to do as part of our extended enterprise and our trading partners to help us get to the next segment."

The reality is that the call-based applications are bringing that extended enterprise to the table, and companies are starting to rethink and refocus around those business processes.

Sawchuk: One benefit that we didn’t touch on during our discussion here is a benefit I call the democratization of collaboration. When you think about the past, it has always been the big companies who could collaborate. They had the tools, they had the investments, they had the dollars.

What you're now had seeing is an environment where anybody can participate. Small, large, etc. all become connected in this world. That just takes things to a different level than what we’ve experienced. Just economically, everyone is now connected across the board in a much more equal and level playing field.

And, there's some of the stuff that Mickey was talking about. We now have the opportunity, the focus on agility, and the focus on where we’re going. It's a much more volatile world. We’ve got to build more agility and more variabilization into our business models, not only our staffing, our people, the way we do business, and our technology tools, but also the more extended value chain. Where we draw the lines between what we do becomes much more transparent and it's easier to make those decisions than we have in the past.

Gardner: When you say democratization, do you mean we can be more inclusive? Are we talking about bringing small and medium businesses (SMBs) or maybe even smaller companies across the board? What do you mean by democratization?

Much more involvement

Sawchuk: It's much more involvement across the board, whether it's the small business, medium businesses, large enterprise, etc. We all now have the ability to collaborate in a new way. We’re moving from sort of the haves and have-nots type of world, from a technology standpoint, to a world where everyone has access. Now, we can all collaborate in this new community-type of environment.

Gardner: Robert, it seems like we’re moving from collaboration to community. How does community, perhaps with some social and discovery aspects, become transformative? This is something that's greater than the sum of the parts that we’ve had in the past?

Mahowald: It's a good point. As Mickey points out, what we really have when we have the element of community injected into commerce is that there is a tremendous amount of transparency. It means that partners know who they can work together with and optimize both sides of the equation, so that it suits the end result very, very well.

It also means that you can source new providers. You can actually change the terms of the contract and some of the ways in which you deal with certain suppliers in a way that's transparent to others, bring them in on the deal, and drive that transparency at a greater value for both organizations.

The idea of a community means that each can bring potentially the best terms, the best offer, and the best product to the table, so that at the end of the day, the buyer gets the most value. That means repeat business, and that helps everybody.

There is a massive movement afoot in the enterprise space that's beginning to blur the line between enterprise applications and the community.

Gardner: Tim Minahan, we have extended enterprise, business processes empowered by community and collaboration. Is there a name for that?

Minahan: There is a massive movement afoot in the enterprise space that's beginning to blur the line between enterprise applications and the community. As Robert and Mickey just said, what got in the way of business-to-business collaboration before was that there was no transparency. There was no efficient way to discover, qualify, and connect with your trading partners, before you could even collaborate with them.

There was a level of un-trust, a higher transaction cost that artificially inflated prices and costs that went around things. The ability to get rid of all the paper, connect digitally with everyone, and then open this up in a community environment, where you can collaborate in a host of different ways and not just around the transaction really is transformative.

As companies begin to look at particularly "extraprise" type applications, the community is going to become more and more important, whether that's the community of you and your trading partners, or a community of you and your peers, that can help you design the better process.

Gardner: Are these self-defining communities? It seems to me that we've broken down silos, and therefore have entered a more human and potentially innovative and creative way to construct relationships. Does that make sense, Chris?

Process enrichment

Sawchuk: Certainly, there's this whole collaboration that's occurring. What's interesting is that they made a comment earlier about the fact that processes become more commoditized over time, and where we really move from is this world of process enablement, which is where technology started, to a world of process enrichment.

When you think about these communities, over time, the communities themselves and the connections become more commoditized. The differentiation is that services and the intelligence is actually built within those communities themselves. The real question is how do you deal with all that, all of the various types of intelligence, because it becomes self-learning types of communities over time.

These clouds learn about the different behaviors. Look at what Google has been doing in terms of learning about the behaviors in the social media world. As you can learn more about that, you can provide that as services back to all the participants within that network.

Gardner: Perhaps the flip-side of that is also the ability to gather metadata about what's going on within the process, who the participants are, what works, and what doesn't work. There seems to be an opportunity to bring a higher level of analytics to bear on these extended processes in a cloud environment than you would be able to get in the traditional enterprise packaged-business applications approach. What do you think of that?

North Rizza: I'd agree with you. In fact, I'll tell you that there are some analysts within the Gartner community who are actually looking at pattern-based recognition strategies and helping companies understand what they're really getting using those analytical tools to understand how they then drive the right trends.

So, when you start looking at that community from a business aspect, power just keeps increasing, increasing, and increasing.

