Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases and Processes

Transcript of a BriefingsDirect podcast on how a major healthcare services company is leveraging tools from Ariba to cut costs and improve efficiency.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the recent 2013 Ariba LIVE Conference.

Gardner

We're here to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy. We'll see how they are improving their business productivity and sales, along with building far-reaching relationships with new partners and customers.

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

Our next innovator interview focuses on MedAssets, a healthcare industry procurement, spend, operations, and supply-chain services company, which currently manages some $50 billion of supply spend for its customers annually.

We'll learn how the healthcare sector has unique operational efficiency and regulatory challenges and how MedAssets, in partnership with Ariba, an SAP company, has found ways to improve health provider and supplier compliance, reduce costs, and develop better accuracy.

To hear how they did it, please join me in welcoming our guest, Rick Grodin, Senior Vice President of Product Management at MedAssets, based in Alpharetta, Georgia. Welcome.

Rick Grodin: It's great to be here. Thanks for having me.

Gardner: We’re here at a very busy Ariba LIVE Conference, and one of the things that people are dealing with is how to make their particular vertical industry and the particulars of their own company work within a broader infrastructure and networked economy. I'm particularly interested in the healthcare industry.

Rick, what's going on in healthcare and why is this such an important area for focusing on innovation, productivity, and cost reduction?

Grodin: We manage spend on behalf of 3,000-plus providers, both on the non-acute care side, as well as in the for-profit and not-for-profit acute care hospital community. The challenges that they're facing are quite remarkable, both from an incremental-cost perspective, whether that be supply cost or labor cost, as well as continued pressure on what are already razor-thin operating margins -- typically between 0 and 3 percent.

Significant consequences

With the Affordable Care Act coming down the pike, officially passed and certainly soon to be implemented, reimbursement per unit is going to come down materially for hospitals, and that’s going to have significant consequences on provider operations and financial health.

Grodin

As millions of new people come into the healthcare system, likely to be reimbursed through the state exchanges somewhere between Medicaid and Medicare rates, that’s going to have a significant impact on that operating margin, because hospitals are already losing money at Medicaid and Medicare rates.

You're going to have a significant influx of new patient volume at lower reimbursements. Therefore, the need for the healthcare community to take out substantial cost over the next couple of years is just going to continue to intensify significantly.

Anything that we can do, as a healthcare provider partner, to help them bring down those costs from a back-office operational efficiency perspective is going to be extremely important.

Gardner: How do we get those better efficiencies, not only from within an organization which has been under way for some time and will continue, but when you go outside your borders? When you look toward supply chains, the networked economy, and cloud providers, what's the control point? How do you exercise control and management, when these are outside the borders of your healthcare-provider organization?

It’s not only about how we can improve the financial health of our hospital customers, but also our supplier partners.

Grodin: For us, specifically at MedAssets, the supplier community is extremely important to us. It’s not only about how we can improve the financial health of our hospital customers, but also our supplier partners. If we can continue to work with our supplier partners to bring down their cost, they can then pass along those efficiencies and offer lower price points to our provider customers. So it’s a win-win for everybody.

Today, through MedAssets eCommerce Exchange and transaction management services, we help create a more efficient operating environment, with respect to getting purchase orders to suppliers. But because it’s through an EDI-based system, it’s basically just getting paper there more quickly, as opposed to correcting and rejecting invoices that are wrong on the front-end, so that they don’t need to be worked on the back end.

Creating a more efficient operating environment with respect to that paper purchase order (PO) or invoice, and basically enabling a provider and a supplier to conduct that commerce through the cloud, our exchange, or a combination thereof, will create significant operating efficiencies on both sides of the house.

Now, all of a sudden, the accounts payable clerk that’s sitting in a hospital doesn’t have to manage an exception. Today, they're constantly struggling with whether the PO price is the same as the contract price and the same as the invoice price. In many instances, it’s not.

So they need to circle back with the supplier to say, "The invoice is wrong, and you need to fix it." Or they need to circle back internally and ask why they're cutting a PO that doesn’t match the contract price, whether it’s a locally negotiated contract or a contract through a group purchasing organization.

Added value

So, it's the ability to catch those invoice exceptions upfront. All of that exception management activity can be repurposed to value-add activities internally, whether that’s reinvesting completely in patient care delivery or just repurposing those FTEs on the back end to again do more value-added activities that are not related to just managing an exception.

Gardner: I'd like to hear more about how Ariba and MedAssets work together, but let's learn more about MedAssets first. Tell us a bit about the history of your company, what you do, and the size, so we have a better sense of how you fit in this picture.

Grodin: We touch approximately 4,200 acute-care hospitals across the country, as well as over 120,000 non-acute care providers. We have two operating segments within the organization.

The one that I primarily focus on for product management is our Spend and Clinical Resource Management group. Within this segment, we deliver value to providers through our  group purchasing organization, technology-enabled services, an analytics platform and procure-to-pay solutions that are all aimed at reducing cost on behalf of our providers.

The other element that we bring to the table is through our Advisory Solutions group, which is a number of consulting practices that can address operational improvement opportunities or other areas of cost that are not impacted just through procurement or through a group purchasing organization.

As most people are aware, labor cost is approximately 50 to 60 percent of total cost for a hospital. It’s a significant area of opportunity.

As an example, we have a phenomenal group that focuses on clinical utilization and bringing down physician preference-item costs. We have a group that focuses on permanent labor and agency labor. As most people are aware, labor cost is approximately 50 to 60 percent of total cost for a hospital. It’s a significant area of opportunity.

Finally, we bring lean transformation and process-improvement capabilities to healthcare through another practice in our Advisory Solutions group. There have been tremendous benefits brought through Lean to other industries, and we're trying to bring that to the healthcare environment as well.

Gardner: Looking back into MedAssets, what other tools do you have in your toolbox, to use your phrase, that you can help health providers improve their financial standing?

Grodin: As I mentioned before we have our Spend and Clinical Resource Management segment that manages over $50 billion in spend, but we also have another large operating segment where we provide revenue cycle management services.

