No business is an island

No business is an island
How companies collaborate with trading partners and the
opportunities for improvement
An Ariba report, written by The Economist Intelligence Unit
Written by:

© 2014 Ariba, Inc. All rights reserved.
Foreword by
Today’s businesses realise that they can no longer be competitive on their own.
They have trimmed inventories, reduced costly infrastructure, outsourced
processes, and stretched their supply chains around the globe. As a result, they
are more dependent upon their external partners than ever before. This has made
collaboration more critical – and complex.
Fortunately, technology has evolved to make collaborating with a global network
of customers, suppliers and other partners easier. As consumers, we tap into
personal networks like Facebook, Twitter and Amazon.com that help us learn,
share and shop with more ease. Business networks provide an equally easy way
for companies to link and coordinate a virtual ‘extraprise’ of partners into a shared
community executing improved and coordinated processes in a more informed way
than in the past.
Empowered by business networks, companies of all sizes, across industries and
geographies can perform key processes such as buying, selling and invoicing
with greater efficiency. They can also enhance and expand their relationships.
Harnessing the connectivity and insights that business networks deliver, buyers
can find the right partners and optimise their spend and supply chain. And
sellers can engage with customers when, how and where they want to increase
satisfaction and wallet share.
So if collaboration drives such significant benefits and is now so easily enabled,
why aren’t we seeing broad-based economic gains driven by a surge in enterprise
productivity? Have companies truly embraced collaboration with their trading
partners? What can individual companies do to accelerate the benefits to their
organisation and build a competitive advantage?
Ariba, an SAP company, has partnered with the Economist Intelligence Unit to
better understand these issues through a comprehensive study in which nearly 300
executives, across functions at companies spanning 19 industries and 33 countries
throughout Europe, the Middle East and Africa (EMEA), were surveyed. EMEA
represents a fascinating case study, spanning many of the most advanced economies
in the world as well as a broad range of emerging ones. It has also faced a broad
range of challenges in recent years that could hinder or be addressed through
collaboration. Where better to dive into the details of collaboration and try to
answer the aforementioned questions?
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© 2014 Ariba, Inc. All rights reserved.
The results of this effort, detailed in the following pages, are telling.
An overwhelming majority of respondents say that their organizations are creating
value through collaboration and that it is viewed as a strategic capability. A clear,
but smaller, majority have also started to invest by enabling staff and training to
drive it. Businesses are indeed collaborating.
However, they are doing so in a limited, rigid manner. They are investing in people,
but not in the enabling technology. They are collaborating, but in limited ways
and with only a small portion of their trading partners. They are not adapting
their collaboration strategies based on market conditions and events. They are
concerned about the risks increased collaboration can expose them to, yet are not
leveraging new insights available to mitigate risks. All of this is limiting the results
that they achieve.
Without the right solutions and skills, it is simply not possible to extend
collaboration to a broad base of trading partners. Nor is it possible to enable new
insights and processes that are only possible in a networked environment and which
can drive business advantage.
At the end of the day, many companies remain skeptical of the notion that
technologies like those used to drive personal commerce can be applied in the
business world. But business has gone social. And there’s no going back.
Companies that embrace technological advances such as cloud computing, mobile,
and digital networks and communities can not only run their businesses more
effectively today, but successfully prepare for tomorrow.
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Written by: © 2014 Ariba, Inc. All rights reserved.
About this report
This report, written by The Economist Intelligence Unit and sponsored by Ariba, an SAP company, is
based on a survey of 281 executives based in EMEA, from organisations with at least $500 million
in revenue and from across business functions. It also incorporates in-depth interviews with experts
and practitioners with knowledge of how businesses collaborate with one another. We would like to
thank the following people for their time and insights (listed alphabetically):
Folkert Bergstra, finance director for container logistics, CEVA Benelux
Robert Fieten, board member, the German Association Procurement and Material Management
John Francis, senior manager, Accenture Strategy
Craig Lardner, global president of The Chartered Institute of Purchasing and Supply
David Loseby, chief procurement officer, Arriva
Heiko Rumpl, European e-business director, Brammer
Emmanuel Walter, chief financial officer, Caterham Alpine
The report was written by Lindsay Clark and edited by Pete Swabey of The Economist Intelligence Unit.
