ERP for IT Helps Dutch Insurance Giant Achmea to Reinvent IT Processes to Improve Business Performance Across the Board

Transcript of a BriefingsDirect podcast on how Achmea Holding has taken big strides to more successfully run their IT department like a business within the business.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: HP.

Dana Gardner: Hello, and welcome to the next edition of the HP Discover Performance Podcast Series. I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your moderator for this ongoing discussion of IT innovation and how it’s making an impact on people’s lives.

Gardner

Once again, we're focusing on how IT leaders are improving performance of their services to deliver better experiences and payoffs for businesses and end-users alike.

I am now joined by our co-host for this sponsored podcast, Georg Bock, Director of the Customer Success Group at HP Software, and he's based in Germany. Welcome, Georg. [Disclosure: HP is a sponsor of BriefingsDirect podcasts.]

Georg Bock: Thanks a lot. Welcome, everybody, to this podcast.

Gardner: Our discussion today will take a deep look at Achmea Holding, one of the largest providers of financial services and insurance in the Netherlands, and we'll examine how they've taken large strides to run their IT operations more like an efficient business.

We'll learn how Achmea has rearchitected its IT operations to both be more responsive to users and more manageable by the business, based on clear metrics.

To learn more about how they've succeeded in making IT governed and agile -- even to attain enterprise resource planning (ERP) for IT benefits -- please join me now in welcoming our special guest, Richard Aarnink, leader in the IT Management Domain at Achmea in the Netherlands. Welcome, Richard.

Richard Aarnink: Thank you very much and welcome, all, to this podcast as well.

Gardner: Let me begin with asking you, as an IT architect, why is running IT more as a business important? Why does this make sense now?

Aarnink: Over the last year, whenever a customer asked us questions, we delivered what he asked. We came to the conclusion that delivery of every request that we got was an intensive process for which we created projects.

It was very difficult to make sure that it was not a one-time hero effect, but that we could deliver to the customer what he asked every time, on scope, on specs, on budget, and on time. We looked at it and said, "Well, it is actually like running a normal business, and therefore why should we be different? We should be predictive as well."

Gardner: Georg Bock, this notion of running IT with the customer most in mind is different than say 10 or 15 years ago. Is this something you are seeing more and more of in the field?

Trend in the market

Bock: Yes, we definitely see this as a trend in the market, specifically with the customers that are a little more mature in their top-down strategic thinking. Let’s face it, running IT like a business is an end-to-end process that requires quite a bit of change across the organization -- not only technology, but also process and organization. Everyone has to work hand in hand to be, at the end of the day, predictable and repeatable in what they're doing, as Richard just explained.

That’s a huge change for most organizations. However, when it’s being done and when it has lived in the organization, there's a huge payback. It is not an easy thing to undertake but it’s inevitable, specifically when we look at the new trends around cloud multi-sourcing, mobility, etc., which brings new complexity to IT.

You'd better have your bread and butter business under control before moving into those areas. That’s why also the timing right now is very important and top of people’s minds.

Gardner: Before we learn more about what you have done with your IT operations, Richard, tell us a bit about Achmea, the size of your organization, what you do, and why IT is so fundamentally important to you?

Aarnink: As you already stated, Achmea is a large insurance provider in the Netherlands. We have around eight million customers in the Netherlands with 17,000 employees. We're a very old and cooperative organization, and we have had lots and lots of mergers and acquisitions in the last 20 years. So we had various sets of IT departments from all the other companies that we centralized over the past years.

Aarnink

If you look at insurance, it's actually having the trust that whenever something happens to a customer, he can rely on the insurer to help him out, and usually this means providing money. IT is necessary to ensure that we can deliver on those promises that we made to our customers. So it’s a tangible service that we deliver, it’s more like money, and it’s all about IT.

Gardner: Tell us a bit more about the scope of your IT department and how you're able to bring together a variety of different IT departments, given your mergers and acquisitions activity, just a bit more detail on your IT organization itself.

Aarnink: Of the 17,000 employees that we have in the Netherlands, about 1,800-2,000 employees work in the centralized IT department. Over the last year, we changed our target operating model to centralize the technologies in competence centers, as we call them, in the department that we call solution development.

We created a new department, IT Operations, and we created business-relationship departments that were merged with the business units that were asking or demanding functionality from our IT department. We changed our entire operating model to cope with that, but we still have a lot of homegrown applications that we have to deliver on a daily basis.

Changing the department and the organizational structure is one thing, and now we need to change the content and the applications we deliver.

Gardner: You are leading in the IT management domain area and you also have a strategy and governance department. How has that briefly allowed you to better manage all of the aspects of IT and make it align with the business? What organizational structure have you been able to benefit from here?

Strategy and governance

Aarnink: To answer that question I need to elaborate a little bit on the strategy and governance department, which is actually within the IT department. What we centralized there were project portfolio and project steering, and also the architectural capabilities.

We make sure that whatever solution we deliver is architectured from a single model that we manage centrally. That's a real benefit that we gained in centralizing this and making sure that we can, from both the architecture and project perspectives, govern the projects that we're going to deliver to our business units.

Gardner: Georg, this notion of a strategy and governance department that helps to standardize these processes, align for automation, and make visible what’s actually going on in IT in a common way, I suppose gets at that systems-of-record approach and even ERP for IT approach. Is this something Achmea is in a leadership position on? Do you see this as a model for others, or is this something that’s happening more generally in the market?

Bock: Absolutely, Achmea is a leader in that, and the structure that Richard described is inevitable to be successful. ERP for IT, or running IT as a business, the fundamental IT processes, is all about standardization, repeatability, and predictability, especially in situations where you have mergers and acquisitions. It’s always a disruption if you have to bring different IT departments together. If you have a standard that’s easy to replicate, that’s a no-brainer and winner from a business bottom-line perspective.

In order to achieve that, you have to have a team that has a horizontal unit and that can drive the standardization of the company. Richard and Achmea are not alone in that. Richard and I have quite a number of discussions with other companies from other industries, and we very much see that everyone has the same problem, and given those horizontal teams, primary enterprise architecture, chief technology officer (CTO) office, or whatever you like to call those departments, is definitely a trend in the industry and for those mature customers that want to take that perspective and drive it forward that way.

It’s not rocket science from an intellectual perspective, but we have to cut through the political difficulties.

But as I said, it’s all about standardization. It’s not rocket science from an intellectual perspective, but we have to cut through the political difficulties of driving the adoptions across the different organizations in the company.

Gardner: Let’s look a bit more deeply, or in a detailed way, at the journey that Achmea has taken. Richard, what sort of problems or issues did you need to resolve, what were some of the big early goals that you had in terms of changing things for the better?

