I'm excited to post the second installment of what will continue to be an ongoing and fun series of discussions with Pierre Mitchell. Pierre, an old industry friend and colleague, has been on nearly all sides of the Spend Management market over the years. He's currently co-leading Hackett Group’s procurement advisory practice.
Jason: Do you miss working closely with the vendor community?
Pierre: It's true that in my current role, I'm not interacting with them as much as I used to. They're not briefing me all the time (even though some want to). But this lesser focus keeps my eyes aimed on the bigger issues. Still, it's fun to ruminate on the future of the vendor world. I still talk about the giant death march and sucking sound which is called ERP implementation. I often think about how to increase a company's returns from implementations or upgrades. The question is what can we do within the vendor ecosystem (e.g., Oracle or SAP) to make this possible. Part of the answer is applying classic strategic sourcing principles to the Spend Management technology market. The key is chunking up your requirements to be smart to understand what is happening within the vendor world. Why would you expect one vendor to support all your global requirements for a complex category such as Spend Management? It's complex because it requires transactional software services, analytic software service services, content/connectivity services, consulting/outsourcing, category expertise, etc. The only vendor that really does all this is Ariba and since you can't have a market with only one vendor, you have to unbundle, and the question becomes where. I could spend an hour just on this topic, but let's save that for a future chat.
Jason: There's a lot of buzz about Software as a Service (SaaS) in the marketplace and the line blurring between software and services in general. What's your take?
Pierre: Regardless of what you call it, it's important to distinguish the 2 components of SaaS. There’s the technical aspect of it of migrating software from behind the firewall to a hosted environment (i.e., the old ASP model) to reduce TCO. The other is the "pay by the drink" aspect which is nice when trying to bypass the CapEx deathmarch and the CIO. There’s also the enabling services surrounding the application which are also important (e.g., catalog and connectivity services). Vendors will say the line is blurring between software and services, and there’s some credence to this, but, the argument is more than this debate on technical deployment choices or financing nuances, it's about which vendors are "built to last". Narrow functionality from an uncertain best-of-breed vendor, no matter how elegant its data model or pricing options, is not a basis for long term competitive advantage. You can mock Larry Ellison for his womanizing, tyrannical, and sophomoric behavior, but the man gives good quote and his "features become companies!" is classic -- and appropriate.
Jason: So, best-of-breed is dead?
Pierre: Well, it's like the scene from Monty Python where Arthur lops off the Black Knight's arm: Victory is mine! C’mon you pansy, let's have at it! Your arms off! No it isn't, it's only a flesh wound. etc. Well, just because your disabled doesn't mean you can’t survive and thrive. Best of breed vendors will also explore the new sources of value that large incumbents can not. The innovators will find new kill, but need to move on quickly befor the big hyenas move in. But, let's flip the discussion, from the user's perspective, I always say "never use the technology as an excuse for not doing something". Even if you have to use the "bondo" solution to fill in the holes you have with incumbent providers, take the money on the table now and switch vendors later if you need to -- no dishonor there! It's smart Spend Management.
Jason: When it comes to Spend Management technology, what is happening these days in your book?
Pierre: One reality is that -- and you've written about this in Spend Matters -- that the maintenance revenues for ERP vendors is very high. I look at it like the pharmaceutical world. ERP vendor maintenance revenue funds R&D. Like Pharma, you cannot just say the traditional model is dead -- the key is that you need this level of investment and "innovation" in the market. But at the same time, you also need to kind of accept the realities of the supply market. I thought that Ariba’s relationship with SAP was very encouraging (it's particular interesting for Ariba because of the co-opetition aspect). Let's face it: a huge amount of Ariba's customers run SAP. They need to find a way to deliver value in a loosely coupled manner. It's very encouraging and the voice of free markets (no pun intended) because the market is saying "separate the application on-ramp from the network". Ariba may have some nice applications, but it's ironic that now their future will likely be decided on its network business -- the same business that essentially brought down Commerce One. That said, it's a good business, and ripe for further consolidation.
Another observation is that it's good to see that user companies are being more vocal with software companies. SAP is not embracing partnerships out of the goodness of their heart. The key is solving the content problem, hooking up suppliers -- everything to enable end to end transactions. To see SAP embracing an ecosystem is encouraging, but it has been a long time coming. They've been a huge "not-invented-here" firm with pride of German Engineering and all that, but they've wisely chosen to make some smart investments, and I do hope to see SAP doing more of this. It's hard though, they're a bit a 9 headed hydra with all their internal groups and sometimes, things get lost in the shuffle (e.g., contract management!). It's also going to be hard ripping up the R/3 and EBP elephant into little Netweaver components and make that painless for the end user, but SAP is not alone in this problem
Jason: Speaking of, what about Larry’s Evil Empire? Any thoughts on Oracle?
Pierre: Oracle is interesting. Like SAP, they have a bit of the view that the "world is not enough". They want to do it all -- you've got to feed the beast. Certainly from a software standpoint, it's an easier argument for them to make. SAP, like I mentioned before, is a multi-headed beast. It depends whether it’s Palo Alto, SAP Consulting, or the mothership back in Waldorf. There are a lot of groups within SAP, and you’ll get a lot of different answers. Since SAP speaks with a lot of voices, you'll hear diverse opinions, but hopefully that'll work to their advantage longer term. Oracle is more hierarchical and it has more of a unified message (at least prior to its mega-acquisitions and Fusion stuff). It is a bit of a different game for them.
Before the acquisitions, they had an advantage in the code base: you might not have liked the infrastructure underneath, but it was stable (after release 11i anyway) and worked. Historically, Oracle has been a bit higher-level in general -- more feature-light (except in a few industries), but more user-friendly, more intuitive. They've pushed and have become known for a lower cost of ownership type of thing. But things are changing. Oracle is going through big transformations with their acquisitions. And the Fusion effort is a drain on development and marketing. We'll have to see how they manage it.
Philosophically, they've also adopted more of a do-it-your-self approach through software. If you look at iSupplier portal, they’ve managed the “Feature 500” list really well. In the procurement area, Dave Stephens had a really good focus on what customers wanted -- and much of this was good B2B functionality in a portal. But the question is whether you want a direct connect
model to suppliers vs. a network approach. Oracle needs to listen to the markets as much as its users do. There's only so much investment you can make and it should be in software, not in running a supplier network and Oracle’s slow uptake of exchange.oracle.com is a reflection of that. With Oracle, it goes back to software, but they’re going to need to learn to partner more like SAP by saying "we're not going to be a provider of complete solutions including the network". Right now, I applaud SAP for listening to the market and providing solutions to customers that they need today. Serve your customers right now because they will not sit idly by.