The New Procurement Advantage: How Business Networks Generate Multi-Party Ecosystem Solutions

Transcript of a discussion on how ecosystems built from business networks like the SAP Ariba Network incubate innovative third-party collaboration solutions that benefit both buyers and sellers.

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

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Our next intelligent enterprise discussion explores new opportunities for innovation and value creation inside of business-to-business (B2B) ecosystems.

Gardner

We’ll explore how business and technology platforms have evolved and why third-party businesses and modern analytics solutions are joining forces to create new breeds of digital commerce benefits.

To explain more on how business ecosystems are becoming incubators for value-added services for both business buyers and sellers, we are joined by Sean Thompson, Senior Vice President and Global Head of Business Development and Ecosystem at SAP Ariba. Welcome to BriefingsDirect, Sean.

Sean Thompson: Good morning, Dana. Thank you very much for having me.

Gardner: Why is now the right time to highlight collaboration inside of business ecosystems?

Thompson: It’s a fascinating time to be alive when you look at the largest companies on this planet, the five most valuable companies: Apple, Amazon, Google, Microsoft, and Facebook -- they all share something in common, and that is that they have built and hosted very rich ecosystems.

Ecosystems enrich the economy

These platforms represent wonderful economics for the companies themselves. But the members of the ecosystems also enjoy a very profitable place to do business. This includes the end-users profiting from the network effect that Facebook provides in terms of keeping in touch with friends, etc., as well as the advertisers who get value from the specific targeting of Facebook users based on end-user interests and values.

Thompson

So, it’s an interesting time to look at where these companies have taken us in the overall economy. It’s also an indication for other parts of the technology world that ecosystems in the cloud era are becoming more important. In the cloud era, you have multitenancy where you have the hosts of these applications, like SAP Ariba, using multitenant platforms. No longer are these applications delivered on-premise.

Now, it’s a cloud application enjoyed by more than 3.5 million organizations around the world. It’s hosted by SAP Ariba in the cloud. As a result, you have a wonderful ecosystem that evolved around a particular audience to which you can provide new value. For us, at SAP Ariba, the opportunity is to have an open mindset, much like the companies that I mentioned.

It is a very interesting time because business ecosystems now matter more than ever in the technology world, and it’s mainly due to cloud computing.

Gardner: These platforms create escalating value. Everybody involved is a winner, and the more they play, the more winnings there are for all. The participation grows the pie, builds a virtuous adoption cycle.

Is that how you view business ecosystems, as an ongoing value-added creation mechanism? How do you define a business ecosystem, and how is that different from five years ago?

Thompson: I say this to folks that I work with everyday -- not only inside of SAP Ariba, but also to members of our partner community, our ecosystem – “We are privileged in that not every company can talk about an ecosystem, mainly because you have to have relevance in order for such an ecosystem to develop.”

I wrote an article recently wherein I was reminded of growing up in Montana. I’m a big fly fisherman. I grew up with a fly rod in my hand. It didn’t dawn on me until later in my professional life that I used to talk about ecosystems as a kid. We used to talk about the various bug hatches that would happen and how that would make the trout go crazy.

I was taught by my dad about the certain ecosystems that supported different bugs and the different life that the trout feed on. In order to have an ecosystem -- whether it was fly-fishing as a kid in the natural environment or business ecosystems built today in the cloud -- it starts with relevance. Do you have relevance, much like Microsoft had relevance back in the personal computer (PC) era?

Power of relevance 

Apple created the PC era, but Microsoft decided to license the PC operating system (OS) to many and thus became relevant to all the third-party app developers. The Mac was closed. The strategy that Apple had in the beginning was to control this closed environment. That led to a wonderful user experience. But it didn’t lead to a place where third-party developers could build applications and get them sold.

Windows and a Windows-compatible PC environment created a profitable place that had relevance. More PC manufacturers used Windows as a standard, third-party app developers could build and sell the applications through a much broader distribution network, and that then was Microsoft’s relevance in the early days of the PC.

Other ecosystems have to have relevance, too. There have to be the right conditions for third parties to be attracted, and ultimately -- in the business world -- it’s all about, if you will, profit. Can I enjoy a profitable existence by joining the ecosystem?

You have to have the right conditions for third parties to be attracted. In the business world, it's all about profit. Can I enjoy a profitable existence by joining the ecosystem?

At SAP Ariba, I always say, we are privileged because we do have relevance.

Salesforce.com also had relevance in its early days when it distributed its customer resource management (CRM) app widely and efficiently. They pioneered the notion of only needing a username, a password, and credit card to distribute and consume a CRM app. Once that Sales Force Automation app was widely distributed, all of a sudden you had an ecosystem that began to pay attention because of the relevancy that Salesforce had. It was able to turn the relevancy of the app into an ecosystem that was based on a platform, and they introduced Force.com and the AppExchange for the third parties to extend the value of the applications and the platform.

