SAP Ariba COO James Lee on the Best Path to an Intelligent and Talented Enterprise

Transcript of a discussion on how chief operating officers must not only seek out automation and data-driven intelligence but at the same time create new people-first strategies to unlock concerted innovation.

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 enterprise management innovations discussion explores the role of the modern chief operating officer (COO) and how they are tasked with creating new people-first strategies in an age of increased automation and data-driven intelligence.

Gardner

We will now examine how new approaches to spend management, process automation, and integrated procurement align with developing talent, diversity, and sustainability.

To learn more about the leadership trends behind making globally dispersed and complex organizations behave in harmony, I am pleased to welcome James Lee, Chief Operating Officer at SAP Ariba and SAP Fieldglass. Welcome, James.

Lee: Good afternoon, Dana. Thanks for having me.

Gardner: James, why has there never been a better time to bring efficiency and intelligence to business operations? Why are we in an auspicious era for bridging organizational and cultural gaps that have plagued businesses in the past?

Lee: If you look at the role of the modern COO, or anyone who is the head of operations, you are increasingly asked to be the jack-of-all-trades. If you think about the COO, they are responsible for budgeting and planning, for investment decisions, organizational and people topics, and generally orchestrating across all aspects of the business. To do this at scale, you really need to drive standardization and best practices, and this is why efficiency is so critical.

Lee

Now, in terms of the second part of your question, which has to do with intelligence, the business increasingly is asking for -- not just reporting the news -- but making the news. What does that mean? That means you have to offer insights to different parts of the business and help them make the right decisions; things that they wouldn’t know otherwise. That requires leveraging all the data available to do thorough analysis and provide the data that all the functional leaders can use to make the best-possible decision.

Gardner: It seems that the COO is a major consumer of such intelligence. Do you feel like you are getting better tools?

Make sense of data

Lee: Yes, absolutely. We talk about being in the era of big data, so the information you can get from systems -- even from a lot of devices, be it mobile devices or sensors – amounts to an abundance and explosion of data. But how to make sense of this data is very tricky.

As a COO, a big part of what I do is not only collect the data from different areas, but then to make sense of it, to help the business understand the insights behind this data. So I absolutely believe that we are in the age where we have the tools and the processes to exploit data to the fullest.

Gardner: You mentioned the COO needs to be a jack-of-all-trades. What in your background allows you to bring that level of Renaissance man, if you will, to the job?

Lee: As COO of SAP Ariba and now SAP Fieldglass, too, I have operational responsibilities across our entire, end-to-end business. I’m responsible for helping with our portfolio strategy and investments, sales excellence, our commercial model, data analytics, reporting, and then also our learning and talent development. So that is quite a broad purview, if you will.

I feel like the things I have done before at SAP have equipped me with the tools and the mindset to be successful in this position. Before I took this on, I was a COO and general manager of sales for the SAP Greater China business. In that position, during that time, I doubled the size of SAP’s business in China, and we were also involved in some of the largest product launches in China, including SAP S/4HANA.

Before that, having been with SAP for 11 years, I had the opportunity to work across North America, Europe, and Asia in product and operating roles, in investment roles, and also sales roles.

Before joining SAP, I was a management consultant by training. I had worked at Hewlett Packard and then McKinsey and Company.

Gardner: Clearly most COOs of large companies nowadays are tasked with helping extend efficiency into a global environment, and your global background certainly suits you for that. But there’s another element of your background that you didn't mention – which is having studied and been a concert pianist. What do you think it is about your discipline and work toward a high level of musical accomplishment that also has a role in your being a COO?

The COO as conductor 

Lee: That’s a really interesting question. You have obviously done your research and know my background. I grew up studying classical music seriously, as a concert pianist, and it was always something that was very, very important to me. I feel even to this day -- I obviously have pursued a different profession -- that it is still a very key and critical part of who I am.

If I think about the two roles -- as a COO and as a musician -- there are actually quite a few parallels. To start, as a musician, you have to really be in tune with your surroundings and listen very carefully to the voices around you. And I see the COO team ultimately as a service provider, it’s a shared services team, and so it’s really critical for me to listen to and understand the requirements of my internal and external constituents. So that’s one area where I see similarities.

Secondly, the COO role in my mind is to orchestrate across the various parts of the business, to produce a strong and coherent whole. And again, this is similar to my experiences as a musician, in playing in ensembles, and especially in large symphonies, where the conductor must always know how to bring out and balance various musical voices and instruments to create a magical performance. And again, that’s very similar to what a COO must do.