So we have a whole suite of technologies that can impact everything -- the front, middle and back portion of the revenue cycle -- as well as the Revenue Cycle Services group that provides both consulting services, as well as a shared-service environment for taking on revenue-cycle activities within a hospital environment.

Gardner: How about the relationship between MedAssets and Ariba? Do you utilize their services in their cloud activities, technologies, and processes, and then apply that through your's? Is this an ecosystem type of relation? How does it work?

Two fronts

Grodin: Our relationship with Ariba is on two fronts. We're currently in the process of implementing their Procure-to-Pay solution for our own internal use within MedAssets, and our team is extremely excited about how things are going so far.

I was mainly focused on working with the Ariba team on putting together the strategic partnership that we announced in early April and that we're extremely excited about. We wanted to partner with the leader in global e-commerce and there was no doubt that that was the Ariba team.

We’d like to bring the capabilities that are proven in other industries, where Ariba has basically gone to market and been extremely successful, and bring those similar cloud-based and network activities into healthcare.

As I alluded to before, we have our own eCommerce Exchange and Transaction Management services, as well as a partnership on the front-end for requisitioning through Prodigo.

Historically, we've done a very good job of working with the buyers in hospitals to requisition an item and get that purchase order out through our eCommerce Exchange and Transaction Management services to the vendor. Where we’ve fallen short is in helping our suppliers and providers get that invoice back most efficiently.

The other thing that’s extremely exciting about what Ariba brings to the table is the fact that they have over one million vendors on their network.

What's great about the Ariba Network is that we can link our eCommerce Exchange with the Ariba Network to enable a more efficient transaction process. We enable providers to get a PO out through our eCommerce Exchange or through the Ariba Network electronically, and then enable suppliers to send that invoice back electronically through their exchange or through invoice conversion services, which is basically taking the paper invoice and converting it into an electronic invoice.

Multiple benefits come out of that. It’s a perfect complement to what MedAssets has already been doing in the healthcare community with our provider clients, but taking it to the next level. The other thing that’s extremely exciting about what Ariba brings to the table is the fact that they have over one million vendors on their network.

Today, we do commerce through our exchange with about 350 traditional medical/surgical vendors, whereas Ariba has perfected the world that they call "indirect spend" and we call "purchased services." That's a huge unlock both for us and for the provider community.

We believe that purchased services spend is just as big as the spend that goes through the GPO, if not even bigger. Typically, that has been a very hard area for providers to get their arms around, because they haven’t had access to the data.

The main reason for that is that most of the purchased services spend is a non-PO transaction. So it’s very hard to get to that granular line-item level detail to break down that spend, whether it’s by contract category or specific vendor. You can’t manage anything if you can’t see it.

Significant value

So we're extremely excited about leveraging the Ariba Network and working with them to capture 100 percent of provider spend, not just med/surg and PO-backed spend, but all of the spend that’s coming out of the hospital. The value this can bring to the provider community is significant.

Gardner: It sounds like a really good marriage between the general approach that Ariba can have and the more verticalized, specialized approach that you have. It's sort of the best of both worlds. What did you do before Ariba, and how long have you been working with them?

Grodin: We've been in dialogue with Ariba for several months about a strategic partnership. We hadn't worked with Ariba in the past so this is a new relationship. But after speaking to customers of theirs, doing our due diligence in other industries, and talking to some of their healthcare clients today, we knew that this would be a great strategic fit both for us and for them.

Gardner: Rick, tell me a bit more about how the services at MedAssets and some of the capabilities at Ariba coming together to offer you the capabilities to deliver into the market things that perhaps you've never been done before.

Ariba has created a smart invoicing capability, because it’s a network, as opposed to just an EDI pipe.

Grodin: This is where I get very excited about the potential of what Ariba and MedAssets can do together in the marketplace. As I mentioned before, we have our eCommerce Exchange, which is EDI-based, and we can get a certain portion of invoices back electronically through our exchange.

There are other offerings in the marketplace that are very similar, but really what they do is just get a paper invoice back into the provider’s hands more quickly. But you don’t know if that invoice is correct. If it’s not correct, there is a whole lot of inefficiency in managing that exception on the backend.

Ariba has created a smart invoicing capability, because it’s a network, as opposed to just an EDI pipe. Those invoices that are inaccurate can be rejected on the front-end, so they never even get to the provider until they are accurate.

The best part about it is that rules engine -- and that I believe that you can customize up to 70 different rules -- is dictated by the provider themselves. It’s not a built-in, one-size-fits-all type of solution. Depending on the unique needs of that provider, they can customize that rules engine to reject inaccurate invoices back to the supplier in real-time.

It’s the whole notion of garbage in, garbage out. We're preventing the garbage from coming through, which is then creating those efficiencies in accounts payable. That is absolutely something that’s going to be unique to healthcare and doesn’t exist today, and which again will create tremendous operational efficiencies on the back end.

Because of smart invoicing and the overall transaction efficiency that’s created through the exchange and the network, we're going to be able to enable providers to get invoices in a ready-to-pay status much more quickly. Industry best practice is five days. We've seen metrics, where it could take anywhere between 20 and 40 days to get that invoice approved for most healthcare providers today.

Dynamic discounting

Our relationship with Ariba will enable us to leverage Ariba’s working capital management solutions as well. They’ve got something that they refer to as Dynamic Discounting, which creates the ability to have an ad-hoc negotiation for further cost-of-goods-sold reductions between a provider and a supplier.

Because of the increased visibility into where an invoice is sitting and what the status of that invoice is between suppliers and providers -- something that doesn’t exist in healthcare today -- a supplier can go in and see that an invoice is sitting in a ready-to-pay status.

They can then offer an incremental discount to the provider, so that if the provider  has additional cash on hand and it’s better used to drive additional discounts as opposed to sitting and getting short-term interest, that can make a tremendous amount of sense.

So, there's also the ability to optimize prompt-pay discounts, where appropriate, because we're getting those invoices in a ready-to-pay status much more quickly. So if it’s a two percent discount if you pay within 10 days, and the average invoice isn’t being approved for 20 days, all of a sudden I've missed that window. Even if I have cash on hand, I can’t leverage it.

