Ariba's Product Roadmap for 2015 Leads to Improved Business Cloud Services

Transcript of a BriefingsDirect discussion on what lies in store for Ariba and SAP, as the networked economy continues to expand.

Listen to the podcast. Find it on iTunes. Get the mobile app for iOS or Android. Download the transcript. Sponsor: Ariba, an SAP company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect Podcast series, coming to you from the 2015 Ariba LIVE Conference in Las Vegas.

Gardner

We're here to explore the future of business commerce. We'll learn how innovative companies are tapping into business networks to harness the power of communities, to discover, connect and collaborate with peers and partners across the street or around the world.

Not only are these leaders better managing their spend in buyer/seller interactions, they're also gleaning insights and intelligence to learn from the past, capitalize on the present, and chart an effective course for the future, all in real-time from a single platform.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions.

Our next interview examines the future of commerce as seen by Ariba and provides a view into the innovations that the company plan for 2015 and beyond. Walking us through the Ariba product roadmap we're joined by Chris Haydon, Senior Vice President of Product Management at Ariba, an SAP company.

Welcome back to BriefingsDirect, Chris.

Chris Haydon: Thanks, Dana, nice to be here.

Gardner: Before we get to the Ariba news, what do you see as having changed, developed, or evolved over the past year or so in the business network market?

Haydon: It’s been a very interesting year with a lot of learning and adoption for sure. There's a growing realization in companies that the networked economy is here to stay. You can no longer remain within the four walls of your business.

It really is about understanding that you are part of multiple business networks, not just a business network. There are business networks for finance, business networks for procurement, and so on. How do you leverage and harness those business networks to make your businesses more effective?

Balancing needs

Gardner: So it’s incumbent upon companies to take advantage of all these different networks and services, the data and analysis that’s driven from them. But at the same time, they need to retain simplicity. They need to make their users comfortable with this technology. They need to move toward a more mobile interface.

Haydon

How do we balance the need for expansion, amid complexity, with simplicity and direct processes?

Haydon: It’s a difficult balance. There are a couple of ways to think about it as well. Just to pick up on the point on how businesses are changing, certainly the end-user expectation is dramatically changing. Whether it’s the millennials coming into the workforce, the nature of apps, mobile apps, in our personal lives driving the need, the requirement, the desire to have that in our business lives is there.

From an Ariba perspective, we believe our job is to manage complexity for our customers. That’s the value prop that people sign into. When we talk from a usability perspective about managing the complexity, it’s also about thinking about the individual persona or how the end-user really needs to interact to get the work done, how they can learn, and how they can use their different devices to work where they want and how they want.

Gardner: It seems to me that among the technology leaps that we are making in order to accommodate this balance is there a greater reliance on the network, network-centric attributes -- intelligence driven into the network. How do you view the role of the network in this balance?

Haydon: I think it’s fundamental, and we're definitely seeing it almost as a tipping point. It’s no longer just about the transactions, but about the trusted relationships. It’s about visibility into the extended value chain, whether that value chain is supply chain, financial payment chain, or logistics chain. It doesn’t matter what that process change or that value change is. It is insight into that trusted community, so you understand that it’s secure, that it’s scalable, and also that reliable and repeatable.

It’s no longer just about the transactions, but about the trusted relationships.

Gardner: It seems like we can put the word "hybrid" in front of so much these days. Tell us a little bit about why SAP HANA is so important to this network services tipping point. Many people think of HANA as a big data platform, but it’s quite a bit more.

Haydon: Yeah, it is. In Ariba we've made strides on leveraging the HANA Technology, first with the Spend Visibility program. The great message about HANA is that it's not HANA for technology sake; it’s how HANA enables different business outcomes. That's the exciting thing. Whether it's on the Ariba Network, whether we start in our analytical platform and have an average of 50X or 80X average improvement in terms of some of the reports, that’s great.

What was really interesting when we put HANA on to our Spend Visibility was that we got more users doing different types of reports because they could do this, they could iterate, they could change, they could experiment in a more interactive and faster way. We saw upticks in the behavior of how customers use their products, and that's the excitement of HANA.

Taking it to the next step, as we looked upon HANA across our network and our other applications in terms of better and different types of reporting in terms of the network and having real-time visibility in insights from our trusted community, it’s just going to provide a differential level of value to any of the end-users, whether they're buyer, seller or any of our partners.

Wider diversity

Gardner: So we have a wider diversity of network participants. We need to connect them. We’re leveraging the network to do that. We're leveraging the ability of a strong platform like HANA to give us analytics and other strong value adds, but we also need to bring that single platform, that single pane of glass value, to the mobile device.

User experience seems to be super important. Tell us a little bit about where you’re heading with that and introduce us to SAP Fiori.