Gardner: I think it’s even more appropriate now -- given that digital transformation is a stated goal for so many enterprises – to pursue orchestration and harmony and organize across multiple silos.

Does digital transformation require companies to think differently to attain that better orchestrated whole?

Lee: Yes, absolutely. From the customers that I have spoken to, digital transformation to be successful has to be a top-to-down movement. It has to be an end-to-end movement. It’s no longer a case where management just says, “Hey, we want to do this,” without the full support and empowerment of people at the working level. Conversely, you can have people at the project team level who are very well-intentioned, but without senior executive level support, it doesn't work.

The role of the COO is to orchestrate across the various parts of the business, to produce a strong and coherent whole. This is similar to my experiences as a musician, in playing in ensembles, and especially in large symphonies.

In cases where I have seen a lot of success, companies have been able to break down those silos, paint an overarching vision and mission for the company, brought everyone onto the same bandwagon, empowered and equipped them with the tools to succeed, and then drive with ruthless execution. And that requires a lot of collaboration, a lot of synergies across the full organization.

Gardner: Another lens through which to view this all is a people-centric view, with talent cultivation. Why do you think that that might even be more germane now, particularly with younger people? Many observers say Millennials have a different view of things in many ways. What is it about cultivating a people-first approach, particularly to the younger workers today, that is top of mind for you?

People-first innovation

Lee: We just talked about digital transformation. If we think about technology, no matter how much technology is advancing, you always need people to be driving the innovation. This is a constant, no matter what industry you are in or what you are trying to do.

And it’s because of that, I believe, that the top priority is to build a sustainable team and to nurture talent. There are a couple of principles I really adhere to as I think about building a “people-first team.”

First and foremost, it’s very important to go beyond just seeking work-life balance. In this day and age, you have to look beyond that and think about how you help the people on your team derive meaning from what they do.

This goes beyond just work and life and balance, this has to do with social responsibility, personal enrichment, personal aspiration, and finding commonality and community among your peers. And I find that now -- especially with the younger generation -- a lot of what they do is virtual. We are not necessarily in the office all together at the same time. So it becomes even more important to build a sense of connectivity, especially when people are not all present in the same room. And this is something that Millennials really care about.

Also for Millennials it's important for them, at the beginning of their careers, to have a strong true-north. Meaning that they need to have great mentors who can coach them through the process, work with them, develop them, and give them a good sense of belonging. That's something I always try to do on my team, to ensure that the young people get mentorship early on in their career to have one-on-one dedicated time. There should always be a sounding board for them to air their concerns or questions.

Gardner: Being a COO, in your case, means orchestrating a team of other operations professionals. What do you look for in them, in their background, that gives you a sense of them being able to fulfill the jack-of-all-trades approach?

Growth mindset drives success

Lee: I tend to think about successful individuals, or teams, along two metrics. One is domain expertise. Obviously if you are in charge of, say, data analytics then your background as a data scientist is very important. Likewise, if you are running a sales operation, a strong acumen in sales tools and processes is very important. So there is obviously a domain expertise aspect of it.

But equally, if not more important, is another mentality. I tend to believe in people who are of a growth-mindset as opposed to a closed-mindset. They tend to achieve more. What I mean by that are people who tend to want to explore more, want to learn more, who are open to new suggestions and new ways of doing things. The world is constantly changing. Technology is changing. The only way to keep up with it is if you have a growth mindset.

It’s also important for a COO team to have a service mentality, of understanding who your ultimate customer is -- be it internal or external. You must listen to them, understand what the requirements are, and then work backward and look at what you can create or what insights you can bring to them. That is very critical to me.

When we talk about procurement, end users are increasingly looking for a marketplace-like experience. They are used to a B2C experience. And for Millennials, they are pushing everyone to think differently. They expect easy, seamless access across all of their different platforms.

Gardner: I would like to take advantage of the fact that you travel quite a bit, because SAP Ariba and SAP Fieldglass are global in nature. What you are seeing in the field? What are your customers telling you?

Lee: As I travel the globe, I have the privilege of supporting our business across the Americas, Europe, the Middle East, and Asia, and it's fascinating to see that there are a lot of differences and nuances -- but there are a lot of commonalities. At the end of the day, what people expect from procurement or digital transformation are more or less very similar.

