SAP Ariba Chief Strategy Officer on the Digitization of Business and Future of Technology

Transcript of a discussion on how advancements in business applications and the modern infrastructure that supports them portends new and higher degrees of business innovation.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

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

Gardner

Our next technology innovation thought leadership discussion focuses on advancements in business applications and the modern infrastructure that supports them, and what that combination portends for the future.

As we enter 2016, the power of business networks is combining with advanced platforms and mobile synergy to change the very nature of business and commerce. We’ll now explore the innovations that companies can expect -- and how that creates new abilities and instant insights -- and how companies can, in turn, create new business value and better ways to reach and serve their customers.

To learn more about the future of technology and business networks, we’re joined by Chris Haydon, Chief Strategy Officer at SAP Ariba. Welcome, Chris.

Chris Haydon: Thanks, Dana. Great to talk to you again.

Gardner: For me, IT architecture is destiny. Now that we have cloud, big data, and mobile architectures aligned, how does that support where we can go with new business applications and processes -- to get entirely new levels of productivity?

Haydon

Haydon: It's an exciting new age. The new platforms, as you say, and the applications coming together are a kind of creative destructivism. We can start all over again. The value chain is changing because of digitization, and technology needs to respond.

So what you hear are buzzwords like adaptivity, configurability, or whatever, but these are table stakes now for business applications and business networks. This digitization of value chains forces us to think about how we bring the notion of multiple constituents within the organization, in terms of the adoption, and then couple that with the agility they need to do to deal with this constant and increasing rate of change.

Gardner: People are talking more about “digital business.” It means looking at not just new technologies, but how you do business, of taking advantage of the ability to have insight into your business, sharing that insight across ecosystems with partners. Where do you see the real advantage in action now for a business-to-business (B2B) environment?

Outcome-based conversations

Haydon: We hear about the technology and it’s important, but what we really hear about is the outcomes. We have very outcome-based conversations with customers. So how does the platform with the business network give you these differential outcomes?

What's pretty evident is that you have to be closer to your end user. And it's also about the cloud paradigm adoption. You're only as good as your last transaction, your last logon, your last order, or your last report -- or whatever business process you're running in.

It's this merger of adoption and outcome, and how you string these two things together to be able to deliver the customer benefit.

From a technology perspective, it's no longer acceptable just to think about the four walls or your firewall; it's really about that extended value chain. So this is where we're seeing this merger of this business network concept, this commerce network concept in the context of these business applications.

We're really starting to emerge from B2B, and it's grown out of the business-to-consumer (B2C) world. With the Facebooks, the LinkedIns, or the Ubers, now you're seeing leading practice companies needing to embrace these larger value chains or commerce chains to give them the outcome and also to help drive differential adoption.

From a technology perspective, it's no longer acceptable just to think about the four walls or your firewall; it's really about that extended value chain.

Gardner: For organizations that are really attracted to this and recognize that they have to compete with upstarts, if they get this right, it could be very disruptive.

When we think about having all of your data accessible, when we think about processes being automated, at some point you're able to gather more data and analysis and process refinement that you can then reapply to your business, creating perhaps algorithms and abilities to add intelligence in ways that you couldn’t never do manually.

How do we get companies to understand that feedback loop and get it instituted more rigorously into their organization?

Haydon: One thing we see is that with the technology we have today, we can hide that complexity from the users and embed it in the way that end users need to work. Let’s talk a little bit about an SAP Ariba example here. If you're going to create a new sourcing event, do you really want to have to think about the business you do with your current suppliers? Absolutely, but wouldn't it be great when that’s all managed by extra information presented right in front of you?

On top of that, wouldn’t it be also great to know that these three new suppliers in this category, in this geography that you haven't thought about before, and wouldn't it also be great that they could be automatically invited at no extra friction to your process? So you get more supplier diversity. You're able to also let suppliers become more involved in the process, earlier in the process.

We're redistributing this value chain in terms of linking the insight and the community to the point of where work is being done -- and that’s part of that transformation that we're seeing, and that’s how we see it in the Ariba context. But we’re also seeing that in the larger business-network and business application context across SAP.

Knowing your needs

Gardner: So to borrow the B2C example, if Uber is our poster child example, instead of my standing outside of a hotel and having visibility of all of the cars that are driving around that neighborhood, I could be a business and get visibility into all of the suppliers that are available to me. And those suppliers will know what my needs are before they even get to the curb, so to speak.

What's the next step? When we gain that visibility, when we have supply chain and buyer and seller synergy, what comes next? Is there some way to bring that value extended to the end-user at some time?

Haydon: The next step is network resource planning. This is the awareness about your supply base, but also what other stakeholders in that process might mean, and this is what it could be for the end user. It's not just about the supplier, but also about the logistics provider. It’s about how you might have working capital and finance.

The next step is network resource planning. This is the awareness about your supply base, but also what other stakeholders in that process might mean.

What if you could dynamically match or even have a conversation about differential service levels from a buyer or supplier? I'm okay to take it tomorrow if I can get it at 8 a.m., but it's $2 cheaper, or I am happy to take it today because of some other dependencies.

This is a type of dynamic “what if,” because we have the technology platform capability, in time real-time memory analytics, but also in the context of the business process. This is this a next generation capability that we'll be able to get to. Because the network is external to the application, because together we can understand the players in the network in the context of the business process, that's where that real next evolution is going to come.

Gardner: It sounds as if we're really starting to remove the margin of error from business. We're starting to remove excess capacity, become fit for purpose through that dynamic applicability of insight and analysis. How much can we squeeze out? Do we have a sense of how substantial these business network capabilities will become? What sort of payoff are we anticipating when we can remove that margin of error, with tighter integration across ecosystems? What’s the gold piece that we are going after here?

Haydon: Well it’s a big, big, big number. Even if we go back a couple of years -- and there’s some good work being done on just the inefficiencies and the first sort of magnitude on paper -- and that’s just moving something from a paper format and dematerializing that into an electronic format. Four years or five years ago when a study was done on that, that was conservatively somewhere between $600 billion and $1 trillion just in the Global 2000 corporations.

There is an order of magnitude more opportunities globally from just this compression of cycle times, in the broader sense, and responsiveness and adaptability throughout the whole world globally.

At SAP Ariba, we just passed a great threshold in 2015. We ran more than $1 trillion in commerce across our business network. If you just start doing a little bit of math around what a one percent or two percent improvement of that can be from better working capital management, or more flexible working capital management, just pure straight productivity and just competition, of leveling the playing field for the smallest micro-supplier through the largest international supplier, and just leveling that all out. There are stupendous gains on both sides of the balance sheet.

Adoption patterns

Gardner: When it comes to adoption patterns, some organizations may have been conservative and held back, perhaps resisted becoming cloud-based. What sorts of organizations are you seeing making a bold move, not just piecemeal, and what can they get a lot done in a relatively short amount of time?

Haydon: In industries where they are traditionally conservative, they really do need to change their value chains, because that’s what their customers are demanding. And so, financial services, where historically you would think the old “big iron” approach. Those types of companies are embracing what they need to do on cloud to just to be more adaptive, to be faster, and also to be more end-user-friendly, and the total cost of ownership approach from the cloud is really there.

But we're a long way away from on-premises applications being dead. I think what the cloud gives enterprises is they can go largely to the cloud -- and we see companies doing that -- but that the legacy-hybrid, on-premise model is really important. That’s what’s great about the cloud model. You can consume as you go. It doesn’t all have to be one big bang.

For pragmatic CEOs, CFOs, or CIOs, that blend of hybrid is the legitimate strategy -- where they can have the best of both worlds. With that said, the inextricable pool of cloud is there, but it can be a little bit more on their own terms, on what makes sense for their businesses.

We talk about our cloud applications, and we have leading, leading practice, widely, broadly adopted source-to-pay cloud applications in a fully integrated suite.

Gardner: We have been at the 70,000- to 80,000-foot height on this discussion. Let’s bring it down a bit lower. Help our readers understand SAP Ariba as an entity now. What does it consist of in terms of the software-as-a-service (SaaS) services that have been acquired and built, and how that then fits into a hybrid portfolio.

Haydon: Number one, we fundamentally believe in Ariba, and it had to give differential outcomes to our customers, that linking cloud applications with the business-network construct will give you better outcomes for the things we just spoke about earlier in the conversation: visibility, supply chain, adaptability, compliance, building on networks of networks to be able to deliver different outcomes, linking to payment networks like we have done with Ariba and Discovery, linking to content networks like we have done with eBay, but bringing them into the context of the business process can only really be enabled through networks and applications.

From an Ariba perspective, we like to think of it in three pillars for everyone. We talk about our cloud applications, and we have leading, leading practice, widely, broadly adopted source-to-pay cloud applications in a fully integrated suite.