It’s very similar to what we have here at SAP Ariba. The relevance in the ecosystem is supported by market relevance from the network. So it’s a fascinating time.

Gardner: What exactly is the relevance with the SAP Ariba platform? You’re in an auspicious place -- between buyers and sellers at the massive scale that the cloud allows. And increasingly the currency now is data, analytics, and insights.

Global ERP efficiency

Thompson: It’s very simple. I first got to know Ariba professionally back in the 1990s. I was at Deloitte, where I was one of those classic re-engineering consultants in the mid-90s. Then during the Y2K era, companies were getting rid of the old mainframes because they thought the code would fail when the calendar turned over to the year 2000. That was a wonderful perfect storm in the industry and led to the first major wave of consuming enterprise resource planning (ERP) technology and software.

Ariba was born out of that same era, with an eye toward procurement and helping the procurement organization within companies better manage spend.

ERP was about making spend more efficient, too, and making the organization more efficient overall. It was not just about reducing waste inherent within the silos of an organization. It was also about the waste in how companies spent money, managed suppliers, and managed spend against contracts that they had with those suppliers.

And so, Ariba -- not unlike Salesforce and other business applications that became relevant -- was the first to focus on the buyer, in particular the buyer within the procurement organization. The focus was on using a software application to help companies make better decisions around who they are sourcing from, their supply chain, and driving end-users to buy based on contracts that can be negotiated. It became an end-to-end way of thinking about your source-to-settle process. That was very much an application-led approach that SAP Ariba has had for the better part of 20 years.

When SAP bought Ariba in 2012, it included Ariba naturally within the portfolio of the largest ERP provider, SAP. But instead of thinking of it as a separate application, now Ariba is within SAP, enabling what we call the intelligent enterprise. The focus remains on making the enterprise more intelligent.

Pioneers in the cloud

SAP Ariba was also one of the first to pioneer moving from an on-premises world into the cloud. And by doing so, Ariba created a business network. It was very early in pioneering the concept of a network where -- by delighting the buyer and the procurement organization – that organization also brought in their suppliers with them.

Ariba early on had the concept of, “Let’s create a network where it’s not just one-to-one between a buyer and a supplier. Rather let’s think about it as a network -- as a marketplace -- where suppliers can make connections with many buyers.”

And so, very early on, SAP Ariba created a business network. That network today is made up 3.5 million buyers and sellers doing $2.2 trillion annually in commerce through the Ariba Network.

Now, as you pointed out, the currency is all about data. Because we are in the cloud, a network, and multitenant, our data model is structured in such a way that is far better than in an on-premises world. We now live within a cloud environment with a consistent data structure. Everybody is operating within the same environment, with the same code base. So now the data we have within SAP Ariba -- within that digital commerce data set -- becomes incredibly valuable to third parties. They can think about how they can enhance that value.

Because we are in a cloud, a network, and multitenant, our data model is structured in a way that's far better than in an on-premises world. We now live in a cloud environment with a consistent data structure.

As an example, we are working with banks today that are very interested in using data to inform new underwriting models. A supplier will soon be able to log-in to the SAP Ariba Network and see that there are banks offering them loans based on data available in the network. It informs about new loans at better rates because of the data value that the SAP Ariba Network provides. The notion of an ecosystem is now extending to very interesting places like banking, with financial service providers being part of a business network and ecosystem.

We are going beyond the traditional old applications -- what we used to call independent software vendors (ISVs). We’re now bringing in service providers and data services providers. It’s very interesting to see the variety of different business models joining today’s ecosystems.

Gardner: Another catalyst to the power and value of the network and the platform is that many of these third parties are digital organizations. They’re sharing their value and adding value as pure services so that the integration pain points have been slashed. It’s much easier for a collaborative solution to come together.

Can you provide any other examples, Sean, of how third parties enter into a platform-network ecosystem and add value through digital transformation and innovation?

Relationships rule

Thompson: Yes. When you look back at my career, 25 years ago, I met SAP for the first time when I was with Deloitte. And Deloitte is still a very strong partner of SAP, a very strong player within the technology industry as a systems integrator (SI) and consulting organization.

We have enjoyed relationships with Deloitte, Accenture, IBM, Capgemini, and many other organizations. Today they play a role -- as they did in the past -- of delivering value to the end customer by providing expertise, human capital, and intellectual property that is inherent in their many methodologies -- change management methodologies, business process change methodologies. And there’s still a valuable role for these professional services organizations, consultants, and SIs today.

