But as a procurement practitioner by background, including three CPO roles in large organisations, I want to take a look from a slightly different angle. Let’s look at the deal from the point of view of the people who really matter – the senior procurement leaders who form the most important customer group for the supply chain/procurement element of SAP’s business, and pretty much all of Ariba’s products.
We’ll call this stakeholder group the “CPO” (Chief Procurement Officer) community for simplicity, although in larger organisations, it is often a second-level procurement executive, reporting to the CPO, who will take responsibility for the key technology decisions, including product and supplier selection. But these days, my experience is that the CPO her/himself will take a keen interest in the procurement and supply chain technology strategy, even if they have a deeper expert in their team, because these issues are just so important to the success of any serious procurement function.
So we’ll get into a detailed analysis of how CPOs in different situations in terms of their current technology and relationship with SAP and Ariba might feel about the deal, but let’s start with some overall observations.
Our view is that CPOs will have two conflicting emotions when they cogitate about the SAP/Ariba tie-up. On the one hand, collaboration and integration have become such buzzwords for the procurement community, in various contexts, so this will provoke a generally positive feeling about the opportunities for two strong providers to come together. The prospect of SAP/Ariba providing what could be a very strong, integrated suite of solutions that meet most – if not quite all – of the technology needs for many CPOs will be conceptually attractive to those who seek integration and order.
The second, less positive view arises from CPOs’ visceral liking and support for the whole concept of competition. We’re all taught from our first day in procurement school that competition is good, and monopoly is bad. And that’s not just a theoretical construct; a CPO who has had to buy from a monopoly market will know how unpleasant it can be, at the mercy of a supplier who controls your pricing or even your entire business destiny.
So there will be concerns, at two levels; firstly, in terms of the overall solution. If you are a CPO looking for a suite covering both sourcing and related tools (spend analysis, perhaps supplier information management, contract management), and P2P capability as well, your choice has just been reduced. It’s likely that both SAP and Ariba would have been at least on your long-list; now there is one fewer serious name on that list.
Now if you are an organisation wholly or largely in a single country like the US, UK, Germany or France, there are some decent local options – so Wax Digital and Proactis would be worth a look in the UK, Pool 4 Tool or Onventis in Germany for instance. (I’m aware of a current selection battle in a major but heavily UK-centric based firm that has come down to Ariba versus Wax Digital.. an interesting match up).
But for a CPO in a global organisation, the short-list was already pretty short and just got even shorter. We’re not yet at a monopoly situation, but the reduction in competition will make some CPOs look less favourably on the SAP deal. Then there is the network element. On the analyst call the other evening, there was a comment from the SAP/Ariba team that went along the lines of “it’s self evident that one dominant network would be to everyone’s advantage”.
Whilst we know what they mean, from a simplicity and rationalisation perspective, that would of course be a monopoly situation if that ever came to pass. How high might the network fees be pitched if there truly was no alternative? The network provider could extract a significant “toll” from every transaction, set at pretty much whatever level they wanted.
So CPOs will, if they think about it, want to see that a number of major and alternative network options prosper and thrive. Now I don’t believe the Ariba / SAP deal is too much to worry about from this perspective yet, and with Oracle, Basware, Hubwoo, GXS, Tradeshift and others active it’s clear that the game is far from over in this area. But CPOs will keep an eye on how this develops.
Now let’s look at some specific situation for CPOs. Note we haven’t speculated here about detailed pricing issues; it’s too soon to say what any new strategies might look like from the providers, so we’ll save that for the future.
Current Ariba customers probably have little to worry about. The deal has the flavour of Ariba leading the combined resources, and there is also an upside of some of the stronger SAP products being available to Ariba clients. The only negative – for SAP/Ariba – is that there is some pretty anti-SAP CPOs out there. It’s often an unfair judgement, based on historical factors, or sometimes resentment that SAP was imposed on the CPO as part of a wider ERP implementation. (I speak from personal experience of this, going back quite a few years I should say).
These CPOs probably aren’t aware of the recent advances and improvements SAP have made. But if they chose Ariba partly as an “anything but SAP” selection, they may not be pleased to find they’re now an SAP customer. I don’t expect massive desertions, but it is something Ariba account managers will have to be sensitive to.
Current SAP CPO clients will have some different concerns, although on the whole, I expect most will be pleased by the options around the Ariba network. However, they will want reassurance on the future support for SAP products, and they may look with interest at some of the competitive offers Ariba has made on its products when they come to devising their negotiation strategy with SAP.
Those CPOs who run SAP and Ariba might be expected to be the happiest of all. Not only should they see some improvements in the ability to integrate, they’ll also see a leverage opportunity – every CPO relishes that. “So, let’s add together our spend with SAP and Ariba, and look for a volume discount” will be the cry. I’m sure the account teams at SAP / Ariba are already thinking about the counter-negotiation strategy on that one.
CPOs who are not clients of SAP or Ariba – yes, there are a few - may be inspired to look again at the combined offering. However, it’s likely that this audience is going to wait a little while to see how the integration beds down and clarity on future strategy. I don’t see Oracle clients or those with mixed solutions perhaps rushing to SAP in the short term; why not wait and make sure the deal does work out well. But over the next couple of years as renewals or technology upgrades come along, then clearly if SAP / Ariba do get it right, they’re going to be looked on more positively by the current non-user CPOs.
Finally, the point that all CPOs – current or potential clients – will be watching with interest is that issue around the effectiveness of the merger (acquisition) process. Will the account management structures continue to work in a smooth and untroubled manner? Will staff from Ariba / SAP represent the new business positively and as a unified whole? Will we see clarity reasonably quickly around products and future development paths?
An experienced CPO will have seen many mergers and acquisitions amongst their organisations’ wider supply base, and will have experience of those that were handled well – and those that weren’t. The senior team at SAP needs to put a lot of effort into the processes, the people issues, the communication and marketing, to make CPOs feel that they are seeing and exemplar of best practice. That gives the opportunity to demonstrate professionalism, effectiveness and management skills; factors that will then help win business when the CPO looks to spend their tech budget. But get that wrong, and the damage to credibility will have a knock-on effect even on apparently technology-led product selection decisions.