From a cloud perspective as well, you can have the Lego-block approach, where we can take any one of our modules, from spend visibility all the way through the invoicing, and start your journey there, if that's your line-of-business requirement, or take the full suite approach.

Intrinsic to that offering, of course, is our business network. Why I bring that up is that our business network and our cloud applications are agnostic. We don't actually care, from a cloud perspective, which back-end system of record you wish to use.

Of course, we love and we believe that the best out there is S/4HANA from SAP, but there is also a larger market, whether it's the mid-market or whether there are other customers who are on other journeys on the enterprise resource planning (ERP) for legacy reasons. We can connect our cloud applications and our network to any one of those.

Three levels

So, there are three levels: network, our end-to-end cloud applications, and last but not least, and which is really relevant from the technology journey, a rock-solid platform. And so I am moving toward that platform that runs our cloud apps and our network in conjunction with SAP for the security, for the privacy, for the availability, for all of these really important things that enterprise customers need.

Also, you have to have the security to run these business processes, because they're entrusting those to us, and that's really what cloud means. It means entrusting your business processes to us to get a differential outcome for your business.

Gardner: As organizations try to become more of a digital business, they will be looking to bringing these benefits to their ERP-level business applications, their supply chain and procurement, but increasingly, they're also looking to manage better their human resources and recognizing that that's a dynamic marketplace more than ever.

Haydon: Yes.

Gardner: So let's talk about how the business network effect and some of these synergistic benefits come to play in that human resources side of running a digital business?

Leading companies today want to have agility on how many full-time employees they can hire, and how to manage contingent or temporary labor aspects.

Haydon: That's also one of the great parts from an SAP portfolio. I like to think about it two ways. There’s human capital management internal, and there’s human capital management external. Leading companies today want to have agility on how many full-time employees they can hire, and how to manage contingent or temporary labor aspects.

From an SAP perspective, what's great is that we have the leading cloud for Human Resource Management and Talent Management solutions with Success Factors, and we have also have the market-leading Contingent Labor Management solution with Fieldglass.

Together with Ariba, you're able to, one, have a one-visibility view into your workforce in and out, and also, if you like, to orchestrate that procurement process to get sourcing, ordering, requisitioning and payment throughout.

From a company perspective, when you think about your spend profile, 30 percent to 70 percent of the spend is about services as we move to a service-based economy. And in conjunction with SAP Ariba and SAP Fieldglass, we have this broad, deep, end-to-end process, in a single context, and -- by the way -- integrated nicely to the ERP system to really again give those best outcomes.

Gardner: When people think about public clouds that are available to them for business, they often couple that with platform-as-a-service (PaaS), and one of the things that other clouds are very competitive about is portraying themselves as having a very good developer environment. But increasingly, development means mobile apps.

Haydon: Yes.

Mobile development

Gardner: What can we gain from your cloud vision as being hybrid, while also taking advantage of mobile development?

Haydon: From a platform perspective, you need to be “API First” because if you're actually able to expose important aspects within a business process, with an API layer, then you give that extensibility and that optionality to your customers to do more things.

Let’s talk about concrete examples. An end-to-end process could be as simply as you could take an invoice from any third-party provider. Right now, Ariba has an open invoice format. If someone chooses to scan it themselves and digitize it themselves or something that a customer wanted to do, we could take that straight feed in.

If you want to talk about a mobile API, it could be as simple as you want to expose a workflow. There's a large corporate mandate sometimes to have a workflow. If you travel, there's a workflow for your expenses, a workflow for your leave request, and a workflow for your purchase orders. If you want that cost – the end-user that has five systems or would rather come to one, you can have that API level there.

There is this whole balance of how you moleculize your offerings to enable customers to have that level of configuration that they need for their individual business requirements, but still get the leverage of not having to rebuild it all themselves.

That's certainly a fundamental part of our strategy. You'll see that SAP is leading in itself under our HANA Cloud Platform. SAP Ariba is building on that.

That's certainly a fundamental part of our strategy. You'll see that SAP is leading in itself under our HANA Cloud Platform. SAP Ariba is building on that. I don’t want to flag too much, but you’ll see some interesting developments along that way as we open up our platform from both an end-to-end perspective and also from an individual mobile perspective throughout the course of this year.

Gardner: Now this concept of API First, it's very interesting, because it doesn't really matter which cloud it’s coming from, whether on a hybrid spectrum of some sort. It also allows you to look at business services and pull them down as needed and construct processes, rather than monolithic, complex, hairball applications.

Do you have any examples of organizations that have taken advantage of this API First approach? And how have they been able to customize their business processes using this hybrid cloud and visibility, reducing the complexity?

Haydon: I can certainly give you some examples. This just starts from simple processes, but they can actually add a lot of value. For example, you have a straightforward shipping process, an advanced shipping process. We know of an example where a customer took 90 percent of their time out of the receiving and made the matching of their receiving receipting process almost by 95 percent, because they can leverage an API to support their custom bar-coding standard.

So they leveraged the standard business-network bus, because that type of barcode that they need to have in their warehouse, and their part of the world, was there. Let’s wind the clock back three or four years. If we had asked for that specific feature, to be very candid, we wouldn’t make it. But once you start opening up the platform at that micro level, you can actually let customers get the job done.

But they can still leverage that larger framework, that platform, that business process, that cloud that we give them. But when you extend that out for what it could mean, again, full payment, or for risk, or for any of these other dimensions that are just typically organizational processes to the current -- whether it’s procurement or whether it’s HR recruiting or whatever it's like -- it gets pretty exciting.

Big data

Gardner: One of the other hallmarks of a digital business is having aspects of a business work in new ways together, in closeness, that they may not have in the past. And one of the things that’s been instrumental to business applications over the past decades is this notion of a system of record or systems of records, and also, we have had this burgeoning business intelligence (BI) now loosely called big data capability.

And they haven't always been that close, but it seems to me that with a platform like SAP HANA, combined with business-networks, that systems of record and the data and information in them, and the big data capabilities, as well as accessing other data sets outside the organization, make a tremendous amount of sense. How do you see the notion of more data, regardless of its origin, becoming a common value stream to an organization?

Haydon: This becomes the fundamental competency that an organization needs to harness. This notion of the data, and then the data in the context of the business process, and then again to your point, how that’s augmented in the right way, is really the true differentiation for where we’ll go.

We're  working with our customers to identify and remove forced labor in the supply chain, or advance global risk management or even expedited delivery and logistics.

Historically, we laid down the old railway tracks on business processes,  but there is no such thing as railway tracks anymore. You rebuild them every single day. Inside that data, with the timeliness of it, is sentiment analysis so that from a business-network context, it enables you to make different and dynamic decisions.

Within SAP Ariba, we're fundamentally rethinking how we can have the data that’s actually in our environment and how we get that out -- not just to our account managers, not just to where our product manager is, but more importantly, out to our end users. They can then actually start to see patterns, play with it, and create some interesting innovations. We're  working with our customers to identify and remove forced labor in the supply chain, or advance global risk management or even expedited delivery and logistics.

Gardner: Okay, we talked about business-networks in the context of applications working together for efficiency, we’ve talked about the role of hybrid cloud models helping to accelerate that, we've talked about the data issues and some of the development and customization on mobile side of things. What have we missed, what is the whole, greater than the sum of the parts component that we’re not talking about that we should?

Haydon: There are probably two or three. There’s certainly the notion of the user experience and that's a function of mobile, but not mobile only. The notion of reinventing the old traditional flows and thinking that was prevalent even five years ago on what constituted one type of work channel no longer exists.

There's the new discipline of what a user experience is about and that's not just the user interface, that’s also things like they’re just the tone or the content that’s presented to you. It’s also what it does mean on the differential devices and way you’re working. So I think that's an evolving piece, but cannot be left behind.

That's where the B2C world is blazing and that's now the expectation of all of us in that, when we go to work and put our corporate hat on, as simple as that. These two are security and privacy. That is top of mind for a number of reasons and it's really fair to say that it’s in a massive state of flux and change here in the United States, but certainly in Europe. It doesn’t matter which region you are in, APJ or Latin America as well.

Competitive advantage

That's another competitive advantage that enterprises and providers in this space like SAP and SAP Ariba, can, and will, and should, lead on. The last point, maybe a trend, is that you're really seeing very quickly the transition between the traditional service and material flows that exist, and then the financial flows.

We're seeing the digitalization of payments just exploding and banks and financial institutions having to rethink and look at what they're doing. With the technology and the platforms we have, that linking of that is physical flows, whether they be for services or materials and that crossing over to that payment and then the natural working capital because, at the end of that, commerce follows money.