Haydon: It’s a massive focus for us from an innovation perspective.

When we think about our user experience, it's not just about the user interface, albeit a very important part, but it's also the total experience that an end-user or a company has with the Ariba Suite and Business Network.

Fiori is an excellent user-interface design paradigm that SAP has led, and we have adopted, Fiori elements and design paradigms within our applications, mobile applications as well as desktop applications.

You will see a vastly updated user interface, based on Fiori design principles, coming out in the summer, and we'll be announcing that here at Ariba LIVE and taking customers through some really interesting demos. But, as you mentioned earlier, it's not just about the user experience. It's really about end users; we call them personas from a product perspective. You're in accounts payable or you're a purchasing officer. That’s the hat you wear.

It really is about how you link, where you work, work anywhere, embracing modern design principles and learning across the whole user experience.

It really is about how you link, where you work, work anywhere, embracing modern design principles and learning across the whole user experience. We've got some interesting approaches for our mobile device. Let me talk about the crossover there.

We're launching and showing a new mobile app. We launched our mobile app early this year for Ariba’s Procurement suite. I had some great uptick the first week, when 20 percent of our customers activated and rolled it out. Some of their end-users are progressively scaling that. Again, that's the power of a mobile-app delivery. It shows the untapped demand, the untapped potential, of how end-users do, can, and want to interact with business applications today.

At Ariba LIVE 2015, we are also announcing a brand-new application to enable shopping cart, adding, searching for the casual ad hoc end-user, so they can do their requisitioning and their owning of the contract items or ad hoc items wherever they are.

To finish off, just as excitingly, we're really looking to leverage the mobile device and take its abilities to create new user experience design paradigms. Let me give you an example of what that means. Let’s just say you're an accounts payable clerk and you're a very conscientious accounts payable clerk. You're on the bus, on the way to work, and you know you have got a lot of invoices to process. For example, you might want to say you need to process an invoice from ACME Inc. before you do it for my next supplier.

On your mobile device, you can’t process detailed information about an invoice, but you can certainly put it in your queue, and when you get to your desktop, there it is at the top of your to-do queue.

Then, when you finish work, maybe you want to push a report on "How did I do today?" You did x things, you did y things, and you have that on your mobile device on the train on the way home. That's the kind of continuity construct that would bring you in, making the user experience about learning and about working where you are.

Behavioral aspect

Gardner: Before we go into the list of things that you're doing for 2015, let's tie this discussion at the high level about the networked economy, power network, and intelligence driven in the network, the user interface, with this all-important behavioral aspect of users wanting to use these technologies.

One of the things that’s been interesting for me at Ariba LIVE is that I'm learning that user productivity is the go-to market. The pull of users that say they want these apps, they don't want the old-fashioned way, they want to be able to do some work on the train ride home and have notifications that allow them to push a business process forward or send it back.

So how do you see the future of the total technology mix coming to bear on that user productivity in such a way that they're actually going to demand these capabilities from their employers?

Haydon: It's interesting. Let's just use the example of a Chief Procurement Officer. As Chief Procurement Officer, you may have the old classic standard benefits of the total cost of ownership (TCO), cost reduction, and price reductions. But more and more, Chief Procurement Officers also realize that they have internal customers, their end-users.

If the end users can't adopt the systems and comply with the systems, what's the point?

If the end users can't adopt the systems and comply with the systems, what's the point? So, just getting to your point, it was an excellent thing. We're seeing the pull or the push, depending on your point of view, straight from the end user, straight through to the end-of -line outcome.

From an Ariba perspective, how this all comes together really is a couple things. User design interactions are foremost in our design thinking approaches. These different user design interactions make products do different things and work together. It also has some great impact on our platform, and this is where with SAP and HANA Cloud Platform gives us a differential way to address these problems.

One of these aspects here is to keep up with these demands not necessarily out of left field, but out of specific market or industry requirements.

We need to make sure that we can expand our ecosystem from an Ariba perspective to encompass partners and even customers doing their own things with our platform that we don't even know about. For some specific investments with HANA and the HANA Cloud Platform it's to make our network more open and we're also looking at some targeted extensibility scenarios for real applications.

Gardner: Let's go to the road map for 2015 Ariba products. Let's start with Spend Management. What's going on there?

A lot of innovations

Haydon: In 2014, we brought more than 330 odd significant features to market, almost one a day. So we have delivered a lot of innovation.

About 89 percent of those were delivered -- and this is important to our ongoing roadmap because we're cloud -- because we work with our customers in their own on-demand environment. They entrust their business processes to us. We're delivering more and more features in toggle mode -- or configured on or configured off. We're letting our end users and our customers consume our innovation even though it's intrinsic to the product.

