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Ariba, Infor, and the Business Network Challenge: Quantum Physics, Big Transformations and Big Barriers
Josh Greenbaum
APR 04, 2016 16:47 PM
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Ariba, Infor, and the Business Network Challenge: Quantum Physics, Big Transformations and Big Barriers

By Josh Greenbaum

As the enterprise software market embraces the concept of digital transformation with typical reckless, feckless abandon, it’s interesting to see how one of the most transformative concepts – business networks – is evolving. What’s clear from a look at two of the most well thought-out strategies, those of Infor (via its GT Nexus acquisition) and SAP (via its Ariba acquisition), is that there’s no shortage of merit to what these two companies are doing and planning.

And there’s no shortage of hurdles either. Nothing transforms quite like a business network, and, as the complexity of any transformation is inversely proportional to the readiness of a company to embrace it, business networks promise much in the way of outcomes and complexity.

The main problem is simple. The collective business network vision, while long on great ideas, is short on the most important thing of all: a buyer. Business networks have tons of merit for anyone taking a close look, but tons of merit ain’t worth a hill of beans if there’s no decision-maker ready to take a leap of faith and start spending on this most worthy and complex of goals. And so far, that decision-maker is still more of a dream than a reality.

Which begs the ultimate question – Should the above vendors proceed and hope that the decision-makers they need will emerge? Or, perhaps more succinctly, how should they move at this uncertain moment to build the critical mass of companies needed to expand their existing networks – Infor/GTN in global logistics, SAP Ariba in indirect procurement – into the broad-based business networks that both companies aspire to? And in the process, hopefully, ignite some important influencers and buyers?

It’s sort of a quantum physics-like paradox – both the chicken and egg need to come first, something that is possible in the quantum world but not well-established in our relatively staid Newtonian world. Moreover, unlike poor Schrödinger’s cat in the thought experiment that helped establish the duality of quantum physics, it’s important that, in the business network future, both chicken and egg emerge from the experiment alive.

I firmly believe they will, and these nascent efforts will bear considerable fruit for both companies – and their partners and customers. Most importantly, this is not a zero-sum game, at least not yet. The opportunity is that new, immature, and massive.

Infor, while the smaller of the two, gained an important leading position with the acquisition of GT Nexus last year. It was a masterful deal, in part because the complexity of the company’s underlying financing structure needed a Charles Phillips to unwind it sufficiently to do the deal. But what the acquisition really accomplished was to catapult a small but pioneering business network vendor into the hands of an enterprise software vendor with big ideas and 70,000 customers, virtually all which are going to need some serious transformation in the next few years.

For Phillips, one of the biggest prizes in the business network opportunity is trade finance, and GT Nexus’ focus on that opportunity means that Infor can now have an important new talking point for its customers: transforming the enterprise software core of a company is no longer just a matter of doing your daily transactions faster, better, and hopefully cheaper. Transformation á la GT Nexus means making an important change to the all-important cash-to-cash cycle: using the information in GT Nexus’ business network to enable companies to do a better job with cash by improving the terms and conditions of the loans and insurance needed to conduct business is a brilliant way to free up top and bottom line cash.

The importance of jazzing up cash-to-cash processes was noted by Phillips in his opening remarks during a recent Infor analyst summit I attended. Citing similar data to what I used in a recent blog post, Phillips noted that a widely acknowledged global stagnation in productivity gains is the result of the aging of the technology infrastructure of business: it’s hard to keep innovating for the 21st century if you’re using 20th century technology.

How does a company deal with this? Infor has a bright idea – take that cash management thing you’re already doing and start using the trade financing capability of GT Nexus to move some serious working capital out of the logistics doldrums and put it to better work. Caterpillar, according to GTN founder Kurt Cavano, has been able to redirect $300 million in capital out of its supply and logistics chain by using GTN, as have a multitude of other brand name companies. It’s easy to see what Phillips and his investors were eager to pump $675 million into the acquisition.

Meanwhile, Infor has been pumping up the number of process areas it wants to be able to manage in its business networks: inventory planning and factory planning, asset management via IoT. And, obviously, supplier management and invoice management, among others.

Not bad, not bad at all…

Ariba, of course, hasn’t been sitting on its laurels either. The fact that the Ariba procurement network is already pretty massive -- $1 trillion in business per year, two million suppliers, 25,000 users – gives SAP a big leg up towards building that critical mass. Of course, lots of activity and lots of suppliers solves only one part of the quantum dilemma: on the Ariba network, all this business activity is not business network activity, it’s traditional procurement activity.