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© 2014 Ariba, Inc. All rights reserved. Written by: 4
Executive summary
The global economy is a complex web of business relationships that no company can navigate
alone. Whether it is through outsourcing, partnership or simple supplier-customer interactions, all
businesses are reliant on the relationships they have with their peers.
It stands to reason, then, that perfecting collaboration with one’s trading partners is a key success
factor in business. But how can companies maximise the value of their trading partner relationships,
and how can they mitigate the risks?
This report, written by The Economist Intelligence Unit and sponsored by Ariba, an SAP company,
examines the value of collaboration between trading partners and explores how it can and should be
done. It is based on a survey of executives and in-depth interviews with practitioners and experts.
The key findings are as follows:
There is a growing realisation that businesses depend on value chains that include
trading partners of all kinds. The value of collaborating with those partners effectively is almost
universally recognised, with 93% of respondents saying they derive value from collaboration.
Companies with strong technology capabilities make for attractive trading partners.
Technological capabilities, as they apply both to product and internal operations, are the number one
selection criteria for trading partners.
Information sharing is the most common form of collaboration. Sharing information with
trading partners helps to extend an organisation’s situational awareness and builds trust – although
some companies might need encouragement before they share.
Collaboration does pose its own risks, with respondents identifying reputational damage
as the gravest risk. However, companies can mitigate the risks inherent to working with third
parties by adopting innovative approaches to collaboration.
Collaboration is widely recognised as a strategic capability. But while most organisations
have adopted a ‘formal’ approach to collaboration, there was less evidence that they were pursuing
innovation in the way they collaborate. Doing so is an untapped opportunity to identify cost savings
and drive growth.

Introduction
When working within a large organisation it may seem like a world unto itself, but even the biggest
businesses rely on an ecosystem of customers, suppliers, partners and even competitors to survive.
Much has been written about the art and science of internal collaboration, but the question of
how organisations work with one another for mutual benefit is less explored. The purpose of this
report, written by The Economist Intelligence Unit and sponsored by Ariba, an SAP company, is
to evaluate how companies collaborate today, what value they derive from it and how that value
might be increased.
Based on a survey of 281 business executives in Europe, the Middle East and Africa, who work for
organisations with at least $500 million in annual revenue, the report finds that collaboration is
highly valued. Indeed, 93% of organisations say they are creating value through collaboration.
Both information and technology play crucial roles in trading partner collaboration. Sharing
information is the most common form of collaboration among respondents, and it is hard to
imagine any successful collaboration that does not involve the exchange of information.
Technology capabilities, meanwhile, are the number one selection criteria that respondents look
for in potential partners.
It is unsurprising, then, that information technology is helping many organisations find innovative
ways to collaborate with trading partners. Whether it is industrial distributor Brammer placing
vending machines for tools in its customers’ premises, or heavy duty vehicle maker Caterpillar
helping suppliers find the working capital to ramp up production, there is ample opportunity for
innovation in trading partner collaboration, and every reason to pursue it.
Businesses certainly acknowledge the importance of collaboration, and 86% of respondents say
their organisation considers it to be a strategic capability. There was little evidence, though, of
respondents pursuing some of the more innovative approaches to collaboration.
This suggests that while companies understand the need to optimise their relationships with
trading partners, they may not be aware how many ways there are to do it.
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© 2014 Ariba, Inc. All rights reserved. Written by:
Why collaboration matters
No business is an island. The economy is an intricate network of business processes and value
chains that cross organisational boundaries many times over.
This means that an organisation’s network trading partners – be they suppliers, distributors or even
customers – are effectively an extension of the organisation itself. To maximise their own potential,
therefore, businesses need to know how to make the most of that network.
“These days, you cannot stop improving business processes when they reach your company’s
borders,” says Heiko Rumpl, European e-business director at industrial parts distributer Brammer.
“You need to improve the competitiveness of your value network if you want to improve the
competitiveness of your own organisation.”
There are two ways to achieve this. The first, of course, is to select highly effective partners. The
second is to perfect the art of collaboration.
Collaboration is now included in the curriculum of international accreditation body The Chartered
Institute of Purchasing and Supply, the world’s largest membership organisation for procurement
professionals. The reason for this, explains global president Craig Lardner, is that effectively
collaborating with suppliers expands one’s own capabilities.