There are a couple of trends I would like to share with you and your listeners. One is, when we talk about procurement, end users are increasingly looking for a marketplace-like experience. Even though they are in a business-to-business (B2B) environment, they are used to the business-to-consumer (B2C) user experience. It’s like what they get on Amazon where they can do shopping, they have a choice, it's easy to compare value, and features -- but at the same time you have all of the policies and compliance that comes with B2B. And that's something that is beginning to be the lowest common denominator.

Secondly, when we talk about Millennials, I think the Millennial experience is pushing everyone to think differently about the user experience. And not just for SAP Ariba and SAP Fieldglass, but for any software. How do we ensure that there is easy data access across different platforms -- be it your laptop, your desktop, your iPad, your mobile devices? They expect easy, seamless access across all their different platforms. So that is something I call the Millennial experience.

Contingent, consistent labor

Thirdly, I have learned about the rise of contingent labor in a lot of regions. We, obviously, are very honored to now have Fieldglass as part of the SAP Ariba family. And I have spent more and more time with the Fieldglass team.

In the future, there may even be a situation where there are few permanent, contracted employees. Instead, you may have a lot of project-based, or function-based, contingent laborers. We hear a lot about that, and we are focused on how to provide them with the tools and systems to manage the entire process with contingent labor.

Gardner: It strikes as an interesting challenge for COOs -- how do you best optimize and organize workers who work with you, but not for you.

Lee: Right! It's very different because when you look at the difference between indirect and direct procurement, you are talking about goods and materials. But when you are talking about contingent labor, you are talking about people. And when you talk about people, there is a lot more complexity than if you are buying a paper cup, pen, or pencil.

You have to think about what the end-to-end cycle looks like to the [contingent workers]. It extends from how you recruit them, to on-boarding, enabling, and measuring their success. Then, you have to ensure that they have a good transition out of the project they are working on.

SAP Fieldglass is one of the few solutions in the market that really understands that process and can adapt to the needs of contingent laborers.

Gardner: One more area from your observations around the globe: The definition and concept of the intelligent enterprise. That must vary somewhat, and certain cultures or business environments might accept more information, data, and analytics differently than others. Do you see that? Does it mean different things to different people?

Intelligent enterprise on the rise

Lee: At its core, if you look at the revolution of the enterprise software and solutions, we have gone from being a very transactional system -- where we are the system of bookings and record, just tracking what is being done -- to we start to automate, what we now call the intelligent enterprise. That means making sense of all the information and data to create insight.

A lot of companies are looking to transform into an intelligent enterprise. That means you need to access an abundance of data around you. We talked about the different sources -- through sensors, equipment, customers, suppliers, sometimes even from the market and your competitors -- a 360-degree view of data.

Then how do you have a seamless system that analyzes all of this data and actually makes sense of it? The intelligent enterprise takes it to the next level, which is leveraging artificial intelligence (AI). There is no longer a person or a team sitting in front of a computer and doing Excel modeling. This is the birth of the age of AI.

Now we are looking at predictive analytics, where, for example, at SAP Ariba, we look for patterns and trends on how you conduct procurement, how you contract, and how you do sourcing. We then suggest actions for the business to take. And that, to me, is an intelligent enterprise.

Gardner: How do you view the maturity of AI, in a few years, as an accelerant to the COO’s job? How important will AI be for COOs specifically?

Lee: AI is absolutely a critical, critical topic as it relates to -- not just procurement transformation -- but any transformation. There are four main areas addressed with AI, especially the advanced AI that we are seeing today.

Number one, it allows you to drive deeper engagement and adoption of your solution and what you are doing. If you think about how we interact with systems through conversations, sometimes even through gestures, that’s a different level of engagement than we had before. You are involving the end user in a way that was never done before. It’s interactive, it’s intuitive, and it avoids a lot of cost when it comes to training.

Secondly, we talk a lot about decision-making. AI gives you access to a broad array of data and you can uncover hidden insights and patterns while leveraging it.

Thirdly, we talked about talent, and I believe that having AI helps you attract and retain talent with state-of-the-art technology. We have self-learning systems that help you institutionalize a lot of knowledge.

And last, but not least, it’s all about improving business outcomes. So, you think about how you increase efficiencies for your personalized, context-specific information. In the context of procurement, you can improve approvals and accuracy, especially when you are dealing with contracts. An AI robot is a lot less prone to error than the human working on a contract. We have the statistics to prove it.