Aarnink: We looked at the entire scope of implementing ERP for IT and first we looked at the IT projects and the portfolio. We looked at that and found out that we still had several departments running their own solutions in managing IT projects and also budgets. In the past, we had a mechanism of only controlling the budget for the different business units, but no centralized view on the IT portfolio, as a whole, for Achmea.

We started in that area, looking at one system of record for IT projects and portfolio management, so we could steer what we wanted to develop and what we wanted to sunset.

Next, we looked at application portfolio management and tried to look at the set of applications that we want to currently use and want to use in the future and the set of applications that we want to sunset in the next year and how that related to the IT project. So that was one big step that we made in the last two years. There's still a lot of work to be done in that area, but it was a big topic.

Service management

The second big topic was looking at service management. Due to all the mergers, we still had lots of variations on IT process. Incident management was covered in a whole different way, when you looked at several departments from the past.

We adopted service desks to cater to all those kind of deviations from the standard ITIL process. We looked at that and said that we had to centralize again and we had to make sure that we become more prescriptive in how these process will look and how we make sure that it's standardized.

That was the second area that we looked at. The third area was more on the application quality. How could we make sure that we got a better first-time-right score in delivering IT projects? How could we make sure that there is one system of record for requirements and one system of record for test results and defects. That’s three areas that we invested in in the first phase.

Gardner: One of the things I hear from organizations, Richard, is that some people fear that by going to standardized processes and rationalizing their portfolio, they will lose control over applications or they won’t be able to customize or change applications. I think, however, that that might be a false premise.

Is there something that you found in moving towards more standardized processes that allows you to be more responsive and agile with your applications? Has the ability to change applications been effective?

Aarnink: It’s still a little bit early to say, and your thoughts are right. There's always a discussion with the business units that in the past owned their own set of applications. They want to control that for being agile, but they also see that the cost of having all those applications is running up and up. We become less agile, because we have to solve many problems in all kinds of applications that they are currently running.

Something had to change, and the financial crisis that we've had from 2008 on emphasized that we need to lower the total cost of ownership (TCO) on IT.

Something had to change, and the financial crisis that we've had from 2008 on emphasized that we need to lower the total cost of ownership (TCO) on IT and we had to do something about it. So it was also a top-down statement that we had to do something about it. We changed the governance to enable us to control that and to make sure that we got the right mandate to enable us to drive application virtualization.

The other thing is that if you standardize your IT components and your IT applications, you also enable yourself to deliver faster. It was the first time that we succeeded in delivering a new policy, a new product, into the marketplace in six weeks, instead of having it in six months or so.

That's is the aim or the goal that we're after, but it’s still too early in the process to look at benefits in that area and to see the cultural change that this embraced, instead of rejected, from the business perspective.

Gardner: Well it certainly sounds like the progress that you’ve made so far has allowed you to increase the time to value, that is to say, make the ability to deliver apps and services to your end-users, to your customers, happen more rapidly. Is that something that we can attribute to the changes you’ve made or is it still too soon for that?

Change going on

Bock: If you ask our customers, they'll say it's still too soon, but we see that the changes in our internal IT organization are already going on. I expect that in 2013, we'll gain the first benefits from this.

Gardner: Georg. I’ve heard this notion of ERP for IT for some time, and I've also heard people be a bit cynical -- it’s a vision, it’s esoteric, or it maybe science fiction. What is it that you're hearing from Achmea and what have you have seen in the market that leads you to believe that ERP for IT is not a vision, but is, in fact, happening and that we're starting to see tangible benefit.

Bock: That’s a very good question. I hear that very, very often and across various distinct contingencies, but Richard very much nicely described real, practical results, rather than coming up with a dogmatic, philosophical process in the first place. I think it’s all about practical results and practical results need to be predictable and repeatable, otherwise it’s always the one-time hero effort that Richard brought up in the beginning, and that’s not scalable at all.

At some point you need process, but you shouldn’t try that dogmatically. I also hear about the Agile versus the waterfall, whatever is applicable to the problem is the right thing to do. Does that rule out process? No, not at all. You have to live the process in a little different way.

Technology always came first and now we look for the nail that you can use that hammer for. That’s not the right thing to do.

Everyone has to get-away from their dogmatic position and look at it in a little more relaxed way. We shouldn’t take our thoughts too seriously, but when we drive ERP for IT to apply some standard ways of doing things, we just make our life easier. It has nothing to do with esoteric vision, but it's something that is very achievable. It’s about getting a couple of people to agree on practical ways of getting it done.

Then, we can draw the technological consequences from it, rather than the other way around. That's been the problem in IT from my perspective for years. Technology always came first and now we look for the nail that you can use that hammer for. That’s not the right thing to do.

Gardner: Just to be clear, this isn’t something that’s specific to Achmea or a certain vertical industry. This is really across all industries in all regions. This is moving towards a more scientific and practical way of doing IT.

Bock: Absolutely. From my perspective, standardization is simply a necessary conclusion from some of the trial-and-error mistakes that have been made over the last 10-15 years, where people tried to customize the hell out of everything just to be in line with the specificity of how things are being done in their particular company. But nobody asked why it was that way.

If you ask that question, you very quickly get to the revelation. It’s not that different. Richard, if you recap some of the discussions we had with your architect colleagues in other companies, I think you might want to comment on that.

Aarnink: I completely agree. We had several discussions about how the incident process is being carried out, and it’s the same in every other company as well. Of course there are slight differences, but the fact is that an incident needs to be so resolved, and that’s the same within every company.

Best practice

You can easily create a best practice for that, adopt it within your own company, and unburden yourself from thinking about how you should go for this process, reinvent it, creating your own tool sets, interfaces with external companies. That can all be centralized, it can all be standardized.

It’s not our business to create our own IT tools. It’s the business of delivering policy management systems for our core industry, which is insurance. We don’t want all the IT that we need in order to just to keep the IT running. We want that standardized, so we can concentrate on delivering business value.

Gardner: Now that we've been calling this ERP for IT, I think it’s important to look back on where ERP as a concept came from and the fact that getting more data, more insight, repeatability, analyzing processes, determining best processes and methods and then instantiating them, is at the core of ERP. But when we try to do that with IT, how do we measure, what is the data, and what do we analyze?

Richard, at Achmea, are you looking at key performance indicators (KPIs) and are using project portfolio management maturity models? How is it that you're measuring this so that you can, in fact, do what ERP does best, make it repeatable, make it standardized?

The IT project is a vehicle helping you deliver the value that you need, and the processes underneath that actually do the work for you.

Aarnink: If you look from the budget perspective, we look at the budgets, the timeframes, and the scope of what we need to deliver and whether we deliver on time, on budget, and on specs, as I already said. So those are basically the KPIs that we're looking for when we deliver projects.