“If I am a good procurement person, I’m not looking for cheaper products, I’m looking for a
competitive edge that my sales and marketing colleagues can take advantage of when they face our
customers,” says Lardner, who has a 20-year history in the procurement profession, including a spell
as CPO of global gases firm The BOC Group, now part of The Linde Group.
“A really good procurement person looks at the supplier’s supplier and customer’s customers,” he
adds. “Somewhere in that backward glance, there will be an edge for me to grab on to and pass to
my colleagues in sales and marketing; a new way of doing something that is going to make it more
streamlined for the organisation or more quality assured for my organisation.”
David Loseby, chief procurement officer with transport group Arriva, says organisations are
beginning to understand that suppliers possess knowledge about technology or processes they can
no longer ignore.
“What people have to recognise is sometimes suppliers have access to market insight, knowledge
and a trend. It is recognition that you cannot afford to be too arrogant no matter how big you are.
You need to be able to listen to feeds from all sorts of angles and if you don’t respond to that,then
that is a very dangerous place to be. It will be part of helping deliver future business models.”
To gain these insights, businesses need to be continually aware of the new technology and
processes being developed in the upstream supply chain. “You need to know who is investing in
what to give you competitive advantage, whether that is new technology, systems or processes.”
Mr Loseby adds: “It doesn’t matter whether it is science, technology or IT systems, they are all
cumulative. You are trying to define the real ground-breaking ideas that makes that seismic shift
from where we are today to where we need to be tomorrow.”
Collaboration is imperative in high-tech industries where specialist technologies are embedded
in products, for example use of information technology within cars, says Robert Fieten, part-time
professor at Universidad Alcalá de Henares and board member of the German Association for
Procurement and Material Management.
6

“This is the key issue right now, especially in industries like automotive and aerospace. It is an
absolute must. Nobody has all the wisdom that is necessary to make high-tech products. It is driven
by a need to cooperate and reap the rewards of synergies.”
Access to technology is a key driver for collaboration. When asked to identify their priorities when
selecting a business partner, 56% of respondents answer “the partner’s technological capabilities”,
making it the most popular response.
This includes the technological input that partners can provide into products and services, but also
the way in which partners use technology to run their own business.
Brammer, for example, has for the last decade been pursuing a strategy of using technology to
become a more valuable trading partner to its customers. For example, it provides data analytics
services that allow customers to analyse their expenditure with Brammer, and in some case with
other suppliers too, and therefore optimise their procurement strategy.
With value-added services such as these, Brammer hopes to grow its share of Europe’s €40 billion
industrial parts market. “We’ve got about a 2.5% market share right now, but it’s an extremely
fractured market,” Rumpl says. “We strongly believe the market will be consolidated and we want to
be the main consolidator.”
“We have identified services that allow us to collaborate much more effectively with our customers,
such as data analytics and integration,” he adds. “But we’re not maximising profit by charging
customers for these value-added services, we use them to grow market share.”
Growing market share is just one objective that can be pursued through collaboration. Among survey
respondents, the most common priority when collaborating with trading partners is “increasing
customer satisfaction”, with 49% selecting this option. Interestingly, customer satisfaction topped
the priority list not only among respondents from customer-facing departments such as sales and
marketing, but also finance, IT and strategy and business development (Evidently, the message that
all departments must focus on the customer is getting through).
What are the most important considerations when selecting
a partner to collaborate with? (Select up to three)
The partner’s technological capabilities
There being an existing relationship in place
The partner’s size and reach
Aligned objectives
The partner’s organisational capabilities
Readiness to share information
Matching company culture
The partner’s brand
0% 10% 20% 30% 40% 50% 60%
56%
38%
20%
29%
29%
30%
37%
37%
Source: The Economist Intelligence Unit
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Beyond customer satisfaction, however, different departments had different priorities. Respondents
from IT, for example, prioritise reducing process costs; in finance, they seek to improve cash flow.
That serves to show the range of benefits on offer by collaborating effectively.