Which means that Ariba’s $1 trillion in goods and services flowing through its network, largely for non-strategic, indirect goods, doesn’t necessarily give it full bragging rights over GTN’s $100 billion in goods and services. Here’s the big difference: GTN is supporting the movement of direct goods through the supply chain, a much more significant and valuable set of goods than the indirect goods that Ariba specializes in.

Same thing happens when you compare the number of suppliers in each network – while the two million Ariba suppliers vastly outnumber GTN’s 25,000, GTN’s suppliers are much more strategic to the buy side in its network than Ariba’s two million suppliers are for its buyers – toilet paper is toilet paper, but the right parts delivered just in time to the assembly plant does a whole lot more.

While Infor/GTN’s focus on direct makes it look better positioned for business network success than SAP Ariba, there’s more than a few reasons why SAP Ariba is also moving into striking distance of being a true business network.

First off is the network effect of the rest of SAP’s portfolio. SAP’s acquisition of Fieldglass was put under the same org structure as Ariba for the simple reason that procuring contingent labor – Fieldglass’ claim to fame – adds an important strategic component to its business network plans.

While it’s easy to think that contingent labor is more of a non-strategic, indirect asset than a strategic one, adding contingent labor to a business network immediately upgrades the network’s strategic value.  A good example is the consumer products value chain. Consumer products have a strong seasonal component, and that means that retailers, manufacturers, and logistics companies have to do some serious planning around seasonal demand, and that includes seasonal labor. While I would imagine in some companies a procurement clerk might handle that function, it’s more likely that contingent labor procurement would need tons of input from the execs in charge of supply chain, human resources, production planning, warehouse management, and the like.

See where this is going? With contingent labor as part of the Ariba network, the strategic value of the network increases significantly. And with that increased value comes an increase in strategic influencers looking towards the Ariba network for some absolutely mission-critical planning. Which, assuming you read this post from the beginning, begins to solve the chicken and egg problem for Ariba.

Also militating in Ariba’s favor are forthcoming integrations with Concur and SAP’s new flagship ERP system, S/4 HANA. Tying these assets into the Ariba network will allow invoice management and reconciliation to move through the Ariba network and provide the ability to – guess what – better manage cash, among other things. Once the Ariba network is positioned to manage a company’s cash flow processes it would then be in position to start looking at, among other things, trade financing.

Et tu, Charles? Ariba also wants to get into direct procurement and supply chain, and leverage its gigantic network and the position of SAP ERP – now Business Suite, one day S/4 HANA – and its other cloud assets to make a credible base for a major business network play.

On the theory that imitation is the finest form of flattery, Infor is of course going after procure to pay, one of the most strategic processes in direct and indirect procurement. They also want to connect Infor’s legacy ERP systems users, too many to count in the Infor customer ecosystem, to GTN, as well as connecting its new flagship ERP, Infor 10x, to GTN.

The similarities go on, for the simple reason that both companies share a similar goal and a similar understanding of what the end game needs to look like – a loosely-coupled business network that provides a one-to-many buying and selling experience that is deeply embedded in the planning and execution systems of its users and their trading partners. That experience, of course, also includes a heretofore never seen quantity of rich data and information, available in real time, about the quality and quantity of the underlying transactions that provides an important value-added set of services to the network’s users.

If this business network were to be built, and a critical mass of customers were to sign up, it would be the most significant event in global trade since… I don’t know, pick an event: the advent of the Internet, modern ERP systems, telephony, global financial networks? I struggle with expressing the magnitude of the transformation because its magnitude is unfathomable at this point. Perhaps it’s just easier to say that if these two companies, and others in the mix as well, can execute on the fundamentals of the business network strategy, how B2B, and by extension B2C, commerce is conducted, will never be the same.

What’s clear is that, while the “year of the chief business network officer” is still a ways off, both companies are approaching the quantum physics/Schrödinger’s cat problem by trying to offer more reasons for more C-level and LOB stakeholders to want to be connected to their respective business networks. For obvious reasons, the first line of offense is in the office of the CFO, but it’s pretty clear that the entire C-suite and the LOB suite will have reason to want something from these business networks once they reach critical mass in terms of both customers and broad strategic value.

I wish both Infor and SAP Ariba the best of luck. These initial steps to move the global economy towards the era of the business network need the best efforts of all the Infors and SAPs in the market, and then some. There’s definitely a lot of work to convert these two very different networks into business networks, but it’s work that will pay off in the long run. And hopefully that long run won’t take too long to run.

Which came first – the business network or the business network buyer? How about both?  

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