That's one big improvement we made in 2014 and we want to carry through in 2015. In terms of spend management, again, we have some great new investment in Ariba. SAP continues to invest in Ariba, and we continue to turn out more innovation.

We have some innovation from enhancing capabilities to support the public sector. We're adding and extending in globalization capabilities. We're adding specific functionality to improve the security, the encryption, of applications.

We have 16-odd years of transactional history on the Ariba Network. We look at that in conjunction with our customers.

Then, there are some more targeted features, whether it's improving demand aggregation for our procurement applications, supporting large line levels and outsourcing and contract management applications, or improving our catalog searching capabilities with type-ahead and improved content and publishing management. It's really end to end.

Gardner: There are sort of four buckets within the spend management, indirect, contingent labor, direct, and supply chain management issues. The new big one was the Concur acquisition, travel and expense. Anything new to offer on understanding better spend management, better spend visibility, across these buckets?

Haydon: Of course. When we work with our customers, we have 16-odd years of transactional history on the Ariba Network. We look at that in conjunction with our customers. We see these big four major spend segments, indirect and MRO, as you mentioned, supply chain indirect, services, contingent labor, travel and expense, and, of course, the distribution of that spend type changes per industry.

But what we're really focused on is making sure that we can get end-to-end outcomes for our customers across the source-to-pay process. I'll touch on all of them in turn.

In indirect MRO we're just continuing to drive deeper. We really want to address specific features in terms of compliance and greater spend categories, specifically with Spot Buy, which is a product we are out there trialing with a number of customers right now.

In contingent labor and services management, we've done some excellent work integrating the Ariba platform with the Fieldglass platform, made some huge strides in linking purchase orders into the Fieldglass platform. Let Fieldglass do what they do great. They're the number one market leader in bringing the invoices back to the network over the common adapter.

In terms of direct and logistics and supply chain, we brought to market, like we mentioned last year, some direct materials supply-chain capability, co-innovating with a number of customers right now. We added subcontracting purchase order (PO) for complex scenarios in the summer and have done some great work in extending the capability to support consumer package and retail supplies.

Interesting strides

We've done some really interesting strides, and again, expanding the spend categories that we can support on there.

And last but not least, Concur. It's number one in travel, and we're excited to have that part of the family. Again, from an SAP perspective, when you look at total spend, there's just an unparalleled capability to manage any spend segment. We're working pretty closely with Concur to ensure we have tied integration and we work at how we can leverage their invoicing capability as a complement to Ariba's.

Gardner: Line-of-business applications is one of the things that's intrigued me here. Hearing your story unfold is this "no middleware, yet expansive integration -- end to end integration across business processes and data."

A resounding message from our customers . . . is that we need seamless, simpler integration between our cloud applications and our current applications.

So in this line-of-business category, explain to me how you can be so inclusive leveraging the technology. How does that work?

Haydon: Let me unpack that a little bit. A resounding message from our customers, particularly since the acquisition, is that we need seamless, simpler integration between our cloud applications and our current applications. Would they be on-premise?

I'll talk about Oracle and other clients in a little bit, but specifically for our SAP ERP systems, we’ve really worked hand in glove with our on-premise business-suite partners to understand how we can move from integrate to activate.

And so what we brought to market pretty significantly with the business suite is the ability for any SAP Business Suite customer to download an add-on that basically gives them an out-of-the-box connectivity to the Ariba Network. We continue to invest in that with S/4HANA upcoming, where we are planning to have native connectivity to the Ariba Network as part of a standard feature of S/4HANA.

For our other customers, the Oracle customers and other major ERP systems out there, we continue to invest in open adapters to enable their procurement and finance processes across the network or with any of our cloud applications.

Gardner: There's something that's always important. We leave it to the end, but we probably shouldn't -- risk management. It seems to me that you're building more inherent risk-management features inside these applications and processes. It's another function of the technology. When you have great network-centric capabilities and a solid single platform to work from, you can start to do this. Tell us a little bit more about that.

Emerging area

Haydon: This is a really exciting and emerging area. More and more leading-practice companies are starting to manage their procurement and their supply chains from a risk basis, the risk, the continuity of supply, security of supply. What happens if x, what happens if y? You eye your supply chain. If there is, heaven forbid, some contamination or whatever traceability issue somewhere in your supply chain, and you're a large company or even a small company, now you're held accountable.

How do we start helping companies understand the risk that exists within their supply chain? We think that the business network is the best way to make sense of the risk that exists in your supply chain. Why?

One, because it's a connected community; and two, because you think about the premise. We already have the transactions, 750 billion plus to spend. We already have a million plus trusted, connected relationships. But that's the first step.