But also, if you look at the processes involved when you deliver a project, then you talk about requirements management. How quickly can you create a set of requirements and what is the reuse of requirements from the past. Those are the KPIs we're looking for in the specific processes when you deliver an IT project.

So the IT project is a vehicle helping you deliver the value that you need, and the processes underneath that actually do the work for you. At that level we try to standardize and we try to make KPIs in order to make sure that we use as much as possible, that we deliver quality, and we have the resources in place that we actually need to deliver those functionalities.

Gardner: I'm afraid that we're almost out of time but I wonder, Richard, if you wouldn’t mind putting yourself in the position of a master here and relating some of your experience for an organizations that may not have started down this path towards ERP for IT to the same degree. Now that you’ve done it and now that you’ve been involved with it, do you have any 20-20 hindsight or recommendations that you could provide from your position of experience to someone who’s just beginning?

Aarnink: It’s a difficult question. You need to look at small steps that can be taken in a couple of months’ time. So draw up a roadmap and enable yourself to deliver value every, let’s say 100 days. Make sure that every time you deliver functionality that’s actually used, and you can look at your roadmap and adjust it, so you enable yourself to be agile in that way as well.

The biggest thing that you need to do is take small steps. The other thing is to look at your maturity. We did a CMMi test review. We didn't do the entire CMMi accreditation, but only looked at the areas that we needed to invest in.

Getting advice

We looked at where we had standardized already and the areas that we needed to look at first. That can help you prioritize. Then, of course, look at companies in your network that actually did some steps in this and make sure that you get advice from them as well.

Gardner: Georg, just quickly, any thoughts on either affirming what Richard said or other ideas for organizations that are just beginning down the ERP for IT path?

Bock: I absolutely agree with what Richard said. If we're looking for some recipe for successes, you have to have a good balance of strategic goals and tactical steps towards that strategic goal. Those tactical step need to have a clear measure and a clear success criteria associated with them. Then you're on a good track.

I just want to come back to the notion of ERP for IT that you alluded to earlier, because that term can actually hurt the discussion quite a bit. If you think about ERP 20 years ago, it was a big animal. And we shouldn’t look at IT nowadays in the same manner as ERP was looked at 20 years ago. We don’t want to reinvent a big animal right now, but we have to have a strategic goal where we look at IT from an end-to-end perspective, and that’s the analogy that we want to draw.

If we're looking for some recipe for successes, you have to have a good balance of strategic goals and tactical steps towards that strategic goal.

ERP is something that has always been looked as an end-to-end process, and having a clear, common context associated from an end-to-end perspective, which is not the case in IT today. We should learn from those analogies that we shouldn’t try to implement ERP literally for IT, because that would take the whole thing in one step, where as Richard just said very nicely, you have to take it in digestible pieces, because we have to deal with a lot of technology there. You can't take that in one shot.

Gardner: Okay, very good. I am afraid we will have to leave it there. I want to thank our co-host, Georg Bock, Director of the Customer Success Group at HP Software. Thank you so much, Georg.

Bock: My pleasure. Thank you.

Gardner: And I'd also like to thank our supporter for this series, that is HP Software, and remind our audience to carry on the dialogue through Discover Performance Group on LinkedIn. You can also gain more insights and information on the best of IT Performance Management at www.hp.com/go/discoverperformance.

And you can always access this and other episodes in our HP Discover Performance Podcast Series on iTunes under BriefingsDirect.

And now, I'd like to thank our special guest, Richard Aarnink. He is the leader of the IT Management Domain at Achmea in the Netherlands. Thank you so much, Richard. Very insightful.

Aarnink: Thank you, and you're very welcome.

Gardner: And lastly, a thank you to our audience for joining us for this special HP Discover Performance Podcast discussion. I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host for this ongoing series. We appreciate your attention, and please come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: HP.

Transcript of a BriefingsDirect podcast on how Achmea Holding has taken big strides to more successfully run their IT department like a business within the business. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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Ariba Network Helps Cox Enterprises Manage Procurement Across Six Different ERP Systems

Transcript of a sponsored BriefingsDirect podcast on how eProcurement helped Cox Enterprises get a better handle on indirect spend.

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

Dana Gardner: Hello and welcome to a special BriefingsDirect podcast series coming to you from the 2012 Ariba LIVE Conference in Las Vegas. We're here to explore the latest in cloud-based collaborative commerce and learn how innovative companies are tapping into the networked economy.

We'll see how they are improving their business productivity along with building far-reaching relationships with new partners and customers.

Our next innovator interview focuses on Cox Enterprises, a major communications, media, and automotive services company, with revenues of nearly $15 billion and more than 50,000 employees, and with major subsidiaries, including Cox Communications, Manheim, Cox Media Group, and AutoTrader.com.

We'll learn how Cox, through the Ariba Network, manages multiple ERP systems for an improved eProcurement strategy and has moved toward more efficient indirect spend efforts to improve ongoing operations and drive future growth.

To hear more about how they have done this, we're here with Brooke Krenn, the Senior Manager of Procurement Systems for Cox Enterprises, based in Atlanta. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

Welcome to BriefingsDirect.

Brooke Krenn: Thanks, Dana. Great to be with you.

Gardner: I am glad you could join us. Let me ask you first about these multiple ERP systems. I think that's pretty common. A lot of organizations either have organically developed multiple systems for different groups or, for merger and acquisition reasons, have different ERP. How has that been a challenge, when it comes to procurement?

Krenn: We have six separate ERP systems. Cox is a very interesting company in that our business units are very diverse and very unique. Across four divisions and our holding company we have those six ERP systems.

So with that, obviously, there are a lot of challenges. There's not a lot of common ground, when it comes to purchasing. Across those six ERP systems we needed some way to drive consistency, as we focused on really capitalizing on our indirect spend across all the business units.

Gardner: Let’s hear a bit more about the scale of your operation as a very large company. Tell me about your position and the depth and breadth of the procurement activities that you are responsible for?

Procurement systems team

Krenn: My team is the Procurement Systems Team. We fall under supply chain in Cox Enterprises. I have a team of three, and we manage our eProcurement platform, with which we do about $50 million year-end POs, and average about 1,500 POs a month. We also manage our P-Card program, which is about $130 million a year in spend, and also our fuel card program, which is about $50 million a year.

Gardner: I briefly described what Cox is and does, but maybe you could fill that out a little bit. It’s a very large organization with a fairly diverse group of products and services.

Krenn: All across the United States our Cox Communications division is the cable Internet telephone. We have Manheim, which is the wholesale car industry. AutoTrader.com, which hopefully a lot of your listeners are familiar with or maybe even used in the past, is an online form for buying and selling used as well as new vehicles. Also our Cox Media Group, which is our TV stations, radio stations, and newspapers, are all throughout the U.S.