What are your organisation’s priorities when
collaborating with trading partners? (Select up to three)
Increasing customer satisfaction
0% 10% 20% 30% 40% 50% 60%
Reaching new customers
Developing new products and services
Reducing unit costs
Reducing supply chain risk
Improving cash flow
Reducing process costs
Geographic expansion
Improving compliance
Gathering information
Improving demand forecasting
Lowering inventory
Increasing share of wallet with existing customers
49%
27%
27%
26%
24%
24%
21%
19%
19%
18%
13%
10%
10%
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How companies collaborate
The spectrum of inter-company relationships ranges from deeply integrated, strategic partnerships to
highly automated, transactional connections. Identifying which of these is appropriate for any given
business function is part of the art of effective collaboration.
There are some common components, however, such as sharing information. Nearly two-thirds of
respondents (63%) say they have shared information with a trading partner at least once in the past
three years, more than any other available option.
It is perhaps surprising that this figure was not 100%, as sharing information is clearly vital for effective
collaboration. Sharing the right information with trading partners is one way for organisations to extend
their situational awareness, and allows both parties to provide greater value to one another.
CEVA Logistics, a large European supply chain operations company, encourages its customers to
share as much information as possible. This serves two purposes: it allows CEVA to design the right
solution for their customers’ needs, and it gives CEVA advance warning of any operational issues
that might be coming down the line.
For example, the company works with Primark, a UK clothes retailer, on achieving upstream visibility
of its suppliers’ performance so CEVA can prioritise warehouse workloads and provide advance
warning of any delays. This benefits the client too, as it may preclude the need to order new stock in
the event of a last-minute spike in demand.
“We do a huge study to understand how their supply chain currently works, and work out in theory
what the benefits would be of changing the process,” explains Folkert Bergstra, finance director for
container logistics at CEVA.
Not all customers are immediately comfortable with this level of information sharing, he says. “Very
few are convinced straight away. Initially it may seem like additional work so we have to explain why
it is beneficial to them,” Mr Bergstra explains. “We can demonstrate with other customers what steps
we made, how they deliver information and how we deliver it to them and what the benefits are.
“By doing those sorts of thing, we convince the customer to change to a certain way of working to
get benefits on both sides.”
Which of the following collaborations has your organisations
undertaken at least once in the last three years?
Joint financing
0% 10% 20% 30% 40% 50% 60% 70%
Information sharing
Joint product development
Joint marketing / promotion
Process automation
Joint long-term (5 years +) strategy
Intellectual property sharing
Early payments in return for discounts
63%
57%
54%
51%
51%
38%
33%
29%
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Crucially, though, making sure the relationship is benefiting both parties is more than a matter
of monitoring key performance indicators (KPIs). “We believe that relationship is crucial to retain
business. KPIs may be on green but you can still lose the contract if the relationship is not as good
as it should be.”
“We have monthly and quarterly reviews with customers. You can go through all the formal checks
and they seem fine, but you can also ask the customer, ‘Tell me, if you had to renew today would you
do it?’ or ‘Tell me what is keeping you awake? What else is of interest?’”
“We do quite a bit in order to make sure we understand what is driving the customer,” Bergstra adds.
For Brammer, information sharing engenders trust between trading partners. And trust, says Mr
Rumpl, is essential for valuable collaboration. It is not always easy to be completely transparent
with customers, he admits, but it is worth it in the long run.
“We’ve developed tools that allow customers to analyse how much they spend with us, and
sometimes that means they can see that we sell a product to one of their plants at a cheaper price
than we do to another plant,” he says.
“So the data might not always be easy to explain to customers, but we don’t hide it from them
because transparency builds trust,” Humpl says. “And without trust, value cannot be released
between trading partners.”
The second most common form of collaboration among respondents is joint product development.
This, again, is surprising as joint product development accentuates the inherent risk of relying on
third parties to serve customers. However, as some companies are demonstrating, more innovative
approaches to collaboration can help trading partners reduce the risk of working together.
In a typical collaboration, how much information does your
organisation share with partners and suppliers?
0% 10% 20% 30% 40% 50% 60% 70%
Demand/supply forecasts
Intellectual property
Internal communications
Your strategy
Operational metrics (eg, units sold)
Operational data -SKUs - in aggregate
Real-time performance metrics
Financial metrics (eg, revenue / profit earned)
Your financial targets
65%
61%
54%
49%
38%
35%
34%
32%
30%
10

Managing the risks of collaboration
Collaborating with trading partners effectively requires placing one’s trust in a third party, and this
can expose organisations to a certain degree of risk.