It’s all about the commerce. So it's the whole space in that whole area and that technology is the trend as well. Security UX and the whole payment working capital management or the digitalization of that are the three large things.

Gardner: And these are areas where scale really helps. Global scale, like a company like SAP has, when the issues of data sovereignty come up and you need to think about hybrid cloud, not just in its performance and technical capabilities but the actual location of data, certain data for certain periods of time and certain markets, is very difficult to do if you're not in those markets and understanding those markets. It's the same with the financial side. Because banking and finance are dynamic, it’s different having that breadth and scope, a key component of making that possible as well.

We're seeing the digitalization of payments just exploding and banks and financial institutions having to rethink and look at what they're doing.

There's one last area we can close out on and it’s looking a bit to the future. Some competitors of yours are out there talking about artificial intelligence (AI) more than others, and when you do have network effects as we’ve described, big-data mesh across organization thinking of data as a life cycle for a digital business, not just data in different parts of your organization.

We can think about expertise in vertical industries being brought to bear on insights in the markets and ecosystems. When and how might we expect some sort of an AI, value, API, or set of APIs to come forward to start thinking things through in ways people probably haven’t been able to do up until now or in the near future.

Haydon: The full notion of something like a [2001: A Space Odyssey’s] HAL 9000, is probably a little way away. But then again, what you would see within the next 12 to 18 months is specific -- maybe you call them smart apps rather than intelligent or smart agents.

They already exist today in some areas. You will see them augmented because of feedback from a system that’s not your own, whether it’s moving average price of an inventory. Someone will bring the context of an updated price, or an updated inventory and that will trigger something, and that will be the smart agent going to do all that work for you, but ready for you to make the release.

There still is a notion of the competency, as well, within the organization, not as much a technology thing, but a competency on what Master Data Governance means, and the quality of that data means, and being able to have a methodology to be to manage that to let these systems do it.

So you will see probably in a lower-risk spend categories, at least from a procurement perspective indirect, or may be some travel and these aspects, maybe a little bit of non-inventory materials repair and operating supplies, you probably fair way away from fully releasing direct material supply chain in some of these pretty, pretty important value chains we manage.

Self-driving business process

Gardner: So maybe we should expect to see self-driving business processes before we see self-driving cars?

Haydon: I don't know, I'm lucky enough to live in Palo Alto, and I see a self-driving car three days a week. So we'll back out of that one.

But there is a really important piece, at least from Ariba perspective and an SAP perspective. We fundamentally believe that these business-networks are the rivers of data.

It's not just what's inside your firewall. You will truly get the insight from the largest scale of these rivers of data from these business-networks; whether it be Ariba or our financial partners, or whether it be others. There will be networks of networks.

It's scale and adoption. From the scale and from the adoption, will come that true benefit from the networks, the business process, and the connectivity therein.

This notion of having a kind of the bookend of the process, a registry to make sense of the actors in these business networks and the context of the business process, and then linking that to the financial and payment change, that's where the real intelligence and some real money could be released, and that's some of the thinking that we have out there.

Gardner: So, a very bright interesting future, but in order to get to that next level of value, you need to start doing those blocking and tackling elements around the rivers of information as you say the network effects and putting yourself in a position and then be able to really exploit these new capabilities when they come out.

Haydon: It's scale and adoption. From the scale and from the adoption, will come that true benefit from the networks, the business process, and the connectivity therein.

Gardner: I’m afraid we will have to leave it there. You’ve been listening to a BriefingsDirect thought leadership podcast discussion on how advancements in business applications and the modern infrastructure that supports them portend new and higher degrees of business innovation. And we have heard how the power of business networks is combining with these advanced platforms, and mobile synergy and data analysis, to change the very nature of business and commerce.

So, please join me now in thanking our guest, Chris Haydon, Chief Strategy Officer at SAP Ariba. Thanks so much, Chris.

Haydon: Thanks, Dana.

Gardner: And a big thank you, too, to our audience for joining this SAP Ariba-sponsored business innovation thought leadership discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a discussion on how advancements in business applications and the modern infrastructure that supports them portends new and higher degrees of business innovation. Copyright Interarbor Solutions, LLC, 2005-2016. All rights reserved.

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Procurement in 2016—The Supply Chain Goes Digital

Transcript of a BriefingsDirect discussion on the role of procurement as a strategic business force.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

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

Gardner

Our business innovation thought leadership discussion today focuses on the heightened role and impact of procurement as a strategic business force. We'll explore how intelligent procurement is rapidly transforming from an emphasis on cost savings to creating new business value and enabling supplier innovations.

As the so-called digital enterprise adapts to a world of increased collaboration, data access, and business networks, procurement leaders can have a much bigger impact, both inside and outside of their companies.

To learn more about the future of procurement as a focal point of integrated business services we’re joined by Kurt Albertson, Principal of Advisory Services at The Hackett Group in Atlanta. Welcome, Kurt.

Kurt Albertson: Thank you, Dana.

Gardner: We're also joined by Dr. Marcell Vollmer, Chief Operating Officer at SAP Ariba and former Chief Procurement Officer at SAP. Welcome, Marcell.

Dr. Marcell Vollmer: Thanks, Dana, for having me. Great being here.

Gardner: You must be seeing external forces having an impact on your company and on Ariba's customers. We're looking at mobile devices being used more and more for business. We have connected business networks. How are these trends impacting procurement, and why is procurement going to have a bigger impact as time goes on?

Vollmer: Thanks, Dana. That's a really good question. I see a couple of disruptive trends, which are very important and are directly impacting procurement.

Vollmer

We see how smartphones and tablets have changed the way we work on a daily basis, not to forget big data, Internet of Things (IoT), Industry 4.0. So, there are a lot of technology trends out there that are very important.

On the other side, we also see completely new business models taking off. Uber is the largest taxi company without owning a single cab. Airbnb is basically the same, the largest accommodation provider, but not owning a single bed. We see also companies like WhatsApp, Skype, and WeChat. They don't own the infrastructure anymore, like what we know from the past.

I could mention a couple more, like Alibaba. Everybody knows it was the highest IPO in history, with a market capitalization of around $200 billion, and they even don’t have an inventory. What we're seeing are fundamental changes, the technology on one side and then the new business models.

We now see the impact here for procurement. When business models are changing, procurement also needs to change. Companies intend to simplify the way they do business today.

Complex processes

We see a lot of complex processes. We have a lot of complex business models. Today it needs to be "Apple easy" and "Google fast." This is simply what millennials expect in the market.

But also, we see that procurement, as a function itself, is transforming from a service to function. And this is definitely one trend. We see a different strategic impact. What is asked of procurement from the lines of business is more important and is on the agenda for the procurement function.

Let me add one last topic, the evolution of the Chief Procurement Officer (CPO) role, by saying that seeing the different trends in the market, seeing also the different requirements indicated by the trends for procurement, the role of procurement, as well as the CPO role in the 21st Century will definitely change.

I believe that the CPO role might evolve and might be a Chief Collaboration Officer role. Or, in the future, as we see the focus is more and more on the business value, a Chief Value Officer role might be the next big step.

Gardner: Kurt, we're hearing a lot from Marcell about virtual enterprises. When we say that a major retailer doesn’t have an inventory, or that a hotel rooms coordinator doesn’t have any beds, we're really now talking about relationships. We're talking about knowledge rather than physical goods. Does that map in some way to the new role of the CPO? How has the virtual enterprise impacted the procurement process?

Albertson: Marcell brought up some great points. Hackett is a quantitative-based organization. Let me share with you some of the insights from a very recent Key Issues Study that we did for 2016. This is a study we do each year, looking forward across the market. We're usually talking with the head of procurement about where the focus is, what’s the priority, what’s going to have the biggest impact on success, and what capabilities they're building out.

Albertson

Let me start at a high level. A lot of things that Marcell talked about in terms of elevating procurement’s role, and more collaboration and driving more value, we saw it quite strongly in 2015 -- and we see it quite strongly in 2016.

In 2015, when we did our Key Issues Study, the number one objective of the procurement executive was to elevate the role of procurement to what we called a trusted adviser, and certainly you've heard that term before.

We actually put a very solid definition around it, but achieving the role of a trusted adviser, in itself, is not the end-game. It does allow you to do other things, like reduce costs, tap suppliers for innovation, and become more agile as an organization, which was in the top five procurement objectives as well.

Trusted advisor

So when we look at this concept of the trusted adviser role of procurement, just as Marcell said, it's about a lot of the procurement executives across multiple industries who are asking, "How do we change the perception of procurement within the eyes of the stakeholders, so that we can do more higher value type activities?"

For example, if you're focusing on cost, we talk a lot about the quantity of spend influence, versus the quality of spend influence. In fact, in our forum in October, we had a very good discussion on that with our client base.

