SAP Ariba and Tradeshift executives on cloud, competition and the rise of business networks

The next BriefingsDirect innovation thought leadership discussion focuses on the rise of business networks and how that requires new models of buying and selling as well as new ways of discovering and relating to customers and partners.

Quite rapidly, we've entered a business world where unprecedented connectivity leads to instant analysis. These insights across entire industries provide powerful new ways for businesses to innovate and to adapt to markets, supply chains, and customer demands.

All things being equal, the companies that best leverage this data-driven innovation and these business network effects will surely win in their markets. We’re joined by two experts to discuss the future of enterprise software and the role that business networks will play in creating new models for sustained success.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy.

To learn more about doing business best in our digital and connected world, please join two digital business competitors, Alex Atzberger, President of SAP Ariba, and Christian Lanng, CEO and Co-Founder of Tradeshift. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: We've had this ongoing confluence of cloud, mobile, big data and we’re seeing streamlined business processes happen as a result of these -- and it seems to be accelerating and empowering business-network effects. So, my first question to you, Christian, is how is this disrupting businesses and how do they turn that disruption into a benefit and business agility?

Lanng: As you mentioned initially, the confluence of cloud, mobile -- all of these things -- is happening and it’s a massive disruption for the Fortune 500. We’ve never really seen anything on this scale, but I want to point out two key areas. If you go back 10 or 15 years, what you were doing with your supply chain was very batch-driven. It was very large-scale business, and was all about reducing the cost of transactions. We saw the rise of business BPOs where you did a lot of outsourcing of your processes, a lot of outsourcing of transactions.

And it was all about a cost-steady supply chain. If you look at today, the main paradigm has switched completely. What you will see is that it’s all about agility. It’s all about the speed of data. We find that a lot of the solutions we implemented in the '90s and the early 2000s tended to focus on reducing cost, and that very often came with the flip side of increasing the cost of change, because we put everything into very rigid process and very rigid structures.

Full supply chain

One of the things that business networks are transforming right now -- both on Alex’s side of the table and our side of the table -- is that we're now wiring the full supply chain. We're connecting all of the processes and bringing in all of the data in real time. That’s an extremely fundamental switch from a world where everything used to be faxed via paper, up until, actually, quite recently.

It’s a tremendous disruption, probably the biggest we’ve see in business software in the last 30 years, and it’s very exciting to be here, because we're just at the very tip of the iceberg for this whole revolution.

Gardner: Alex, disruption can be a negative, but disruption could also be something that creates opportunity. How are you seeing the current market as an opportunity rather than destruction?

Atzberger: All customers are realizing that digitization, the confluence of the different trends that were spoken about, present absolute opportunities to change the business model of companies. And that if they don’t do it, they will die.

Atzberger

If you look at the Fortune 500, versus what it was 20 years ago, you see such an enormous change. It doesn’t matter which of the industries you're in -- retail, financial services, consumer products. You need to adopt a strategy of thinking about how can you use digital technologies for your benefit, because if you don’t, you will fall behind.

But the other fundamental thing that has changed, and it’s actually an opportunity for companies, is that the user has moved to the center of the conversation. So the aspects of the consumer technology that we are bringing into the business context have fundamentally changed people’s requirements on technology.

But it's also people’s adoption rates of technology. The reason why companies like SAP Ariba or Tradeshift are growing and seeing a lot of demand for our solutions is because we see that companies are embracing the change. They know embracing is the only way forward.

Gardner: And of course, we've seen the disruption on the business-to-consumer (B2C) side of things with eBay years ago, Uber now, and Airbnb changing industries rapidly. How does this affect the business-to-business (B2B) interactions of commerce? Is it the same, or do we just extend what we've seen in B2C, to B2B? Why would B2B commerce be different or more challenging?

Lanng: It’s absolutely impacting. I'll start with a point that Alex made that the consumer, the user, has moved to the center of the conversation. It’s about usability, ease of use. If you take something like Tradeshift, we focused very early on making everything mobile first because we realized that the future of B2B processes were all mobile.

