Major Services Trends in IT Change Role and Responsibilitiesof IT Procurement and Management ToolsTranscript of a BrieﬁngsDirect Podcast on the use of SaaS and cloud models to help IT operatelike a business.Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: AribaDana Gardner: Hi. This is Dana Gardner, Principal Analyst at Interarbor Solutions, and yourelistening to BrieﬁngsDirect.Today, we present a sponsored podcast discussion on how the priorities and functions of enterprise IT are changing, and rapidly. A number of trends and advancements are changing the game for IT leaders, especially in terms of how they themselves operate like a business. Theres a heightened emphasis on measuring cost, service management, hybrid computing, and outsourcing that leverage software-as-a-service (SaaS) and cloud models. Theres also a recognition that collaboration and coordinated business processes need to increase far outside the four walls of the company. IT needsto increasingly support ecosystems and better apply extended enterprise process governance.This is being required, even as costs are still being squeezed and automation applied more deeplyacross operations. The past several years have certainly spurred a changing set of expectationsfor IT leadership to adjust to.So how can IT adjust? What must they do differently? Were here now with an executive fromAriba to learn how CIOs are seeing the world anew and how they can develop newer strategiesfor making IT get more central to help businesses drive and innovate.Please join me now in welcoming Jason Kurtz, Vice President of Network and FinancialSolutions at Ariba. Welcome to the show, Jason.Jason Kurtz: Thanks, Dana. Great to be here.Gardner: As I mentioned, theres a shift here thats happening fast. It seems that theres adifference between running IT now and just two or three years ago. Why is that, and what haschanged from your perspective?Kurtz: Weve certainly seen several big changes. One is in the resource-constrained world. Thereare bandwidth constraints to support business innovations.When I talk to CIOs, one of the biggest issues on their minds is, how do I make sure I amallocating more of my time and efforts in technology that supports business growth and
innovation, versus the maintenance of existing systems? Thats very different than the focus thatyou would have had in years past in terms of driving internal automation. Thats one big changeweve seen.Two is clearly the adoption of SaaS technologies and the impact thats having on IT organizations. We see it completely changing the way companies think about IT investment, not just capital expenditures versus operating expenditures, but the roles and responsibilities that an IT organization has and how it interacts with its internal customers within the functional parts of the organization. Three, I think you referenced it a little bit earlier, is not just a maniacal focus on managing costs, but also the adoption and return on investment (ROI) that is generated from IT investments. Theres always been a focus on getting a good ROI, but I think it’s a much more signiﬁcant focus across theorganization on doing that, and particularly from an IT organization in terms of making sure thatthey have the ability to measure that.Inter-enterprise collaborationFour was just a focus on inter-enterprise collaboration. Rather than focusing on the internal process efﬁciency and effectiveness within the four walls of a company, CIOs are starting to realize that the next wave of productivity will be outside their four walls, what some refer to as inter-enterprise collaboration, meaning how an enterprise automates the processes andthe way it collaborates with its customers and suppliers throughout the supply chain.Gardner: Im really interested about this notion about how IT needs to operate more like abusiness. It seems as if, in the past, IT had a bit more leverage or freedom to say, "Listen, this isnew and fresh and it’s not exactly a science, so tell us what you want, give us some time, andwell come back."Now, theyre being asked to behave more like logistics or human resources, sort of a maturebusiness function. How do you see that manifesting itself? What is it that IT needs to do in termsof becoming more like some of the other business units, divisions, or functions?Kurtz: It starts with a really well-deﬁned set of goals and objectives. Why are we going toundertake something, what are we hoping to accomplish with that, and how are we going tomeasure that? What are the key performance indicators that well be able to track success with.To your point, there were certainly times in the past when everyone was buying into the latestand greatest technology, or something that was new and cutting edge, and wanted to try andexperiment with it. Given the economic times over the last several years, the willingness of