We used to measure success of the procurement organization by cost savings, but one of the key metrics a lot of our clients would look at is percent of spend influenced by procurement. We have a formal definition around that, but when you ask people, you'll get a different definition from them in terms of how they define spend influence.

What we've realized is that world-class organizations are in the 95 percent range and 90 percent plus on the indirect side. Non world-class procurement organizations are lagging, in the 70 percent range in terms of influence. Where do we go from here? It has to be about the quality of the spend influence.

When we look out in the market, there are a lot of companies that don't have line-item level detail or they don't have 90 percent or 95 percent-plus data quality with respect to spend analytics.

And what our data shows very clearly is that world-class organizations are involved during the requirements and planning stages with their internal stakeholders much more often than non-world-class organizations. The latter are usually involved either once the supplier has been identified, or for the most part, once requirements are identified and the stakeholder already knows what they want.

In both cases, you're influencing. But in the world-class case, you're doing a much better job of quality of influence, and you can open up tremendous amounts of value. It changes the discussion with your internal stakeholders from, "We're here to go out and competitively bid and help you get the best price," to, "Let’s have a conversation with what you're trying to achieve and, with the knowledge, relationships, and tool sets that we have around the supply markets and managing those supply markets, let us help you get more value in terms of what you are trying to achieve."

We've asked some organizations how we become a trusted adviser, and we've built some frameworks around that. One of the key things is exactly what you just talked about. In fact, we did a forward-looking, 10-year-out procurement 2025 vision piece of research that we published a few months ago, and big data and analytics were key components of that.

When we look at big data, like a lot of the things Marcell already talked about, most procurement groups aren’t very good at doing basic spend analytics, even with all the great solutions and processes that are out there. Still, when we look out in the market, there are a lot of companies that don't have line-item-level detail, or they don't have 90 percent or 95 percent-plus data quality with respect to spend analytics.

We need to move way beyond that for procurement to really elevate its role within the organization. We need to be looking at all of the big data that’s out there in the supply networks, across these supply networks, and across a lot of other sources of information. You have PDAs and all kinds of information.

We need to be constructively pulling that information together in a way that then allows us to marry it up with our internal information, do more analysis with that, synthesize that data, and then turn it over and provide it to our internal stakeholders in a way that's meaningful and insightful for them, so that they can then see how their businesses are going to be impacted by a lot of the trends out in the supply markets.

Transformational impact

This year, we asked a question that I thought was interesting. We asked which trends will have the greatest transformational impact on the way procurement performs its job over the next decade. I was shocked. Three out of the top five have to do with technology: predictive analytics and forecasting tools, cloud computing and mobility, the global economy and millennial workforce.

Mobility, predictive analytics, forecasting, and cloud computing are in the top five, along with global economy and the millennial workforce, two other major topics that were in our forward-looking procurement 2025 paper.

When we look at the trend that’s going to have the greatest transformational impact, it's predictive analytics and forecasting tools in terms of how procurement performs its job over the next 10 years. That’s big.

Consider the fact that we aren’t very good at doing the basics around spend analytics right now. We're saying that we need to get a lot better to be able to predict what’s going to happen in the future in terms of budgets, based on what we expect to happen in supply markets and economies.

We need to put in the hands of our stakeholders toolsets that they can then use to look at their business objectives and understand what’s happening in the supply market and how that might impact it in two to three years.

We need to put in the hands of our stakeholders tool sets that they can then use to look at their business objectives and understand what’s happening in the supply market and how that might impact it in two to three years. That way, when you look at some of the industries out there, when your revenue gets cut in more than half almost within a year, you have a plan in place that you can then go execute on to take out cost in a strategic way as opposed to just taking a broad axe and trying to take out that cost.

Gardner: Interesting. So it's being much smarter, much more analytic, and being proactive, rather than reactive, to what’s going on inside your company. It’s interesting, Kurt, because I talk to a lot of IT people, and they're doing more with the data and the analysis and they want to elevate it to more people in the organization, like the CPO.

It seems to me that Ariba is in a position to bridge these groups between what IT or data providers can bring out in terms of analysis and what these CPOs are going to need in order to do their jobs differently.

Marcell, do you see that? Do you see SAP Ariba playing a role as the bridge between technology and business processes that the CPOs are going to be looking to have more insight from?

Vollmer: Absolutely, Dana. I couldn’t agree more what Kurt said about the importance of the top priorities today. It's very important also to ask what you want to do with the data. First of all, you need technology. You need to get access to all the different sources of information that you have in a company.

We see today how difficult it is. I could echo what Kurt said about the challenges. A lot of procurement functions aren't even capable of getting the basic data to drive procurement, to do spend analytics, and then to see that it really links this to supply-chain data. In the future this will definitely change.

Good time to purchase

When you think about what you can do with the data by predictive analytics and then say, "This is a good time to buy, based on the cycle we've seen is this time-frame." This would give you a good time to make a purchase decision and go to the market.

And what do you need to do that? You need the right tools, spend visibility tools, and access to the data to drive end-to-end transparency on all the data what you have, for the entire source-to-pay process.

Gardner: Another thing that we're expecting to see more of in 2016 is collaboration between procurement inside an organization and suppliers -- finding new ideas for how to do things, whether it’s marketing or product design.

Kurt, do you have any data that supports this idea that this is not just a transaction, that there is, in fact, collaboration between partners, and that that can have quite an impact on the role and value that the procurement officer and their charges bring back to their companies?

That helps procurement category managers raise their game and really be perceived as adding more value, becoming this trusted advisor.

Albertson: Let me tie it into the conversation that we've been having. We just talked about a lot of data and analytics and putting that in the hand of procurement folks, so that they can then go and have conversations and be really advisers in terms of helping enable business strategies as opposed to just looking at historical spend cost analysis, for example. That helps procurement category managers raise their game and really be perceived as adding more value, becoming this trusted adviser.

Hackett Group works with hundreds of Global 1000 organizations, and probably still one of the most common discussions we have, and even in on-site training support that we do, is around strategic category management. It's switching the game from strategic sourcing, which we view as an end-step process that results in awarding a competitive bid process, with aggregation of spend and awarding a contract, to a more formal category management framework.

That provides a whole set of broader value levers that you can pull to drive value, including supplier relationship management (SRM), which includes working with suppliers to innovate, impacting a much broader set of value objectives that our stakeholders have, including spend cost reduction, but not only including spend cost-reduction.

We see such a level of interesting category management today. In our Key Issues Study in 2016, when we look at the capability building that organizations are rolling out, we've been seeing this shift from strategic sourcing to category management.

Strategic sourcing as a capability was always number one. It still is, but now number two is this category management framework. Think of those two as bookends, with category management being a much more mature framework than just strategic sourcing.

Category management

Some 80 percent of companies said category management is a key capability that they need to use to drive procurement’s objectives, and that’s because they're impacting a broader set of value objectives.

Now, the value levers they're pulling are around innovation and SRM. In fact, if you look at our 2016 Key Issues Study again, tapping supplier innovation is actually a little bit further on down the list, somewhere around 10.

When we look at all the things that are there, it’s actually ninth on the list, with 55 percent of procurement executives saying it’s a critical and major importance for us.

The interesting thing, though, is that if you go back to 2015 and compare where that is versus 2016, in 2016, that moves nearly into the top three with respect to the significantly more focus on a key capability. SRM has been a hot topic for our clients for a long time, but this tells us that it’s getting more and more important.

We're seeing a lot of organizations still with very informal SRM, supply innovation frameworks, in place. It’s done within the organization, but it’s done haphazardly by individuals within the business and by key stakeholders. A lot of times, that activity isn't necessarily aligned with where it can drive the most value.

We have to rethink how we look at our supply base and really understand where those suppliers are that can truly move the needle on supplier innovation.

When we work with a company, it's quite common for them to say, "These are our top five suppliers that we want to innovate with." And you ask, "If innovation is your objective, either to drive cost reduction or to help improve the market effectiveness of your products or services and drive greater revenue, whatever the reason you are doing that, are these suppliers going to get you there?"

Probably 7 out of 10 times, people come back to us and say that they picked these suppliers because they were the largest spend impact suppliers. But when you start talking about supplier innovation, they freely admit that there's no way that supplier is going to engage with them in any kind of innovation.

We have to rethink how we look at our supply base and really understand where those suppliers are that can truly move the needle on supplier innovation and engage them through a category-management framework that pulls the value lever of SRM and then track the benefits associated with that.

And as I said, looking at our 2016 Key Issues Study, supplier innovation was the fastest growing in terms of its focus objective that we saw when we asked the procurement executives.