But their role has evolved, and it’s a fascinating evolution. It’s no longer customizing on-premises software. Back in the day, when I was at Deloitte, we made a lot of money by helping companies adopt an application like an SAP or an Oracle ERP and customizing it. But you ended up customizing for one and building a single-family home, if you will, that was isolated. You ended up forking the code, if you will, so that you had a very difficult time upgrading because you customized the code so much that you then fell behind.

Now, on cloud, the SI is no longer customizing on-premises, it’s now configuring cloud environments. That configuring of cloud environments allows for not only the customer to never be left behind -- a wonderful value for the industry in general -- but it also allows the SI to play a new role.

That role is now a hybrid of both consulting and of helping companies to understand how to adopt and change their multicloud processes to become more efficient. The SIs are also becoming [cloud service providers] themselves because – what they used to do in customizing on-premises -- they’re now building extensions to clouds and among clouds.

They can create extensions of a solution like SAP Ariba for certain industries, like oil and gas, for example. You will see SAP continue to evolve its relationships with these service providers so that those services companies begin to look more like hybrid business models -- where they enjoy some intellectual property and extensions to cloud environments, as well as monetizing their methodologies as they have in the past.

This is a fascinating evolution that’s profitable for those companies because they go from a transactional business model -- where they have to sell one client at a time and one implementation at a time -- to monetizing based on a subscription model, much like we in the ISV world have done.

There are many other examples of new and interesting ways within the SAP Ariba ecosystem and network of buyers and suppliers where third-party ecosystem participants gather additional data about suppliers -- and sometimes about buyers. For example, in helping both suppliers and buyers manage their risk better in terms of financial risk, for supply chain disruption, and if you want to ensure there isn’t slave labor in your supply chain, or if there is sufficient diversity in your supply chain.

The supplier risk category for us is very important. It requires an ecosystem of provider data that enriches the supplier profile. And that can then become an enhancement to the overall value of the business network.

We are now able to reach out and offer ways in which third parties can contribute their intellectual property -- be it a methodology, data, analytics, or financial services. And that’s why it’s a really exciting time to be in the environment we are today.

Gardner: This network effect certainly relates to solution sets like financial services and risk management. You mentioned also that it pertains to such vertical industries like oil and gas, pharmaceutical, life sciences, and finance. Does it also extend to geographies and a localization-solution benefit? Does it also pertain to going downstream for small- to medium-sized businesses (SMBs) that might not have been able to afford or accommodate this high-level collaboration?

Reach around the world

Thompson: Absolutely, and it’s a great question. I remember the first wave of ERP and it marked a major consumption of technology to improve business. And that led to a tremendous amount of productivity gains that we’ve enjoyed through the growth of the world economy. Business productivity through technology investment has led to a tremendous amount of growth in the economy.

Now, you ask, “Does this extend?” And that’s what’s so fascinating about cloud and when you combine cloud with the concept of ecosystem -- because everybody enjoys a benefit from that.

As an example, you mentioned localization. Within SAP Ariba, we are all about intelligent business commerce, and how can we make business commerce more efficient all around the world. That’s what we are about.

In some countries, business commerce involves the good old-fashioned invoicing, orders, and taxation tasks. At Ariba, we don’t want to solve all of that so-called last mile of the tax data and process needed in for invoices in, say, Mexico.

And that's what's so fascinating about cloud and when you combine cloud with the concept of ecosystem -- because everybody enjoys a benefit.

We want to work with members of the ecosystem that do that. An example is Thomson Reuters, whose business is in part about managing a database of local tax data that is relevant to what’s needed in these different geographies.

By having one relationship with a large provider of that data and being able to distribute that data to the end users -- which are companies in places like Mexico and Korea that need a solution – means they are going to be compliant with the local authorities and regulations thanks to up-to-date tax data.

That’s an example of an extremely efficient way for us to distribute to the globe based on cloud and an ecosystem from within which Thomson Reuters provides that localized and accurate tax data.

Support for all sizes

You also asked about SMBs. Prior to being at SAP Ariba, I was part of an SMB support organization with the portfolio of Business ByDesign and Business One, which are smaller ERP applications designed for SMBs. And one of them, Business ByDesign, is a cloud-based offering.

In the past, the things that large companies were able to do were often too expensive for SMBs. That’s because they required on-premises data centers, with servers, software consultants, and all of the things that large enterprises could afford to drive innovation in the pre-cloud world. This was all just too expensive for SMBs.

Now the distribution model is represented by cloud and the multitenant nature of these solutions that allow for configuration -- as opposed to costly and brittle customization. They now have an easy upgrade path and all the wonderful benefits of the cloud model. And when you combine that with a business solutions ecosystem then you can fully support SMBs.