Even better, if I've missed that prompt-pay window, but am willing to pay on day 20, instead of day 30 or day 40, all of a sudden there is value coming back to the provider as opposed to no incremental value for paying early. It’s just another lever or another tool in the toolkit that we can use to drive further cost reductions in our partnership with Ariba.

As the reimbursement models are changing in healthcare, they're getting more-and-more focused on clinical quality, safety, etc.

Gardner: Of course, healthcare being such a large part of the economy, we're talking about some very large sums of money. But when it comes out to eking out these efficiencies, when you can reduce those paper invoices, when you can streamline the processes, and you can provide the right data at the right time to the right people to make choices to automate over time, what sort of savings are we talking about? Do you have a sense of what the payoffs are when this is done properly?

Grodin: The benefits are significant in a couple of areas, making that back-office function, specifically in AP, more efficient, more scalable, and being able to repurpose the work that was being done in that department and in other back-office administrative areas. Also, the ability to reinvest those resources in front-line patient care delivery.

As the reimbursement models are changing in healthcare, they're getting more-and-more focused on clinical quality, safety, etc. That’s where a hospital’s core focus needs to be, not in the back-office. It needs to be with the patient. Certainly there are significant FTE and operating efficiency benefits created by this partnership, but what we are particularly excited about is more from a contract-compliance perspective.

Through our eCommerce Exchange, our transaction management service, as well as what Ariba is going to bring to the table through PO and invoice automation, invoice conversion services, invoice professional which is their workflow tool, we'll have the ability to ensure that folks are buying on contract where they should be and also ensuring that they are paying the right price. We do a good job today of ensuring that that PO price matches the contract price, but where we have been challenged in the past is the ability to bring that invoice price in.

Significant benefits

It’s going to bring significant benefits, because in some of the research that we're doing with very sophisticated health systems, they're finding that they may only be buying on contract 30-40 percent of the time. So a contract is only as good as its use. If it’s just sitting in a drawer and nobody is accessing it, all the great work that’s been done by their sourcing team or our sourcing team is for naught.

The ability to do all of that in real time, to take that PO price match it up against our contract price and against the invoice price, is going to ensure not only are they buying on contract, but they are paying the right price.

Gardner: As we move further down the road, we see that the technologies in cloud computing and data analysis are being brought to bear on some of these issues of more opportunity, gain insight, see the trends and bargain, and understand what the market will bear, rather than just dealing on a point basis. Do you expect that you'll be looking for more analysis services from providers like Ariba and how important is that in the long-term for further eking out productivity gains?

Grodin: As our relationship continues to blossom with Ariba, I'm sure we’ll be having conversations around their spend visibility and other analytic tools that they can bring to the table. Within MedAssets, we have  our own analytics tools, including service line analytics, spend analytics and pharmacy analytics.

For us, the true unlock is the ability to get access to purchasing and spend data, which is where we are very excited.

For us, the true unlock is the ability to get access to purchasing and spend data, which is where we are very excited. We capture a lot of financial and spend data today, but this purchasing and  indirect spend area is really an untapped horizon where the data and the technology that Ariba is going to bring, in combination with our analytics, people and process, will provide significant benefit.

We currently manage about $5 billion of spend through our National Procurement Center, which is the largest shared services operation of its kind in healthcare today. That combination of people, process, and technology is absolutely going to unlock new opportunities in healthcare from a spend-management and cost-reduction perspective.

Gardner: We’ll have to leave it there. We have been talking about the healthcare sector’s unique operational efficiency and regulatory challenges and how MedAssets, in partnership with Ariba, has found ways to improve health provider and supplier compliance, cost and accuracy of results.

I’d like to thank our guest. We're here with Rick Grodin, Senior Vice President of Product Management at MedAssets. Thank you so much, Rick.

Grodin: Thanks for having me. I’ve enjoyed the discussion.

Gardner: And I’d like to thank our audience for joining us here for this special podcast coming to you from the 2013 Ariba Live Conference held recently in Washington, DC.

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

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Transcript of a BriefingsDirect podcast on how a major healthcare services company is leveraging tools from Ariba to cut costs and improve efficiency. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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Cloud Services Help SHI Redefine the Buyer-Seller Dynamic for Huge Efficiency Gains Worldwide

Transcript of a BriefingsDirect podcast on how the networked economy is improving business and sales for an IT provider and its customers.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the 2013 Ariba LIVE Conference in Washington, D.C.

Gardner

We're here to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy. We'll see how they are improving their business productivity and sales, along with building far-reaching relationships with new partners and customers.

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

Our next innovator interview focuses on SHI International, a global provider of IT products, procurement, and related services, with more than $4 billion in annual turnover. We'll learn how SHI teamed with Ariba, an SAP company, to streamline IT product discovery and purchasing processes for large agricultural machinery builder AGCO. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

To hear how they did it, please join me in welcoming our guest. We're here with John D’Aquila, Applications Support Manager at SHI International Corp. in Somerset, New Jersey. Welcome, John.

John D’Aquila: Welcome, Dana.

Gardner: Good to have you with us. Tell me a little bit about the requirements for buying and selling in this era of "fast is better," "more data is inevitable." What’s different now about buying and selling IT products and services than, say, three or four years ago?

D'Aquila: One thing that has really changed is that IT asset management is a hot topic right now. Customers want to track their purchases much more efficiently than in the past, so they can know exactly how much they have at all times. They want to know if they're over-licensed, under-licensed on the software side, or as far as hardware goes, they want to make sure that they have enough hardware in stock, but don’t have too much. You don’t want to have whole closets and warehouses full of equipment.

Gardner: So it's just as we've heard in a lot of other vertical sectors -- fit for purpose, not too wasteful, just in time, not over-inventory, that sort of thing. You have to be very precise, and therefore, you need to have the data about what’s going on across your supply chain.

D'Aquila: Correct. That's where electronic commerce comes in, in IT asset management. I always say that it starts with a great PO, because we want to make sure that when we receive that purchase order, we have as much information that the customer is going to be looking for us to report on downstream.

