Technology is changing how we live our lives. From smartphones to the cloud, consumers have an almost unfathomable number of ways to access and produce information compared with only 10 years ago. The same goes for procurement. Emerging technologies like machine learning and blockchain are changing how companies buy — and challenging procurement to change with them. In this Spend Matters Conversation, Founder and Head of Strategy Jason Busch talks with SAP Ariba President Alex Atzberger about how procurement is growing up alongside technology and what users of the future will expect from their solutions.
Jason Busch: Alex, it’s great to chat about technology, specifically around procurement. Rather than take this in lots of directions, I’ve got a couple of focused questions both looking at today, but also looking at technology tomorrow.
The first topic I would like to probe on is, in your view, how is technology truly changing procurement today? My thoughts on this are that if we look back to when technology really got its start in this space, the early days of Ariba, the early days of FreeMarkets and the migration of some of the early 90s tech-type supply chain efforts to technology (e.g., demand planning), we were largely bringing offline processes online, but we really weren’t changing them a whole lot. That’s not entirely a fair statement, because certain things we did at the time with early technology were not possible before (e.g., matching between POs, invoices and the goods receipt took much longer in a manual world, creating process latency for invoice approval and payment and making early payment discounting all but impossible in practice). These and related areas were dramatically improved with this first generation of procurement solutions — we couldn’t do straight-through processing in the offline world, we couldn’t do auctions effectively unless we got all of our suppliers into a room together at the same time previously, etc.
But if we look forward as to where it’s gone today, we see technology actually leading procurement down new paths. It’s not just a question of speeding up stuff in the old world, the offline processes, but there are new ways of doing things we couldn’t do before. What are your thoughts on this?
Alex Atzberger: Jason, I’m with you on that. Looking back at the dot-com boom around the 2000s and the kind of companies you mentioned, be it Commerce One or also some of the marketplaces, I think all of them had a comment about facilitating actions between buyers and sellers, a lot of comments around automation, a lot of comments around moving offline to online and a lot comments around efficiency benefits.
My sense is that with enterprise technology, sometimes these comments get made, and then it takes a while in order to actually get there because it’s about change management and adoption more than it is about the technology.
We get more and more requests from our customers who say, “Look, we just don’t want to adopt new technology, we want to actually know what is the best practice.” Directly related to that is obviously having software that is the best practice as you present it. Again, not just the focusing on the cost savings, but actually focusing on how to actually do this in real life. Part of this is also a question of centralized procurement versus decentralized procurement, and actually giving advice around what’s the right model. I see a lot more scenarios that people want to be able to act decentralized, but still have centralized visibility. Technology makes that possible today.
But at the end of the day, it all comes down to adoption. Are people actually using the solution, adopting the solution to actually see the business benefits? In the past it was, “I’m happy if I’m automating a process or moving the process online.” But we now find that people are actually focused on driving adoptions to get more spend under management, more spend through the right channels and to the right preferred vendors because that’s where the real benefits come from.
JB: I think it’s hard to talk about technology without talking about the cloud today. Obviously, the cloud means a lot of different things to different people. I remember back when — we were probably both very young consultants or staffers — in the 90s, before getting into this space where I was evaluating some of the early application service providers (ASP). Then we saw the ASP model move to software as a service (SaaS) and now cloud.
We’ve seen an evolution of the benefits and capabilities. Initially it was very much around the business model. You wouldn’t buy capacity, you would literally buy rack space in a server room and somebody else would manage it and administer the various servers for you, whether it was a web storefront front-end or the underlying database business applications sitting beneath it.
It was very much a play around business model and technology delivery. Ultimately, we saw this world migrate to network benefits, so the cloud wasn’t just about single tenancy and multi-tenancy. The initial benefits, obviously, came from the reduced cost to serve, which could obviously get the cost of application down because they could be delivered in a multi-tenant environment, as well as more frequent upgrades, getting everybody ideally on similar versions at the same time in theory (although today, it still doesn't always work that way.) Then the other benefit tied to multi-tenancy is the fact that a cloud model becomes living and breathing so, for example, you can take your network, you can find new suppliers and their information is constantly updated, provided suppliers maintain their profile data. As a buyer in this world, when you onboard a new supplier, chances are that supplier is there already in the network. That, to me, was kind of the next evolution in the cloud and how it’s growing up.
Then finally, I think we see a derivative from that, which is just beginning, in that we observe a creation of new ecosystems from the cloud. It’s not just a question of, “We’re going to use the vanilla version of an application, but maybe there are third-party apps we can integrate into it which are predefined as part of a platform or ecosystem.” You guys are doing some interesting things with the center, as an example there, in terms of configuration as part of a cloud ecosystem.
It’s kind of like the evolution of electric cars on some levels. Initially, we can take the Prius, which obviously has done extremely well, but is still a hybrid -- it has two drivetrains. It was the change in engineering and fuel economy, but it didn’t really change what you did. Then we moved to government involvement in facilitating adoption — free parking, free charging stations in cities. That was the "Nissan Leaf" era. Now we truly, in a similar way to networks, we have "platforms". Tesla, despite some of the press recently and the evolution of self-driving, did some pretty amazing things in terms of charging stations across the country, open-sourcing the technology around batteries to encourage an ecosystem that offers their battery technology to others, looking at its future capacity in terms of lithium ion battery production and selling that to others to really create an ecosystem -- a platform.
I think there are some good analogies there, but I would love to get your thoughts. How is procurement growing up, specifically, and then what are your views on the underlying technologies around cloud?
AA: I like the expression “living and breathing.”
As you go from a technology that is changing, your business model and what you’re providing is changing.
Everything that you do is different than what you did before. It starts with the way you innovate, it starts with how you are with customers every step of the way, and it’s also about how you think about providing a service that is up and running 24/7. It’s an excellent mindset change as it regards to the living and breathing part. You take a different level of ownership of the results in terms of what you drive for a customer.
That is probably the most essential and most important aspect of cloud relative to other technologies. It’s not about technology; it’s about the fact that you’re taking on a different amount of work on behalf of your customers and continually innovating to deliver outcomes.
As I said earlier, the key to delivering outcomes is adoption. And we work with our customers to ensure that we are delivering innovations they want at a pace they can be consumed to drive it. We actually ask our community to vote on the features they want to see in future releases of our solutions and then use that to prioritize our development.
But cloud has changed the ratio between how much work is being done on software versus services. The API is the future is really opening up the cloud and opportunities for companies to tap into other services to make their solutions more valuable.
Stay tuned for Part 2 of this conversation, in which Busch and Atzberger explore specific new technologies procurement will start using in the next decade.