Gardner: Marcell, back to you. It sounds as if the idea of picking a supplier is not just a cost equation, but that there is a qualitative part to that. How would you automate and scale that in a large organization? It sounds to me like you need a business network of some sort where organizations can lay out much more freely what it is that they're providing as a service, and then making those services actually hook up -- a collaboration function.

Is that something you're seeing at Ariba, as well that the business network, helping procurement move from a transaction cost equation to a much richer set of services?

Key role

Vollmer: Business networks play a key role for us for our business strategy, but also on how to help companies to simplify their complexity.

When you reach out to a marketplace, you're looking for things. You're probably also starting discussions and getting additional information. You're not necessarily looking for paint in the automotive industry or the color of a car. Why not get an already painted car as a service at the end?

This is a very simple example, but now think about when you go to the next level on how to evolve and have a technology partnership, where you reach out to suppliers, looking for new suppliers, by getting more and more information and also asking others who have probably having already done similar things.

When you do this on a network, you get probably responses from suppliers you wouldn't even have thought about having capabilities like that. This is a process that, in the future, will continue to aid successfully the transformation to a more value-focused procurement function, and simplicity is definitely a key.

You need to run simple. You need to focus on your business, and you need to get rid of the complexity.

You need to run simple. You need to focus on your business, and you need to get rid of the complexity. You can’t have all the information and do everything on your own. You need to focus on your core competencies and help the business in getting whatever they need to be successful, from the suppliers out in the market to ensure you get the best price for the desired quality, and ensure on-time deliveries.

The magic triangle of procurement is not a big secret in the procurement world. Everybody knows that it's not possible to optimize everything. Therefore, you need to find the right mix. You also need to be agile to work with suppliers in a different way by not only focusing just on the price, which a lot of operational technical procurement functions are used to. You need what you really want to achieve as a business outcome.

On a network you can get help from suppliers, from the collaboration side also, in finding the right ones to drive business value for your organization.

Gardner: Another major area where we're expecting significant change in 2016 is around the use of procurement as a vehicle for risk reduction. So having this visibility using networks -- elevating the use of data analysis, everything we have talked about, in addition to cost-efficiencies, in addition to bringing innovation to play between suppliers and consumers at the industrial scale -- it seems to me that we're getting insight deeply into supply chains and able to therefore head off a variety of risks. These risks can be around security, around the ability to keep supply chains healthy and functioning, and even unknown factors could arise that would damage even an entire company's reputation.

Kurt, do you have some data, some findings that would illustrate or reinforce this idea that procurement as a function, and CPOs in particular, can play a much greater role in the ability to detect risk and prevent bad things from happening to companies?

Supply continuity risk

Albertson: Again, I'll go back to the 2016 Key Issues Study and talk about objectives. Reducing supply continuity risk is actually number six on the list, and it’s a long list, and that’s pretty important.

A little bit further down, we see things like regulatory noncompliance risk, which is certainly core. It's certainly more aligned with certain industries than others. So just from our perspective, we see this as certainly number six on the list of procurement 2016 objectives, and the question is what we do about it.

There's another objective that I talked about earlier, which is to improve agility. It's actually number four on the list for procurement 2016 objectives.

I look at risk management and procurement agility going hand in hand. The way data helps support that is by getting access to better information, really understanding where those risks are, and then being able to quickly respond and hopefully mitigate those risks. Ideally, we want to mitigate risks and we want to be able to tap the suppliers themselves and the supply network to do it.

In fact, we attacked this idea of supply risk management in our 2025 procurement study. It’s really about going beyond just looking at a particular supplier and looking at all the suppliers that are out there in the network, their suppliers, their suppliers, and so on.

But then, it's also tapping all the other partners that are participating in those networks, and using them to help support your understanding and proactively identifying where risk might be occurring, so that you can take action against it.

How do we manage and analyze all this data? How do we make sense of it? That's where we see a lot of our clients struggling today.

It’s one of the key cornerstones of our 2025 research. It's about tapping supplier networks and pulling information from those networks and other external sources, pulling that information into some type of solution that can help you manage and analyze that information, and then presenting that to your internal stakeholders in a manner that helps them manage risk better.

And certainly, an organization like SAP Ariba is in a good position to do that. That’s obviously one of the major barriers with this big-data equation. How do we manage and analyze all this data? How do we make sense of it? That's where we see a lot of our clients struggling today.

We have had some examples of clients that have built out an SRM group inside their procurement organization as a center-of-excellence capability purely to pull this information that resides out in the market, whether it’s supplier market intelligence or information flowing from networks and other network partners. Marrying that information with their internal objectives and plans, and then synthesizing that information, lets them put that information in the hands of category managers.

Category managers can then sit down with business leaders and have fact-based opinions about what’s going to happen in those markets from a risk perspective. We could be talking about continuity of supply, pricing risks and the impact on profitability, or what have you. Whatever those risks are, you're able to use that information. It goes back to elevating the roles of trusted advisor. The more information and insight you can put into their hands the better.

The indirect side

Obviously, when we look at some of the supply networks, there's a lot of information that can be gleaned out there. Think about different buyers that are working with certain suppliers in getting information to them on supply risk performance. To be frank, a lot of organizations still don’t do a great job on the indirect side.

There are opportunities, and we're seeing it already in some of these markets for supply networks to start with the supplier performance piece of this, tap the network community to provide insight to that, and get help from a risk perspective that can be used to help identify where opportunities to manage risk better might occur.

But there are a lot of other sources of information and it’s really up to procurement to try to figure this out with all the sources of big data. Whether it’s sensor data, social data, transactional data, operational data, partner data, machine-to-machine (M2M) data, or cloud services based data, there's a lot of information. We have a model that looks at this kind of these three levels of kind of this analytics model.

The first level of the model is just for recording things and generating reports. The second level is that you're understanding and generating information that then can be used for analytics. Third, you're actually anticipating. You have intelligence and you're moving towards more real-time analytics so that you can be quicker in responding to potential risk.

Procurement organizations need to ensure that they really help the business as much as possible, and also evolve to the next level for their own procurement functions.

I mentioned this idea of agility as being key on the procurement executive’s list. Agility can be in many things, but one of the things that it means with respect to risk is that you can’t avoid every risk event. Some risk events are going to happen. There's nothing you're going to do about them, but you can proactively make plans for when those risk events do occur, so that you have a well thought-out plan based on analytics to execute in order to minimize the impact of that risk.

Time and time again, when we look at case studies and at the research that’s out there, those organizations that are much more agile in terms of responding to these risks where you're not going to be able to avoid them, minimize the impact of those risks significantly compared to others.

Gardner: As we look ahead to 2016, we're certainly seeing a lot on the plate for the procurement organization. It looks like they're facing a lot more technology issues, they're facing change of culture, they're thinking about being a networked organization. Marcell, how do you recommend that procurement professionals prepare themselves? What would you recommend that they do in order to meet these challenges in 2016? How can they be ready for such a vast amount of change?

Vollmer: Procurement organizations need to ensure that they really help the business as much as possible, and also evolve to the next level for their own procurement functions. Number one is that procurement functions need to see that they have the right organizational setup in place. That setup needs to fit the overall organizational line of business spectra, what a company has.

The second component, which I think is very important, is to have an end-to-end focus on the process side. Source-to-pay is a clearly defined term, but it's a little bit different in all the companies. When you really want to optimize, when you really want to streamline your process, you want to use business networks and strategic sourcing tools, as well as running in a highly automated level of transaction to leverage the automation potential of what you have in a purchase order or invoice automation, for example.

One defined process

Then, you need to ensure that you have one defined process and you need to have side systems covering all the different parts of the process. This needs to be highly integrated, as well as integrated in your entire IT landscape.

Finally, you need to also consider change management. This is a most important component by which you help the buyers in your organization transform and evolve to the next level into a more strategic procurement function.

As Kurt said about the data, if you don’t have some basic data, you're very far away from driving predictive analytics and prescriptive guidance. Therefore, you need to ensure that you invest also in your talents and that you drive to change management side.

These are the three components that I would see in 2016. This sounds easy, but I've talked to a lot of CPOs. This journey might take a couple of years, but procurement doesn't have a lot of time. We need to see now in procurement that we define the right measures, the right actions, to ensure that we can help the business and also create value.

If you don’t have some basic data, you're very far away from driving predictive analytics and prescriptive guidance.

As was already mentioned, this needs to go beyond just creating procurement savings. I believe that this concept is here to stay in the future. I think the value is what counts, what you can create.

Gardner: I'm afraid we'll have to leave it there. You've been listening to a sponsored BriefingsDirect podcast discussion on the heightened role and impact of procurement as a strategic business force. And we learned how procurement leaders can make a much bigger difference in the organization as procurement itself transforms to become a focal point of integrated business services.