At the end of the day, we look at procurement and we see an opportunity to transform it from a very tactical, transactional function into a very strategic function. And what that means is AI can help you automate a lot of the repetitive tasks, so that procurement professionals can focus on what is truly value-additive to the organization.

Gardner: We seem to be on the cusp of an age where we are going to determine what it is that the people do best, and then also determine what the machines do best -- and let them do it.

This whole topic of bots and robotic process automation (RPA) is prevalent now across the globe. Do you have any observations about what bots and RPA are doing to your customers of SAP Fieldglass and SAP Ariba?

Sophisticated bot benefits

Lee: When we talk about bots, there are two types that come to mind. One is in the shop floor, in a manufacturing setting, where you have physical bots replacing humans and what they do.

Secondly, you have virtual bots, if you will. For example, at SAP Ariba, we have bots that analyze data, make sense of the patterns, and provide insights and decision-making support to our end users.

In the first case, I absolutely believe that the bots are getting more sophisticated. The kinds of tasks that they can take on, on the shop floors, are a lot more than what they were before -- and it drives a lot of efficiency, cuts costs, and allows employees to be redeployed to more strategic, higher value-added roles. So I absolutely see that as a positive trend going forward.

When it comes to the artificial, virtual bots, we see a lot of advancement now, not just in procurement, but in the way they are being used across sales and human resources systems. I was talking to a company just last week and they are utilizing virtual bots to do the recruiting and interviewing process. Can you imagine that?

The next time you submit your resume to a company, on the other end of the line might not be a human, but a robot that is screening you. It's now to that level of sophistication.

The next time that you are submitting your résumé to a company, on the other end of the line might not be a human that you are talking to, but actually a robot that’s screening you. And it's now to the level of sophistication where it’s hard for you to tell the difference.

Gardner: I might feel better that there is less subjectivity. If the person interviewing me didn’t have a good sleep the previous night, for example. I might be okay with that. So it’s like the Turing test, right? Do you know whether it’s real bodies or virtual bots?

Before we close out, James, do you have any advice for other COOs who are seeking to take advantage of all the ways that digital transformation is manifesting itself? What advice do you have for COOs who are seeking to up their game?

It’s up to you to up your COO game

Lee: Fundamentally, the COO role is what you make of it. A lot of companies don’t even have a COO. It’s a unique role. There is no predefined job scope or job definition.

For me, a successful COO -- at least in the way I measure myself -- is about what kind of business impact you have when you look at the profits and loss (P and L). Everything that you do should have a direct impact on your top line, as well as your bottom line. And if you feel like the things that you are doing are not directly impacting the P and L, then it’s probably time to reconsider some of those things.

Gardner: I’m afraid we will have to leave it there. You have been listening to a sponsored BriefingsDirect discussion on the role of the modern COO and how they are tasked with creating new people-first strategies in an age of increased automation and data-driven intelligence.

And we have learned how new approaches to spend management, process automation, and integrated procurement align with developing talent, diversity, and sustainability.

So a big thank you to our guest, James Lee, Chief Operating Officer at SAP Ariba and SAP Fieldglass. Thank you, James.

Lee: Thank you, Dana.

Gardner: A big thank you as well to our audience for joining us for this BriefingsDirect business management innovations discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect interviews. 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 chief operating officers must not only seek out automation and data-driven intelligence but at the same time create new people-first strategies to unlock concerted innovation. Copyright Interarbor Solutions, LLC, 2005-2019. All rights reserved.

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• Building the Intelligent Enterprise with Strategic Procurement and Analytics 
• How SMBs impacted by natural disasters gain new credit thanks to a finance matchmaker app
• The new procurement advantage: How business networks generate multi-party ecosystem solutions
• SAP Ariba's chief data scientist on how ML and dynamic processes build an intelligent enterprise
• SAP Ariba’s President Barry Padgett on building the intelligent enterprise
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How a Business Matchmaker Application Helps SMBs Impacted by Natural Disasters Gain New Credit

Transcript of a discussion on how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk for small- to medium-sized businesses in need.

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 digital business innovation panel discussion explores how a matchmaker application assists small businesses impacted by natural disasters in the United States.

Gardner

By leveraging the data and trust inherent in established business networks, Apparent Financing by SAP creates digital handshakes between lenders and businesses in urgent need of working capital financing.

