Future of Business How Innovation Drives Advantage

and Results
Transcript of a BriefingDirect podcast on how the face if procurement is changing, becoming
more of a strategic than a tactical function.

Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP company

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you
from the 2014 Ariba LIVE Conference in Las Vegas. Were here the week of March 17 to
explore the latest in collaborative commerce and to learn how innovative companies are tapping
into the networked economy.

Gardner

Im Dana Gardner, Principal Analyst at Interarbor Solutions, your host

throughout this series of Ariba-sponsored BriefingsDirect discussions.

Our next thought leadership interview focuses on the future of business and
how companies can benefit from the new insight and analysis that transparent
business networks and processes allow.

The power of data-driven business networks and the analytics derived from them are increasing,
but how do enterprises best leverage that intelligence as they seek new services and products and
efficiency? How do automation and intelligence enter the picture for better matching buyers and
sellers?
To learn more about how business -- led by procurement - is changing and evolving, and how to
best exploit this new wave of innovation, please join me now in welcoming our guests. Were
here with Rachel Spasser, Senior Vice President and Chief Marketing Officer at Ariba, an SAP
company. Welcome, Rachel.
Rachel Spasser: Thank you very much, Dana.
Gardner: Were also here with Andrew Bartolini. He is the Chief Research
Officer at Ardent Partners in Boston. Welcome, Andrew.
Andrew Bartolini: Hi, Dana. Hello, everybody.
Gardner: Rachel, Ill start with you. Im getting this impression that procurement is really
expanding, that it's growing up in a sense, not just a static transaction, but something that is
dynamic, living, and growing. How far off base am I, or is there more to it?
Spasser: Youre right on target, Dana. If you think about the history of procurement, it really
was a back-office function that was primarily focused on cost savings in a very tactical way for

most companies. As weve seen that function evolve over the past 10 years, it has become much
more strategic in nature, and it has an impact on much more than just cost
savings for an enterprise.

Spasser

As you can imagine, over the course of the past 10 years, there have been a lot
of technological advances that have given the procurement professionals the
ability to move from manual processes and manual tasks to automating those
and therefore focusing on higher-order opportunities to deliver value to the
company.

Gardner: Of course, weve also seen more einvoicing, more of a digital trail, more data and
information associated with procurement, and the size of the network, more people on it, the
more information, and we have a virtuous adoption benefit.
What's happening with the percentage? Are more and more people getting involved with some of
these newer technologies? Are we past the point where it's a fait accompli? How mature is this
new generation of procurement?

More getting involved

Spasser: More people are getting involved. For the first couple of years, there were a lot of
people sitting on the sidelines, watching what was happening and trying to understand how that
could impact their businesses.
Today, people are embracing networks and embracing the opportunities that networks bring, such
as e-invoicing. Today, something like 70 percent of companies are using e-invoicing in some
capacity. That's a huge improvement and growth over even just a few years ago.
Gardner: Andrew, how are you viewing the maturation of procurement and how do you see it
expanding in terms of its implications for a business and an operating environment?
Bartolini: I would echo Rachels sentiments. Over the past 15 years, we really have experienced
a procurement revolution, although at times it feels a little bit more evolutionary
in nature.

Bartolini

In 2006, the average procurement organization from our research managed about
30 percent of their total spend. A mere seven-and-a-half years later, that number
has doubled. So the average procurement organization is now influencing a
majority of their total enterprise spend. The best in class, the leaders in the field,
are now managing between 85-95 percent of total spend.

So procurement has risen in stature. There is now a chief procurement officer (CPO) or a single
point of contact within a procurement operation at about 85 percent of organizations.

Procurement has stepped out of the back office and into the front ranks, and continues to gain in
stature. As it gains in influence, it continues to guide organizations in making smart decisions
within the organization and identifying the right business partners outside the organization.
Gardner: Weve seen the role and impact of social and community, of vetting processes, and
people looking to their peers for trust and feedback. We know thats impacted a lot of things. Is
this playing a role in procurement as well? Is there a social factor here? Is there information
being brought to bear from a larger community that can help organizations do this better or are
there risks?
Spasser: There are plenty of opportunities in a couple of areas. First of all, from a riskmanagement perspective, having more information, information that's both qualitative and
quantitative, is only going to help procurement organizations make better decisions.
When you look at the social and business networks, the community intelligence, and the data and
the insights that live within that network, all of a sudden youre providing infinitely more
information and making the procurement executives smarter, enabling them to make better
business decisions, and changing the nature of their game.
Instead of having to respond reactively to changes within the macro environment or within their
supply chain, you now have the ability to arm them with information that can make them
proactive in their decision making and proactive in their approach to finding new suppliers,
managing existing suppliers, and that really does change the game.