So please join me in thanking our guests, Kurt Albertson, Principal of Advisory Services at The Hackett Group, and Dr. Marcell Vollmer, Chief Operating Officer at SAP Ariba, and the former Chief Procurement Officer at SAP. And also a big thank you to our audience for joining this SAP Ariba-sponsored business innovation thought leadership discussion.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a BriefingsDirect discussion on the role of procurement as a strategic business force. Copyright Interarbor Solutions, LLC, 2005-2016. All rights reserved.

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Is 2016 the Year that Accounts Payable Becomes Strategic?

Transcript of a BriefingsDirect discussion on the changing role and impact of accounts payable as a strategic business force.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

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

Gardner

Our business innovation thought leadership discussion today focuses on the changing role and impact of accounts payable (AP) as a strategic business force. We’ll explore how intelligent AP is rapidly transforming by better managing exceptions, adopting fuller automation, and implementing end-to-end processes that leverage connected business networks.

As the so-called digital enterprise adapts to a world of increased collaboration, digital transactions, and e-payables management -- AP is needing to adapt in 2016.

To learn more about the future of AP as a focal point of automated business services we are joined by Andrew Bartolini, Chief Research Officer at Ardent Partners in Boston. Welcome, Andrew.

Andrew Bartolini: Thanks for having me. Great to speak to you again, Dana.

Gardner: Good to have you with us. We are also here with Drew Hofler, Senior Director of Marketing at SAP Ariba. Welcome, Drew.

Drew Hofler: Thank you, Dana. Good to be here.

Gardner: Drew, let’s look at the arrival of 2016. We have more things going on digitally, we have a need to improve efficiency, and AP has been shifting -- but how will 2016 make a difference? What should we expect in terms of AP elevating its role in the enterprise?

Hofler: AP is one of those areas that everybody looks at, first and foremost, as a cost center. So when AP looks at what they can do better, they've typically thought about efficiency and cost savings first. That’s the plus side of the cost center as saving money by spending less.

Hofler

But what we've been seeing happening over the last year or so, and what will accelerate in 2016, is that AP begins to move more from just a cost saving and efficiency focus to value creation. And this is where they sit in the hub of one of the three critical elements of working capital -- inventory, receivables and payables -- and AP sits squarely on that last one.

And they have influence over that which affects the company's working capital. AP has become so very important for companies by creating the efficiencies in the invoice process, it opens up opportunities, and they're going to be able to affect a company’s working capital for the positive going forward. That’s going to grow as they move beyond just the automation that is the foundation to then seeing the opportunities that come out of that.

Gardner: Andrew, do you see AP also as a digital hub, growing in its role and influence and being able to increase its value beyond cost efficiency into these other higher innovation levels or strategic levels of benefit?

Tracking trends

Bartolini: Yes, absolutely. I've been researching and working in this space for 17 years, doing significant market research over the last 11 years. So I've been tracking the trends and the ebbs and flows of relative interest and investment in AP.

What we've seen in 2015 in some of our most recent research is that there has been a broader focus or a shift away from viewing the AP opportunity as an efficiency one or solely an efficiency one. Let’s automate. Let’s reduce our costs in processing invoices. Let’s reduce our costs in payments.

Bartolini

But what we saw this year for the first time in our research was that the top area of focus, the top business pressure that’s driving investments in AP transformation was the need to get better visibility into all the valuable information that comes across the AP departments or through the AP operation, both on the invoice and the payment side.

That begins to change the conversation. We talked about the evolution of AP moving from a strictly back-office siloed department to an increasing point of collaboration with procurement at the purchase-to-pay (P2P) process, with treasury, from a cash-management perspective. Now, we see it starting to move and becoming a true intelligence hub, and that’s where we've seen some momentum. There’s a lot of wind in the sails for AP, really pushing that forward in 2016 and beyond.

Gardner: Andrew, what’s driving this? Is this the technology that's now allowing that data?

Bartolini: There are a couple of factors underlying this movement. The first is taking the broader perspective within business as a whole. Businesses can no longer allow distinct business functions to operate within silos. They need everybody on the same team, rowing in the same direction. That has forced greater collaboration.

That’s something that we've seen more broadly between procurement and finance over the past couple of years, specifically with the role of the CPO and the CFO. A majority of organizations see a very strong level of collaboration within those two job roles and within their departments as a whole.

That has opened up larger opportunities for AP, which is a more tactical function as it relates to procurement, but by bringing the two groups together, you now have shared resources and shared focus on improving the entire source-to-settle process.

That relationship has driven greater interest, because the opportunities are fantastic for procurement to leverage the value of a more efficient AP process and to be able to see the information that’s there.

As Drew mentioned, by becoming more efficient on the front end of the AP process, organizations are doing a better job in reducing the amount of paper that’s coming in through the front door. They're processing their invoices faster. That's opening up opportunities on the back-end, on the payment side.

So, you have a confluence of those factors and you see newer solutions in the marketplace as well that are really changing the view that AP departments have of what defines a transformation. They're thinking more holistically across the entirety of the AP process, from invoice receipt, all the way through payment and settlement.

Allowing for variables

Gardner: Drew, it seems that over history, once a contract is closed the terms remain fairly rigid, and then there is a simple fulfillment aspect to it. But it sounds like -- as we get more visibility, as we get digitized, and we can automate -- we can handle exceptions better and allow for more variables.

I've heard instances where the terms can be adjusted, that market forces can provide for ways in which a deal gets amended as an ongoing basis, whether it's in terms of payment, whether perhaps there are other ancillary issues. Is that what we are seeing, that the digital transformation is giving us more opportunity to be flexible, and is that then elevating the role of the AP organization?

Hofler: You make a couple of good points there, and it really springs from what Andrew just said about not having to silo or not staying in that siloed place where AP and procurement are separate or the processes are separate, because what companies have realized, particularly as the digital age has made it possible, is that the procure-to-pay process, the source-to-settle process, is a fundamentally connected one.

Over the years they've operated very disconnectedly, with hand-offs, where procurement does its thing, writes a contract and then hands it off once the purchase order (PO) goes out the door, and then AP takes up the process from there. But in that, there are a lot of disconnects.

What companies have realized, particularly as the digital age has made it possible, is that the procure-to-pay process, the source-to-settle process, is a fundamentally connected one.

When you're able to bring networked systems together to bring visibility across that entire process, now you have the AP group acting in a more strategic manner to deliver value by acting as the value-capture group.

For example, prior to this age that we live in now, a contract would be written, it would have specific terms for specific items and specific prices for specific SKUs, and maybe some volume discounts. AP had no idea about that, because these contracts would get signed and they get put in a file cabinet or stuck in a PDF file somewhere, and the AP had no idea. So they went off of the invoice that came in.

This is how an entire industry about post-audit recovery came about, to go after the fact and try to claw back over-payment, because there's no visibility in AP to what procurement did.

By bringing these together in a system, on a network, you're able to automatically capture those savings, because AP now has visibility into what’s happening inside of that contract, and can insure on an automated basis that they are paying the right amount. So, it becomes not just a buy-right thing from the procurement side, but a pay-right thing as well, a buy- and pay-right tied together.

But that's your point about terms. Yes, you have certain terms tied into that contract, but again, that's set at the beginning of a relationship with a supplier. There are lots of opportunities that come up when everybody has visibility into what's going on, into an early-approved invoice for example.

Opportunities for collaboration

There are lots of opportunities that arise for collaboration where maybe the situation has changed a little bit. Maybe a supplier, instead of being paid in 45 days, now would very much like to be paid in five days, because they have payroll ahead or they have an equipment purchase to make, and they want to accelerate their cash flow.

In a disconnected world, you can't account for that. But in a networked world, where there is visibility, I like to say that it's the confluence of visibility, opportunity, and capability where all parties have visibility into the opportunity created by efficiencies with that earlier approved invoice. Then, there's the capability inside the system to simply click a button and accelerate that cash flow or modify those terms on that contract, in those payment terms.

So this idea of P2P being a linked value chain and the digital technology of today can bring those together so that there are no barriers to that information flow and that creates all sorts of opportunities for all parties involved.

Gardner: Andrew, we're having a common denominator here of visibility, the visibility is what allows for a lot of these efficiencies and innovation values to occur, where does that visibility come from, where does the data get generated, how is it shared, and how do we further reduce the silos through the free flow of data analysis and information?

Bartolini: Visibility at the core starts with automation tools that automate processes. If we're looking at the P2P process, you're looking at an eProcurement system. You can go back to where it starts, from sourcing and contracting. If you have contract visibility or at least visibility into your header-level information, you begin to have an understanding of what, in fact, the relationship is and what relationships you have as an organization, who are your preferred suppliers, who are your strategic suppliers.

Visibility at the core starts with automation tools that automate processes.