For example, within SAP Ariba, we have an SMB consulting organization focused on helping midsize companies adopt solutions in an agile way, so that it’s not a big bang. It’s not an expensive consulting service, instead it’s prescriptive in terms of how you should begin small and grow in terms of adopting cloud solutions.

Such an SMB mindset has enabled us to take the same SAP Ariba advantage of no code, to just preconfigure it, and start small. As we like to say at SAP Ariba, it’s a T-shirt size implementation: small, medium, and large.

That’s an example of how the SMB business segment really benefits from this era of cloud and ecosystem that drives efficiency for all of us.

Gardner: Given that the value of any business network and ecosystem increases with the number of participants – including buyers, sellers, and third-party service providers -- what should they be thinking to get in the best position to take advantage of these new trends, Sean? What should you be thinking in order to begin leveraging and exploiting this overall ecosystem approach and its benefits?

Thompson: I’m about to get on an airplane to go to South Korea. In some of these geographies where we do business, the majority of businesses are SMBs.

And I am still shocked that some of these companies have not prioritized technology adoption. I’m still surprised that there are a lot of industries, and a lot of companies in different segments, that are still very much analog. They are doing business the way they’ve been doing business for many years, and they have been resistant to change because their cottage industry has allowed them to maintain, if you will, Excel spreadsheet approaches to business and process.

I spent a decade of my life at Microsoft, and when we looked at the different ways Excel was used we were fascinated by the fact that Excel in many ways was used as a business system. Oftentimes, that was very precarious because you can’t manage a business on Excel. But I still see that within companies today.

The number one thing that every business owner needs to understand is that we are in an exponential time of transformation. What was linear in terms of how we expect transformation is now in an exponential phase. Disruption of industries is happening in real time and rapidly. If you’re not prioritizing and investing in technology -- and not thinking of your business as a technology business -- then you will get left behind.

Never underestimate the impact that technology can have to drive topline growth. But technology also preserves the option value for your company in the future because disruption is happening. It’s exponential and cloud is driving that.

Get professional advice 

You also have to appreciate the value of getting good advice. There are good companies that are looking to help. We have many of those within our ecosystem, such as providers of assistance like the large SIs as well as midsize companies focused on helping SMBs.

As I mentioned before, I grew up fly fishing. But anybody that comes to me and says, “Hey, I’d love to go learn how to fly fish.” I say, “Start with hiring a professional guide. Spend a day on a river with a professional guide because they will show you how to do things.” I honestly think that that same advice applies to the professional guide who can help you understand how to consume cloud software services.

And that professional guide fee is not going to be as much as it was in the past. So I would say get professional help to start.

Gardner: I’d like to close out with a look to the future. It seems that for third-party organizations that want to find a home in an ecosystem that there’s never been a better time for them to innovate, and find new business models, new ways of collaborating.

You mentioned risk management and financial improvements and efficiency. What are some of the other areas for new business models within ecosystems? Where are we going to see some new and innovative business models cropping up, especially within the SAP Ariba network ecosystem?

Thompson: You mentioned it earlier in the conversation. The future is about data. The future is about insights that we gather from the data.

We're still early in a very interesting future. We're still understanding how to gather insights from data. At SAP Ariba we have a treasure trove of data from $2.1 trillion in commerce among 3.5 million members in the Ariba Network.

I started a company in the natural language processing world. I spent five years of my life understanding how to drive a new type of user experience by using voice. It’s about natural language and understanding how to drive domain-specific knowledge of what people want through a natural user interface.

I’ve played on the edge of where we are in terms of artificial intelligence (AI) within that natural language processing. But we’re still fiddling in many respects. We still fiddle in the business software arena, talking about chatbots, talking about natural user interfaces.

We’re still early in a very interesting future. We’re still very early in understanding how to gather insights from data. At SAP Ariba we have a treasure trove of data from $2.1 trillion in commerce among 3.5 million members in the Ariba Network.

The future is data driven 

There are so many data insights available on contracts and supplier profiles alone. So the future is about being able to harvest insights from that data. It’s now very exciting to be able to leverage the right infrastructure like the S/4 HANA data platform.

But we have a lot of work to do still to clean data and ensure the structure, privacy, and security of the data. The future certainly is bright. It will be magical in how we will be able to be proactive in making recommendations based on understanding all the data.

Buyers will be proactively alerted that something is going on in the supply chain. We will be able to predict and be a prescriptive in the way the business operates. So it is a fascinating future that we have ahead of us. It’s very exciting to be a part of it.

Gardner: I’m afraid we’ll have to leave it there. You’ve been listening to a sponsored BriefingsDirect discussion on new opportunities for innovation and value creation among business ecosystem participants. And we’ve learned how business ecosystems are incubating new levels of buyer and seller value-added services.

So a big thank you to our guest, Sean Thompson, Senior Vice President and Global Head of Business Development and Ecosystem at SAP Ariba. Thank you, sir.