Fertile time

Gardner: It strikes me that the transparency and the ability to qualify and quantify have given
us some really new and interesting services like Dynamic Discounting, like the ability to create
AribaPay, and also learn about innovation in the field. We heard about MSC today, where theyre
pushing their ability to deliver inventory right into their customer's environment. So, its a very
fertile time.
Any thoughts about where the next level of analysis or insight will come? Are there greater
insights that we can bring to bear once weve cracked some of these early values and created
these services?
Spasser: Absolutely. Just going back to your comments on Dynamic Discounting and AribaPay,
when you look at procurement, both Andrew and I have talked about it becoming a more
strategic function.
When procurement starts impacting the cash flow and the working-capital management of
companies through opportunities like Dynamic Discounting or AribaPay, all of a sudden, it
enters a completely different realm in terms of its importance and in terms of the amount of
respect and inclusion that it gets sitting at the executive table within companies.

When you talk about whats next, there are lots of different directions in which procurement can
go with the information that theyre given. We talked about risk management, but as companies
are coming up with corporate-responsibility mandates, whether thats sustainability or green or
fair labor practices, they can be negatively impacted if they don't truly understand every tier
within their supply chain.
And we see this with companies like the Gap or Lululemon in the consumer packaged goods
(CPG) and retail space, where these companies have really suffered severe brand damage as a
result of having issues within tiers 2, 3, 4 and beyond in their supply chain. Thats one example,
but it's a powerful example of how, if you arm people with information, they have the ability to
make better business decisions.
Whether thats a business decision related to offering a discount or whether thats a business
decision about choosing to do business with a supplier or not, based on what you know about
them or their second and third tier suppliers, all of this is really important and it's changing the
nature of procurement.
Gardner: You brought up governance, risk, and compliance (GRC). I had a very interesting
discussion here at Ariba LIVE about InfoNet, using that in association with the data from Ariba
Network, and reducing that risk by being able to predict using advanced algorithms and very
complex and powerful analytics platforms to see into the future and predict when risks are
unacceptable.
Lets go to Andrew now. You have had some recent findings. Youre saying that procurement
taps this intelligence, and things like InfoNet have predictive abilities. What is the market telling
you, and how far are we into this? Have we just scratched the surface of analytics or are we into
the third inning?

Early in the game

Bartolini: With the maturation of the procurement function, were still in the early part of the
ballgame. If you look at the leading procurement organizations today, the characteristics of these
best-in-class organizations are process, discipline, an ability to execute, and driving efficiencies
and effectiveness.
What's now prized within the larger enterprise and within procurement itself is the ability to be
agile and to drive innovation. This has effectively pulled procurement further into the spotlight,
as it really does serve as a process hub within the organization and it really does serve as the
prime relationship point for third-party suppliers.
The good news in all of this is that the technology that was introduced also around the time that
we started thinking about the procurement revolution has finally started to catch up to the actual

user needs, from a usability standpoint, from an integration standpoint, from a time-to-value
standpoint.
Were seeing organizations now move from the initial adoption, where they are just trying to get
activity through their systems, to becoming more effective in their usage of these systems and
technology.
When you look at the challenges that a CPO faces, a lot of that is driven by the talent that resides
within the organization. Sometimes that's doing more with less. Its very hard for CPOs to get a
new job requisition, even in very large companies, it's a challenge to get that investment in
procurement.
Also, the skills that reside within the average procurement organization are not where they need
to be to be thought of as world class or operational excellence.
Enter technology and automation. When you look at the reams of data that sourcing and
procurement activity generate, the skills of the average procurement organization to go in and
analyze and find the right trends, whether thats pricing trends or identifying key risks, is still not
where it needs to be. So, its early stages there.
But with things like InfoNet and business networks youre starting to see the co-location of
transactional information, communication that supports those transactions, and then an ability to
analyze and make decisions based upon that, all within one central location. That's a very
powerful asset for procurement.
Gardner: And not only in one location, but in a cloud environment, where information from an
entire industry can be brought together with the proper anonymization, security, and privacy in
place, but the insights can be global or scaled down to individual organizations.

Opening up

Bartolini: This is an area where enterprises are finally opening up. I worked in this industry 15
years ago, everything was very proprietary -- our requirements on certain products or items or
how much we were spending.
The Internet has really opened it up. Information is at everyone's fingertips. Organizations are
starting to understand that there is value that can be created by sharing information in an
industry, and particularly with trading partners.
From our research, were seeing that, organizations can invest in a business network today and
get a payback within a year, just based simply on transactional efficiencies.
Where this gets more interesting is when you start to introduce other social aspects. When you
start to introduce third-party specialists, who can offer services that add value to all of the