As you start to drill down, if you have the capabilities to capture things like payment terms and service-level agreements (SLAs). That information begins to provide a more robust view of the relationship that can then be more strategically managed from a procurement perspective, and then really sets up the operational procurement side.

If you have an eProcurement system, you're able to generate purchase orders against those contracts and you're ensuring that before the purchase order is even sent to the supplier, the pricing and the terms are correct.

That cascades over onto the AP automation side. We use the term "ePayables" very broadly to describe AP automation solutions. When you have an eProcurement and an ePayables solution connecting, you begin to have greater visibility within the enterprise for the entirety of the relationship and the entirety of the transaction.

On the flip side, where we haven't gotten to the value proposition for suppliers who really view their customer relationship as a single one, what often happens is they have multiple relationships within that customer that really aren't needed. They negotiate a contract, they have their internal customer, and then they are dealing with maybe a procurement department and then trying to then figure out who they are dealing with on the AP side.

When you’ve got visibility that can be shared with trading partners, you get extraordinarily greater value out of the entire thing, and you streamline relationships and you're able to focus on the more important aspects of those relationships. But to the original question, visibility starts and ends with technology.

Centralizing procurement

Gardner: We're also seeing the trend of larger organizations centralizing procurement, sometimes placing it, if it's a global organization, in another country instead of having it in multiple countries or multiple markets. It becomes consolidated and automated. How does that fit in, Drew?

Hofler: We see definitely a move toward a shared service or a global process ownership type of thing, where they want to take the variability out of the different geographies or different business units doing what is essentially a standardized process, or they want to make that standardized.

We definitely see the movement in that, and it's both a business desire and goal to remove the variability, but it's something that's enabled by the technology that we have today in business networks, in centralized systems, that can tie all of this together. Now you have business units operating across the world, but tapping in all of that information, tapping in, getting all the invoices to come into one place through a network. Those business units can see that. Those business units have access at a controlled pace to the information that they need inside of those systems as well.

On the procurement side, if you're sourcing globally, you can have different centers of excellence.

For the ability to connect the data to everybody, to turn that data not just from an information but to intelligence, getting it in front of the right people at the right time and the right process, the business networks really, really help to drive that. Having that centralized network hub where everybody can connect at the point of the process that they need really helps drive or enable the movement towards shared service and centralized AP procurement.

Bartolini: Anyone would be hard-pressed to make a case that you should have a decentralized AP operation. That doesn't mean that you can't have staff that are geographically dispersed, but there's no reason why that should exist.

On the procurement side, if you're sourcing globally, you can have different centers of excellence. Again, you want to have a more centralized view into visibility and to be utilizing the same systems and processes. On the AP side, centralization also helps from the standpoint that you begin to get a better sense of what resources are being applied in the AP process today. It also becomes easier to centralize or to gain budgets for investment in tools that can drive efficiency, visibility, and all the things we've just been talking about.

Gardner: Another thread that I’m hearing in our conversation is that technology needs to be exploited, visibility gained, and automation made possible. Then, centralization can become a huge benefit from all of that. But none of this is possible if we don't go all digital. If we don't get off of manual processes and get off of paper. What do you think is going to be the ratio, if you will, of a paper approach that's left? Are we finally going to pull the last paper invoice out, or the last payment that's manual? Where are we, Drew, when it comes to making that full transition to digital? It seems to me an overwhelmingly beneficial direction.

Still using paper

Hofler: I've been in the payment space for about 20 years and the payable space for the last 10, and in payment, there have been predictions in that space that we would get rid of the paper check completely. Gosh, for the last 20 years everybody is saying it's going to happen, but it hasn't. It's still about 50 percent paper checks.

So I'm not going to make a prediction that paper is going to go away, but most definitely, companies need to deal with and move toward electronic data. Even if it's paper based, a lot of companies are moving toward getting the data in electronically, but a lot of them say, "Well, I get my paper scanned, I've sent it to a scanning service or whatever, and I get it in PDF or electronic data form."

That's fine and that's one step along the process, but companies are realizing that there's a limitation in that. When you do that, you're simply getting the data that was on that paper source document faster. If that paper source document data is garbage, and that's what creates exceptions, then you're just getting the exceptions quicker, and that doesn't really help the process, that doesn't really solve the true issue of making sure you're not only getting the data faster, but that you get it in clean and that you get it in better.

This is where companies need to move toward full electronic invoicing, where it starts its life as an electronic invoice.

This is where companies need to move toward full electronic invoicing, where it starts its life as an electronic invoice, so that a supplier can submit it and have it run through business rules electronically before it even gets the AP. They can identify the exceptions and turn it around to the supplier and have them correct it, all in a very quick and automated fashion, so that by the time AP gets it it's 98 percent exception free or straight-through processing.

Companies are going to realize that just transforming a paper source document into an electronic form has had value in the past, but its value is quickly running out, and they need to move toward true electronic.

How far we are going to get along that path? Well, that’s a big prediction to make, but I think we'll move along way down that path. Companies definitely need to recognize, and are starting to recognize, that they need to deal with native electronic data in order to truly gain value, efficiency, and intelligence and be able to leverage that into other opportunities.

Gardner: We mentioned exception handling, exception management, making that easier, better, faster. It strikes me that exception management is really a means to a greater end, and the greater end is general flexibility -- even looking at things as markets, as auctions, where there's variability and a fit-for-purpose kind of mentality can come in.

So am I off in some pie-in-the-sky direction, Andrew? Or when we think about the ability to do exception management, are we really opening up the opportunity to do even more interesting, innovative things with business transactions?

Reduction of exceptions

Bartolini: No, I don’t think it’s pie in the sky. One of our recent surveys of about 200 or so AP finance, and P2P professionals, a question was asked, what’s the number one game changer that will get your AP operation to the next level of performance? And the answer that came in loud and clear was the reduction of exceptions and the ability to perform root-cause analysis in a much more significant way.

So it’s a fundamental problem, and the opportunity is for a majority of things. About two-thirds of organizations feel that if they could handle this issue better, if they could reduce that number, they would be operating at a significantly higher level.

We haven’t really talked too much about the suppliers in this equation, but a lot of business focus and a lot of the themes in our research this year and into 2016 has been focused on agility and the need for organizations to become more adept and responsive to market shifts and changes.

Part of that is getting better alignment with the strategic suppliers that are going to drive more value and that are having a greater impact on the company's own products and services and ultimately their results.

When that noise in the relationship is reduced it allows organizations to focus on goals and objectives and to invest more in the strategic elements of the relationship.

So, you look at something like exceptions that are problematic for both sides of the trading-partner equation, when you start to reduce those, when you start to eliminate a lot of the friction that is built in, certainly around the manual P2P process, but can exist even in an automated environment. When that noise in the relationship is reduced it allows organizations to focus on goals and objectives and to invest more in the strategic elements of the relationship.

Gardner: Drew, anything to add to that, particularly when you consider that the pool of suppliers is, in a sense, growing when we look at contingent workers, when we look at different types of suppliers as smaller firms, perhaps located at a much greater geographic distance than in the past. We have more open markets as a result of connected business networks. How do you see that panning out in 2016?

Hofler: Yeah, there's definitely a growth in that. There's a pretty good stat that shows that a much larger portion of a company's workforce is not bound to that company, and it's a temporary, it's a contingent workforce, it's services that are from contractors that aren't necessarily tied to them.

The need to handle that, particularly the churn that happens with that, the broader number of contractors that you might have with that, the variability in the services that are asked for, that are needed, all of this adds layers of complexity, potentially, to AP, and to procurement as well. We're focused more on AP here, but it adds layers of complexity in managing that and approving that, and as a result, can add a significant number of exceptions.

So, while you're operating your business in a way that is a little more fitting in today’s world, you're also adding a lot of complexity and exceptions to the process, unless you’ve got a way to automatically build in the ability to define the invoice and to identify the exceptions so that these various suppliers who are much smaller and geographically dispersed can submit online or can submit electronically and can do so in a way that's standardized, even across this large group.

Catching exceptions

The exceptions can be caught right away, for example, field services. If there's a service sheet form that was put out by procurement to hire somebody to go fix an oil well, and they get out to the oil well and there’s more to be done than what was on that, they have to get approval for that. To have the ability to get that approval online, automatically, through a mobile device, and have it tied directly into the invoice, and have the invoice close that eliminates all those potential breakpoints of finally getting that invoice in and getting the exceptions dealt with and approved.

Exceptions to me aren't just a matter of, "Gosh, they're hard to do." They're something we want to get rid of. But exceptions are simply the barrier to the opportunity that comes when you can get that invoice moved through and approved right away, not necessarily a matter of paying the invoice faster from the payer’s perspective, but the ability to have it approved and ready to go right away, so that you have options, and so that the supplier has options potentially for cash flow and things like that.