If you take a country like China, there’s 97 percent smartphone penetration and 60 percent PC penetration. If you want to run your supply chain there, you want to be mobile-enabled, you want to be mobile-centric, and you want to create whole new user experiences. The other area where the consumerization of B2B is happening and increasing is what I call apps.

Easy to add apps

In the past, big enterprise systems used the concept of modules. You could load new functionality, but it was very hard to do. It required your IT department. It was very complex and challenging. Today (and Salesforce was really the pioneer), we have platforms like Tradeshift that make it very easy to add a new app to get a new set of functionality going really, really quickly. And it’s easy for the customers to change very quickly and adapt to the business environment.

Lanng

The last area of active consumerization hitting the enterprise is on insights. When I use Twitter or Airbnb, I get real-time feedback. If I send a tweet, I will immediately know the reach, how many users saw the tweet. I can go in and see that limits of the tweet, and I can make a decision, as a consumer, based on that feedback loop.

In the enterprise, in the past, a lot of the business intelligence and analytics we built, were more like centralized reports going to the top and not benefiting the people who were sitting in the front line doing the work of the business.

Where we're going today is rebuilding using network data, using the real-time data, and going to a real-time level with these people. That’s the last huge disruption you'll see in the enterprise: real-time insights, the use of the apps as a driver and a method for delivering new folks. Now, you'll see another whole new paradigm for user experience and user friendliness.

Gardner: And, Alex, for companies that have a hard time adapting rapidly -- that are still using legacy software, that prefer on-premises deployments, that are just now moving past paper-based processes -- how do we encourage them to recognize the change and adapt?

Atzberger: One expression I tend to use with companies is to say that solutions need to be consumer-simple, as well as strong. What I mean by that is that when you're in the B2B space, you need to obviously recognize that the requirements for security, the requirements for integration, the requirements between data and other pieces have a different level of complexity than when you use eBay or Twitter.

The role of technology companies today is to remove friction as much as possible for companies so that they can enjoy the same benefits as a user in the consumer would. At the same time, providers have to obviously ensure that there is a business strength to the solutions that gives companies the comfort to move to a cloud environment.

The role of technology companies today is to remove friction as much as possible for companies so that they can enjoy the same benefits as a user in the consumer would.

So if you're a financial services institution and you've worked on on-premise software all the time, you obviously had full control of making changes to the software. You knew the way it was running, etc. As you're moving this to the cloud, you're gaining the benefits of fast innovation, but you can’t give up on the necessity for security, for instance, and for sound information.

That’s often where we see customers choosing companies like SAP to go with because of the experience we have managing data, ensuring the integrity of the information, and ensuring that security. But a lot of conversations that we have with companies are about how you, on one hand, deliver that wonderful consumer simplicity, but at the same time deliver on the business strength.

This is especially relevant in procurement, because you can make it so easy, through an app, to order products. But if you're in procurement, you don’t want your employees to just buy things randomly -- just because it’s now easy to do it. You want to have the controls and compliance in place to manage your spend, have visibility on the spend, and manage your company.

That’s where the crux of the matter is, and if we solve this, I think customers are ready to move to the cloud.

The right balance

Gardner: Christian, it sounds as if Alex is calling for a balance between the governance and benefits of traditional software and business applications, while also exploiting the newer agility from mobile, from feedback loops, from the consumer-centricity. It’s almost as if we have two companies within one now. How are you seeing that balance and how do you help companies achieve the right balance?

Lanng: It’s quite natural, and Alex and I also can probably recognize that we come from both sides of the equation here. Alex is trying to transform what traditionally has been an on-premise company and going toward the cloud. I come from a cloud-first company, and I'm trying to break into some of these complex use cases. Alex is spot on; security is still a massive issue especially with the data we deal with here.