We also think about where we can have differential inputs, third-party inputs, on types of dimensions, and we think it's these risk dimensions or domains of information that matter, whether it's safety, performance, innovation, diversity, environment, or financial risk. It could be any of these domains, whether it's information from Dun and Bradstreet, information from Made In A Free World, which has a global slavery index. Whatever these dimensions of information are, we want to bring them in to our applications in the context of the transaction, in the context of the end-user.

We think that the business network is the best way to make sense of the risk that exists in your supply chain.

Imagine when you do a sourcing event if you could be notified of some disruption or some type of risk in your supply chain before you finally award that sourcing event or before you finally sign the contract. That provides a differential level of outcome that can only really be delivered through a business network in a community.

Gardner: I'm afraid we have to leave it there. We're talking about the news at Ariba LIVE 2015 and also what to expect from both Ariba and SAP in the coming months. And we learned the way SAP and Ariba are working together to help innovate with companies and help them thrive in a networked economy.

So a big thank you to our guest, Chris Haydon, Vice President of Product Management for Ariba, an SAP company. Thank you, Chris.

Haydon: Thank you very much, Dana.

Gardner: And thanks to our audience for joining this special podcast coming to you from the 2015 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. Get the mobile app for iOS or Android. Download the transcript. Sponsor: Ariba, and SAP company.

Transcript of a BriefingsDirect discussion on what lies in store for Ariba and SAP, as the networked economy continues to expand. Copyright Interarbor Solutions, LLC, 2005-2015. All rights reserved.

You may also be interested in:

• Detecting and Eradicating Slavery and Other Labor Risks Across Global Supply Chains through Business Networks
• Ariba elevates business user experience with improved mobile apps and interfaces
• Networks: The new model for B2B business, a panel discussion
• Big Data Meets the Supply Chain -- SAP's Supplier InfoNet and Ariba Network Enable Companies to Predict and Manage Supplier Risk
• Ariba's Product Roadmap for 2014 Points to Instant, Integrated and Data-Rich Business Cloud Services
• Modern supply chains — How innovative sellers engage customers in entirely new ways
• Arlington Computer Products Simplifies and Speeds its Billing and Payments Using New AribaPay
• The Future of Business Success Hinges on How Well Innovation Drives Supply Chain and Procurement Advantages
• Workforce of the Future -- and Why Preparing Means Rethinking Human Resources Now
• Spot buying automated by Ariba gives start-up KooZoo a means to shop more efficiently

Networks: The New Model for Business

Transcript of a discussion on how business networks are fast emerging as trusted, efficient hubs for cloud-based and data-driven commerce.

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

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect. Our discussion today explores the role and impact of business networks, the often virtual assemblages of interrelated business services, processes, and data that are transforming how companies and consumers conduct commerce.

Gardner

These business networks are unlocking the ability for companies to extend processes and insights broadly and affordably to customers, suppliers, and other partners. Therefore, they're better able to engage with the participants across these networks in new and innovative ways.

We'll look at the historical record for how open markets and communities are rapidly changing business platforms. We'll see how today's consumer business models -- exemplified by Amazon, Uber, and Airbnb -- are extending to business-to-business (B2B) commerce, allowing buyers and sellers to find and know each other openly and accelerate B2B transactions and commerce efficiencies.

To learn more about the trends that are making business networks more powerful and more important than ever, please join me now in welcoming our guests.

We're here with Marshall Van Alstyne, Professor at Boston University School of Management and Research Scientist at the MIT Center for Digital Business. Welcome to BriefingsDirect, Marshall.

Marshall Van Alstyne: It’s a pleasure to be here, thanks for having us on-board.

Gardner: We're also here with Tim Minahan, Chief Marketing Officer SAP Cloud and Line of Business. Welcome back, Tim.

Tim Minahan: Thanks, Dana, it’s great to be here.

Gardner: Professor Van Alstyne, we've seen a great deal of network effects in business over the past decades. Yet nowadays, the confluence of cloud, mobile, and social and an emphasis on data-driven business processes seems to be accelerating and empowering these shifts. Some organizations call this the Third Platform. How does your research define business platforms, and how are the impacts from these Third Platform technology advancements newly impacting businesses?

Van Alstyne: I emphasize the network effect as one of the driving forces. Indeed, if we can create a positive feedback loop throughout the network effects, that’s where you see the efficiency in the scale happening so quickly.

Van Alstyne

In terms of a definition, we focus on two elements of the platform. The first is an open architecture that third parties can build upon.

The second is the governance rules. How is it that people can participate? Why would they participate? How do you share the profits? How do you resolve conflict? You think about it as a nexus of rules and architecture. If you can put those two things together, you can probably grow an ecosystem that helps to foster and stimulate some of those network effects.

Gardner: Tim Minahan, SAP has been a pioneer inside the four walls of the enterprise over the years with enterprise resource planning (ERP) and other business applications. Now, it seems as if you're recognizing what Professor Van Alstyne has been describing with these network effects and extending your value and business insight and processes across multiple boundaries, outside the four walls of any given enterprise into entire ecosystems.