The solution’s participants -- all in the SAP Ariba Network -- are putting the innovative model to good use by initially assisting businesses impacted directly or via supply chain disruptions from natural disasters such as forest fires and hurricanes.

To learn how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk, we are joined by our panel, Vishal Shah, Co-Founder and General Manager of Apparent Financing by SAP. Welcome, Vishal.

Vishal Shah: Thank you, Dana.

Gardner: We are here too with Alan Cohen, Senior Vice President and General Manager of Payments and Financing at SAP Ariba. Welcome, Alan.

Alan Cohen: Thank you. Great to be here.

Gardner: And we lastly welcome Winslow Garnier, President of Garnier Group Technology Solutions, LLC in San Diego, California.

Winslow Garnier: Thank you, Dana. I appreciate it.

Gardner: Vishal, what’s unique about this point in time that allows organizations like Apparent Financing to play matchmaker between lenders and businesses?

Small-business finance savoir faire 

Shah: The historical problem that limited small businesses from accessing financial services with ease was lack of trust and transparency. It’s also popularly known as the information asymmetry problem.

Shah

At this point in time there are three emerging trends and forces that are transforming the small business finance industry.

The first one is the digitalization of small businesses, such as from digital bookkeeping systems that are becoming more affordable and accessible -- even to the smallest of businesses globally.

The second force is the financial industry innovation. The financial crisis of 2008 actually unlocked new opportunities and created a developed industry called FinTech. This industry’s strong focus on delivering the frictionless customer experience is the key enabler.

And the third force is technological innovation. This includes cloud computing, mobility, and application programming interfaces (APIs). They combine to make it economically feasible to gain access to financial information about small businesses that is stored in today’s digital bookkeeping systems and e-commerce platforms. It's the confluence of these three forces that solve that information asymmetry problem, leading to both reduction of risk and cost to serve small businesses.

Gardner: Alan Cohen, why is this new business climate for small- to medium-sized businesses (SMBs) a perfect fit for something like the SAP Ariba Network? Tell us how your business model and business network are helping Apparent Financing with its task.

Cohen: Think about it in two ways. First, think differently about combining the physical and the financial supply chains. Historically, the Ariba Network has been focused on connecting buyers with their suppliers. Now we are taking the next step in this evolution to better connect the physical with the financial supply chain to provide choice and value to suppliers about access to capital.

Cohen

The second piece of it is in leveraging the data. There’s a ton of excitement in this world for artificial intelligence (AI) and machine learning (ML), and I am a big proponent of all of that. These are going to be awesome technologies that will help society and businesses as they evolve. It’s super important to keep in mind that the strength of the Ariba Network is not just its size -- $2.1 trillion in annual spend, 3.4 million buyers and suppliers -- it’s in the data. The intelligence drawn from this transactional data will enable lenders to make risk-adjusted lending decisions.

And that real data value goes beyond just traditional lending. It also helps lenders assess risk differently. This will help transform how lending is done to small and medium-sized businesses as time evolves.

Gardner: Some of these trends have been in the works for 20 or 30 years but are now coming together in a way that can help real people benefit in real situations. Winslow, please tell us about Garnier Group Technology Solutions and how you have been able to benefit from this new confluence of financing, data, and business platforms.

Rapid recovery resources

Garnier: Garnier Group Technology Solutions provides intrusion detection, installation services, security cameras, and Wi-Fi installation primarily for corporations and municipalities. We are a supplier and an installer with consistent requirements for working capital to keep our business functioning correctly.

Garnier

A major challenge showed up for us in late 2017 when the Southern California fires took place. We had already ordered product for several installation sites. Because of the fires, those sites actually burned down. The time needed to recover from already having spent the capital, plus the fact that the business was no longer coming our way, created a real need for us.

We previously looked at working capital lines and other resources. The challenge, though, is that it is fairly complex. Our company is really good at what we do, but we are not good at finding financing and taking the time to interview multiple banks, multiple lenders. The process to just find the right type of lender to work with us -- that in itself could take four to six months.

In this case, we did not have the time or the manpower to do the due diligence necessary to make that all happen for us. Also, on a day-to-day basis, in dealing with large corporations, we can hope to get paid in 30 days, but in reality that doesn't happen. But we still need to pay our suppliers to maintain our credit terms and get delivery when required by making sure they get paid on the terms that we have agreed to.