So, it's about finding that balance. It’s also why we can’t use the consumer apps, since consumer apps need to have security models, and we need to have a lot of things. But this stuff is also getting very robust. You saw some recent breaches last year. There was the Sony story with all of the emails that were leaked. That was an on-premise system that was penetrated. I'm quite sure if that has been a cloud-based provider like Google or Microsoft, that penetration would have never happened.

We have to question ourselves that, in a trade environment like today, can each individual enterprise actually uphold the security that’s required? Are we seeing that cloud companies like mine or Alex’s, in a way, become specialists in securing all domains and securing the data within that domain?

Alex is trying to transform what traditionally has been an on-premise company and going towards the cloud. I come from a cloud-first company and I'm trying to break into some of these complex use cases.

Also, when we talk about this balance, when we talk about compliance for instance, there are two paradigms. You can have control and compliance upfront, but obviously you limit adoption and thereby limit impact on the business-case side.

Another thing, as Alex says, is that we can’t just have people going in and randomly buying everything. Can we guide them better? Can we give them real-time data to show them the consequences of what they could do instead, rather than put up a wall as the first step? That’s where there’s a lot of innovation happening right now, and a lot of thinking.

Gardner: Let’s revisit this notion of business networks. It seems to me also that, as we move toward cloud models, as we look to systems of record as services, the data becomes more transferable, shareable, and manageable, not siloed or isolated.

It seems to me that the more data and access to process information you have, the more of an advantage we have by being able to actually analyze these things in context and in total, rather than isolated as in the past.

So, how do we as suppliers to enterprises help them recognize the benefit of combined network efficiencies -- of looking to a provider to actually help them integrate and understand all of the data that’s at their disposal? Let’s start with Alex. How do we help make business networks palatable to organizations and trust the vendor to do more when it comes to bringing these sources of information together?

Exciting topics

Atzberger: This is an exciting topic, because if you look at it, obviously networks have a network effect. This means that, as more people are connected to a network, the more valuable the network overall becomes to its participants That’s something that we see very much in the Ariba business model.

Today, we have 2 million companies connected to the Ariba Network. When I go into certain markets, and we talk to certain customers about their supplier base, it makes a difference when 50 percent, 70 percent, 80 percent of those suppliers are already connected to the platform.

If you step back and think about point-to-point connections like EDI that existed in the past to create connections between companies, now you suddenly have a network where you have the baseline to add additional services to a network to actually enrich the experience for everyone who actually participates in the network.

At the same time, the data needs to be secure and companies need to feel they actually do business with other trusted entities.

It’s very, very important to understand that from our perspective. When we talk about procurement, I also look at the supplier as a customer. So there’s value on both sides. When we talk, for instance, about mobile apps, the mobile apps don’t just exist on the buyer side; they also exist on the supplier side -- and that’s a very, very important part of this.

As you bring in new services, payments, supply chain information, and forecast information into the network, these are some of the most rapidly adopted solutions that we see, because people already have the network in place and can now do more with it. It’s very similar to social networks that started pretty much with the status update, and today, you can share more and more of your lives and do more and more things on a network. That’s the power of it.

At the same time, the data needs to be secure and companies need to feel they actually do business with other trusted entities. This brings in the whole topic of supplier risk, of having transparency, into who the suppliers actually are that you do business with, but also identifying new sources of supply. That becomes very powerful, and then underneath, everything is the actual data that sits there. Opening up that information in the platform for companies to analyze and benchmark themselves is extremely powerful.

I often talk about the application, the network, and then the data-play as the three dimensions that company should be thinking about as they embrace business networks strategy.

Gardner: A whole greater than the sum of the parts. How do you see organizations take advantage of it?

Multi-Enterprise Grid

Lanng: First off, this is one of the areas where Alex and I wholeheartedly agree. When Gartner came out with the new hot topic for Procure-to-Payment, one area that they pointed out was a whole new category called Multi-Enterprise Grid, and that’s of course, a mouthful to swallow, but what they really said was that the future for enterprise connectivity is something brand new.

