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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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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