Friday Rant: What's Holding Ariba Back? (Part 2)

In the first part of this column from last Friday's Rant, I shared a few thoughts on what I thought was holding Ariba back from even larger growth, from the perspective of solution and customer communications. In the second installment of this rant today, I'll double-click on two related areas that are near and dear to my own experience with Ariba. (Before starting my own firm and Spend Matters, I had previously worked at FreeMarkets, which Ariba acquired, for five years). The two areas on which I'll focus in this rant -- and the final one to follow next Friday -- focus on the subject are Ariba's external consulting and outsourcing relationships, and how it can best maximize its own services and consulting assets. As you read this column, you'll quickly realize that these two questions are very much intertwined; for this reason, rather than examine these areas independent of each other, I'll attempt to tackle them together.

I've come to believe that the fundamental challenge to Ariba's own services capabilities as well as its external partner relationships is a lack of specific identity, cohesion, and consistency. On the one hand, Ariba has one of the strongest and most expert -- not to mention one of the most efficient and profitable -- strategic sourcing groups in the world, including significant category expertise in both direct and indirect materials (and services). Ariba gained this group through its acquisition of FreeMarkets, which had built a business largely on a services-driven delivery model.

But on the other hand, Ariba has struggled to define a broader role and charter for this group almost since the day of acquisition. If you talk to some Ariba reps and channel/partner managers, this group no longer exists. "We aren't in that business anymore," is the second-hand news I've gotten from potential Ariba channel partners who recited what an Ariba business developer had told them. Despite the business development rumors of its death, however, the group is very much alive and Ariba continues to win business in this area, although 2009 was a challenging year as Ariba lost ground to key competitors such as AT Kearney Procurement Solutions.

I believe that to get to the next level of revenue and performance, Ariba must put a stake in the ground about what it does from a services perspective, including its overall direction in this area. And it must communicate this message directly with customers, prospects, SI/channel partners, management consultants, and outsourcing firms, with which it maintains either formal or informal ties. Moreover, Ariba must break free from its reputation as a difficult company to partner with (e.g., one that that will work closely with channels to drum up business, and then will compete against them for the services -- in the implementation, process and sourcing areas --associated with a particular deal). It has started down this path of redemption, but I've yet to hear the thing that Ariba most needs to offer: an apology for behaving the way it has in the past, and a statement of commitment to change things in the future.

The irony of this behavior is that it did not come from the FreeMarkets acquisition (FreeMarkets was a challenging organization to partner with given the potential for services-revenue conflict, but at least we admitted this to potential channels). Rather, I believe it came from the Arthur Andersen team that came over at the time of the Enron implosion. As I've said before, I believe that Andersen's internal culture of partner-fee hoarding relative to other firms made its way into Ariba's partnering DNA. This has been toxic to Ariba's relationships with a range of consulting and SI partners, including both global and regional organizations I've interviewed on the subject in the past year.

It's my view that Ariba must come clean and articulate a clear strategy around both its own internal services offerings and how it works with and engages partners (and the value proposition it gives to them). Moreover, it must follow up its statement with actions that show it has changed, and acknowledges its past mistakes. I personally know of a number of deals to which Ariba has not been invited -- or where an integrator or consultant had suggested that companies give priority to other software providers -- because of Ariba's past behavior and ethics around how it treated channels. In this regard, Ariba has failed to realize that its actions have tainted its reputation. Moreover, they've also failed to realize that for every dollar of services revenue that it has won by competing against its channel partners -- and by extension, how it's treated its partners in the process -- that they've probably lost at least five dollars in deals to which they've not really had a shot at or, in some cases, been privy to.

Stay tuned for the final "rant" in this series next Friday. Ariba's path to services redemption may not be quite as far away as it might seem.

Jason Busch

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