It’s not the business networks in the sense that we know them today, it’s not the EDI networks, but it’s something where information can flow in all directions. It’s a full stack of information, not just transactional data, but also, as Alex talked about, real-time insights, analytics data, logistics data, collaboration, and so on.

There were only two providers mentioned in that category, which is rated by Gartner to be one of the most impactful over the next five to 10 years. And the two providers were Tradeshift and SAP Ariba. As a company a third of the age of Ariba, we were proud to be in that category. But I think it shows the focus that both of these companies have in this area.

The long tail of the supply chain will become increasingly important for networks as we move forward.

One thing we did well, and I also think it points to the future of this, is that we started out as a supplier network. Before we built any buyer functionality, we actually designed a completely functional supplier network, and we helped suppliers join for free, get access, and run all of these services. Then, we slowly built out our enterprise portfolio. And that meant that from the beginning, Tradeshift has always been network-first.

Every single feature we built on the enterprise, every single aspect of our platform, we designed with this idea of how we would utilize the network, how we would bring collaboration into it, how our partners and app partners would use these things. To the point of the openness, Tradeshift was born with a completely open set of APIs so that anybody can develop on the platform and put out applications.

The long tail of the supply chain will become increasingly important for networks as we move forward, because as we're moving into much more complex transactions and move into much more complex data, we will need to connect every single supplier. If you take something like risk – as one of the examples that Alex mentioned – you are as exposed to the tiny, tiny supplier as you are to the big North American supplier you’ve been doing business with for 10 years, maybe even more.

If you ask me what the future of networks, I think it will be three things. It will be connect everyone, rather than to connect the top 10 percent. It will be a Multi-Enterprise Grid, which means it’s moving in all directions and data are connected in all directions both from the supplier side and from the buyer side. Finally, it will be open, but to echo Alex, open but secure. People will be able to build and innovate on top of these platforms, but within a secured framework and secured context.

Gardner: Alex, SAP has been around for quite some time, and conventional wisdom nowadays is that if you're a legacy provider you're somehow at a disadvantage in the cloud environment. Yet SAP recently reported very strong growth, and I think this validates a somewhat different approach or a different perception of a legacy vendor. Tell us why you think SAP is growing while other vendors are struggling?

Technology cycles

Atzberger: Dana, if you look at it as a company that has been in business for 42 years, we know one or two things about going through different technology cycles. Each technology cycle requires you to transform your company. What SAP did right in this transformation is that it acquired businesses to move the business forward, and a significant investment in outside R and D basically by bringing in capabilities into SAP.

But then, when the companies got acquired, each company is actually managed as an entrepreneurial entity inside the business. For me, that’s a very important. I belong to a family where my father had his own business. I believe that it’s really important that companies focus on innovation and actually have a capability to have an entrepreneurial mindset, and a commerce mindset inside a business.

I respect companies like Tradeshift and other companies that are emerging very much because of that commerce mindset of those businesses. The power is the scale at which you can impact change at a company like SAP, and that’s where actually so much of the transformational capabilities are coming from.

With 250,000 customers on the SAP side touching 70 percent of the world’s transactions, imagine what type of base this gives to Ariba, which today now facilities $1 trillion worth of commerce, to expand and build on it, and all the technical capabilities that come with it.

As a company that has been in business for 42 years, we know one or two things about going through different technology cycles. Each technology cycle requires you to transform your company.

I always like to say that I want SAP Ariba to be the fastest growing startup inside a large company. And how do we do this? It’s by both focusing on that innovative mindset of a startup company and combining it with all the assets that come from a larger company. That’s a very valuable proposition both for the customer as well as for having passionate employees to actually deliver the best results.

Gardner: Christian, there’s also conventional wisdom that says if you're an agile newcomer that you can run circles around the incumbent companies. How does that work for you, and how do you see that playing out?

Lanng: I want to start by saying that we're the challenger to SAP Ariba in this market. It obviously has its advantages. But I also want to say that Ariba is obviously one of the competitors that we respect the most. Alex has been doing an excellent job also of really integrating a company like Ariba, which is 20 years old.