Years later, if they come back to us and say, how many desktops did we purchase over the last three years and who are they for, the only way we could tell them who it was for is if they told us that information on the purchase order.

Streamlined solution

So the best way to get that is to have a streamlined solution that everyone is using when they're procuring their desktop PC, versus the situation where one PO came over handwritten, one PO came over via fax, and the level of information on each of those POs would be different.

Gardner: How are you doing in terms of getting people to get more digital, more electronic? Is IT a leader or a laggard, or is it all over the map, depending on the individual organization?

D'Aquila: At SHI, as part of every customer QBR or RFP demonstration, we definitely focus on the shi.com portal, which is a standalone website solution to provide them the ability to procure their products from a customized catalog solution.

D'Aquila

Then we show them how we can leverage our check-out question process to collect the information, to make sure that every request and purchase order comes over with that same level of information. If a customer has a solution like Ariba, then we explain to them how we can work with that.

Gardner: This would be a good point, I suppose, to learn more about SHI. Tell us about your organization, how it came about, what you're doing, and why this whole notion of being ultra-efficient across your purchasing processes is essential to your business.

D'Aquila: SHI is a global provider of IT products and solutions. We're headquartered in Somerset, New Jersey, and as you mentioned before, we had over $4 billion in revenue last year. This year we expect to surpass $5 billion.

The number of employees has doubled in four years. So there is definitely an investment internally to enhance the backbone of SHI, which is the sales force and the operations departments.

One thing that I always like to talk about is that as I walk in in the morning -- and all employees walk in -- Above the SHI logo it says "Innovative Solutions and World Class Support." This reminds every employee, as they walk in, that our customers are the reason we're successful, and the way we retain those customers is by providing those innovative solutions and world-class support.

Gardner: Tell me a bit more about how these low-touch orders are executed, and what Ariba’s role is? How are we getting people to be more efficient and more data driven when it comes to procuring their IT services and products?

Customer driven

D'Aquila: The whole Ariba process is typically driven by the customer. In the early stages of evaluating a solution, we can tell them, if they ask us which one have you worked with and what are the benefits of each, but typically the decision has already been made by the time they come to my team.

We'll explain to them our capabilities around that, and how we could seek benefits from little pieces of information on either the punch-out setup request or on the purchase order.

Gardner: Tell us a bit about this example so we can learn more about how a good way to do this unfolds. AGCO -- who are they, how did they become your customer, what are you doing with them, and how do they exemplify what should be going on here?

D'Aquila: AGCO has been a customer of SHI’s for many years. The spend was at some growth, but it was really a slow trend up. Eric Deese is the contractor who is working on the project of enabling Ariba throughout AGCO.

We had a conference call to discuss the requirements and his scheduling and understanding his expectations of what we were going to do. From there, we put the resources in place. We did some testing with Eric, a full test, from the purchase order to invoice, to make sure that everything worked properly. Then, I handed it over to Tammy Wagner, who is the Account Executive for AGCO.

We've tailored a catalog around the requirements that Eric provided to make it easier for his users to find products.

One thing that we really like to focus on with customers is, rather than show them everything we could sell, we show what they actually need and want. So we've tailored a catalog around the requirements that Eric provided to make it easier for his users to find products.

Since we've gone live, the number of products purchased from SHI and the different product lines has tripled. So it's been a great success story.

Gardner: How are these trends around cloud, big data, and more process-driven efficiency goals translated into actual savings or efficiencies? Can we quantify it? Are there any metrics of success even for a company like AGCO? What did they gain when they did this better?

D'Aquila: One thing is that they control their spend. In speaking to Eric, he explained that the AGCO users were buying software from everywhere. Some people would buy a shrink-wrap copy of software, which is really not the right way to buy software. They would use their P-Cards, and then they would just do an expense report, so it wouldn't be captured properly within their cost centers and the internal accounting.

Now, he said, all the employees of AGCO are going into the Ariba application and procuring their software from SHI. So maverick spend has been controlled.

As far the cloud, we're not doing anything today with AGCO in that space. SHI does have cloud solutions, backup-as-a-service solutions, and hopefully in the future we can build that out.

Single-point purchasing

Gardner: Can you prove back to them, when they do this with a single point for purchasing and when they have a standard operating procedure that everyone lines up behind? You must get more data in that regard than you can feed back to the customer to prove to them what they are saving. For example, the P-Card tax, that's not involved. How can you quantify this in dollar terms? Do you have a means to do that?

D'Aquila: We don't know exactly how much they've paid in the past. However, we can show Eric the spend with SHI and how it has grown. We work with you. Your overall spend has helped you secure better pricing with the manufacturers and with SHI, which in the long-term will turn over savings for AGCO.

Gardner: As IT organizations, in particular, are looking to move more towards an operations expenditure (OPEX) approach rather than the capital expenditure (CAPEX), they're looking for services, for leasing, and for outsourcing types of services. How is that impacting your business and how does that also impact the buying and selling process?

D'Aquila: There has definitely been a trend of more operational expense, versus capital. We notice that customers are no longer treating a desktop as a commodity. It's more of a rental. You're going to use it for a few years and it's no longer going to be expected to run the life of an employee.

So the catalog refresh cycles, have changed, as far as the number of items in the catalog. There is definitely standardizing and making sure that everyone in the organization has the same type of product, so they can get better imaging and so forth.

Although it is BYOD, they're still putting minimum specifications that really require a business-type tool. You are not going to get away with a retail laptop, desktop, or even the smaller mobile devices.

There is also a trend toward bring your own device (BYOD) that has been coming our way. Organizations are telling their employees, here is your minimum specifications, you can buy any PC, but it's out of your own pocket. It's up to you to purchase it, but you can bring that to work, whether it's a mobile device or even a laptop.

Gardner: Are you starting to see any trends with BYOD where they would say, you can buy it, but why don't you buy it through these guys because they get a bulk rate? Is there a sort of a hybrid, where it's the corporation managing the buy, getting the benefits of the bulk sale, the organization around that, but having it be done through the end user, the employee, and then managed by them over time?