Gardner: So with 50,000 employees, that’s a lot of indirect procurement to keep them productive and engaged. Back to the whole issue of procurement. What’s been your story? What have you been doing for the past few years, and why has that been important in the way in which you've used Ariba to accelerate your benefits?

Krenn: Historically, our spend, specifically the indirect spend, has been all over the place. We haven’t had a lot of visibility into that spend and haven’t had a consistent manner in which we purchased.

Ariba was one of the top contenders, simply because of the user experience was most important to us, and also how quickly we could implement it.

We had an eProcurement solution for about 10 years. We were on that software for a decade, and it was just very dated. It wasn't supported very well. We knew it was time to make that change. Where we were in the economy, everyone was looking at the most logical places to save time and money and to become more efficient. Obviously, procurement was one of those areas where we could do very quickly.

We knew the first step was replacing the software that we did have. Immediately, Ariba was one of the top contenders, as we looked for a new solution, simply because of the user experience was most important to us, and also how quickly we could implement it.

Gardner: So you’re going from an on-premises software installed affair to now more of a software-as-a-service (SaaS) and cloud affair. Was that something that was difficult or something you were looking forward to?

Krenn: Moving to the cloud in an on-demand solution was great for us. Having the on-premises software in the past, any time there was an upgrade or an update, we had to be sure IT knew about it and we scheduled the time on a night or a weekend. We had to call on resources internally within the company. So it was very exciting for us to move to an on-demand solution and all of the technology that was available with that.

Gardner: Let’s hear more about what this has done for you, not just in terms of savings, but in terms of productivity and agility. How have the users adapted to this, and what has it brought to them in terms of a business benefit?

A great change

Krenn: For the users, it's been a great change, because now they consistently know there's one place to go. When they need to order office supplies, when they need to order something for their break room, when they need to order business cards, they know where to go. In all of our divisions and all of our locations, employees want to do the right thing. They want to purchase the right way. A lot of times they're just not sure of what to do.

So with this implementation of a new tool, we were able to really drive them in the right direction, and it was an easy solution for them. It was easy for us to implement, and it's been very easy for our end users and our employees to adopt.

Gardner: Has that, in fact, translated into other metrics of success that you could describe for us. Maybe they're hard numbers, like dollar savings, or maybe they’re the ability to find better products that suit your constituents' needs when they’re in a certain new or interesting activity?

With this implementation of a new tool, we were able to really drive them in the right direction, and it was an easy solution for them.

Krenn: Probably one of the biggest wins for us has been just driving compliance against our contracts. We’re able to see very easily now when a location or a business unit within one of the divisions is purchasing off-contract or when they're not utilizing one of our preferred or negotiated suppliers. That's probably been the biggest win for us.

Gardner: How often does that happen? Have you been able to effectively reduce how often that happens? And what does that mean when you can get everyone on the same page?

Krenn: We have the visibility now to see very quickly within our P2P tool and also within our spend management tool to see where this spend is taking place and able to reach out directly to those locations or to those employees that are purchasing off-contract. Obviously, the more purchasing power we have, the more spend we are driving to these contracts, the better our pricing is going to be going forward.

Gardner: How about for folks who might be thinking about a different eProcurement strategy, recognizing that they also have multiple ERP systems? Tell us a bit what you suggest, particularly on how you bridged those multiple ERP systems with this new sort of centralized strategy?

Unconventional

Krenn: We went about implementing our new P2P solution a bit unconventionally, you could say. About 98 percent of our transactions are actually on a supplier card -- a P-Card model, which has just been tremendously successful for us. With that, we didn't have to integrate directly into our six separate ERPs because our payment method is with that supplier card.

Ease of implementation was one of the biggest wins. Also with that is the ease of use for the end user. There's no reconciliation for them at the end of the month. We’re taking care of all of that GL coding information, all of the approvals, upfront.

The supplier card model, again, has been great on the end user side as well as on the AP reconciliation side.

Gardner: We’ve been talking about how Cox Enterprises, through the Ariba Network, has gained insight and control over its procurement and instituted a strategic approach to eProcurement with their indirect spend efforts.

Ease of implementation was one of the biggest wins. Also with that is the ease of use for the end user.

I'd like to thank our guest. We’ve been here with Brooke Krenn. She is the Senior Manager of Procurement Systems at Cox Enterprises. Thanks so much.

Krenn: Thanks so much, Dana.

Gardner: And thanks to our audience for joining this special podcast coming to you from the 2012 Ariba LIVE Conference in Las Vegas.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and come back next time.

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

Transcript of a sponsored BriefingsDirect podcast on how eProcurement helped Cox Enterprises get a better handle on indirect spend. Copyright Interarbor Solutions, LLC, 2005-2012. All rights reserved.

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SAP Runs VMware to Provision Virtual Machines to Support Complex Training Courses

Transcript of a BriefingsDirect podcast on how SAP uses VMware products to implement a private cloud that smooths out educational apps runtime requirements.

Listen to the podcast. Find it on iTunes/iPod. Download the transcript. Sponsor: VMware.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you’re listening to BriefingsDirect.

Today, we present a sponsored podcast discussion on how worldwide enterprise applications leader SAP has designed and implemented a private cloud infrastructure to support an internal consulting and training program.

By standardizing on a VMware cloud platform, SAP has been able to slash provisioning times for multiple instances of its flagship application suite, as well as set the stage for wider adoption of cloud models. [Disclosure: VMware is a sponsor of Briefings Direct podcasts.]

Here to tell us about the technical and productivity benefits of private clouds, is Dr. Wolfgang Krips, the Senior Vice President of Global Infrastructure at SAP in Walldorf, Germany. Welcome to BriefingsDirect, Dr. Krips.

Krips: Thank you, Dana.

Gardner: Tell me about this particular use case. You've needed to provision a lot of your enterprise resource planning (ERP) applications and you've got people coming into learn about using them and implementing them. What is it about private cloud that made the most sense for you in this particular instance?

Krips: Expanding a bit on the use case, there is a specific challenge there. In the training business, people book their courses, and we know only on Friday evening who is attending on the course on Monday. So we have only a very short amount of time over the weekend to set up the systems. That was one of the big challenges that we had to solve.

The second challenge is that, at the same time, these systems become more and more mission critical. Customers are saying, "If the system isn't available during the course, I'm not willing to pay." Maybe the customer will rebook the course. Sometimes he doesn’t. That means that if the systems aren't available, we have an immediate revenue impact.

You can imagine that if we have to set up a couple of hundred, or potentially a couple of thousand, systems over the weekend, we need a high degree of automation to do that. In the past, we had homegrown scripts, and there was a lot of copying and stuff like that going on. We were looking into other technologies and opportunities to make life easier for us.

