Pricing Power and Size in Software: A Contrarian Strategy with Ariba/SAP and Oracle

In a recent post on Forrester’s blogs that we reference in the first two installments of this series (see: Dealing with Strategic Suppliers in P2P and Beyond and Dispelling the Size and Innovation Myth in Strategic Sourcing Tools), Duncan Jones suggests the following:

Enterprise sourcing leaders considering investing in ePurchasing technology should therefore start by examining their organization’s current relationship with the software giants, so they can decide whether they want to partner more closely with these companies, or instead to channel spend to new, independent suppliers. You can then make functional comparisons in the context of this higher-level strategic decision.

I actually would disagree with Duncan here, especially when it comes to dealing with Ariba/SAP, for a number of reasons (including some which make actually work in the ERP’s favor). For one, the decoupling of SAP’s overall procurement strategy from its ERP and installed business applications strategy in favor of prioritizing Ariba’s cloud applications might present an opportunity for companies to take advantage of Ariba’s apps even if IT is negatively inclined towards an ERP upgrade.

But more important than not going to IT first to understand their current relationship with the ERPs is to understand the level of capability and innovation required to achieve business outcomes. For example, it will be much easier for procurement to build a business case to move quickly to enable services procurement requirements and investment for both specialized vendor management system (VMS) and category specific services procurement tools by understanding the tactical business requirements first before exploring what an ERP could offer – and how IT stands with the ERP provider.

If anyone spent even a bit of time searching the topic on Google or reading 1% of what’s on Spend Matters on the topic, they’d quickly realize that the ERPs (with PeopleSoft as the one exception) have virtually no VMS capability and highly variable SOW-based enablement capabilities (and close to nothing in the area of specialized category enablement such as print, marketing, packaging, and logistics).

The up-front time invested to understand not just the market landscape but also what the market can enable will leave procurement with the ability to quickly win IT over to a decision based on the up-front homework that’s been done – and an honest discussion around what an ERP can actually enable in a certain area.

Duncan concludes his analysis with the statement that “enterprise sourcing and vendor management leaders need a strategic approach for dealing with these dominant software providers, aligned with the reality of how their organization makes important BT decisions.”

We couldn’t agree more. But we’d argue that procurement can better serve the interests of the business by spending more time doing their own information gathering first, before engaging IT in discussions around ERP relationships and capability. The one potential exception is spend and supplier master data management (MDM), but that’s a topic best left for a stand-alone analysis.

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