D'Aquila: When we're involved, that's the BYOD procedure that I see in place. The customer does pick a standard set of solutions and products and say, here is what you could choose from 20 items, and you should buy this from SHI, because we have secured deals through the manufacturer and through SHI to get discounted pricing. Of course, they can go to a retail shop on a weekend and maybe get one of the five that come in that are on sale, but typically that's not going to meet the specifications.

Although it is BYOD, they're still putting minimum specifications that really require a business-type tool. You are not going to get away with a retail laptop, desktop, or even the smaller mobile devices.

Gardner: John, we've been talking a lot about how the buyer from your organization is benefiting from an Ariba relationship. How about on your acquisition side, your supply chain? Is the Ariba Network coming into play on that side as well?

Net new customers

D'Aquila: We use Ariba as a seller, we have seen great benefit in growing customers, and that's really where we focus. We want to get net new customers and grow the catalogs and offerings to the existing customers.

Today, there may be a customer that only purchases software from SHI. We want to introduce them to the fact that although we were Software House International, we are SHI now, because we sell all products that are IT related -- hardware, services, and solutions.

Gardner: And because we are here at Ariba LIVE, what are you hearing that excites you. It may be the spot-buying information. Is that something that would be of interest to you?

We sell all products that are IT related -- hardware, services, and solutions.

D'Aquila: Yes. I've used Discovery in the past. I think there were a lot of empty requests we would respond, and then they wouldn't be viewed. I'm expecting that with the Spot Buy, because it will come directly out of the SAP application and will be someone keying in a request and looking for the bids, we'll get better leads from the solution. I'm looking forward to see what comes of it.

Gardner: I am afraid we will have to leave it there. We've been talking about how SHI has teamed up with Ariba to streamline IT product purchasing, processes, especially for a large agricultural company, AGCO.

Thank you so much to our guest, John D’Aquila, Applications Support Manager at SHI International. Thanks so much.

D'Aquila: Thank you, Dana.

Gardner: And thank you to our audience for joining this special podcast coming to you from the 2013 Ariba LIVE Conference in Washington D.C.

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

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Transcript of a BriefingsDirect podcast on how the networked economy is improving business and sales for an IT provider and its customers. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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• Collboration-Enhanced Procurement and AP Automation Maximize Productivity and Profit Gains in Networked Economy, Says Ariba's Drew Hofler
• Ariba Network Helps Cox Enterprises Manage Procurement Across Six Different ERP Systems
• Ariba CMO Tim Minahan on how networked economy benefits spring from improved business commerce and cloud processes
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The Networked Economy Newly Forges Innovation Forces for Collaboration in Business and Commerce, Says Author Zach Tumin

Advanced business networks are driving innovation and social interactions as new technologies and heightened user expectations converge.

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

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect. Today, we present a sponsored podcast discussion on how new levels of collaboration have emerged from an increasingly networked world, and what that now means for business and society.

Gardner

We'll hear from a Harvard Kennedy School researcher and author on how deeper levels of collaboration -- more than ever -- can positively impact how organizations operate. And we'll learn from a global business-commerce network provider how these digital communities are redefining and extending new types of business and collaboration. 

To learn more about how new trends in collaboration and business networking are driving innovation and social interactions, please join me now in welcoming Zach Tumin, Senior Researcher at the Science, Technology, and Public Policy Program at the Harvard Kennedy School. Welcome, Zach.

Zach Tumin: Good morning, Dana.

Gardner: Zach, you're also the co-author with William Bratton of this year’s Collaborate or Perish: Reaching Across Boundaries in a Networked World, published by Random House. We welcome you to the show.

Tumin: Thank you.

Gardner: We're also joined today by Tim Minahan, Senior Vice-President of Global Network Strategy and Chief Marketing Officer at Ariba, an SAP company. Welcome back, Tim.

Tim Minahan: Thanks, Dana. Good to be here. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

Gardner: Gentlemen, let's set the stage here, because we have a really big topic. Zach, in your book "Collaborate or Perish," you're exploring collaboration and you show what it can do when it's fully leveraged. It's very interesting. And Tim, at Ariba you've been showing how a more networked economy is producing efficiencies for business and even extending the balance of what we would consider commerce to be.

I’d like to start with looking at how these come together. First, we have new types of collaboration and then we have the means to execute on them through these new business networks. What should we expect when these come together? Let's go to you first, Zach.

Tumin: Thanks, Dana. The opportunities for collaboration are expanding even as we speak. The networks around the world are volatile. They're moving fast. The speed of change is coming at managers and executives at a terrific pace. There is an incredible variety of choice, and people are empowered with these great digital devices that we all have in our pockets.

Tumin

That creates a new world, where the possibilities are tremendous for joining forces, whether politically, economically, or socially. Yet it's also a difficult world, where we don't have authority, if we have to go outside of our organizations -- but where we don't have all the power that we need, if we stay within the boundaries of our charters.

So, we're always reaching across boundaries to find people who we can partner with. The key is how we do that. How do we move people to act with us, where we don't have the authority over them? How do we make it pay for people to collaborate?

A lot of change

Gardner: Tim, we've seen lots of change in last 20 years, and a lot of times, we'll see behavioral shifts. Then, at other times, we'll see technology shifts. Today, we seem to be having both come together. Based on what Zach has described in this unprecedented level of change in adaptation, where do you see the big payoffs for business in terms of leveraging collaboration in the context of a vast network?

Minahan: Collaboration certainly is the new business imperative. Companies have leaned out their operations over the past couple of years and they spent the previous 30 years focusing on their internal operations and efficiencies and driving greater performance, and getting greater insights.

Minahan

When they look outside their enterprise today, it's still a mess. Most of the transactions still occur offline or through semi-automated processes. They lack transparency into those processes and efficiency in executing them. As a result, that means lots of paper and lots of people and lots of missed opportunities, whether it's in capitalizing on getting a new product to market or achieving new sales with new potential customers.

What business networks and this new level of collaboration bring is four things. It brings the transparency that’s currently lacking into the process. So you know where your opportunities are. You know where your orders are. You know where your invoices are and what your exposure to payables are.