A couple of challenges were that the scripts and the automation that we had before were dependent on the specific hardware that we used, and we can't use the same hardware for each of the courses. We have different hardware platforms and we had to adopt all the scripts to various hardware platforms.

When we virtualized and used virtualization technology, we could make use of linked cloning technology, which allowed us to set up the systems much faster than the original copying that we did.

The second thing was that by introducing the virtualization layer, we became almost hardware independent, and that cut the effort in constructing or doing the specific automation significantly.

Gardner: When you decided that virtualization and private cloud would be the right answer, what did you need to do? What did you need to put in place and how difficult was it?

The important piece

Krips: Luckily, we already had some experience. The big thing in setting up the cloud is not getting, say, vSphere in place and the basic virtualization technology. It's the administration and making it available in self-service or the automation of the provisioning. That is the important piece, as most would have guessed.

We had some experience with the Lifecycle Manager and the Lab Manager before. So we said at that time because we did this last year, we set up a Lab Manager installation and worked with that to realize this kind of private cloud.

Gardner: For our listeners’ benefit, what sort of scale are we talking about here? How many virtual machines (VMs) did you have or do you have running?

Krips: In that specific cloud, typically we have between a couple of hundred and a couple of thousand VMs running. Overall, at SAP we're running more than 20,000 VMs. And, in fact, I have about 25 private cloud installations.

Gardner: What is it about this particular private-cloud installation that ended up being a proof of concept for you. Was this something that offered insights into other instances where clouds made more sense?

This cloud also gave us some hints on where we have to redesign the workloads so that they become more cloud usable.

Krips: One of the reasons ... is the kind of criticality that we have here. As I mentioned, this cloud has to work. If this goes down, it’s not like some kind of irrelevant test system is down -- or test system pool -- and we can take up another one. Potentially a lot of training courses are not happening. With respect to mission criticality, this cloud was essential.

The other thing that was very interesting is that, as I mentioned before, we have to replicate a lot of systems from a golden master image. The technology that one typically uses for that is network fencing. So we started off with courses that used network fencing.

One of the issues that we ran into is that there are a couple of courses where you can’t use network fencing, because the systems need to connect to common back-end systems. This cloud also gave us some hints on where we have to redesign the workloads so that they become more cloud usable. That’s why I think this cloud implementation was very specific and very important for us.

Gardner: Are there specific payoffs? I suppose there are in just the reduced time for provisioning and the ability to then automate and to use that common infrastructure. Any other thoughts about what the payoffs are when you can do a cloud like this?

Krips: The payoffs are that in the past we had only the weekend as a window to set this all up. A couple of things had us scratching our heads. One thing was, the amount of time that we needed with our traditional copying scripts was significant. We used almost the full weekend to set up the courses. There was really very little room if we needed to fix something. Now, with linked cloning, that time was cut significantly.

Pay for itself

The other thing was that the effort of maintaining the automation script was reduced, and I could deploy a significant amount of the resources to work on more innovative parts like redesigning the workloads and thinking about what could be next steps in automation. If you look at it, with all the tools we utilized, the “cloud implementation” will more or less pay for itself.

Gardner: We often hear similar requirements being applied to a test and development environment. Again, bursting is essential, management and automation can be of great benefit, and it’s mission critical. These are developers are making products. So does that make sense to you, and are some of your other clouds involved with the test and development side of the business as well?

Krips: As I mentioned before, we have 25 private-cloud installations, and in fact, most of them are with development. We also have cloud installations in the demo area. So if sales people are providing demos, there are certain landscapes or resource pools where we are instantiating demo systems.

Most of the VMs and the cloud resourcing pools are in the development area, and as you mentioned, there are a couple of things that are important to that. One is, as you said, that there is a burst demand, when people are doing testing, quality assurance, and things like that. Almost more important is that SAP wants to shorten the innovation cycles.

Internally, we've moved internally to an HR development model, where every six weeks development provides potentially a shippable release. It doesn’t mean that the release gets shipped, but we’re running through the whole process of developing something, testing it, and validating it. There is a demonstrable release available every six weeks.

Moving to the private cloud and doing this in self-service, today we can provision development systems within hours.

In the past, with a traditional model, if we were provisioning physical hardware, it took us about 30 days or so to provision a development system. Now, if you think about a development cycle of six weeks and you’re taking about nearly the same amount of time for provisioning the development system, you’ll see that there is a bit of a mismatch.

Moving to the private cloud and doing this in self-service, today we can provision development systems within hours.

Gardner: That’s what I hear from a number of organizations, and it's very impressive. When you had a choice of different suppliers, vendors, and professional services organizations, was there everything that led you specifically to VMware, and how has that worked out?

Krips: I can give you a fairly straightforward answer. At the time we started working with private cloud and private-cloud installations, VMware was the most advanced provider of that technology, and I'd argue that it is still today.

Gardner: How about security and management benefits? It seems to me that security might not be quite the same issue when it comes to the training instances, but it would be with development, having that source code in control, particularly if you’re doing distributed development. Are there aspects of the private-cloud benefits for security management that are attractive for you?

Very reluctant

Krips: Certainly. The whole topic of cloud, in general, and the notion that workloads can run anywhere in the rut, as it would be in a public cloud, it's certainly something where I personally would be very reluctant when it comes to critical development systems and the intellectual property (IP) that’s on there.

From our perspective, we wanted to have the advantages of cloud with respect to flexibility, provisioning speed, but we didn’t want to have more security headaches than we already had. That’s why we said, "Let's get our arms first around a private cloud."

Even today, our cloud strategy is hybrid cloud strategy, where we’re implementing certain workloads in the private clouds, and there would be certain other payloads that we will potentially be willing to put into a public cloud. Still, development systems would be in 99 percent off the cases on the list where we would be saying they go only in the private cloud.

Gardner: Is there something about a standardized approach to your cloud stack that makes that hybrid potential, when you’re ready to do it, when it's the right payload, something that you'll be pursuing? How does the infrastructure affect your decision about moving to hybrid?

Krips: That’s one of our biggest problems that we're having. Clearly, if one had a standard cloud interface like a vCloud interface, and it was the industry norm, that would be extremely helpful. The issue is that, as you can imagine, there are a couple of workloads that we also want to test in some other well known cloud rents. I'm having a bit of a headache over how to connect to multiple clouds.

For us, it's very important that we separate the user data and the desktop from the device.

That topic is still one of the things that we haven’t finally resolved. Because we have to choose. We basically have to unbolt one external cloud after the other, and everything is still an individual integration effort. Now, if a couple of interesting providers had a standardized cloud interface, it would be very nice for me.

Gardner: This is the last subject for today -- and I appreciate your time and input. A lot of folks that I speak to, when they’ve gained some experience with private cloud and hybrid cloud, start to think about other ways that they can exploit it, that will bring them productivity and technical benefits.