Next productivity wave

Minahan: Absolutely, Dana. At SAP, we truly believe that the next wave of business productivity is not going to come just within enterprises, but between them. Forty years ago, when SAP arguably invented the whole concept of ERP, businesses were operating much, much differently.

Minahan

We showed them a new way to automate their internal information and process flows, but they were organized in a much more vertically oriented fashion. The employees would graduate from college, spend 40 years with the company, get the gold watch, and retire.

Companies owned most of their infrastructure, their manufacturing facilities, their inventory, their shipping fleets, but certainly this is not your father's business environment anymore. In part, this was accelerated by the recession that we're still emerging from. Companies are less vertically integrated than they were in the past.

They've adopted more variable operating models. They've outsourced everything from manufacturing to customer service, and they need to reach and compete with companies across the street and on the other side of the world. And this is creating new opportunities, as well as new challenges, for businesses today, and it’s increasing demands and expectations on individual functions of their teams.

You're seeing it everywhere. If you have an iPhone, look on the back. It’s designed in California by Apple, but it's built, shipped, and serviced by someone else entirely. Even beyond the physical device, Apple makes most of its revenue from network-based services. iTunes relies heavily on an ecosystem of mobile carriers and artists and studios.

Now, we're seeing this move into the business world, in which companies need to rapidly organize this virtual enterprise, all these resources of employees, manufacturing capacity, logistics, delivery capacity, and customer service to take advantage of certain market opportunity. Or, they need to adapt very quickly to certain market changes, and the only real way to do that is through a digitally connected network of partners, customers, and supply chain.

Gardner: Professor Van Alstyne, this is a tricky time for companies. It seems that they want to retain what works, the business models that have been tried and proven for them. They like having big margins, of course, but in order to grow and to be part of the future they need to expose themselves to these networks, take some risks, maybe lose margin in the process, but perhaps get scale and automation as a payback.

How do you view that? How do you see companies adjusting? Is this a cultural thing where some companies will take this plunge and others don't? It does seem to be a perilous time for companies. I hope they're not just freezing in the headlights.

Van Alstyne: It’s a great question. There are a couple of elements and they vary based on the where the company is currently. If it’s a relatively virgin market, then it’s fairly straightforward for them to invite others in, create the platform, and expand out in that direction. If it’s an existing market for them, they really have to worry about managing the cannibalization question.

I know SAP has also had a very interesting example of that, as you move from on-premise services to hosted services. They're doing a nice job of managing that migration. It’s a little bit tricky in terms of how much you expand the market, but you really need to. You have to realize that the scale, the innovation, the customer engagement happens on these business platforms. Long-term, one really doesn't have a choice.

Platforms vs. products

One of the arguments that we typically make is that even weak platforms tend to beat very strong products. You can look at any number of examples, whether you take a look at the Blackberry, the Sony Personal PlayStation gaming device, or the Garmin device for GPS.

All of these functions are effectively absorbed into the platform. If you manage a platform ecosystem, where third parties can add value on your behalf, you'll grow faster. The platforms almost always will be products. So, in the long-term, companies don't have a choice. They have to move in this direction.

Gardner: So if it’s inevitable that you have to change, it sounds to me from what I've seen at SAP, that they're recognizing this. They're dealing with it themselves as a company, but they're trying to put together a safe path for enterprises to expand into the networked economy. At the same time, they can have trusted partners for automating a lot of the behind-the-scenes activity and allowing them to still function within their business verticals to know what their intellectual property is and to extend to it.

Let’s go back to Tim. Am I reading that right, Tim, that SAP is trying to be, in a sense, the arbiter between risk and exploration when it comes to the networked economy?

Minahan: That’s an accurate depiction, Dana. Think about our personal lives. Whether we're engaging family and friends on Facebook, buying a book or a blender on Amazon, or trying to capture transportation services to get downtown during rush hour on Uber, we're experiencing the scale and simplicity and convenience of personal networks.

At SAP, we believe that solving this inter-enterprise collaboration challenge is one of the biggest opportunities of our era.

We run our daily lives on them now. Unfortunately the business world traditionally has been optimized within the four walls of the enterprise. Companies have invested billions over the past 20 to 30 years in re-engineering their processes and investing in systems to really automate those internal processes and information flows.

They have created what have become islands of efficiency that work very well, and continue to work well, for those that are highly vertically integrated, but very few are, as we talked about earlier.

At SAP, we believe that solving this inter-enterprise collaboration challenge is one of the biggest opportunities of our era. We feel that we're well positioned to do that and have been assembling some of these business networks. We've had the acquisition of Ariba and Fieldglass in the area of contingent workforce and, with Concur, now in the area of travel and expense.