You have to remember, moving from a whole new stack and a whole new sort of solution also has its advantages. Sure, we're a challenger, but we're not that new anymore. We actually have 500,000 companies on our network. We have total global coverage. We have some of the largest companies in the world also on our customer list, but obviously not as big as SAP.

But it’s true that we can probably move a little faster and innovate a little faster, and maybe also sometimes tease Alex and friends on social media a little faster. But I think we’ve done it with a lot of respect, and I definitely see that’s the place for us as a competitor and challenger in this market. It’s a very healthy competition, because we're both striving to really do better for our customers.

Attracting innovators

One thing as a challenger is that we've also been attracting a lot of innovators within this industry. Other players have focused much more on companies where Ariba was today and not really innovating. I think that’s the wrong way to think about what you want to do.

We always came with being-first principles. We wanted to build something different. We've done that within procurement. We've done that within our risk offering, within our network. It’s very, very different. Also, there is a choice in the market and that’s actually really healthy. We're also tracking customers that like that innovation, and are thinking of new ways for supply chains.

At the end of the day, my biggest integration partner is still SAP. I don’t know if you want to talk about friendly competition here, but it’s certainly a market that has multiple angles.

Atzberger: If I can make one more comment on that, it’s also important to understand that often times for customers, it’s important to see that a trend, a movement gets validated by multiple companies. When the cloud came about some of the innovators, Salesforce for instance, had become absolutely mainstream. All companies have different sorts of cloud offerings, and that's good to hear.

It’s also important to understand that often times for customers, it’s important to see that a trend, a movement gets validated by multiple companies.

That’s actually important because companies know that when they invest in something, it’s actually a concept. That’s why you're talking to two innovators in this space and that gives more companies confidence to invest in something new and to say, "We want to go on this journey. I think this is good that you're taking this topic on this call today, because I do think it’s a massive trend of going forward."

Gardner: I am a big fan of showing and not just telling and doing that through a use-case or a customer example. So, Christian, I wonder if you could relate to us, maybe by name or maybe just by generic description, a customer scenario that demonstrates Tradeshift’s approach and value?

Lanng: I absolutely can, and I'll take a very recent example. We just announced, about a month ago, a big international customer, Zurich Insurance Group. It's a huge global company, very conservative industry. It's been around for 150 years and, of course, has very sensitive customer data. They were having a lot of struggles with this whole process, and they got the people inside the company engaged around actually driving impact and value in these processes.

We showed them at the time our brand new procurement platform called Tradeshift Buy combined with the Tradeshift network. There were three things that stood out for them. The first thing we addressed were rogue buyers; people who are going outside procurement rules, and we said, “Hey, these are actually people who are passionate about their company, who are trying to drive value and even willing to take enough risk that they are not always following the rules. Let’s try to give them some tools so they at least participate, and we can get the spend under control.”

The second thing we did was we showed collaboration aspects with the supply chain and showed how, in real time, you can collaborate with your suppliers around categories and also the procurement department, because in a lot of companies procurement departments get a little alienated; they become the enemy. If I'm trying to do something, they're the bottleneck. One person said, "We are the Department of Cheap."

Strategic part

I don’t think that’s the case. They are actually a strategic part of driving value in your business. So we really try to build a procurement platform where suppliers become equal citizens and became helpers, so that if you are trying to buy something to try to solve the problem, you can engage with them in the solution phase, not just when it’s the last step and you got us in the purchase order (PO).

The last step was the ability to roll out locally for their supply chain. They are a huge global company and needed confidence they could get the onboarding rates. They looked at a lot of solutions and what it comes to down to today is that there is only reach through two network solutions in the world. Those are Ariba and Tradeshift. The rest don't have all of these platform capabilities and this broad scope.

Gardner: Alex, the same question to you. Do you have a use case example, by name or generically, that illustrates the power of the composition of SAP Ariba? 