Thompson: Thanks, Dana.

Gardner: And thank you as well to our audience for joining this BriefingsDirect digital business innovation discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and do come back next time.

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

Transcript of a discussion on how ecosystems built from business networks like the SAP Ariba Network incubate innovative third-party collaboration solutions that benefit both buyers and sellers. Copyright Interarbor Solutions, LLC, 2005-2018. All rights reserved.

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How Data-Driven Business Networks Help Close the Digital Transformation Gap

Transcript of a discussion on how intelligence gleaned from business applications, data, and networks provides the best new hope for closing the digital transformation gap at many companies.

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.

Our next thought leadership discussion explores how intelligence gleaned from business applications, data, and networks provides the best new hope for closing the digital transformation gap at many companies.

Gardner

A recent global survey of procurement officers shows a major gap between where companies are and where they want to be when it comes to digital transformation. While 82 percent surveyed see digital transformation as having a major impact on processes -- only five percent so far see significant automation across their processes.

How can business networks and the cloud-based applications underlying them better help companies reach a more strategic level of business intelligence and automation?

To learn, we're now joined by Darren Koch, Chief Product Officer at SAP Ariba. Welcome to BriefingsDirect, Darren.

Darren Koch: Thanks so much, it's great to be here.

Gardner: What's holding companies back when it comes to becoming more strategic in their processes? They don’t seem to be able to leverage intelligence and automation to allow people to rise to a higher breed of productivity.

Koch

Koch: I think a lot of it is inertia. The ingrained systems and processes that exist at companies impact a lot of people. The ability for those companies to run their core operations relies on people and technology working together. The change management required by our customers as they deploy solutions -- particularly in the move from on-premises to the cloud -- is a major inhibitor.

But it's not just the capabilities and the change in the new technology. It's really re-looking at -- and reimagining -- the processes, the things that existed in the highly customized on-premises world, and the way those things change in a digital-centric cloud world. They are fundamentally different. 

Gardner: It's always hard to change behavior. It seems like you have to give people a huge incentive to move past that inertia. Maybe that's what we are all thinking about when we bring new data analytics capabilities to bear. Is that what you looking at, incentivization -- or how do we get that gap closed?

Reimagining change in the cloud

Koch: You are seeing more thought leadership on the executive side. You are seeing companies more willing to look holistically at their processes and saying, “Is this something that truly differentiates my company and adds sustainable competitive advantage?” And the answer on some processes is, “No."

And so, we see more moving away from the complex, on-premises deployments that were built in a world where a truckload of consultants would show up and configure your software to do exactly what you wanted. Instead, we’re moving to a data-centric best-practices type of world that gives scale, where everybody operates in the same general business fabric. You see the emergence of things like business networks.

Gardner: And why the procurement and supply chain management folks? Why are they in an advantageous position to leverage these holistic benefits, and then evangelize them?

Koch: There's been a ton of talk and innovation on the selling side, on the customer resource management (CRM) side, such as our announcement of C/4HANA at Sapphire 2018 and the success in the cloud generally in the CRM space. What most people stop at is, for every seller there's a buyer. We represent the buy-side, the supply chain, the purchasing departments. And now from that buy-side we have the opportunity to follow the same thought processes on the sell-side.

The beauty at SAP Ariba is that we have the world's biggest business network. We have over $2 trillion of buy-side spend and our ability to take that spend and find real insights and real actionable change to drive value at the intersection of buyers and sellers. This is where we’re headed.

Gardner: It seems like we are moving rapidly beyond the buy and sell being just transactional and moving more to deeper partnerships, visibility, of understanding the processes on both sides of the equation. That can then bring about a whole greater than the sum of the parts.

Understanding partners 

Koch: Exactly. I spent 10 years working in the consumer travel space, and my team in particular was working on how consumers choose hotels. It's a very complex purchasing decision.

There are location aspects, there are quality aspects, there are amenities, room size, obviously price, and there are a lot of non-price actors that go into the purchase decision, too. When you look at what a procurement audience is doing, what a company is doing, there are a lot of such non-price factors. It’s exactly the same problem.

The investments that we are making inside of SAP Ariba get at allowing you to see things like supplier risk. You are seeing things like the Ariba Network handling direct materials. You are seeing time, quality, and risk factors -- and these other non-price dimensions -- coming in, in the same way that consumers do when choosing a hotel. Nobody chooses the cheapest one, or very few people do. Usually it’s a proper balance of all of these factors and how they best meet the total needs. We are seeing the same thing on the business procurement side.

When you look at what a procurement audience is doing, what a company is doing, there are now a lot of non-price factors.