participants in a network, it becomes a very interesting place to be. Thats why there's such
interest and excitement around business networks.
Gardner: It strikes me too that procurement is expanding its importance to companies. When we
think about some of the labor issues that many are forecasting with the workforce of the future,
its going to be difficult to get a full-time employee. Or you might want to have them for a
shorter period of time. So procurement becomes a facet of hiring. It becomes a labor-acquisition
process as well, and then, of course, more services than just products or merchandise alone.
Rachel, the question is how strategic do companies view this? Andrew says that we need to get
more competency and sophistication in procurement. Do companies appreciate that this is really
more and more a part of their core asset strategy and competency?
Spasser: Definitely. Even this morning, I was speaking with a number of CPOs who talked about
human resources as a key factor in whether theyre going to be able to get to the next level.
I would agree wholeheartedly with Andrew that the skill set is going to be different than it has
been in the past. Leveraging specific skills will be more important, whether that's through
contingent workforce or through hiring to very specific skills.
One of the interesting things that were seeing is that, in a lot of companies the procurement
function becomes a rotation within the executive ranks, as theyre bringing people up and
training them to be in higher levels of management. We see many of our customers taking people
who really don't have a traditional procurement background and cycling them through the
procurement function.
In fact, SAP is doing that itself. Marcell Vollmer, who has been a great advocate of Ariba, is not a
procurement guy by trade, but has really made a huge impact on SAP procurement, because he
brings a different skill set. He brings that analytic background, and he brings that general
business and relationship management savvy.

Complex services

When you look at the types of spend that companies are trying to attack today, youre looking
at complex services and youre looking at a contingent workforce. Those take on a life of their
own, because they are very, very different than buying a physical good.
We live in a service economy, and as that continues to evolve, thats going to become more and
more important to procurement and to companies as a whole.
Gardner: Andrew, thinking a little bit towards the future, weve talked about procurement now
having a heightened role and a larger profile because of the analytics that are being brought to
bear, the wider purview across services, and the impact with human resources, rather than just
goods and materials and facilities.

As we get to more of a digital economy, a networked economy, like weve seen in consumer
behavior, what do you see for companies when it comes to this notion of a shared supply chain -that were all interdependent parts of a supply chain, and that we need to be thinking about it
differently? Where is the shift in thinking that needs to come and where does your crystal ball
show you well be in five years?
Bartolini: The consumer today really expects better, newer, and more innovative products in a
rapid fashion and at a cheaper cost. That's the world of procurement.
If youre a procurement professional and your supply base looks much like it did 10 years ago,
there are problems on the horizon. If your supply chain and your supply base looks like it does
today10 years from now, theres going to be questions as to the viability of your company.
The speed of business is most visible in an area like consumer electronics. You see the leaders in
smartphones in one cycle are out of business five years later. This is happening in other supply
markets. Its not as visible, and maybe it's not as fast, but it is happening!
Organizations understand that the window of opportunity to generate a premium on their
products and services has collapsed, and theyre increasingly relying on their supply chains to
support capitalizing on those opportunities. That really creates a shift from net-sum negotiations
to win-win negotiations. That creates a shift from managing contracts and service-level
agreements (SLAs), to managing business outcomes. That really changes the view of a supplier
from an order taker to one thats a key collaborator.
Gardner: Very good. Were going to have to wrap it up. Rachel, thinking about organizations
wanting to do this better, maybe they listen to this podcast or read this and they think, I see
procurement as more of a core competency, having a greater impact on our company. If we need
to move at the speed of business going forward, we need to get better at this. How do you start?
Any ideas about resources, methodologies, and workshops? How do you get a new procurement
competency process going in your organization?
Spasser: One of the greatest ways to learn is to learn from your peers. Conferences like Ariba
LIVE really provide that opportunity, because you get the best of the best, and theyre sharing
their true stories. And it's not just success. Theyre sharing their pitfalls too, and they are sharing
how they navigated through those to achieve the business outcomes that they sought.

Talk to peers

There are lots of books to read and experts to talk to, but I think that the best way to learn is to
talk to peers who have been through the same process and who have candid feedback and candid
advice to share.

Gardner: Perhaps identifying leaders and influencers in your field and following them on blogs
or Twitter or other community-based and social-based interactions.
Spasser: Absolutely. There are plenty of communities, whether theyre on LinkedIn or whether
theyre proprietary, like Ariba Exchange, and these discussions are happening everyday. I would
encourage people to seek those out, participate in them, go to events, and really learn from those
who are leading the way, because if they are not going to be on the train quickly, they are going
to find themselves left way behind at the station.
Gardner: Very good. Well have to leave it there. Weve been exploring the future of
procurement and how this age-old business function benefits from new insight and analysis that
transparent business networks now allow.
And we have seen the data-driven business networks, and the analytics derived from them, are
increasingly important to businesses and that procurement is growing in its role and impact for
companies worldwide.
So a big thanks to our guests. Weve been joined here today by Rachel Spasser, Senior Vice
President and Chief Marketing Officer at Ariba, an SAP company. Thank you, Rachel.
Spasser: Thanks so much, Dana.
Gardner: And we have been joined also by Andrew Bartolini, the Chief Research Officer at
Ardent Partners. Thank you, Andrew.
Bartolini: Thanks, Dana.
Gardner: And a big thank you to our audience for joining this special podcast, coming to you
from the 2014 Ariba LIVE Conference in Las Vegas.
Im Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of
Ariba-sponsored BriefingsDirect discussions. Thanks so much for listening, and come back next
time.

Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP company

Transcript of a BriefingDirect podcast on how the face if procurement is changing, becoming
more of a strategic than a tactical function. Copyright Interarbor Solutions, LLC, 2005-2014. All
rights reserved.

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