Among survey respondents, the number one risk associated with collaboration is “reputational
damage”. According to Dr Fieten, businesses’ main reputational concern is that unethical behaviour
in their supply chain might damage their good name.
“If you look at the apparel or textile industry, they might have a problem if they have many suppliers
in Bangladesh or Cambodia where working conditions are not good. You read about this sort of
problem almost every day in the newspapers. It has a very strong impact on the firm’s reputation and
they are very concerned about this.”
Meanwhile, the banking industry also is, at present, especially keen to avoid any reputational
damage, says John Francis, a senior manager at Accenture Strategy. To be more precise, they are
keen to avoid any legal difficulties that may in turn lead to reputational damage. The way they are
handling this is to make sure their supplier selection process is as transparent and thorough as
possible, Mr Francis explains.
The second highest risk was loss of product quality. This is linked to reputational damage as well, as
demonstrated by the public backlash against General Motors after the company was forced to recall
millions of cars in 2014 due to a technical fault.
Performance issues such as this are often caused by a lack of focus on quality after deals are struck,
Dr Fieten says. “It can be due to neglecting the supplier relationship, without sufficient quality
control. It is very important that after the relationship is established you have continual checks.”
Another common concern is that suppliers might run into financial difficulty, leaving a business
unable to manufacture its products or deliver its services.
What do you consider to be the biggest risks in undergoing
collaboration with a trading partner?
Damage to morale
0% 10% 20% 30% 40% 50% 60%
Wasted time
Loss of intellectual property
Unreliable supply
Wasted money
Loss of product quality
Damaged reputation
35%
33%
31%
36%
42%
50%
16%
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This danger is keenly felt in the automotive industry, where car makers rely on a key supplier to
bring new technology to market rapidly in order to gain consumers’ attention. The proximity to their
suppliers exposes automotive manufacturers to risk, says Emmanuel Walter, chief financial officer of
sports car maker Caterham Alpine.
“For the eight-year lifecycle of a car, we have to ensure the supplier survives,” Mr Walter explains.
“If they go bankrupt, we do not have a plan B.”
These concerns mean that supplier due diligence is a matter for the board. “They spend a huge
amount of time going through the key suppliers to be sure of them. Typically, in a collaborative
project, we will have worked with many of the suppliers for more than 20 years. It takes a long time
to find decent suppliers and it is really not easy,” Mr Walter says.
Some companies are so wary of this kind of supplier risk that they are reluctant to collaborate at
all. According to Accenture’s Mr Francis, a continued sense of economic volatility – and therefore
the danger that suppliers might go under with little warning - is preventing some businesses from
partnering altogether. “For some companies, this is a real barrier,” he says. “They are not engaging,
and they are keeping more things in-house.”
However, by adopting innovative approaches to collaboration, companies can mitigate this supplier
risk. Caterpillar, the industrial equipment manufacturer, is seen as an expert in this field.
In the wake of the economic downturn, Caterpillar expected demand to grow rapidly. However, it
also predicted that some of its key suppliers would struggle to find the working capital required to
ramp up production to meet that demand as it grew.
The company therefore introduced a number of measures to reduce the capital required by its
suppliers, especially the small and medium businesses among them. It standardised its payment
terms and offered suppliers the chance to receive early payment in exchange for discounts, and
helped suppliers access a supply chain finance initiative by the US government. These measures
were designed to help Caterpillar’s suppliers pursue their own objectives – namely sell more
products – in a way that clearly boosted its own cause.
This example shows how companies can manage trading partner relationships innovatively in order
to reduce their strategic risks, and modify their approach to collaboration in response to market
conditions. However, this style of collaboration does not appear to be popular among respondents,
only 28% of whom have conducted “joint financing” with partners in the last year – fewer than any
other option – and only 33% have offered early payment in exchange for discounts.
12

Strategic collaboration
There is no question that respondents see collaboration as strategic. Indeed, 86% say their
organisation recognises it as a strategic capability. But is there evidence that they are collaborating
in a strategic fashion?