At AMR, we actually look at it from a demand-sensing, a demand shaping ability. So, what's going on? What are we sensing? Where do we need to shape it? If you look at, what you're seeing is the power of many coming together, versus single processes and single entities.

If you just think of the consumer side where you are trying to bring that in and change the way we're doing business, think of eBay. It used be that you go and sell something from your garage outside at a yard sale, or a tag sale depending on where you are.

The secondary aspect now is that I can sell it on eBay and have more individuals bidding on it. Maybe it's important to them, and I might hit those individuals with something that everybody else might have thrown out in the trash. It would only have meaning to a certain group of clientele. And, that particular clientele is going to come together in that community. Hopefully, you just raised the dollar that you're going to get from that.

So, when you start looking at that community from a business aspect, power just keeps increasing, increasing, and increasing.

Sawchuk: What's going to be key over time is think about the lives we live today and the informational overload that we have. As you can rate these communities, there is going to be all kinds of information intelligence created. How do we dissect that and make it smart, relevant, timely, and in bite-sized chunks that we can deal with?

Today, my wife uses Facebook. I don’t. I just don’t have the time. So the question is whether we're going to create all this community, all of this collaboration, all of this information in services, and then be able to dissect that and make it relevant for what we are trying to achieve. It's going to be a key differentiator.

Overload of information

We’ve always been in a time, where we try to get access to more information, more knowledge, and more intelligence. We're quickly moving into a period of time where it's going to be an overload of that kind of information.

Gardner: I suppose that’s one of the tasks of business intelligence (BI) then, to sift through all of the voluminous data and find the real gems. Back to you, Tim. How does BI, from your perspective, have a role to play in these extended commerce cloud activities?

Minahan: There are three aspects of it. If you have the community, you have the network or transactional environment where businesses are actually doing business. So, you have the transactional information in aggregate that can be a bellwether for economic indicators or even around particular commodities -- what folks are doing, whether it's a good time to buy or not a good time to buy. Or, if it is a good time to buy, if you are a seller, how aggressive should you be in that bidding? That’s the transactional information.

Then, there is the community information that you mentioned before. We've used a lot of consumer examples here today, but what makes eBay so great and make these examples earlier is the fact that I am a seller and I have no idea who that buyer is. But, I now gain a degree of confidence, thanks to the community that has rated that buyer.

I know that they pay on time and that they’ve done business with 20 other sellers on there. So, I get a degree of confidence. On top of that, it provides utility that allows me to secure a payment, even if the buyer turns out to be not so good.

The third component, which is important, and which Chris is talking about, is taking that intelligence and putting in context of the business process. The reason we have information overload today, or one of the reasons, is because of the information that’s out there. We’ve aggregated all this information. I'm doing business process over here, and, oh God, I go over there to get that information. It's the ability to aggregate information and put it right within context with other business process.

The reason we have information overload today, or one of the reasons, is because of the information that’s out there.

So, I've gone out and aggregated my spend. I know where my spend leverage is. Guess what! I now have this market intelligence on what's going on, pricing in the season that I'm supplying the market, and what other buyers are experiencing in the market.

It might not be such a good time to go out and source that, so maybe I will go my second largest category of spend and source that first. That’s the type of the analytic that you need, which is in context with the business process.

Gardner: And, that’s where we move to intelligent sourcing, rather than perhaps just accelerated sourcing?

Minahan: Yes.

Gardner: Robert, we've talked about how a vibrant, collaborative environment can be very rich and rewarding. We've talked of how BI in a sea of data can be exploited for analytic insights. And, we've talked about how extended applications as business processes could be very rich.

One of the things we haven’t talked about is how to keep a lid on this. If we have too much collaboration, too much data, too many processes, then the folks who are very comfortable in a locked-down ERP environment might have their way again.

So, how do we prevent falling back into old patterns of being a bit risk-averse, but at the same time, applying the right security, governance, and management that enterprises insist on?

Managing governance

Mahowald: It's a good question. One of the things we're going to see in the next handful of years, and we're already starting to see at the largest organizations that are using SaaS services, is essentially a czar to manage governance across multiple locations.

It's important, as we start to put more-and-more business activities into these communities -- and more-and-more of our data and transactions happen outside the organization on SaaS services -- that we understand exactly what that means for organizations, where customer data and our own data actually resides and how we can find it during an audit in a way that guarantees that we've met our business requirements.

We don’t want to restrict ourselves and say don’t participate in this community. I think it's healthy and it ultimately drives tremendous value for us. What we do want to say is that we have to apply the same kind of governance and rules that help us manage our processes that are now onsite in this new world, where we are participating in communities and SaaS services. The same thing should apply.

Gardner: Mickey, this idea of finding a balance between openness, innovation -- and on the other hand -- control and governance -- are you familiar with any examples of people who are already practicing this balance well?