We were fortunate to then be introduced to Vishal [Shah at Apparent Financing]. From that point on, he turned into a one-stop shop for us. He took what we had and worked with it, under the SAP guidance. That helped us to have confidence that we were working with a credible source, and that they would deliver on what we agreed to.

Gardner: We see that SMBs can be easily disrupted, they are vulnerable, and they have lag times between when they can get paid and when they have to pay their own suppliers. And they make up a huge part of the overall economy.

Vishal, this seems like a big market opportunity and addressable market. Yet traditional finance organizations mostly ignore this segment. Why is that? Why has bringing finance options to companies like Garnier Group been problematic in the past?

Bank shies, Network tries

Shah: Going back to early 2008 when the global financial crisis started, there was a lot of supply in the market and small businesses did not have to struggle as much to get access to capital.

Since then, banks have been faced with increasing regulatory burdens, as well as the fact that the cost to serve SMBs became much larger. Therefore the mainstream banks have shied away from lending to and serving this market. That has been one of the big factors.

The second is that banks have not truly embraced the power of technology. They haven’t focused on delivering customer-centric propositions. Most of the banks today are very product-centric organizations, and very siloed in their approach to serving customers.

The fundamental problems were, one, the structure of the banks and the way they were incentivized to serve this market. And secondly, the turn of events that happened post the financial crisis, which effectively resulted in the traditional lenders just backing out from this market, significantly reducing the supply side of the equation.

Banks have not truly embraced the power of technology. They haven't focused on delivering customer-centric propositions. Most banks today are very product-centric and siloed.

Gardner: Alan, it’s a great opportunity to show how this model can work by coming to the rescue of SMB organizations impacted by natural disasters. But it seems to me that this is a bellwether for a future wave of business services because of the transparency, data-driven intelligence, security, and mission-critical nature of SAP and SAP Ariba’s networks.

Do you see this as I do, as an opening inning in a longer game? Should we be thinking newly about how business networks and data-driven intelligence fosters entirely new markets and new business models?

SMB access to financing evolves

Cohen: Absolutely. I see this as the early stages of an evolution. There are a few reasons. One is ease. Winslow talked about it. It can be very hard for small businesses to access different banks or lenders to get financing. They need an easier way to do it. We have seen transformation in consumer banking, but that transformation has not followed through into business banking. So I think one opportunity is in bringing ease to the process transformation.

Another piece is trust. What I mean by that is the data from SAP and SAP Ariba is high-quality data that lenders can trust. And being able to trust that information is a big part of this process.

Finally, like with any network, being able to connect businesses with lenders has to evolve -- just as Ariba has connected buyers with suppliers to transact. This is a natural evolution of the SAP Ariba Network.

I am very excited. And while we are still early in a longer journey, this process will fundamentally change how business banking is done.

Gardner: Winslow, you had an hour of need. Certainly by circumstances that were beyond your control. You heard from Vishal. What happened next? How were they able to match you up with financing, and what was the outcome?

Garnier: The really unique thing here is that we were able to submit a single application to allow us to have offers by more than one lender. We decided on and agreed that it made sense select Fundation as the lender of choice.  All the lenders were competitive, but Fundation had a couple of features that were specific to our business and worked better for us.

I have to tell you, at first I was skeptical that we would get this done soon enough. At the same time, we had confidence -- having worked through the SAP Ariba Network previously. Once we submitted the application, we stopped looking for other resources because we felt that this would work for us. Fortunately, it did end up that way.

Within 30 days we were talking with lenders. We received a term sheet to understand what would be available for us. That gave us time internally to make decisions on what would work best. We closed on the transaction and it's been a good working relationship between us and Fundation ever since.

Gardner: Is this going to be more than a one-shot deal, a new business operating model for you all? Are you going to be able to take a revolving line of credit and thereby have a more secure approach to business? This may even allow you to increase the risk you are willing to take to find new clients. So is this a one-shot, band aid -- or is this something that’s changed your business model?

Not just reparations, relationships 

Garnier: Oh, absolutely. Having a revolving line of credit has become a staple for us because it’s a way to maximize our cash flow within our business. We can add additional clients now and take on new jobs that we may have still taken on, but we would have had to push them out later in time.

We are able to deliver our services faster at this point in time. And so it is the absolute right solution for what we needed and what we will continue to use over time.

Having a revolving line of credit has become a staple for us because it's a way to maximize our cash flow within our business. We can add additional clients and take on new jobs.