It brings new levels of efficiencies executing against those processes, much faster than you ever could before through mostly automated process.

It brings new levels of efficiencies executing against those processes, much faster than you ever could before through mostly automated process. It brings new types of collaboration which I am sure we will get into later in this segment.

The last part, which I think is most intriguing, is that it brings new levels of insights. We're no longer making decisions blindly. We no longer need to double order, because we don’t know if that shipment is coming in and we need to stockpile, because we can't let the refinery go down. So it brings new levels of insight to make more informed decisions in real time.

Gardner: One of the things I sense, as people grapple with these issues, is a difficulty in deciding where to let creative chaos rein and where to exercise control and where to lock down and exercise traditional IT imperatives around governance, command and control, and systems of records.

Zach, in your book with William Bratton, are there any examples that you can point to that show how some organizations have allowed that creativity of people to extend their habits and behaviors in new ways unfettered and then at the same time retain that all-important IT control?

Tumin: It's a critical question that you’ve raised. We have young people coming into the workforce who are newly empowered. They understand how to do all the things that they need do without waiting online and without waiting for authority. Yet, they're coming into organizations that have strong cultures that have strong command-and-control hierarchies.

There's a clash that’s happening here, and the strong companies are the ones that find the path to embracing the creativity of networked folks within the organization and across their boundaries, while maintaining focus on set of core deliverables that everyone needs to do.

Wells Fargo

There are plenty of terrific examples. I will give you one. At Wells Fargo, for the development of the online capability for the wholesale shop, Steve Ellis was Executive Vice President. He had to take his group offline to develop the capability, but he had two responsibilities. One was to the bank, which had a history of security and trust. That was its brand. That was its reputation. But he was also looking to the online world, to variability, to choice, and to developing exactly the things that customers want.

Steve Ellis found a way of working with his core group of developers to engage customers in the code design of Wells Fargo's online presence for the wholesale side. As a result, they were able to develop systems that were so integrated into the customers over time that they can move very, very quickly, adapt as new developments required, and yet they gave full head to the creativity of the designers, as well as to the customers in coming to these new ways of doing business.

So here's an example of a pretty staid organization, 150 years old with a reputation for trust and security, making its way into the roiling water of the networked world and finding a path through engagement that helped to prevail in the marketplace over a decade.

Gardner: Tim Minahan, for the benefit of our audience, help us better understand how Ariba is helping to fuel this issue of allowing creativity and new types of collaboration, but at the same time maintaining that the important principles of good business.

Minahan: Absolutely, Dana. The problem we solve at Ariba is quite basic, yet one of the biggest impediments to business productivity and performance that still exists. That's around inter-enterprise collaboration or collaboration between businesses.

We talked about the deficits there earlier. Through our cloud-based applications and business network, we eliminate all of the hassles, the papers, the phone calls, and other manual or disjointed activities that companies do each day to do things like find new suppliers, find new business opportunities as a seller, to place or manage orders, to collaborate with customers suppliers and other partners, or to just get paid.

They can connect with known trading partners much more efficiently and then automate the processes and the information flows between each other.

Nearly a million business today are digitally connected through the Ariba Network. They're empowered to discover one another in new ways, getting qualifying information from the community, so that they know who that party is even if they haven’t met them before. It's similar to what you see on eBay. When you want to sell your golf clubs, you know that that buyer has a performance history of doing business with other buyers.

They can connect with known trading partners much more efficiently and then automate the processes and the information flows between each other. Then, they can collaborate in new ways, not only to find one another, but also to get access to preferred financing or new insights into market trends that are going on around particular commodities.

That’s the power of bringing a business network to bear in today’s world. It's this convergence of cloud applications, the ability to access and automate a process. Those that share that process share the underlying infrastructure and a digitally connected community of relevant parties, whether that’s customers, suppliers, potential trading partners, banking partners, or other participants involved in the commerce process.

Gardner: Zach, in your book and in your earlier comments, you're basically describing almost a new workforce and some companies and organizations are recognizing that and embracing it. What’s driving this? What has happened that is basically redefining a workforce and how it relates to itself and to the customer or, in many cases, for businesses across the ecosystem of the suppliers and then the channels and distribution? What’s behind this fairly massive shift in what workforces are?

It's the demographics

Tumin: It’s in the demographics, Dana. Young people are accustomed to doing things today that were not possible 10 years ago. The digital power in everyone’s pocket or pocket book, the digital wallet in markets, are ready, willing, and able to deal with them and to welcome them. That means that there’s pressure on organizations to integrate and take advantage of the power that individuals have in the marketplace and that come in to their workforce.

Everyone can see what's going on around the world. We're moving to a situation where young people are feeling pretty powerful. They're able to search, find, discover, and become experts all on their own through the use of technologies that 10 years ago weren’t available.

So a lot of the traditional ways of thinking about power, status, and prestige in the workforce are changing as a result, and the organizations that can adapt and adopt these kinds of technologies and turn them to their advantage are the ones that are going to prevail.

Gardner: Tim, with that said, there's this demographic shift, the shift in the mentality of self-started discovery of recognizing that the information you want is out there, and it’s simply a matter of applying your need to the right data and then executing on some action as a result. Your network seems ready-made for that. I know that you guys have been at this for some time. It seems like the events, these trends, have coalesced in a way that that really suits your strength.

Tell me why you think that’s the case that this vision you had at Ariba a decade or more ago has come about. Is there something fundamental about the Internet or were you guys just in the right place at the right time?

The reality of the community is that it is organic. It takes time to grow.

Minahan: The reality of the community is that it is organic. It takes time to grow. At Ariba we have more than 15 years of transactional history, relationship history, and community generated content that we've amassed. In fact, over the past 12 months those, nearly a million connected companies have executed more than $400 billion in purchase, sales, invoice, and payment transactions over the Ariba network.

Aggregate that over 15 years, and you have some great insights beyond just trading efficiencies for those companies participating there. You can deliver insights to them so that they can make more informed decisions, whether that’s in selecting a new trading partner or determining when or how to pay.