North Rizza: What we’re finding, to the point that Robert just made, is that the bulk of the companies we work with are spending more time around the governance structure. But, they’re also spending more time around master data management (MDM), understanding what that really means and how those pieces come together.

What are the pieces of information you need to actually do your job, and then what does that job look like?

This comes back to the point that both Tim and Chris had made around what you need to really worry about, what does that mean to the business processes, and what’s important.

Because we’re on this information overload, you have data everywhere. What are the pieces of information you need to actually do your job, and then what does that job look like? What is the business process that you need to do within a certain parameter and timeframe that you need to get done, and where does that go? Where does it stop and start?

And then supply chain: Does it go out into the extended partner network? What do the collaboration aspects look like and what are the rules around that?

So, from the aspects of the types of the companies we’re seeing and supply chain companies we look at that are using these, anywhere from sourcing and procurement, all the way into supply chain execution, supply chain planning -- we see some even in the inventory -- they're having some issues around this. It's really about putting the focus and the emphasis on those areas and understanding what that means as my business changes.

Gardner: Tim, we have more members in the network. It seems to me that Metcalfe’s Law says the network then gets more valuable that way. Is that how you all see it?

New ways to collaborate

Minahan: Yeah. It’s absolutely true. First, going back to earlier comments, you need to connect folks. Then, you need to provide new ways for them to collaborate. In fact, in appropriate network, they will force new ways to collaborate. They’ll discover new ways to not just execute transactions with known trading partners, but discover new trading partners, and leverage the network by the community information to qualify those trading partners, so they can be more secure.

They want to collaborate on new business processes, well beyond the transaction too. Should we establish supply chain financing programs or receivables financing programs, or should we work to out-task a certain portion of the process to someone else in the value chain?

Gardner: Let’s go to the question about getting started, but without getting overloaded and overwhelmed. To you, Robert, what’s your advice to folks as to how to approach this in a manageable way?

Mahowald: If I’m an IT organization, one of the first things I want to understand is my constituency. The organization I want to serve are my internal users. I want to understand what their requirements are and how they may or may not be using staff services now to get the job done, and for what reasons.

I want to build a strategy based on the recognition that substantial number of organizations do have business units that use SaaS services, and I want to find a way to build it into my long-term IT strategy, because at the end of the day my goal was not to be a cost center at the organization. My goal is to be a service center and that’s a transformation I need to build into my business plan.

The bottom line is that if you don’t do it, there isn’t even a ton of money on the table. You’re not able to take out the cost that you want to take out.

Gardner: Mickey, closing thoughts on getting started?

North Rizza: Basically, what we see the best companies doing is that they start to understand what their overall business objectives are. Then, they peel that back and say, "What am I looking at in my different functions across the business and what does that mean, if I want to improve the process and I want to get those end results."

As they starting peeling that back, they soon discover that it’s usually around revenue cost savings. It’s also about improving the business process and reducing cycle time. When you put all those together and you look at a recent study that we just did, you recognize that there are very large gaps between those that have already deployed cloud-based technologies and solutions.

Then, you step back to those that are even considering or using them as part of their overall extended enterprise. What we’re finding is that the gap is so large and its benefits are so great that there is no reason you wouldn’t want to take all that and put it in there.

The bottom line is that if you don’t do it, there isn’t even a ton of money on the table. You’re not able to take out the cost that you want to take out. You can’t get the products in there and teach the individuals the business process and cut down your cycle time that you’re going for. And most importantly, you’re not getting your revenue. You’re leaving it on the table.

Gardner: I’m afraid we have to leave it there. Thanks for joining us for this special sponsored BriefingsDirect podcast. We’re coming to you on-location from the Ariba LIVE 2010 conference in Orlando on May 25, 2010. We’ve been discussing the business implications and multiplier effects for value in using cloud computing to conduct ecommerce.

Please join me in thanking our panel. We’ve been here by Robert Mahowald, Research Vice President at IDC. Thanks.

Mahowald: Thanks very much, Dana.

Gardner: We’ve also been joined by Mickey North Rizza, Research Director at AMR Research, a Gartner company. Thank you.

North Rizza: Thank you.

Gardner: And Tim Minahan, Chief Marketing Officer at Ariba.

Minahan: Thanks, Dana. It’s been a pleasure.

Gardner: And last, Chris Sawchuk, Managing Director at The Hackett Group. Thank you.

Sawchuk: Thanks, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks for listening to this BriefingsDirect podcast, and come back next time.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Download the transcript. Sponsor: Ariba.

Transcript of a BriefingsDirect podcast on the value of building and exploiting cloud-based communities for advanced ecommerce business processes. Copyright Interarbor Solutions, LLC, 2005-2010. All rights reserved.

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