M&A Watch: Ariba and an Updated Shopping List for SAP in Procurement (Part 3)

In the first and second installments of this series, we examined SAP's relative capabilities compared with Ariba and best of breed providers in a number of areas, looking at their solutions from a relative strength perspective to evaluate the necessity of an M&A transaction vs. continued organic development. I'll wrap up this mini-series today on SAP's shopping list by focusing on supply risk management and services procurement -- two areas that couldn't be more different from SAP's directional perspective, regarding current and planned capabilities (not to mention the intellectual and expert firepower behind their development and product management efforts).

  • Supply Risk Management (including spend analysis) -- As I've written before, I consider SAP's new Spend Performance Management product to be among the strongest in the market (if you're curious for a more detailed comparative analysis of SAP's post, download our latest Compass Research brief on the subject here. The solution combines a complete spend analysis toolset (including data acquisition, cleansing, classification, enrichment and line item visibility) with supply risk management tools, including the ability to consider inventory and other factors in evaluating supply risk elements (and current versus alternative suppliers). The solution is particularly suited to manufacturing environments, but even services companies would stand to benefit from it.

    I believe SAP Spend Performance Management is at a level where it has surpassed many of the legacy spend visibility and supply risk approaches pushed by spend visibility market-share leaders including Ariba and Emptoris, both of whom are currently handicapped by legacy architectures. Competitively speaking when price isn't an issue in a deal environment, I would give SAP Spend Performance Management an edge over Ariba in certain cases where supply risk management, inventory and other considerations factor into an integrated spend analysis and risk equation. Users will most likely prefer the interface as well.

    Ariba isn't sitting still in this race, however, and I suspect they'll come back with a response soon enough. Still, in the meantime, SAP has little to gain from an acquisition of Ariba -- or almost anyone else -- in this area. The one exception would be an acquisition of BIQ, which would offer a level of analytical "drillability" and horsepower for power users who could complement SAP's other strengths. Indeed, a combination of Spend Performance Management and BIQ would be a game-over play for spend analysis in SAP environments (and potentially non-SAP customers as well).

  • Services Procurement -- SAP's introduction of SRM 7.0 last year brought some basic enhancements to services procurement capabilities, largely from contract lifecycle support, management and deeper visibility for complex services agreements (e.g., in oil and gas, the classic PO limitation of "drill me an oil well" level visibility or more recently, "fix my burning oil platform"). However, to say SAP has services procurement is a bit of an overstatement based on how many think about the functional capabilities required to support both contingent and non-contingent services procurement capabilities.

    An Ariba acquisition would add considerably category sourcing, support strength and acceptable non-contingent lifecycle management capabilities for services categories. However, if SAP were cunning, they would wait for Ariba to buy Fieldglass or IQNavigator (or another provider with superior contingent capabilities and strong MSP relationships), and then take the two-for-one. However, if SAP is serious about this area and they can't wait for an Ariba move (assuming that an Ariba acquisition is in the cards at some point) then another acquisition would make significant sense.

In summarizing the potential for SAP to acquire Ariba or a collection of best of breed providers in the Spend Management space, chances are the market would welcome it, based on the ability for SAP to enhance its weakest areas today. At the same time, it's important to remember that an Ariba acquisition would not fill every solution gap with best of breed capabilities. Ariba, itself, has its own gaps. But such a deal would certainly go a long way to enhancing SAP's abilities to compete and potentially even dominate Spend Management as part of a broader acquisition program in the area.

Jason Busch

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