Gardner: Vishal, it's clear that organizations like Garnier Group are benefiting from this new model. It's clear that SAP and SAP Ariba have the platform, the data, and the integrity and trust to deliver on it.

But another big component here is to make sure that the financing organizations are comfortable, eager, and are gaining the right information to make their lending decisions. Tell us about that side of the equation. How do organizations like Fundation and others view this, and how do you keep them eager to find new credit opportunities?

Shah: If you think of Fundation, they are not a typical bank. They are willing to look at any e-commerce platform and any technology service providers as new distribution channels through which they can access new markets and a new customer base.

Beyond that, they are using these channels as a way to market their own products and solutions. They have much bigger reasons to look at these ecosystems that we have developed over the years.

In my view, traditional banks and lending institutions look at businesses like Garnier Group using what I call the rearview mirror. What I mean by that is lenders mostly base their lending decisions or credit decisions by obtaining information from credit bureaus, which they believe is an indicator of past performance. And that good indicator of their past performance is also taken as an indicator of good future performance, which, yes, does work in some cases -- but not in all.

By working with us, lenders like Fundation can not only look at traditional data sources like credit bureaus, they are able to also assess the financial health and the risk of lending to a business through alternative data sources like the one Alan mentioned, which is the SAP Ariba supply chain data. This provides them an increased degree of confidence before they make prudent lending decisions.

The data in itself doesn't create the value. When processed in an appropriate manner -- and when we learn from the insights the data provides – then our lending partner gains a precise view of both the historical business performance and a realistic view of the future position and future cash flow positions of a small business. That is an incredibly powerful proposition for our lending partners to comfortably and confidently lend to businesses such as Garnier Group.

Gardner: This appears to be a win, win, win. So far, everybody seems to be benefiting. Yet this could not have happened until the innovation of the model was recognized, and then executed on.

So how did this come about, Alan? How did such payments and financing innovation get started? SAP.iO Venture Studio got involved with Apparent Financing. How did SAP, SAP Ariba, and Apparent Financing come together to allow this sort of innovation to take place -- and not just remain in theory?

Data serves to simplify commerce 

Cohen: Like anything, it begins with the marketplace and looking at a problem. At the end of the day, financing is very inefficient and expensive for both suppliers and lenders.

From a supplier perspective, we saw this as an overly complex process. And it’s not always the most competitive because people don’t have the time. From a lender perspective, originating loans and mitigating risk are very important. Yet this process hasn’t gone through a transformation.

We looked at it all and said, “Gosh, how can we better leverage the Ariba Network and the data involved in it to help solve this problem?”

SAP.iO is a venture part of SAP that incubates new businesses. About a year-and-a-half ago, we began bringing this to market to challenge how things had been done and to open up new opportunities. It’s a very innovative approach to challenge the status quo, to get businesses and lenders to think and look at this differently and seize opportunities.

And if you think about what the SAP Ariba Network is, we run commerce. And we want the lenders to fund commerce. We are simply helping to bring these two together, leveraging some incredible data insights along with the security and trust of the SAP and SAP Ariba brands.

Gardner: Of course, it’s important to have the underlying infrastructure in place to provide such data availability, trust, integrity, and support of the mission-critical nature. But in more and more cases nowadays, the user experience and simplicity elements are terribly important.

Winslow, when it came to how you interacted with the process, did you find it simple? Did you find it direct? How important was that for you as an SMB to be able to take advantage of this?

Garnier: We found it very straightforward. It didn’t require us going outside of the data we have internally. We didn’t have to bring in our outside accounting firm or a legal firm to begin the process. We were able to interface by e-mail and simple phone calls. It was so simple. I’m still surprised that, based on our previous experiences, we were able to get this to happen as quickly as it did.

Gardner: Vishal, how do you account for the ability to make this simple and direct for both sides of the equation? Is there something about the investments SAP has made over the years in technology and the importance of the user experience?

How do you attribute getting from what could be a very complex process to something that’s boiled down to its essential simplicity?

Transparent transactions build trust 

Shah: A lot of people misunderstand the user experience and co-relate that to developing a very nice front end, creating an online experience, and making it seamless and easy to use. I think that is only a part of the truth, and part of the story.

What goes on behind that nice-looking user interface is really eliminating what I call the friction points in a customer’s journey. And a lot of those friction points are actually introduced because of manual processes behind those nice-looking screens.