Gardner: As consumers we have information at our fingertips -- so we can be savvy and smart – probably better than at any other time in history. But that doesn’t always translate to a larger business-to-business (B2B) decisions.

What sort of insights do you think businesses will want when it comes that broader visibility?

Koch: It starts with the basics. It starts with, “How do I know my suppliers? How do I add scale? Is this supplier General Data Protection Regulation (GDPR)-compliant? Do they have slavery or forced labor in their supply chain? Where are they sourcing their materials?” All of these aspects around supplier risk are the basics; knowing your supplier well is the basic element.

Then when you go beyond that, it's about things like, “Well how do I weigh geographic risk? How do I weigh supply chain risk?” And all the things that the practitioners of those disciplines have been screaming about for the rest of their companies to pay attention to.

That’s the new value they are providing. It's that progression and looking at the huge opportunity to see the way companies collaborate and share data strategically to drive efficiency into processes. That can drive efficiency ultimately into the whole value chain that leads to a better customer experience at the end.

Gardner: Customer experience is so important across the board. It must be a big challenge for you on the product side to be able to contextually bring the right information and options to the end-user at the right time. Otherwise they are overwhelmed, or they don't get the benefit of what the technology and the business networks can do.

What are you doing at SAP Ariba to help bring that right decision-making -- almost anticipating where the user needs to go -- into the actual applications and services?

Intelligent enterprise

Koch: That begins with our investments in re-platforming to SAP HANA. That feeds into the broader story about the intelligent enterprise. Purchasing is one facet, supply-chain management is a facet, sales is a facet, and production -- all of these components are elements of a broader story of how you synthesize data into a means where you have a digital twin of the whole enterprise.

Then you can start doing things like leveraging the in-memory capabilities of HANA around scenario planning, and around, “What are the implications of making this decision?”

What happens when a hurricane hits Puerto Rico and your supply chain is dramatically disrupted? Does that extend to my suppliers’ suppliers?  Who are my people on the ground there, and how are they disrupted? How should my business respond in an intelligent way to these world events that happen all the time?

Gardner: We have talked about the intelligent enterprise. Let's hypothetically say that when one or two -- or a dozen -- enterprises become intelligent that they gain certain advantages, which compels the rest of their marketplace to follow suit.

When we get to the point where we have a critical mass of intelligent enterprises, how does that elevate to an intelligent economy? What can we do when everyone is behaving with this insight, of having tools like SAP Ariba at their disposal?

Koch: You hit on a really valuable and important point. Way back, I was an economics major and there was a core thing that I took away 20 years ago from my intro to macroeconomics class. The core of it was that everything is either value or waste. Every bit of effort, everything that's produced around the world, all goods or services are either valuable or a waste. There is nothing in between.

The question then as we look at value chains, when we look at these webs of value, is how much of that is transaction cost? How much of that is information asymmetry? How much of that is basic barriers that get in the way of ultimately providing value to the end consumer? Where is all of that waste?

When you look at complex value chains, at all of the inventory sitting in warehouses, the things that go unsold, the mismatches between supply and demand across a value chain -- whether you are talking about direct materials or about pens and paper sitting in a supply closet -- it really doesn't matter.

When you look at complex value chains ... how much of that goes into actually delivering on what your customers and employees value -- and how much of it is waste?

It’s all about how much of that goes to actually delivering on what your customers, your employees, and your stakeholders’ value -- and how much of it is waste? As we link these data sets together -- the real production planning, understanding end-user demand, and all the way back through the supply chain – we can develop new transparency that brings a ton of value. And by ultimately everyone in the value chain understanding what the consumers’ actually value, then they can innovate in the right ways.

So, I see this all dramatically changing as you link these intelligent companies together. As companies move in the same way -- into a sharing mindset – then the sharing economy uses resources in a far more efficient way, in the exact same way as we use our data resources in a more efficient way.

Gardner: This also dovetails well with being purposeful as a business. If many organizations are encouraging higher productivity, which reduces inefficiencies and helps raise wages, it can lead to better standards of life. So, the stakes here are pretty high.

We’re not just talking about adding some dollars to the bottom and top lines. We’re also talking about a better economy that raises all boats.

Purposeful interconnections 

Koch: Yes, absolutely. You see companies like Johnson and Johnson, who at their core, from their founding principles, have the importance of their community as one of the core founding principles. You see it in companies like Ford and their long heritage. Those ideals are really coming back from the decade of the 1980s where greed was good and now back to a more holistic understanding of the interconnectedness of all of this.

And it’s good as humans. It’s also good from the business perspective because of the need to attract and retain the talent required to run a modern enterprise. And building the brands that our consumers are demanding, and holding companies accountable, they all go hand-in-hand.

And so, the purpose aspect really addresses the broader stakeholder aspects of creating a sustainable planet, a sustainable business, sustainable employment, and things like that.

