Procurement Technology Tip: When Ariba/SAP Plays the Executive Card, What Should You Do?

We’ve been in touch with a lot of folks going through procurement technology selections – as well as the consultants often advising them – in recent months. The good news: there’s lots of activity – more than ever, actually. And, more procurement teams than ever are investing the time – often with other stakeholders such as AP and IT – to gain intelligence on the market and their various options rather than jumping to conclusions in selection processes.

This deeper research is in many cases favoring lesser-known providers (including those not on typical analyst comparisons) in the evaluation process – or at least giving them a better shot at showing off their wares. This is how it should be. The more the merrier. "Market Informed Sourcing" means better sourcing outcomes. And in this case, Procurement itself is the major stakeholder and likely budget owner too, so why not increase the potential supply market?

So, you would think Procurement would definitely run THIS sourcing process by the book, right? Wrong. My colleague Pierre Mitchell is constantly writing about how ironic that procurement doesn't perform good strategic sourcing on its own spend, and if you haven't read his manifesto on the Myth of the Integrated ERP Vendor for Procurement, it's a must read.

But, this isn't just about IT wanting to go with the incumbent single-instance ERP solution. That was the good old days. Let's take the example of SAP. Before Ariba was acquired by SAP, Ariba's single biggest complaint was always the famous SAP "end-around" play with the CIO – similar to the McKinsey end around with the CEO when it wasn't selected for high end consulting work – when SAP senior leadership would host the CIOs at a swanky event and whisper in their ear about integration risk, vendor viability, etc. Then they would even offer to "give away" the software licenses (but with 20% annual maintenance costs applied to retail seat license costs of course). The best-of-breed competitors never had a chance. And the CIO never fully did the math, including the NPV calculation factoring in all the out-year maintenance costs.

Now however, it's gotten even trickier because Ariba can now use the SAP/Ariba end around itself and say "now you have the best of both worlds: a single throat to choke and great best-of-breed SaaS applications from your safe and trusted ERP provider!" But as Pierre pointed out in his article above, "A procurement technology provider can’t acquire its way to integrated solution excellence. You can become a great “mutual fund” (i.e., holding company), but technology buyers don’t want a mutual fund; they want an integrated product company. And if they placidly accept the answer of 'trust me – I’m an integrated ERP vendor and running in the cloud,' then they deserve what they get."

Still, to the CPO, it seems a lot better to get Ariba (especially if IT is footing some of the bill), Fieldglass, and Concur than just being stuck with the SRM on-premise suite. So, what we're starting to see is that some CPOs, and other functional executives alike, especially those CPOs who aren't as sophisticated, are beginning to play this old role of the CIO and basically supporting a process that circumvents the traditional sourcing rigor they should be advocating. Unfortunately, this attempt to shortcut the selection process does not help procurement in the long run – or even the short run.

Why not? It’s not because Ariba (and SAP's broader procurement assets) are not a good potential shortlist candidate – Ariba is usually a finalist in a full-suite deal when both transactional (e-procurement, e-invoicing, supplier portal, network, etc.) and strategic (sourcing, spend analysis, contract management, supplier management, etc.) areas are both in scope. You pretty much have to invite Ariba to full-suite or "mini-suite" (i.e., P2P suite or Sourcing/CLM/SLM suite) evaluations. At the very least, it makes the market more competitive, and who doesn't want to save money, right?

The problem is that when Ariba and SAP play the executive influence game (CPO, CIO, CFO, CEO), it helps no one in a formal selection process, which should be fundamentally procurement-led and best-practices based. There needs to be a single driver at the wheel of the selection car – collecting data and managing the process based on input from all key participants.

If Ariba or SAP plays the executive-sponsorship card to get a leg up or ram their way into a selection process, here’s what we recommend:

  • If a non-procurement functional executive is the quarterback of the end around, then the CPO must unite with the CIO and tell SAP that trying to go around procurement to get its best-of-breed applications (Ariba, Fieldglass, Concur, etc.) selected non-competitively is not in the buyer's best interest. Heck, pull in the Finance team... CFOs actually enjoy doing this sort of thing too.
  • Encouraging Ariba/SAP to participate in the selection process on an equal footing to other shortlist candidates. This should include submitting separate bids and bundled bids and options based on the broader SAP relationship (if discounting is a possibility). Let the supplier put their best foot forward, but you are leading the dance, not the supplier.
  • Suggesting that Ariba and SAP prove the points of integration advantage/differentiation with ERP as part of the standard selection process. Ask for three solid references demonstrating that the integration that you need is well proven somewhere else and offers a clear advantage over others. This is of course a reasonable request for a proven provider so large.
  • Turning the executive card back on Ariba and suggesting that it has a set period of time (e.g., 48 hours, one week) to provide a truly “best and final” pricing to shortcut the broader group consideration. While this is somewhat a grey area for procurement selection, if there is a strategic relationship with SAP, this will give one chance to provide an offer that is truly highly aggressive. However, unless procurement has already evaluated Ariba’s and SAP’s technology, this option should not be used. And procurement (and finance) should always do a tech spending NPV calculation factoring in all fees and costs, including implementation/configuration, SaaS subscriptions and supplier fees.
  • Most important, and if you had to net it down to one recommendation... run the sourcing event big, run it competitively, and run it smartly (i.e., don't use a winner take all approach). You will save a lot of money and most importantly, get the right tools for the job. Make sure to include switching costs, risk factors, and anything else that might favor the incumbents, but build a balanced sourcing scorecard and run the event fairly, transparently, and rigorously. Procurement would do that for any other major strategic sourcing event, and what could be more strategic than getting the right technology to support a 10X ROI profit center like procurement, right?

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