We're complementing that with network extensions of our own, both through the addition of things like the product sustainability network, which leverages the existing connections within the network to help companies better perform tracing and trackability of their products, and the financial services network, which really facilitates and aids payment.

What we're looking at is an opportunity to extend existing IT infrastructure and business process outside the four walls of the enterprise in the most scalable and efficient way possible, no matter what systems a particular company or their trading partners use, all through a single integration point.

Integration adapters

Think about Amazon in your personal lives. You don’t worry about integrating tier trading partners or how you are going to sell that. Amazon takes care of that for you. That’s the same metaphor that we're attempting to carry through into the business world by providing single standard integration adapters or on-ramps to the network that allow you to manage this virtual enterprise in a highly transparent and highly efficient manner.

Gardner: Professor, you mentioned something about the very nature or definition of an enterprise changing. As we look to cloud computing and to these network effects, the ability to outsource so much of what a company does is based on the best value. If doing it internally makes more sense, you do it internally. If going external makes the most sense, you go external. We see this with computing. Hybrid cloud is pretty much about that.

We're also seeing a change in the workforce with contingency and part-time work. What is the new corporation about? It seems it’s mostly rules, relationships, collaboration and management. Let’s go to Tim first. As the very nature of corporations change, it's really about relationships, data, and feedback loops. The data-driven organization, is it really about that. Are we losing something, are we gaining something, or both, Tim, as we seek this new definition of a corporation.

Minahan: Yeah, I think as Professor Van Alstyne said, we're entering an age where the borders between enterprises are being taken down. Companies are moving toward a model where they're managing pools of resources, whether that’s pools of talent around expertise, as you just indicated Dana.

A third of a typical workforce is no longer on the company payroll. It's contingent, statement of work (SOW) workers. In some industries, it’s already more than half. This is fastest growing part of the workforce. HR executives, and I talk with many of them, are beginning to rethink what constitutes the workforce and are looking at pools of talent.

A third of a typical workforce is no longer on the company payroll. It's contingent, statement of work (SOW) workers.

They need to understand where the skill sets lie, not necessarily what roles someone plays today, what skills they have had in the past and be able to, when a particular opportunity or project arises, assemble that expertise very quickly to address that particular project, and disassemble them just as fast, but retain the knowledge within the enterprise for the next time that comes up.

The same thing is true if you're organizing a supply chain and need to be able to serve a new market like China. Where do you put your manufacturing? How do you address distribution, value-added taxes, and customer support. Traditionally, the model would have been to go and establish your own manufacturing facilities, build your own local agents, but no longer.

Now you can quickly assemble and address, or test, a particular market or test a particular product in any given market. Should it work, scale it up. Should it not, scale it down and move on. Networks allow you to achieve this.

I wanted to go back to something that Professor Van Alstyne said that's critically important. I fully agree that the networks go through phases. The first phase is to connect all the various parties, whether they be people, businesses, merchants, banks or all of the above.

The second part is to automate their existing processes. What gets really exciting, once you've automated these processes, once you have these parties collaborating or transacting its scale, are the new insights and entirely new services you could enable.

Transactional information

Once you have these millions of companies or people transacting at scale, you can see the transactional or relationship information. It could be the generated content that helps all members of the community make more informed decisions whether it's about buying or whether it’s about, should I bid on a particular bit of business as a seller or as a bank, mitigating risk in lending to allow them to understated who the buyer is, who the seller is and what their traditional history is.

That is the ultimate big data opportunity, when you have these networks operating at scale. We're beginning to deliver this networked intelligence in the form of insight services to help our members of the communities make important buying, selling, and financing decisions in ways that they couldn’t before.

Van Alstyne: Dana, let me jump in for a second. One of the things that Tim just said is quite important. One of the most interesting elements of the platform is the extent for new business services and new products to emerge. One of the Silicon Valley descriptions of the platform is that you know you have one when your community takes it in a direction you didn't expect.

One of the most interesting elements of the platform is the extent for new business services and new products to emerge.

You need to have made it possible for that. The underlying architecture needs the support the ability to develop something new that wasn't expected, but that’s one of the ways the platform adapts to create new value.

The communities start to add new value and new services in ways that the platform meets the needs of the ecosystem, so it’s this ability to turn out new sources of value based on the underlying architecture. This is one of the key distinctions of platforms that really do add value.

Minahan: I totally agree with that. We've only just entered it into this networked economy or networked era. One of the most exciting things is that it allows you to begin to entirely rethink traditional business models that were organized in an era where, to use an economic term, transaction costs were extremely high.

Look at Uber, what Uber has done, and the challenges we're now seeing around challenging the traditional medallion livery service. That was organized out of a very real concern around safety and issues, but over time, that model matured and unfortunately got very costly.