Should I take an early-payment discount in order to accelerate or reduce my cost basis? From a sales standpoint, or seller’s standpoint, should I offer an early payment discount in order to accelerate my cash flow? There are actually a host of examples where companies are taking advantage of this today and it’s not just for the large companies. Let me give you two examples.

From the buyer side, there was a company called Plaid Enterprises. Plaid is a company that, if you have daughters like I do who are interested in hobbies and creating crafts, you are very familiar with. They're one of the leading providers for the do-it-yourself crafts that you would get at your craft store.

Like many other manufacturers, they were a mid sized company, but they decided a couple of years ago to offshore their supplies. So they went to the low cost region of China. A few years into it, they realized that labor wages were rising, their quality was declining, and worse than that, it was sometimes taking them five months to get their shipment.

New sources of supply

So they went to the Ariba Network to find new sources of supply. Like many other manufacturers, they thought, "Let’s look in other low cost regions like Vietnam." They certainly found suppliers there, but what they also found were suppliers here in North America.

They went through a bidding process with the suppliers they found there, with the qualifying information on who was doing business with whom and how they performed in the past, and they wound up selecting a supplier that was 30 miles down the road. They wound up getting a 40 percent cost reduction from what they had previously paid in China and their lead times were cut from more than 120 days down to 30.

That’s from the buy side. From the sell side, the inverse is true. I'll use an example of a company called Mediafly. It's a fast growing company that provides mobile marketing services to some of the largest companies in the world, large entertainment companies, large consumer products companies.

They were asked to join the Ariba Network to automate their invoicing and they have gotten some great efficiencies from that. They've gotten transparencies to know when their invoice is paid, but one other thing was really interesting.

Once they were in the networked environment and once they had automated those processes, they were now able to do what we call dynamic discounting. That meant when they want their cash, they can make offers to their customers that they're connected to on the Ariba Network and be able to accelerate their cash.

You have extraordinary volatility on your network and that can rumble all the way through.

So they were able not only to shrink their quote-to-settle cycle by 84 percent, but they gained access to new financing and capital through the Ariba network. So they could go out and hire that new developer to take on that new project and they were even able to defer a next round of funding, because they have greater control over their cash flow.

Gardner: Zach, in listening to Tim, particularly that discovery process, we're really going back to some principles that define being human -- collaboration, word of mouth, sharing information about what you know. It just seems that we have a much greater scale that we can deploy this. As Tim was saying, you can look to supply chains in China, Vietnam, or in your own neighborhood that you might not have known, but you will discover.

Help me understand why the scale here is important? We can scale up and scale down. How is that fundamentally changing how people are relating in business and society?

Tumin: The scaling means that things can get big in a hurry and they can get fast in a hurry. So you get a lot of volume, things go viral, and you have a velocity of change here. New technologies are introducing themselves to the market. You have extraordinary volatility on your network and that can rumble all the way through, so that you feel it seconds after something halfway around the world has put a glitch in your supply chain. You have enormous variability. You're dealing with many different languages, both computer languages and human languages.

That means that the potential for collaboration really requires coming together in ways that helps people see very quickly why it is that they should work together, rather than go it alone. They may not have a choice, but people are still status quo animals. We're comfortable in the way that we have always done business, and it takes a lot to move us out.

It comes down to people

When crisis hits, it’s not exactly a great time to build those relationships. Speaker of the House Tip O'Neill here in United States once said "Make friends before you need them." That’s a good advice. We have great technology and we have great networks, but at the end of day, it’s people that make them work.

People rely on trust, and trust relies on relationships. Technology here is a great enabler but it’s no super bullet. It takes leadership to get people together across these networks and to then be able to scale and take advantage of what all these networks have to offer.

Gardner: Tim, another big trend today of course, is the ability to use all of this data that Zach has been describing, and you are alluding to, about what’s going on within these networks. Now, of course, with this explosive scale, the amount of that data has likewise exploded.

As we bring more of these coalescent trends together, we have the ability to deal with that scale at a lower cost than ever, and therefore start to create this dynamic of viral or virtual benefit type of effect. What I'm alluding to is more data, the more insight into what’s going on in the network, the more the people then avail themselves of that network, the more data they create, and therefore the better the analysis and the more pertinent their efforts are to their goals.

So, am I off in la-la land here or is there really something that we can point to about a virtuous adoption pattern, vis-a-vis, the ability to manage this data even as we explode the scale of commerce?

One of the reasons we're so excited about getting access to SAP HANA is the ability to offer this information up in real time.

Minahan: We've only begun to scratch surface on this. When you look at the data that goes on in a business commerce network, it’s really three levels. One is the transactional data, the actual transactions that are going on, knowing what commodities are being purchased and so on. Then, there's relationship data, knowing the relationship between a given buyer and seller.

Finally, there's what I would call community data, or community generated data, and that can take the form of performance ratings, so buyers rating suppliers and suppliers rating buyers. Others in the community can use that to help determine who to do business with or to help to detect some risk in their supply chain.

There are also community generated content, like request for proposal (RFP) templates. A lot of our communities members use a "give a template, take a template" type approach in which they are offering RFP templates to other members of the community that work well for them. These can be templates on how to source temp labor or how to source corrugated packaging.

We have dozens and dozens of those. When you aggregate all of this, the last part of the community data is the benchmarking data. It's understanding not just process benchmarking but also spend benchmarking.

One of the reasons we're so excited about getting access to SAP HANA is the ability to offer this information up in real time, at the point of either purchase or sale decision, so that folks can make more informed decisions about who to engage with or what terms to take or how to approach a particular category. That is particularly powerful and something you can’t get in a non-networked model.

Sharing data

Gardner: To that same point, Zach, are there some instances in your book, where you can point to this ability to share the data across community, whether it’s through some sort of a cloud apparatus or even a regulatory environment, where people are compelled to open up and share that is creating a new or very substantial benefits?

I am just trying to get at the network effect here, when it comes to exposing the data. I think that we're at a period now where that can happen in ways that just weren’t possible even five years ago.