Gardner: When we think about attaining this level of efficiency through insights and predictive analytics -- taking advantage of business networks and applications and services -- we are also on the cusp of getting even better tools.

We’re seeing a lot more information about machine learning (ML). We’re starting to tease out the benefits of artificial intelligence (AI). When these technologies are maturing and available, you need to be in a position to take advantage of them.

So, moving toward the intelligent enterprise and digital transformation are not just good or nice to have, they are essential because of what's going to come next in just a few years.

Efficiency in the digital future 

Koch: Yes, you see this very tactically in the chief procurement officers (CPOs) that I've talked with as I've entered this role. I have yet to run across any business leader who says, “I have so many resources, I don't know what to do.” That’s not usually what I hear. Usually, it's the opposite. It’s, “I'm being asked to do more with less.”

When you look at the core of AI, and the core of ML, it’s how do you increase efficiency? And that’s whether it's all the way on the full process automation side, or it’s along the spectrum of bringing the right intelligence and insights to streamline processes to make better decisions.

All of that is an effort to up-level the work that people do, so that raises wages, it raises productivity, all of those things. We have an example inside of our team. I was meeting with the head of our customer value organization, Chris Haydon, over dinner last night.  Chris was talking about how we were applying ML to enhance our capability to onboard new customers.

And he said the work that we've done has allowed him to redeploy 80 people in his team on to higher productivity use cases. All of those people became more valuable in the company because they were working on things that were at the next level of creating new solutions and better customer experiences, instead of turning the crank in the proverbial factory of deploying software.

Gardner: I happen to personally believe that a lot of the talk about robots taking over people’s jobs is hooey. And that, in fact, what's more likely is this elevation of people to do what they can do best and uniquely. Then let the machines do what they do best and uniquely.

How is that translating both into SAP Ariba products and services, and also into the synergy between SAP and SAP Ariba?

We're just getting through a major re-platforming to S/4 HANA and that's really exciting because of HANA's maturity and scale. We're using ML algorithms and applying them.

Koch: We are at a really exciting time inside of our products and services. We're just getting through a major re-platforming to S/4 HANA, and that’s really exciting because of HANA’s maturity and scale. It’s moving beyond basic infrastructure in the way that [SAP Co-Founder] Hasso Plattner had envisioned it.

We’re really getting to the point of not replicating data. We are using the ML algorithms and applying them, building them once and applying them at large. And so, the company’s investments in HANA and in Leonardo are helping to create a toolkit of capabilities that applications like SAP Ariba can leverage. Like with any good infrastructure investment, when you have the right foundation you see scale and innovation happen quickly.

You'll see a lot more of how we leverage the data that we have both inside the company as well as across the network to drive intelligence into our process. You will just see that come through more as we move from the infrastructure foundation setting stage to building the capabilities on top of that.

Gardner: Getting back to that concept of closing the transformation gap for companies, what is it they should be thinking about when these services and technologies become available? How can they help close their own technology gap by becoming acquainted in advances and taking some initiative to best use these new tools?

Digital transformation leadership 

Koch: The companies that are forward-leading on digital transformation are the ones that made the cloud move early. The next big move for them is to tap into business networks. How can they start sharing across their value chains and drive higher efficiency? I think you'll see from that the shift from tactical procurement to strategic procurement.

The relationships need to move from transactional to a true partnership, of how do we create value together? That change involves rethinking the ways you look at data and of how you share data across value chains.

Gardner: Let’s also think about spend management conceptually. Congratulations, by the way, on your recent Gartner Magic Quadrant positioning on pay-to-procure processes. How does spend management also become more strategic?

Koch: The building blocks for spend management always come down to what is our tactical spend and where should we focus our efforts for strategic spend? Whether that is in the services area, travel, direct materials, or indirect, what customers are asking SAP for is, how do all of these pieces fit together?

What's the difference between a request for proposal (RFP) for a hotel in New York City versus an RFP for chemicals in Southeast Asia? They're both a series of business processes of selecting the right vendor that balances all of the critical dimensions: Price and everything else that makes for a good decision and that has longevity.

We see a lot of shared elements in the way you interact with your suppliers. We see a lot of shared elements in the way that you deploy applications inside of your company. We’re exploring how well the different facets of the applications can work together, how seamless the user experience is, and how well all of these tie together for all the stakeholders.

Ultimately, each element of the team, each element of the company, has a role to play. That includes the finance organization’s desire to ensure that value is being created in a way that the company can afford. It means that the shareholders, employees, management, and end-users are all on the same page.

This is the core of spend management – and the intelligent enterprise as a whole. It means being able to see everything, by bringing it all together, so the company can manage its full operations and how they create value.