What you saw were the medallions being aggregated in the hands of a small few who could afford them. That obviously had some implications on the level of service and cost of service to employers. Now we've removed all of the transaction costs and could add up efficiently match demand -- i.e. you as the traveler -- and supply literally anyone that is a card-carrying member of the Uber service.

That’s an entirely new business model that is fundamentally challenging hundreds of old rules and thoughts about what it means to hail a cab. So let me toss in one additional principle that’s often used for design. I'm thinking exactly of the Uber example.

One of the best ways to view a platform is that you have the best platform and the transaction cost are the lowest. If you can get those lowest transactions, you're going to get more business taking place on that platform. So do whatever you can to see if you can lower those transaction costs to get the business going.

Looking for signs

Gardner: So we've taken a look at the inevitability of these networks. We've seen them already very prominent in the business to consumer (B2C) space, consumer activities, and commerce. We’ve recognized that openness is important. So we have innovation. We also recognized the importance of governance and management.

So how do we know when we've done this correctly? Is there a sign? Professor Alstyne, you've mentioned a few that describe powerful and successful networks. Do enterprises have to view themselves differently? Do they need to look at participants in their network as a metric rather than just margin and net in gross revenues and incomes? Is there a way to be successful?

Van Alstyne: Platform businesses behave differently than traditional businesses. Silicon Valley had been using lot of these metrics for engagement. How many new users do you get, and how engaged are they with the platform? It’s a wonderful place to start. Let me give you three rules that we like to use for platform design that actually help get the system running smoothly.

One of them is "frictionless entry." You would like to make it as easy as possible for people to get onboard your platform. It doesn’t matter if that user is on the developer side. You want folks to be able to enter the platform as easily as possible.

If you're bringing in apps in your ecosystem, your users are going to get a bad experience if they are low-quality apps.

The next one is that you need to manage "riskless quality." If anyone can participate, there's a danger that folks who actually get onto the platform don't necessarily add value or they may try to siphon off value. You may worry about lower quality. Atari fell apart as a platform when it got low-quality games on it. Uber has to worry about low-quality drivers. If you're bringing in apps in your ecosystem, your users are going to get a bad experience if they are low-quality apps. So you still need to have riskless quality.

The first principle is frictionless entry, and you need to manage riskless quality from the users on that side.

The third one is "permissionless innovation." You don't want your developers to necessarily have to come to you to get permission. There is always this danger because you own the platform. You have enormous power over them and you could simply take that idea and run with it. You need the ecosystem partners to be able to run with an idea and create something novel on their own and let them have that value. They don’t need to get permission first.

These are three rules that we use for design -- frictionless entry, riskless quality, and permissionless innovation. Those are really good guidelines and are helping to get these ecosystems to grow quickly, get more users onboard, and get your value add from third party participation.

Gardner: Tim Minahan at SAP Cloud, tell us a bit about what you're doing at SAP, some of your acquisitions, besides your cloud, this ability to be frictionless and help people come on the network easily. You recently finished up the Concur acquisition, one of your largest ever. Explain how you're growing the size of your network?

Application agnostic

Minahan: What Professor Van Alstyne just talked about are principles that we subscribe to. In a business network sense, it also requires you to be open and application agnostic and largely agnostic to the on-ramps. That’s part of the frictionless entry.

So regardless of what system you are using, whether it’s SAP, Ariba, Concur, Oracle, PeopleSoft Info, etc., you need to be able to attach the systems to the network, those demand systems that allow you to connect and collaborate through the network to extend that business process and engage with your customers, suppliers, and other partners.

Think about our personal lives, whether it’s Uber or Amazon, those networks that are most powerful and most impactful on our personal lives allow a seamless process. You don’t even think about the process, but it is end to end.

In the case of Amazon you don’t think about the buying process -- how am I going to connect to those individual merchants? They're already connected for you. Ultimately, you believe you're buying from Amazon, but you might be buying from an independent provider and they are still delivering to you.

Those networks that are most powerful and most impactful on our personal lives allow a seamless process.

Likewise, you don't think about, gee, now that I have placed the order, do I have to call my bank to settle out? No, that’s handled for you, SAP has been using these guiding principles to go out and make sure that we're building the network appropriately, both in our organic means through innovation and the introduction of new services, like payments, financing, and dynamic discounting, both independently with other members and financial institutions of the network, as well as inorganically through acquisitions.

Gardner: As we close out, we've determined that the number of participants and the value of the commerce is super important in these networks. Several times we've also touched on this feedback loop in the data. So as we look to the future, we might have  competing networks. If we assume that those networks are going to have some frictionless ability to move on and off of them, then the best network is where people will go.