companies to just experiment and see what happens is dramatically less, and you see ITorganizations taking on a much more ROI driven approach.So its having a very well-deﬁned business case for investments or initiatives that theyre takingon, and making sure not only they understand what that business case is, but their internalstakeholders understand what that business case is and are committed to signing off on deliveringthose resources.And its not just an IT approval, but its a CFO approval in many cases, and theyre really holdingtheir internal customers and stakeholders feet to the ﬁre and measuring on a regular basis whatthe ROI is for that speciﬁc initiative. Weve seen a dramatic shift in the governance around thatkind of ROI and adoption process with all of the initiatives that we see our customersundertaking, much more so than we would have seen two, three, or ﬁve years ago.Gardner: Ive seen where the way that IT is able to cut cost, but also actually increase theirinﬂuence and impact within the organization, is to identify core-versus-context types of ITactivities, and for those non-core ones, look to increasingly outsource, partner, or ﬁnd ways ofcreating sub-units in the organization.Theres this sort of dual track where you make yourself more important by being integral to thebusiness success, elevating your role, but at the same time, identifying things that arentsomething that you can differentiate from third parties, more commodities now than ever, andthen looking to get those outside of your purview, your budget. How do you see that shaping up?Non-core activitiesKurtz: Again, a trend that ﬁts exactly in line with that is that we see customers takingadvantage of the cloud or SaaS, particularly for non-core activities.Take, for example, integration. Integration is required in todays world, whether youreintegrating within your four walls or outside your four walls, but is that really a core competencethat you want to have as an organization. Or, do you want to rely on third party integration as theservice solution providers who can usually do the integration work faster, cheaper, and moreﬂexibly? Were seeing thats just one example of ways customers are taking advantage of that.Also, of course, the solutions that Ariba provides in the spend management space, were seeingwhere customers want to focus on the core enterprise resource planning (ERP) capabilitiesaround ﬁnance and operations and leverage tools like Aribas Spend Management Suite to helptheir organizations buy better and connect with their ERP, but do it in a cloud type way.Gardner: You and I ﬁrst started chatting about this almost a year ago, when we were in Bostonat a conference. We were talking about how the IT function now has to get more into that nutsand bolts of ERP, procurement, and spend management, because its not just an internaloperations function. Its mixing and matching services, deciding whats core and what’s context,
doing the upfront analysis, and cost beneﬁts, and deciding what you can outsource, what worksbetter, faster, cheaper, and so forth.For the beneﬁt of our audience, an IT audience, tell us about Ariba. They might not be thatfamiliar. You guys are very familiar to the folks who are doing procurement and supply chainmanagement functions. Give us the elevator pitch. How does Ariba take what it does and howdoes that then apply to IT?Kurtz: Ariba, at the highest level, helps companies buy better, sell better, and manage their cashbetter, and we do that in a couple of ways.One, by providing technology or applications that have capabilities across each of thosefunctions around buying, selling, and managing cash. Then, we have a community that is part ofour Commerce Cloud, as we refer to it. That community includes our network that connectbuyers and sellers, whether theyre collaborating with suppliers, looking for new businessopportunities, or helping to manage their working capital. Its a network that facilitatesdocuments, information, and ﬁnancial supply chains.Then, we have a variety of capabilities to help our customers adopt and be successful. Some ofthat’s delivered by us and some of it by partners who plug into the cloud. At the highest level,that’s a little bit of what we do.How our IT organization is taking advantage of that I think was your next question. We see aproliferation of organizations taking advantage of the ability to plug into the Ariba CommerceCloud in different areas.Some organizations start with our legacy, which is spend management and helping customersbuy better, whether that’s identifying savings opportunities, identifying new sources of supply,negotiating better agreements, managing the contracting process, all the way through, procuringsolutions, collaborating with your suppliers and receiving invoices back from your suppliers tomanaging cash, including payment term optimization, invoice reconciliation, and even working-capital management solutions.Finally, for sellers, it helps create a marketing channel, new business opportunities, improvedefﬁciencies, and collaborating with and transacting with your customers and prospects.Modular basisThe nice thing about the way Ariba works is that you can plug in and use any of those pieces ona very modular basis as you need them. That’s been particularly attractive to IT organizations forthe exact reasons we talked about before, which is looking for very speciﬁc ROI and veryspeciﬁc initiatives around their pain and needs within an organization. Weve got the ﬂexibility tohelp solve those on an individual or holistic need.Gardner: Just to be clear, you guys offer a lot of these services as SaaS or cloud services?