Gardner: The vision is very compelling. I can certainly see where this is not going to be just a small change -- but a step-change -- in terms of how companies can benefit in productivity.

As you were alluding to earlier, architecture is destiny when it comes to making this possible. By re-architecting around, as for S/4 HANA, by taking advantage of business networks, you are well on the way to delivering this. Let’s talk about the platform changes that grease the skids toward the larger holistic benefits.

Shifting to the cloud 

Koch: It's firmly our belief that the world is moving to mega-platforms. SAP has a long history of bringing the ecosystem along, whether the ecosystem is delivering process innovation or is building capabilities on top of other capabilities embedded deeply into the products.

What we're now seeing is the shift from the on-premises world to a cloud world where it's API-first, business events driven, and where you see a decoupling of the various components. Underneath the covers it doesn't matter what technology stack things are built on. It doesn't matter how quickly they evolve. It's the assumption that we have this API contract between two different pieces of technology: An SAP Ariba piece of technology, an SAP S/4 Cloud piece of technology, or a partner ecosystem piece of technology.

For example, a company like Solenis was recently up on stage with us at Ariba Live in Amsterdam. That's one of the fastest-growing companies. They have raised a B round at $1 billion valuation. Having companies that are driving innovation like that in partnership with an SAP platform brings not just near-term value for us and our customers, it brings future-proofing. It brings extensibility when there is a specific requirement that comes in for a specific industry or geography. It provides a way a customer can differentiate. You can just plug-in.

We're now seeing the shift from on-premises to cloud where you see a decoupling of the components. It doesn't matter what the technology stack is. ... It's now about API-first business events.

[SAP business unit] Concur has been down this path for a long time. The president of SAP Ariba, Barry Padgett, actually started the initiative of opening up the Concur platform. So deep at our core -- in our roots -- we believe that networks, ecosystems, and openness will ensure that our customers get the most value out of their solutions.

Gardner: Because SAP is an early adopter of multicloud, SAP can be everywhere at the most efficient level given what the hyperscale cloud providers are providing with global reach and efficiency. This approach also allows you to service small- to medium-sized businesses (SMBs), for example, essentially anywhere in the world.

Tell me why this long-term vision of a hyperscale-, multicloud-supported future benefits SAP, SAP Ariba, and its customers.

A hyperscale, multicloud landscape

Koch: When you look across the landscape of the hyperscalers and you look at the pace of innovation and the level of scale that that they are able to deliver, our lead time is slashed. We can also scale up and down as required. The cloud benefits apply to speed compared to having boxes installed in data centers, as well as ease in workload variability -- whether it's test variability or our ability to run ML-training models.

The idea that we still suffer multi-month lead times to get our physical boxes installed in our data centers is something that we just can't afford. Our customers demand more.

Thankfully there are multiple solutions around the world that solve these problems while at the same time giving us things like world-class security, geographic footprints, and localized expertise. When a server fails halfway around the world and the expert is somewhere else, the hyperscalers provide a solution to that problem.

They have somebody who walks through every data center and makes sure that the routers are upgraded, and the switches and load balancers are working the way they should. They determine whether data correctly rests inside of a Chinese firewall or inside of Europe [due to compliance requirements]. They are responsible for how those systems interact.

We still need to do our investment on the applications tier and in working with our customers to handle all of the needed changes in the landscape around data and security.

But the hyperscalers give us a base-level of infrastructure so we don't need to think about things like, “Is our air conditioner capacity inside of the data center sufficient to run the latest technology for the computing power?” We don't worry about that. We worry about delivering value on top of that base-level of infrastructure and so that takes our applications to the next level.

In the same way we were talking earlier about ML and AI freeing up our resources to work on higher-value things, [the multicloud approach] allows us to stop thinking about these base-level things that are still critical for the delivery of our service. It allows us to focus on the innovation aspects of what we need to do.

Gardner: It really is about driving value higher and higher and then making use of that in a way that's a most impactful to the consumers -- and ultimately the whole economy.

I’m afraid we’ll have to leave it there. You have been listening to a sponsored BriefingsDirect discussion on how the providers of business solutions and networks are doing more to help companies reach a strategic level of business intelligence and automation.

And we have learned how such business functions as procurement and supply chain management are providing a newfound wellspring from which to deliver insights and to accelerate productivity.

So, a big thank you to our guest, Darren Koch, Chief Product Officer at SAP Ariba. Thank you, sir.

Koch: You got it.

Gardner: And thank you as well to our audience for joining this BriefingsDirect modern digital business innovation discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect discussions. 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 intelligence gleaned from business applications, data, and networks provides the best new hope for closing the digital transformation gap at many companies. Copyright Interarbor Solutions, LLC, 2005-2018. All rights reserved.

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