And moving more to the mobile tier, looking at the client, and thinking about delivering not only applications as services, or as terminal services, but thinking about delivering the entire desktop experience, more and more of it as a cloud service, seems to be appealing.

Any thoughts about what your experience and benefits with cloud might mean for your future vision around clients?

Krips: Dana, the thing is pretty clear. If you look at the strategy that SAP pursues, mobility is an integral part. We also think that not only that business process mobility is more important, but what we’re also seeing, and I mentioned that before, with the agility and development. So for instance, there are people who are working every couple of months in new teams. For us, it's very important that we separate the user data and the desktop from the device. We’re definitely pushing very strongly into the topic of desktop virtualization (VDI).

SaaS application

The big challenge that we’re currently having is that when you’re moving to VDI, you take everything that’s on the user's desktop today, then you make out of that more or less a software-as-a-service (SaaS) application. As you can imagine, if you’re doing that to development, and they are doing some complex development for the user interfaces or stuff like that, this puts certain challenges on the latency that you can have to the data center or the processing power that you need to have in the back-end.

From our side, we’re interested in technologies similar to that view, and where you can check out machines and still run on a VDI client, but leverage the administrative and provisioning advantages that you have through the cloud provisioning for virtual desktops. So it's a pretty interesting challenge.

We understand what kind of benefits we’re getting from the cloud operations, as I said, the center provisioning, application patching, improved license management, there are a lot of things that are very, very important to us and that we want to leverage.

On the other hand, we have to solve the issue that we’re not blowing the business case, because the processing power and the storage that you have at the end point is relatively cheap. If you move that one-to-one to the back end, we would have difficulties with the business case. That’s why we were so interested in VDI technologies that allowed us checking out an offline mode. That would allow us also to take care of all of our mobile users.

Gardner: If the past is any indication, the costs of computing go down. When there is more volume involved, perhaps with moving to VDI, we should see some significant price improvement there as well. So we’ll have to see on that?

There are a lot of things that are very, very important to us and that we want to leverage.

Krips: Yeah. But we’re confident that we can get the business case to work. Particularly for us, the VDI, the benefits, are very much in the kind of centralized provisioning. Just to give you an example, imagine how easy it would be if you’re doing desktop virtualization, to move from Windows 7 to Windows 8. You could basically flip a switch.

Gardner: Wouldn’t that be nice?

Krips: Yup.

Gardner: Thank you so much. We’ve been talking about how worldwide enterprise applications leader SAP has designed and implemented a VMware private cloud infrastructure to support an internal consulting and training program, and how that has led them to even bigger and better concepts around cloud and the business and technical benefits therein.

I'd like to thank our guest. We’ve been here with Dr. Wolfgang Krips, the Senior Vice President of Global Infrastructure at SAP.

Thank you so much, Dr. Krips.

Krips: Thank you, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks to our audience, and come back next time.

Listen to the podcast. Find it on iTunes/iPod. Download the transcript. Sponsor: VMware.

Transcript of a BriefingsDirect podcast on how SAP uses VMware products to implement a private cloud that smooths out educational apps runtime requirements. Copyright Interarbor Solutions, LLC, 2005-2011. All rights reserved.

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Interview: Ariba's Jason Kurtz on How IT Financial Trends Are Maturing Technology Procurement and Management Needs

Transcript of a BriefingsDirect Podcast on how trends in IT are reshaping how IT organizations procure, govern and manage their technology and services.

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

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Today we present a sponsored podcast discussion on how the priorities and functions of enterprise IT are changing -- and rapidly. A number of trends and advancements are changing the game for IT leaders, especially in terms of how they themselves operate like a business. There's a heightened emphasis on measuring cost, service management, hybrid computing, and outsourcing that leverage software-as-a-service (SaaS) and cloud models.

There's also a recognition that collaboration and coordinated business processes need to expand to far outside the four walls of the company. IT needs then to increasingly support ecosystems and better apply extended enterprise process governance.

This is being required even as costs are still being squeezed and automation applied more deeply across IT operations. The past several years have certainly spurred a changing set of expectations for IT leadership to adjust to.

So how can IT adjust? What must they do differently? We're here now with an executive from Ariba to learn how CIOs are seeing the world anew, and how they can develop better strategies for making IT more central to helping businesses innovate.

Please join me now in welcoming Jason Kurtz, Vice President of Network and Financial Solutions at Ariba. Welcome to the show, Jason.

Jason Kurtz: Thanks, Dana. Great to be here.

Gardner: As I mentioned, there's a shift here that's happening fast. It seems that there's a difference between running IT now and just two or three years ago. Why is that, and what has changed from your perspective?

Kurtz: We've certainly seen several big changes. One is in the resource-constrained world. There are bandwidth constraints to support business innovations.

When I talk to CIOs, one of the biggest issues on their minds is, how do I make sure I am allocating more of my time and efforts in technology that supports business growth and innovation, versus the maintenance of existing systems? That's very different than the focus that you would have had in years past in terms of driving internal automation. That's one big change we've seen.

Two is clearly the adoption of SaaS technologies and the impact that's having on IT organizations. We see it completely changing the way companies think about IT investment, not just capital expenditures versus operating expenditures, but the roles and responsibilities that an IT organization has and how it interacts with its internal customers within the functional parts of the organization.

Three, I think you referenced it a little bit earlier, is not just a maniacal focus on managing costs, but also the adoption and return on investment (ROI) that is generated from IT investments. There's always been a focus on getting a good ROI, but I think it’s a much more significant focus across the organization on doing that, and particularly from an IT organization in terms of making sure that they have the ability to measure that.

Inter-enterprise collaboration

Four was just a focus on inter-enterprise collaboration. Rather than focusing on the internal process efficiency and effectiveness within the four walls of a company, CIOs are starting to realize that the next wave of productivity will be outside their four walls, what some refer to as inter-enterprise collaboration, meaning how an enterprise automates the processes and the way it collaborates with its customers and suppliers throughout the supply chain.

Gardner: I'm really interested about this notion about how IT needs to operate more like a business. It seems as if, in the past, IT had a bit more leverage or freedom to say, "Listen, this is new and fresh and it’s not exactly a science, so tell us what you want, give us some time, and we'll come back."

Now, they're being asked to behave more like logistics or human resources, sort of a mature business function. How do you see that manifesting itself? What is it that IT needs to do in terms of becoming more like some of the other business units, divisions, or functions?

Kurtz: It starts with a really well-defined set of goals and objectives. Why are we going to undertake something, what are we hoping to accomplish with that, and how are we going to measure that? What are the key performance indicators (KPIs) that we'll be able to track success with.