Tumin: One of the things that we're seeing around the world is that innovation is taking place at the level of individual apps and individual developers. There's a great example in London. London Transport had a data set and a website that people would use to find out where their trains were, what the schedule was, and what was happening on a day-to-day basis.

As we all know, passengers on mass transit like to know what's happening on a minute-to-minute basis. London Transport decided they would open up their data, and the open data movement is very, very important in that respect. They opened the data and let developers develop some apps for folks. A number of apps developers did and put these things out on the system. The demand was so high that they crashed London Transport, initially.

London Transport took their data and put it into the cloud, where they could handle the scale much more effectively. Within a few days, they had gone from those thousand hits on the website per day to 2.3 million in the cloud.

You need governance and support people, and people to make it work and to trust each other and share information.

The ability to scale is terribly important. The ability to innovate and turn these open datasets over to communities of developers, to make this data available to people the way they want use it, is terribly important. And these kinds of industry-government relations that makes this possible are critical as well.

So across all those dimensions, technology, people, politics, and the platform, the data has to line up. You need governance and support people, and people to make it work and to trust each other and share information. These are the keys to collaboration today.

Gardner: We're coming up on our time limit, but I wanted to put myself in the place of a listener, who might be really jazzed by the potential here, but is still concerned about losing control. How do you take advantage of the mobile extended networks of social media and networks, but without losing your basic principles of good business practice and governance?

Is there something that you're seeing Tim, through your network and the way you're approaching this, that is a balancing act? How can you give some advice to someone who can start to enter these waters, but not drown or get lost?

Minahan: First, I want to talk about the dynamics going on that are fueling B2B collaboration. There is certainly the need for more productivity. So that's a constant in business, particularly as we're in tight environments. Many times companies are finding they are tapped out within the enterprise.

Becoming more dependent

The second is the leaning out of the enterprise itself with outsourcing more processes, more supply, and more activities to third parties. Companies are becoming more and more dependent on getting insights and collaborating with folks outside their enterprise.

The third is what Zach mentioned before, the changing demographics in the workforce, the millennials. They're collapsing the hierarchal command and control. They don't stand for sequestering of information with only a given few. They believe in sharing and in the knowledge of crowds. They want more collaboration with their peers, their bosses, and their business partners.

When you take that within a business context and how you put controls on it, obviously there needs to be some change. There is some change going on. There is change going on towards this wave of collaboration. Zach said before that it needs a good leader. There is change management involved. Let's not fool ourselves that technology is the only answer.

So policies need to be put down. Just like many businesses put policies down on their social media, there needs to be policies put down on how we share information and with whom, but the great thing about technology is that it can enforce those controls. It can help to put in checks and balances and give you a full transparency and audit trail, so you know that these policies are being enforced. You know that there are certain parameters around security of data.

You don't have those controls in the offline world. When paper leaves the building, you don't know. But when a transaction is shared or when information is shared over a network, you, as a company, have greater control. You have a greater insight, and the ability to track and trace.

When a transaction is shared or when information is shared over a network, you, as a company, have greater control.

So there is this balancing act going on between opening the kimono, as we talked about in '80s, being able to share more information with your trading partners, but now being able to do it in a controlled environment that is digitized and process-oriented. You have the controls you need to ensure you're protecting your business, while also growing your business.

Gardner: Zach, last word to you. What do we get? What's the payoff, if we can balance this correctly? If we can allow these new wheels of innovation to spin, to scale up, but also apply the right balance, as Tim was describing, for audit trails and access and privilege controls? If we do this right, what's in the offing? Even though it's early in the game as you pointed out, what's the potential here? When can we expect this payoff?

Tumin: I think you can expect four things, Dana. First is that you can expect innovations faster with ideas that work right away for partners. The partners who collaborate deeply and right from the start get their products right without too much error built-in and they can get them to market faster.

Second is that you're going to rinse out the cost of rework, whether it's from carrying needless inventory or handling paper that you don’t have to touch where there is cost involved. You're going to be able to rinse that out.

Third is that you're going to be able to build revenues by dealing with risk. You're going to take advantage of customer insight. You're going to make life better and that's going to be good news for you and the marketplace.

Constant learning

The fourth is that you have an opportunity for constant learning, so that insight moves to practice faster. That’s really important, because the world is changing so fast, you have the volatility, a velocity, a volume, variability, being able to learn and adapt is critical. That means embracing change, setting out the values that you want to lead by, helping people understand them.

Great leaders are great teachers. The opportunity of the networked world is to share that insight and loop it across the network, so that people understand how to improve every day and every way the core business processes that they're responsible for.

Gardner: Well, great. I am afraid we'll have to leave it there. I'd like to thank our audience for joining us. We've been discussing new levels of collaboration and how they have emerged within an increasingly networked world and how that's all coming together to impact both business and society.

I’d also like to thank our guests for joining us. Zach Tumin, Senior Researcher at the Science, Technology, and Public Policy Program at Harvard Kennedy School. He is also the co-author with William Bratton of this year's Collaborate or Perish.: Reaching Across Boundaries in a Networked World, and that’s published by Random House. Thanks so much Zach.

Tumin: Thank you, Dana.

Gardner: And, of course, Tim Minahan, Senior Vice-President of Global Network Strategy and Chief Marketing Officer at Ariba, an SAP company. Thanks so much, Tim.

Minahan: Thanks, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions and you’ve been listening to a sponsored BriefingsDirect broadcast. Thanks again for listening and come back next time.

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

Advanced business networks are driving innovation and social interactions as new technologies and heightened user expectations converge. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

You may also be interested in:

• Collboration-Enhanced Procurement and AP Automation Maximize Productivity and Profit Gains in Networked Economy, Says Ariba's Drew Hofler
• Ariba Network Helps Cox Enterprises Manage Procurement Across Six Different ERP Systems
• Ariba CMO Tim Minahan on how networked economy benefits spring from improved business commerce and cloud processes
• Ariba Dynamic Discounting Gives Companies New Visibility into Cash Flow to Improve the Buying Process
• Ariba, IBM Deal Shows Emerging Prominence of Cloud Ecosystem-Based Collaboration and Commerce
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