Kurtz: One hundred percent of what we do is offered by the cloud, correct.Gardner: One of the interesting things about IT that we mentioned is that theyre looking to domore with less. Theyre looking to automate. Theyre looking to divide core and context andmake some good choices on that.One of the things that I keep coming up against when I talk to folks in IT is that there’s still themanual paperwork at the spreadsheet level, when it comes to managing contracts and licensesand keeping track of use-pattern licensing, and how to charge back for that. It’s a nightmare forthem. Is there anything you guys bring to the table that also gets at this issue about licensingsoftware, managing the lifecycle chargeback, that sort of thing? If not, is that something you planto do?Kurtz: We have many customers who use our spend management solutions to manage their ITspend. I think this is really what you are getting at, whether that’s the sourcing and negotiating ofhardware or infrastructure or contract labor or software licenses, managing the contractingprocess and the ongoing contracting lifecycle of that, all the way through the procurement of itand then the relationship management aspects of it. We absolutely support those processes thatIT organizations need to manage their cost within their organization.Gardner: So this is again an instance where IT is sort of catching up to other more maturebusiness units, functions that have been around for decades, if not longer. Having a set ofestablished processes, methodologies, and the system of record to back that up is sort of a no-brainer, but do you still encounter organizations who are doing this with spreadsheets and moremanual processing? Is IT really a laggard when it comes to automation at this level?Kurtz: You would be really surprised how much we see in terms of the world continuing to be avery manual set of processes and capabilities. If you look at it not just within IT, but if you take astep back and look at it on a broader basis, across the market, we see 80 percent of business-to-business transaction still completed completely manually. We see 85 plus percent of invoices andpayments still being paper based or people cutting checks.We see the vast majority of early payment discounts are completely missed. Some estimatesindicate that 70 plus percent of all early payment discount opportunities, which procurement andother organizations work so hard to negotiate, get missed. The estimate on what this costcompanies around the world is $650 billion in economic impact annually.The very core of this problem is how an IT organization connects their internal systems, mostlikely ERP, within an organization to the systems and ERPs of their customers and suppliers toautomate that supply chain. That’s where the big automation opportunity, efﬁciency, andeffective gains are, or will be, next is just because the proliferation of all the combinations ofsystems within your organization, your suppliers, your customers.Just think about the number of combinations that can be and how it can be very, very challengingand difﬁcult to connect those systems into the optimal or most efﬁcient supply chain.
Supply chain activityGardner: Weve been describing IT and its relationship to a provider like Ariba throughprimarily a consumption framework. But it seems to me that there is also the opportunity for ITto take something like the services you offer with your Discover and your ability to use the cloudand ecosystem of providers to initiate a process, and then to manage it as a procurement or asupply chain activity.Couldn’t IT extend that as a service of the services they provide? They had to do this for ERPinternally, so why wouldn’t IT want to get involved with partnering in service providers likeyourself and then embedding that more into the organization or extending it across your inter-enterprise and extra-enterprise activities?Kurtz: It makes all the sense and is really the next evolution of where companies are going forautomation beneﬁts. Its what we think about as extending the ERP into inter-enterprisecollaboration. That’s where companies like Ariba can really help IT organizations.There are some great examples of customers out there who are doing that. If you think about iton the buying side of the world, take a company like Nalco, which is the largest sustainabilitycompany in the world. They had really struggled with lack of automation around purchase orderswith their customers and then the purchase orders being delivered to their suppliers from Nalco.They were literally losing ﬁve percent of their orders that they just couldn’t track being deliveredfrom their organizations to their suppliers. These lost and delayed orders meant that they couldn’tbill customers in a timely manner. It meant lost sales. It meant extending "days salesoutstanding" and signiﬁcant customer satisfaction issues.A team of people were having to call and check on order status and invoice processing paymentsand payment status, a completely inefﬁcient processes between Nalcos customers, and itssupplier partners.By leveraging Ariba Solution and the Ariba Network they were able to collaborate with suppliersand customers to signiﬁcantly improve their customer satisfaction, reduce "days salesoutstanding," and cut headcount that were very involved in working on things that could beeasily automated.Gardner: It seems that IT can have a role as a service broker or service manager increasinglyinto procurement supply chain extended enterprise commerce activities by supporting anoutsourced or hybrid approach, melding in a sense their past practices with new ones and thensegueing over time into more of a cloud approach. It seems like that’s sort of a no-brainer frommy perspective.Do you have any examples of organizations that are doing that, speciﬁcally IT organizations? Iknow sometimes you can name companies and many times you cant, but at least can you point