To your point, there were certainly times in the past when everyone was buying into the latest and greatest technology, or something that was new and cutting edge, and wanted to try and experiment with it. Given the economic times over the last several years, the willingness of companies to just experiment and see what happens is dramatically less, and you see IT organizations taking on a much more ROI-driven approach.

Given the economic times over the last several years, the willingness of companies to just experiment and see what happens is dramatically less.

So it's having a very well-defined business case for investments or initiatives that they're taking on, and making sure not only they understand what that business case is, but their internal stakeholders understand what that business case is and are committed to signing off on delivering those resources.

And it's not just an IT approval, but it's a CFO approval in many cases, and they're really holding their internal customers and stakeholders' feet to the fire and measuring on a regular basis what the ROI is for that specific initiative. We've seen a dramatic shift in the governance around that kind of ROI and adoption process with all of the initiatives that we see our customers undertaking, much more so than we would have seen two, three, or five years ago.

Gardner: I've seen where the way that IT is able to cut cost, but also actually increase their influence and impact within the organization, is to identify core-versus-context types of IT activities, and for those non-core ones, look to increasingly outsource or partner.

There's this sort of dual-track where you make yourself more important by being integral to the business success, elevating your role, but at the same time, identifying things that aren't something that you can differentiate from third parties -- more like commodities -- and then looking to get those outside. How do you see that shaping up?

Non-core activities

Kurtz: Again, a trend that fits exactly in line with that is that we see customers taking advantage of the cloud or SaaS, particularly for non-core activities.

Take, for example, integration. Integration is required in today's world, whether you're integrating within your four walls or outside your four walls, but is that really a core competence that you want to have as an organization. Or, do you want to rely on third-party integration as the service solution providers who can usually do the integration work faster, cheaper, and more flexibly? We're seeing that's just one example of ways customers are taking advantage of that.

Also, of course, the solutions that Ariba provides in the spend management space, we're seeing where customers want to focus on the core enterprise resource planning (ERP) capabilities around finance and operations and leverage tools like Ariba's Spend Management Suite to help their organizations buy better and connect with their ERP, but do it in a cloud-type of way.

Gardner: You and I first started chatting about this almost a year ago, when we were in Boston at a conference. We were talking about how the IT function now has to get more into that nuts and bolts of ERP, procurement, and spend management, because it's not just an internal operations function. It's mixing and matching services, deciding what's core and what’s context, doing the upfront analysis, and cost benefits, and deciding what you can outsource, what works better, faster, cheaper, and so forth.

For the benefit of our audience, an IT audience, tell us about Ariba. They might not be that familiar. You guys are very familiar to the folks who are doing procurement and supply chain management functions. Give us the elevator pitch. How does Ariba take what it does and then apply to IT?

That community includes our network that connect buyers and sellers, whether they're collaborating with suppliers, looking for new business opportunities, or helping to manage their working capital.

Kurtz: Ariba, at the highest level, helps companies buy better, sell better, and manage their cash better, and we do that in a couple of ways.

One, by providing technology or applications that have capabilities across each of those functions around buying, selling, and managing cash. Then, we have a community that is part of our Commerce Cloud, as we refer to it. That community includes our network that connect buyers and sellers, whether they're collaborating with suppliers, looking for new business opportunities, or helping to manage their working capital. It's a network that facilitates documents, information, and financial supply chains.

Then, we have a variety of capabilities to help our customers adopt and be successful. Some of that’s delivered by us and some of it by partners who plug into the cloud. At the highest level, that’s a little bit of what we do.

How our IT organization is taking advantage of that I think was your next question. We see a proliferation of organizations taking advantage of the ability to plug into the Ariba Commerce Cloud in different areas.

Some organizations start with our legacy, which is spend management and helping customers buy better, whether that’s identifying savings opportunities, identifying new sources of supply, negotiating better agreements, managing the contracting process, all the way through, procuring solutions, collaborating with your suppliers and receiving invoices back from your suppliers to managing cash, including payment term optimization, invoice reconciliation, and even working-capital management solutions.

Finally, for sellers, it helps create a marketing channel, new business opportunities, improved efficiencies, and collaborating with and transacting with your customers and prospects.

Modular basis

The nice thing about the way Ariba works is that you can plug in and use any of those pieces on a very modular basis as you need them. That’s been particularly attractive to IT organizations for the exact reasons we talked about before, which is looking for very specific ROI and very specific initiatives around their pain and needs within an organization. We've got the flexibility to help solve those on an individual or holistic need.

Gardner: Just to be clear, you guys offer a lot of these services as SaaS or cloud services?

Kurtz: One hundred percent of what we do is offered by the cloud, correct.

Gardner: One of the interesting things about IT that we mentioned is that they're looking to do more with less. They're looking to automate. They're looking to divide core and context and make some good choices on that.

One of the things that I keep coming up against when I talk to folks in IT is that there’s still the manual paperwork at the spreadsheet level, when it comes to managing contracts and licenses and keeping track of use-pattern licensing, and how to charge back for that. It’s a nightmare for them.

Is there anything you guys bring to the table that also gets at this issue about licensing software, managing the lifecycle chargeback, that sort of thing? If not, is that something you plan to do?

Kurtz: We have many customers who use our spend management solutions to manage their IT spend. I think this is really what you are getting at, whether that’s the sourcing and negotiating of hardware or infrastructure or contract labor or software licenses, managing the contracting process and the ongoing contracting lifecycle of that, all the way through the procurement of it and then the relationship management aspects of it. We absolutely support those processes that IT organizations need to manage their cost within their organization.

We see 80 percent of business-to-business transaction still completed completely manually. We see 85 plus percent of invoices and payments still being paper based or people cutting checks.

Gardner: So this is again an instance where IT is sort of catching up to other more mature business units, functions that have been around for decades, if not longer. Having a set of established processes, methodologies, and the system of record to back that up is sort of a no-brainer, but do you still encounter organizations who are doing this with spreadsheets and more manual processing? Is IT really a laggard when it comes to automation at this level?

Kurtz: You would be really surprised how much we see in terms of the world continuing to be a very manual set of processes and capabilities. If you look at it not just within IT, but if you take a step back and look at it on a broader basis, across the market, we see 80 percent of business-to-business transactions still completed completely manually. We see 85-plus percent of invoices and payments still being paper based or people cutting checks.

We see the vast majority of early payment discounts are completely missed. Some estimates indicate that 70-plus percent of all early payment discount opportunities, which procurement and other organizations work so hard to negotiate, get missed. The estimate on what this cost companies around the world is $650 billion in economic impact annually.

The very core of this problem is how an IT organization connects their internal systems, most likely ERP, within an organization to the systems and ERPs of their customers and suppliers to automate that supply chain. That’s where the big automation opportunity, efficiency, and effective gains are, or will be, next is just because the proliferation of all the combinations of systems within your organization, your suppliers, your customers.