Is the best network the one that provides the best insights in data? Can we close out our discussion by looking at the importance of shared data and analysis and the ability to counter that analysis up from these transactions as a differentiator going forward that will pick winners and losers in open commerce network environment, if you will.

Let’s go to Professor Van Alstyne first. Who is going to win in this network environment and is the data and openness and availability of analytics going to be a major determinant of that?

Van Alstyne: I am going to argue the best platform is the one that creates the most value over time and that probably means that the data analytics, those that can use the data to create these data-driven feedback loops, will be the winners.

One of the things that I want to emphasize is that frictionless entry and the ability of the movement of data doesn’t necessarily mean that switching costs are going to be low or that it’s going to be easy to necessarily change networks. Network effects do create winner-take-all markets, they do create these behemoths. Google Search has 67 percent market share in the US and 90 percent in Europe. Facebook has 1.3 billion users. I think Amazon web services has a huge proportion of the cloud services.

We need to be careful if we think we're going to be able to switch networks easily. There are going to be some very substantial winner-take-all networks and some concentration at the top. Cloud and data is going to be an integral part of that, as the data creates these data-driven feedback loops that support these network effects.

Data and analytics

Gardner: Tim, our last word to you on the role of data and analytics as the determinant of the most valuable network.

Minahan: I agree with the professor that the key litmus test of who wins is the platform or the network that creates the most value, and I think value comes in a few flavors.

Number one is relevancy. Are my trading partners there? At SAP, typically about half of any given company's trading partners are already connected in transacting. That makes the frictionless entry that much easier. Think about Facebook. Why would you join any other personal network when most of your friends and family are already there.

The second is the aspect of value. Can I manage most of my collaborations in a single environment or do I need to join multiple networks in order to complete a transactional process? The more capabilities you can layer in to make it more convenient for all members of the network to collaborate, the more value add.

The more capabilities you can layer in to make it more convenient for all members of the network to collaborate, the more value add.

And third, I believe that we've only scratched the surface on these insights. I wouldn’t even say that it’s a two-sided model. It’s a multi-sided model, where once you get these parties collaborating at scale, the transactional relationship and community-generated content can deliver new insights to help folks make more informed decisions, whether it's, which trading partners to do business with or which areas of your existing supply chain might be presented with risk in the future and you need to adapt quickly or which financial settlement options you have to settle out to help you optimize cash flow.

These are new insights that were previously impossible with traditional on-premise and point-to-point integration models and it can only be accomplished in a network model.

Gardner: Very good. I'm afraid we'll have to leave it there. You've been listening to a sponsored BriefingsDirect podcast discussion on business networks. You've heard how open markets and communities are rapidly changing business platforms, allowing sellers and buyers to find and know each other openly and therefore accelerating B2B transactions and commerce efficiencies.

And we have heard how companies can exploit business networks to automate and analyze how they transact commerce in new innovative ways.

So a big thank you to our guests, Marshall Van Alstyne, Professor at Boston University School of Management and Research Scientist at the MIT Center for Digital Business. Thank you so much, Marshall.

Van Alstyne: Dana, thanks so much for allowing us to participate.

Gardner: We also like to remind our listeners that there will be a new book called "Platform Strategies" out in 2015 from Professor Alstyne and co-authors.

Also a big thank you to Tim Minahan, Chief Marketing Officer, SAP Cloud and Line of Business. Thank you, Tim.

Minahan: Thank you, Dana, a great conversation.

Gardner: And a thanks to our audience as well for joining us for this discussion. I'm Dana Gardner, Principal Analyst at Interarbor Solutions. Don't forget to come back next time for more BriefingsDirect.

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

Transcript of a discussion on how business networks are fast emerging as trusted, efficient hubs for cloud-based and data-driven commerce. Copyright Interarbor Solutions, LLC, 2005-2015. All rights reserved.

You may also be interested in:

• Big Data Meets the Supply Chain -- SAP's Supplier InfoNet and Ariba Network Enable Companies to Predict and Manage Supplier Risk
• Ariba's Product Roadmap for 2014 Points to Instant, Integrated and Data-Rich Business Cloud Services
• Q&A with Marshall Van Alstyne, Professor, Boston University School of Management and Research Scientist MIT Center for Digital Business
• Modern supply chains — How innovative sellers engage customers in entirely new ways
• Arlington Computer Products Simplifies and Speeds its Billing and Payments Using New AribaPay
• The Future of Business Success Hinges on How Well Innovation Drives Supply Chain and Procurement Advantages
• Workforce of the Future -- and Why Preparing Means Rethinking Human Resources Now
• Spot buying automated by Ariba gives start-up KooZoo a means to shop more efficiently
• Combining big data and cloud capabilities for ecommerce matches buyers and sellers like never before
• Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases, and Processes