some examples of a use case scenario where IT is not only taking something like the AribaNetwork and their processes and services, applying it to how they do IT procurement, but alsoextending their value as a service broker to other aspects of the business?Kurtz: Let’s take an example from the side of the business everyone gets most excited about, therevenue growth or sell side of the house. Fastenal is a great example, where an IT organizationhelps extend the services it provides internally to its customers externally to Fastenal’s customersby leveraging eCommerce and the Ariba Network to connect and collaborate with its customers.Real-time acknowledgmentsOne of the beneﬁts of the extension that Fastenal has done is the ability to collaborate with itscustomers to provide real-time purchase order and delivery acknowledgements, which havegreatly improved customer satisfaction. It has reduced their purchase order error rates by over 80percent, and it reduced "days sales outstanding" by over 70 percent, a signiﬁcant working capitalimprovement.Other companies are doing the same kind of thing as Fastenal and receiving really good revenuegrowth or new business opportunities as well. It is not uncommon to see companies like Fastenalﬁnding 50 percent-plus increases in product line cross-sells and up-sells, and seeing even 20percent plus year-over-year sales growth within existing customers. Then, we have solutions likeAriba Discovery even ﬁnding new business in customers that they have never done any businesswith before.That’s just an example on the sell side of the house of how IT organizations are extending andcan extend the service that they are providing.Gardner: I think we can expect to see more organizations looking to cloud and SaaS services forthese types of procurement, extended supply chain, and commerce activities. This is bound to becoming into IT more and more. IT might as well get out in front of it.From where Im sitting, it also helps them with some of these larger issues we talked about,which is to help them run more like a business, reduce their costs, and focus more on the areaswhere innovation is going to be part and parcel of their relationship at the high level with theirbusiness leaders. It makes a great deal of sense.How about looking at IT transformation? When we think about solidifying data centers, reducingthe number of applications, this also gets at the heart of that. They don’t have to be buildingapplications, supporting the infrastructure for these types of apps that are internal. Any thoughtsabout another layer, another dimension, of cost reduction, because were taking a whole set ofapplications out of ITs responsibility?Kurtz: Absolutely. Were seeing all customers take advantage of this opportunity, andparticularly they look to the cloud or SaaS solutions like Ariba. About 50-60 percent of
companies who are moving to a SaaS environment or the cloud are doing it because of the costreduction opportunities inherent in not having to deploy, manage, and support applications.Not only do they get the cost beneﬁts of that, but they typically have time-to-deployment beneﬁtsand less time-to-realize-value and ﬂexibility beneﬁts that they didn’t have due to resourceconstraints within an organization. Thats a very common trend in the market, and speciﬁcallywithin Ariba’s customers, and we expect to see that trend continue.Gardner: Im afraid we are about out of time. Weve been discussing how CIOs can develop newstrategies for making IT even more central to how businesses thrive and innovate and leveragingSaaS and cloud models and looking to have a better handle on measuring costs, servicemanagement, and then looking at how Ariba can bring the whole supply chain procurement andspend management, process management to that problem set as well.Any last thoughts, Jason, on how your set of values have a relationship to IT? I think it’s kind ofperhaps an eye opener for folks to think this way, but to me it makes a lot of sense.Kurtz: A couple of thoughts. One, the most important thing to keep in mind is that at Ariba wereally view our goal, our mission in life, is to help extend or complement the ERP investmentsthat many IT organizations have made. We help extend those outside the enterprise and theenterprise collaboration, whether that’s buying, selling, or managing their cash.You mentioned a few examples of spend management, but also it’s about helping companies sellbetter, drive revenue growth, and manage their cash better by automating functions like accountspayable and providing beneﬁts to accounts receivable on the sell side.If you look at it in those terms, we help companies free up their limited IT resources to focus oninnovation, not supporting applications or integration or customization, and focus on drivingbusiness adoption and leveraging the core internal capabilities of ERP.Gardner: I would like to thank our guest for his time. Weve been here with Jason Kurtz. He isVice President of Network and Financial Solutions at Ariba. Thanks Jason.Kurtz: Thank you, Dana. I appreciate the time.Gardner: And thanks to our listeners for joining this sponsored podcast discussion. This is DanaGardner, Principal Analyst at Interarbor Solutions. Thanks for listening, and come back nexttime.Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: AribaTranscript of a BrieﬁngsDirect Podcast on the use of SaaS and cloud models to help IT operatelike a business. Copyright Interarbor Solutions, LLC, 2005-2011. All rights reserved.You may also be interested in:
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