Just think about the number of combinations that can be and how it can be very, very challenging and difficult to connect those systems into the optimal or most efficient supply chain.

Supply chain activity

Gardner: We've been describing IT and its relationship to a provider like Ariba through primarily a consumption framework. But it seems to me that there is also the opportunity for IT to take something like the services you offer with your Ariba Discovery and your ability to use the cloud and ecosystem of providers to initiate a process, and then to manage it as a procurement or a supply chain activity.

Couldn’t IT extend that as a service of the services they provide? They had to do this for ERP internally, so why wouldn’t IT want to get involved with partnering in service providers like yourself, and then embedding that more into the organization or extending it across your inter-enterprise and extra-enterprise activities?

Kurtz: It makes all the sense and is really the next evolution of where companies are going for automation benefits. It's what we think about as extending the ERP into inter-enterprise collaboration. That’s where companies like Ariba can really help IT organizations.

There are some great examples of customers out there who are doing that. If you think about it on the buying side of the world, take a company like Nalco, which is the largest sustainability company in the world. They had really struggled with lack of automation around purchase orders with their customers and then the purchase orders being delivered to their suppliers from Nalco.

They were literally losing five percent of their orders that they just couldn’t track being delivered from their organizations to their suppliers. These lost and delayed orders meant that they couldn’t bill customers in a timely manner. It meant lost sales. It meant extending "days sales outstanding" and significant customer satisfaction issues.

By leveraging Ariba Solution and the Ariba Network they were able to collaborate with suppliers and customers to significantly improve their customer satisfaction.

A team of people were having to call and check on order status and invoice processing payments and payment status, a completely inefficient processes between Nalco's customers, and its supplier partners.

By leveraging Ariba Solution and the Ariba Network they were able to collaborate with suppliers and customers to significantly improve their customer satisfaction, reduce "days sales outstanding," and cut headcount that were very involved in working on things that could be easily automated.

Gardner: It seems that IT can have a role as a service broker or service manager increasingly into procurement supply chain extended enterprise commerce activities by supporting an outsourced or hybrid approach, melding in a sense their past practices with new ones and then segueing over time into more of a cloud approach. It seems like that’s sort of a no-brainer from my perspective.

Do you have any examples of organizations that are doing that, specifically IT organizations? I know sometimes you can name companies and many times you can't, but at least can you point some examples of a use case scenario where IT is not only taking something like the Ariba Network and their processes and services, applying it to how they do IT procurement, but also extending their value as a service broker to other aspects of the business?

Kurtz: Let’s take an example from the side of the business everyone gets most excited about, the revenue growth or sell side of the house. Fastenal is a great example, where an IT organization helps extend the services it provides internally to its customers externally to Fastenal’s customers by leveraging eCommerce and the Ariba Network to connect and collaborate with its customers.

Real-time acknowledgments

One of the benefits of the extension that Fastenal has done is the ability to collaborate with its customers to provide real-time purchase order and delivery acknowledgements, which have greatly improved customer satisfaction. It has reduced their purchase order error rates by over 80 percent, and it reduced "days sales outstanding" by over 70 percent, a significant working capital improvement.

Other companies are doing the same kind of thing as Fastenal and receiving really good revenue growth or new business opportunities as well. It is not uncommon to see companies like Fastenal finding 50 percent-plus increases in product line cross-sells and up-sells, and seeing even 20 percent plus year-over-year sales growth within existing customers. Then, we have solutions like Ariba Discovery even finding new business in customers that they have never done any business with before.

That’s just an example on the sell side of the house of how IT organizations are extending and can extend the service that they are providing.

Gardner: I think we can expect to see more organizations looking to cloud and SaaS services for these types of procurement, extended supply chain, and commerce activities. This is bound to be coming into IT more and more. IT might as well get out in front of it.

From where I'm sitting, it also helps them with some of these larger issues we talked about, which is to help them run more like a business, reduce their costs, and focus more on the areas where innovation is going to be part and parcel of their relationship at the high level with their business leaders. It makes a great deal of sense.

About 50-60 percent of companies who are moving to a SaaS environment or the cloud are doing it because of the cost reduction opportunities inherent in not having to deploy, manage, and support applications.

How about looking at IT transformation? When we think about solidifying data centers, reducing the number of applications, this also gets at the heart of that. They don’t have to be building applications, supporting the infrastructure for these types of apps that are internal. Any thoughts about another layer, another dimension, of cost reduction, because we're taking a whole set of applications out of IT's responsibility?

Kurtz: Absolutely. We're seeing all customers take advantage of this opportunity, and particularly they look to the cloud or SaaS solutions like Ariba. About 50-60 percent of companies who are moving to a SaaS environment or the cloud are doing it because of the cost reduction opportunities inherent in not having to deploy, manage, and support applications.

Not only do they get the cost benefits of that, but they typically have time-to-deployment benefits and less time-to-realize-value and flexibility benefits that they didn’t have due to resource constraints within an organization. That's a very common trend in the market, and specifically within Ariba’s customers, and we expect to see that trend continue.

Gardner: I'm afraid we are about out of time. We've been discussing how CIOs can develop new strategies for making IT even more central to how businesses thrive and innovate and leveraging SaaS and cloud models and looking to have a better handle on measuring costs, service management, and then looking at how Ariba can bring the whole supply chain procurement and spend management, process management to that problem set as well.

Any last thoughts, Jason, on how your set of values have a relationship to IT? I think it’s kind of perhaps an eye opener for folks to think this way, but to me it makes a lot of sense.

Kurtz: A couple of thoughts. One, the most important thing to keep in mind is that at Ariba we really view our goal, our mission in life, is to help extend or complement the ERP investments that many IT organizations have made. We help extend those outside the enterprise and the enterprise collaboration, whether that’s buying, selling, or managing their cash.

You mentioned a few examples of spend management, but also it’s about helping companies sell better, drive revenue growth, and manage their cash better by automating functions like accounts payable and providing benefits to accounts receivable on the sell side.

If you look at it in those terms, we help companies free up their limited IT resources to focus on innovation, not supporting applications or integration or customization, and focus on driving business adoption and leveraging the core internal capabilities of ERP.

Gardner: I would like to thank our guest for his time. We've been here with Jason Kurtz, Vice President of Network and Financial Solutions at Ariba. Thanks Jason.

Kurtz: Thank you, Dana. I appreciate the time.

Gardner: And thanks to our listeners for joining this sponsored podcast discussion. This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks for listening, and come back next time.

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

Transcript of a BriefingsDirect Podcast on how trends in IT are reshaping how IT organizations procure, govern and manage their technology and services. Copyright Interarbor Solutions, LLC, 2005-2011. All rights reserved.

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