What goes on behind that nice-looking user interface is really eliminating what I call the friction points in a customer's journey. A lot of those friction points are actually introduced because of manual processes behind the nice-looking screens.

Secondly, there are a lot of exceptions -- business exceptions -- when you’re trying to facilitate a complex transaction like a financial credit transaction.

You must overcome these challenges. You must ensure that customers and borrowers have a seamless customer experience. We provide a transparent process, accessible to them so they know every single point in time: Where they are with their credit process, are they approved, are they disapproved, are they waiting on certain decisions, or are they negotiating the deal with the partner?

That is one element, we bring in an increased level of transparency and openness to the process. Traditionally these services have been opaque. Historically, businesses submit applications to banks and literally wait for weeks to get a decision. They don’t know what’s going on inside the four walls of the bank for those many weeks.

The second thing we did is to help our partners understand the exceptions that they traditionally encounter in their credit decision process. As a result, they can reduce those manual exceptions or completely eliminate them with the help of technology.

Again, the insights we generated from the data that we already had about the businesses helped us overcome those challenges and overcome the friction points in the entire interaction on both sides.

Gardner: Alan Cohen, where do you go next with this particular program around financing? Is this a bellwether for other types of business services that depend on the platform, the data integrity, and the simplicity of the process?

Win-win lending scenarios 

Cohen: Simplicity is, I think, first and foremost. Vishal and Winslow talked about it. Just as you can get a consumer loan online, it should be just as simple for a business to get access to capital online. Make that a pleasurable process, not a complex process that takes a long time. Simplicity cannot be underrated to help drive this change.

When it comes to the data, we’ve only scratched the surface of what can be done. We talked about risk-adjusted lending decisions based on transactional information. What we’ll see more of is price elasticity, around both risk and demand, come into play as banks help to better manage their portfolio -- not with theoretical information but through practical information. They’ll have better insights to manage their portfolios.

Let’s not lose sight of what we’re trying to accomplish: Broaden the capital availability to the community of businesses. There are so many different types of lending scenarios that could happen. You’ll see more of those scenarios become available to businesses over time in a much more efficient, cost-effective, and economic manner.

It’s not just a shifting of cost. It will be an elimination of cost -- where both parties win in this process.

Gardner: Winslow, for other SMBs that face credit issues or didn’t pursue revolving credit because of the complexity, what advice can you offer? What recommendations might you have for organizations to rethink their financing now that there are processes like what Apparent Financing provides?

Garnier: If I take a step back, we made the classic mistake that we should have put in place a bank line of credit prior to this event happening for us. The challenge was the time needed for the vetting process. We would rather pursue new clients than spend our time having to work with the different lenders.

Financing really is something that I think most small businesses should pursue, but I highly recommend they pursue it under something like what Apparent Financing has arranged. That’s because of the simplicity, the one-stop portal to find what you are looking for, the efficiency of the process, and the quality of the lenders.

All the folks that we ended up speaking to were very capable, and they wanted to do business with us, which was really outstanding. It was very different from the pushback and the, “We’ll let you know within the next 30 to 60 days or so.” That is very challenging.

We have not only added new clients since we put in the revolving credit, but our DUNS score has improved, and our credit-rating has continued to improve. It’s low risk for an SMB to look at a platform like Apparent Financing to see if this could be useful to them. I highly recommend it. It’s been nothing but a positive experience for us.

Gardner: I’m afraid we’ll have to leave it there. You have been listening to a sponsored BriefingsDirect digital business innovation podcast on how new financing applications are assisting small businesses impacted by natural disasters.

We have heard how leveraging the data and trust inherent in an established business network like SAP Ariba has allowed Apparent Financing by SAP to create a digital handshake between lenders and businesses in ways that just weren’t available before.

So please join me now in thanking our guests, Vishal Shah, Co-founder and General Manager of Apparent Financing by SAP. Thank you, Vishal.

Shah: Thank you, Dana. My pleasure.

Gardner: We have been joined by Alan Cohen, Senior Vice President and General Manager of Payments and Financing at SAP Ariba. Thank you so much, Alan.

Cohen: My pleasure.

Gardner: And thanks as well to Winslow Garnier, President of Garnier Group Technology Solutions LLC in San Diego.

Garnier: Dana, thank you.

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

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

Transcript of a discussion on how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk for small- to medium-sized businesses in need. Copyright Interarbor Solutions, LLC, 2005-2018. All rights reserved.

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