According to CIPS president Craig Lardner, truly strategic collaborators are those companies that
consider the strategic objectives of their partners, as well as their own, when assessing their
contribution to a partnership. “They do things differently, and one of those things is how they look
at the strategy of an organisation from board-level,” he says. “They ask themselves and their team
the question: ‘what are we going to do, in our area of speciality, to help deliver on those strategic
goals?’ That behaviour is called strategic alignment.”
Shared objectives were identified by 48% respondents as the most critical component of a
successful collaboration, more than any other factor. This was followed by communication (40%) and
transparency (38%).
But few companies can really manage this level of harmony with their partners, Mr Lardner says.
“Collaboration is beyond some customer organisations,” he explains. “They cannot get out of the old
conflict of procurement verses supplier sales. Once you get out of that old-fashioned paradigm then
you can turn your attention to getting the supplier and your own organisation in the right place.”
The majority of respondents report that they their organisations have ‘formalised’ collaboration with
their trading partners. When asked to describe their approach to collaboration, 39% of respondents
say that “we have institutionalised collaboration with trading partners to maximise mutual benefit”.
A further 32% say “we have taken formal action to improve collaboration with some trading partners”.
But formalising processes is not the same as being strategic. Limited adoption of joint financing and
early payments among respondents, at a time limited lending by the banks has led many small and
medium-sized businesses to seek alternative sources of financing, indicates that few companies are
pursuing innovative ways to manage supplier risk.
Brammer is pursuing its own strategic goal – growing market share – by finding innovative ways
to help its customers pursue theirs, says Mr Rumpl. The company supplies parts for maintenance,
repair and operations (or MRO) at production and manufacturing plants across Europe, and its
customers include Unilever and Procter & Gamble. According to Mr Rumpl, manufacturers typically
manage the supply chain for their raw materials effectively, but when it comes to MRO parts they
are often in disarray.
“A senior procurement executive at one of our customers told us that MRO really stands for ‘messy,
random and out of control’,” he explains. “However, companies are starting to realise that about
80% to 90% of the total cost of MRO does not come from the goods they purchase, but from the
surrounding businesses processes.”
The aim of its value-added services is to help customers rationalise those business processes,
thereby saving them money. It offers technology-based solutions such as analytics, data services,
integration and business networks, as well as project management to help deploy these, at no extra
cost to customers.
Brammer is now even experimenting with vending machines for industrial parts situated on its
customers’ premises. “We are in the process of developing vending machines for tools and general
maintenance products, which mean the customer does not have to stock products such as personal
protection equipment,” Rumpl explains. “Instead, employees can go up to the vending machine,
enter their employee ID number and purchase the product. The customer does not worry about which
products to stock, because we will make sure that the products that are needed on site all the time.”
13

Brammer’s vending machines for industrial parts demonstrate firstly that, although companies
have been working together for centuries, there is still ample opportunity for trading partners to
innovate in the way that they collaborate. Secondly, they show that strategic collaboration does not
necessarily require high-touch relationships.
Conclusion
The case for collaborating with trading partners effectively is clear and, as the survey suggests, well
understood. There appears to be a growing awareness of the importance of tending the financial and
physical value chains that cross organisations.
And as the case studies described in this report reveal, there are many different approaches to
collaboration that can be applied to many objectives or challenges.
However, on the evidence of the survey, few organisations are using the full range of collaboration
options available to them. This could be a hangover from the economic downturn, during which
the fear of financial contagion reportedly made companies more reluctant to partner, or a sign that
companies simply lack the process management or technological capabilities required to adapt
collaboration in response to market conditions
But it may also suggest that collaborating with trading partners is not viewed as a focal point for
innovation. If this is the case, it is good news for companies that wish to extract the maximum
value from the organisations with which they surround themselves, because it means that there are
untapped opportunities to be grasped.
Which of the following statements best describes your
organistion’s approach to collaboration trading partners?
39%
32%
15%
13%
We collaborate only as much as is required to
perform transactions
We have made informal efforts to improve
collaboration with some trading partners
We have taken formal action to improve
collaboration with some trading partners
We have institutionalised collaboration with
trading partners to maximise mutual benefit
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No business is an island

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