Exceptions become something that we have to eliminate in order to get to that opportunity, but without the platform to do that, to your point, the dispersed workforce, and the increasing contractors, they can make it even harder than it is or than it has been.

Gardner: When we look at the payoffs from doing things better using AP intelligence and technology, we are not just looking at efficiency for its own sake. I think you're opening up more opportunity, as you put it, to the larger business.

If procurement and accounts payable can adjust and react rapidly to complexity, to exceptions, to new ways of doing business -- this is a powerful tool to the business at large.

If procurement and accounts payable can adjust and react rapidly to complexity, to exceptions, to new ways of doing business -- this is a powerful tool to the business at large. They can go at markets differently. They can acquire goods and services across a wider portfolio of choices, a wider marketplace, and therefore be able to perhaps get things easier, faster, cheaper.

Let’s look at this idea of non-tangible payoffs that elevates the value of AP to being a sophisticated intelligent operation. Let's start with Andrew. What are some of the intangibles -- if we do all the above that we have mentioned well – how does this empower the organization in ways that we haven't seen before?

Bartolini: That’s a great question and it gets back to the one point I was just making about agility. If you were to argue that we're operating in an age of innovation, where globalization and the level of competition, and the speed of business in general has really accelerated the time frames that organizations must react -- I think this is happening at a much faster pace.

You can see that in areas like the consumer electronics market, and in all industries, product lifecycles are shortening, and so the windows of opportunity to maximize sales and revenues in the marketplace are much shorter as well.

Things are happening at a much faster clip and in tighter time frames. This has created a much greater reliance upon your suppliers and upon your supply chain. And so having visibility across the P2P process, across the source-to-settle process, and having much tighter relationships with your strategic suppliers ultimately positions the organization to become much more agile and much more competitive. And that's the value dividend that's created from a more streamlined P2P process.

It’s being able to more fully optimize the relationships that you have with your suppliers, and it's being able to make decisions and shifts in a much faster way than in the past, and that's not just from the sourcing side, that carries all the way through to the payment side as well.

Business agility

Gardner: Drew, when we think about the strategic role of AP -- of providing business agility -- you can’t get more strategic than that.

Hofler: No, that's right. AP particularly can become the source of much of that strategic intelligence that companies need. They can't just see themselves as processing paper or as a back-office cost center, but as being the ones that capture that can, through their use of systems and investment in systems and networks, capture the data in invoices, for example, and can feed that data into the sourcing cycle at the beginning, so it becomes a virtuous circle.

They can create the opportunity for the company to meet some of their very strategic goals around working capital. So now AP and their ability to tie into what procurement has done before them and automate the process and get things done very nimbly and ready to go and create this opportunity, are creating opportunity for treasury as well, so now you have got a third party in there.

The treasurer is very concerned about what his liabilities are out there, what the payments liabilities are. Does he know? Often, in today’s world, treasurers can’t see their payable liabilities until they run through their payment cycle and they're ready to be paid the next day. So they have to move cash around to make sure that they have enough cash to manage those liabilities going out.

With visibility into what’s going to be paid out 30 days from now, having that 30 days in advance offers the treasurer all sorts of options on how to manage their cash among various different bank accounts.

It gives the treasurer the opportunity to pay that supplier early, using excess cash that’s sitting in a bank account.

Plus, it gives them the option to do things around their days payable outstanding (DPO), to bring third parties into a business network, to bring in third-party supply chain finance that allow a supplier who might need early payment liquidity and early cash flow to access that from a third party while the buying organization is able to hold on to their cash, and so extend their DPO and improve their working-capital management.

Or it gives the treasurer the opportunity to pay that supplier early, using excess cash that’s sitting in a bank account. Even though the Fed just raised rates in the last day or two, they only raised it a quarter of a percent. So it’s still not earning very much. But now, a treasurer can take that and pay a supplier early in exchange for a discount that earns them something along the lines of 8-12 percent annually.

It opens up options, but right at the nexus of all of that opportunity, information, and intelligence sits AP. That’s a very strategic place for AP to be if they can get their hands around that data, create those opportunities, and make it visible to the rest of the business.

Gardner: One last area to get into for 2016 … One of the top concerns in addition to business agility for companies and organizations is risk, security, and dealing with compliance issues, with regulatory issues. Is there something that AP brings to the table when it has elevated itself to the strategic level, with that visibility with that data, with the ability to act quickly and be able to take on exceptions and work through them?

Andrew, we've heard about how, on the procurement side, that examining the supply chain, knowing that supply chain, being able to head off interruptions or other issues, having business continuity mindset is important. Does that translate over to AP, and why and how does AP have a larger role in issues around continuity?

Risk mitigation

Bartolini: From a risk-mitigation standpoint, when you have greater assurances, that the invoices are matched to the PO, to the orders that have been generated, to what has been delivered, when you have a clear view into how that payment is made, across and into the supplier’s account, you're reducing the opportunities for fraud, which can exist in any type of environment, manual or fully automated. One of the largest risk-mitigation opportunities for AP is really at the transactions level.

When you start to cascade the visibility that AP generates out into the larger organization, you can start to do some predictive analysis from the procurement side to better understand potential issues that suppliers may be facing.

Also from a treasury standpoint, when you have visibility into the huge amount of money that is being paid out by AP, you have a better sense of your company’s liquidity, your cash positions, and what you need to do to ensure that you maintain that liquidity.

Looking on the supplier’s side, when you're processing invoices more quickly and you have the opportunities to make payments early, there are those opportunities for the larger companies to step in and help out some of their struggling suppliers, whether that’s paying their invoices early or some other mechanism. It starts with visibility, and from that visibility you start to have a better ability to make smarter decisions and to anticipate potential issues.

They may have had an otherwise healthy business, but not sufficient cash flow to maintain operations, and that hurt buying organizations who depend on them.

Gardner: Last word to you Drew on this issue of risk reduction, continuity, using intelligence to head off disruption or fraud, how do you see that panning out in 2016?

Hofler: I think AP does play a large role in that. Andrew touched on some of that.

One of the key areas, if you think about supply chain and from the procurement side, the financial supply chain is pretty much just as important as the physical supply chain when it comes to risk. As we learned, people have gotten it deep in their bones since 2008 and 2009 when liquidity became a very big issue. There was liquidity risk in supply chains of suppliers who couldn’t access cash flow or didn’t have sufficient cash flow. They may have had an otherwise healthy business, but not sufficient cash flow to maintain operations, and that hurt buying organizations who depend on them.

By being able to approve invoices very quickly and offer up to your suppliers, through a single portal, a single network access, access to cash, either from a buying company using their own or bringing in third-party financing, you essentially are able to eliminate or greatly mitigate liquidity risk in your supply chain.

But there are other areas of risk, too. Anytime you're talking about AP, Andrew said it the right way, where he talked about the massive amounts of money that AP is paying out. That’s their job.

In order to do that, they have to actually capture, manage, and maintain bank account information from their suppliers in order to pay electronically. We're always trying to get away from paper checks, because paper checks, we know, are rife with fraud, very horribly opaque and very slow, but electronic payments require them to capture bank account information. And that’s not a core competency of most AP departments.

Network power

But AP departments can tap into the power of network ecosystems that bring in third parties whose core competency that very much is, to eliminate their need to ever even see a supplier’s bank account information.

Some forward-looking AP departments are looking at how they can divest themselves of that which is not their core competency, and in some ways around risk mitigation and payment, one of them is getting rid of having to touch bank account information.

Beyond that, when we talk about compliance and that type of thing, AP sits right in the middle of that, whether that be from VAT compliance in Europe, to archival compliance, to stocks compliance here in the US, having all of the data electronic and having an auditable trail and being able to know exactly where every piece of data and every dollar or euro spent has been and where it went along the way and having a trail of that automatically capture and archived, that goes a long way towards compliance.

Some forward-looking AP departments are looking at how they can divest themselves of that which is not their core competency.

AP is the one that sits right there to be able to capture that and provide that.

Gardner: I’m afraid we will have to leave it there. You've been listening to a sponsored BriefingsDirect podcast discussion on the changing role and impact of accounts payable as a strategic business force. And we have learned how intelligent AP is rapidly transforming -- via better managing exceptions, adopting fuller automation and implementing end-to-end processes that leverage connected business networks.

So please join me in thanking Andrew Bartolini, Chief Research Officer at Ardent Partners in Boston, and Drew Hofler, Senior Director of Marketing at SAP Ariba.

And a big thank you as well to our audience for joining this SAP Ariba-sponsored business innovation though leadership discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a BriefingsDirect discussion on the changing role and impact of accounts payable as a strategic business force. Copyright Interarbor Solutions, LLC, 2005-2016. All rights reserved.

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