Atzberger: Absolutely. I'll give you couple of different examples. If you take a company like AIG, the insurance company, I urge you to look at the YouTube video talking about how they saved about $300 million through the Ariba platform. That was driven through -- taking all categories of spend actually on to the Ariba platform including, by the way, legal services, which is something where a lot of companies say, you can’t actually bring this into an e-sourcing environment. So that’s an exciting case.

In the last quarter alone, we enabled another 80,000-plus suppliers on the network. That’s where a lot of the power of the community and the network comes from.

Another one, for instance is, Auchan the French Company that actually went to suppliers and said, if there's no Ariba, there's no business. Basically, you need to be on Ariba in order to do business with them. It's a strong business-driven case of what actually it means if you have a strong procurement department to lead the change and do this not just in France, but across Russia, China, and markets where they operate.

Take companies like BHP Billiton in Australia and Singapore. They drive more than 90 percent of their spend over the SAP Ariba platform and connect their suppliers to it. It's one of the best-in-class examples of a sourcing and procurement organization. Also, they're going into China to identify new sources of supply and that’s something where we're working with them and really extending their reach, which is becoming so important to global sourcing strategies.

Then, I'd point out new customers that we're excited to have as part of the SAP Ariba community, like First Data. First Data has the largest IPO last year in the US. It’s a payment company, but really a technology company as well. If I look at what they want to do with the platform and also what we are doing in partnership with them around B2B payments, it's a very exciting uses case as well.

When you look at the some of the names I just gave you, at the size of those companies and the suppliers, we're talking about tens of thousands of suppliers that those companies have. In the last quarter alone, we enabled another 80,000-plus suppliers on the network. That’s where a lot of the power of the community and the network comes from.

Lanng: I just wanted to add one thing to what Alex said, because I think what he's also showing with his cases is the breadth of industries and global reach of this customer base and who can use networks. We see exactly the same within airlines, such as Air France, and companies in retail, fashion, manufacturing. I don’t think there is a single industry we don’t have on the platform, also new companies like LinkedIn within services and so on.

I just want to echo what Alex said. It's a really broad set of industries and customers who are trying to use live business networks. I don’t think there's anyone who won’t use this or, in the future, won’t have this. It will be a default, as having an ERP system as today.

Data feedback

Gardner: I think we've only begun to explore the depths of the data feedback and analysis capabilities within digital commerce, and within retail, for example, of the user experience and real-time interactions and customization impacts.

So before we close out, let's think about companies that might be resisting this notion of taking advantage of the network, and of starting to do the groundwork in order to be able to realize those feedback loops and analysis benefits.

Starting with you, Christian, what would you say to a company that is still somehow not interested in taking advantage of business networks, and what potentially could they miss out on if they don't start doing the groundwork now in order to be able to be a digital business with deep data-driven analysis capabilities becoming pervasive?

Lanng: We have to go all the way back to the beginning of this discussion, which is what also Alex pointed out, that companies that don’t change and innovate will be gone. We've seen more companies disappear out of the Fortune 500 in the last 20 years than we have in the history of business, and it’s accelerating.

If your supply chain is in such a way that you cannot react to that kind of disruption quickly, and if you can't acquire new suppliers that can help you find all of these threats, you are done.

There are three key things you miss out on if you don’t invest in networks. First is the ability to know and know fast. Today, knowing is way more important than just the cost of things or the cost of transactions. We see huge Fortune 500 companies shocking us with reporting their most basic numbers to their shareholders. You see the shareholders being more and more aggressive on having insights on how these companies are run.

The second thing is agility. Agility is probably the single most important strategic capability in 2016 and onward. And I think if you look at companies we are taking about they have new competitors coming up. You can take a company like P&G who recently got disrupted by the Dollar Shave Club, a company that spent less than a million dollars on marketing to take a shot at $13 billion market.

If your supply chain is in such a way that you cannot react to that kind of disruption quickly, and if you can't acquire new suppliers that can help you find all of these threats, you are done. Lastly is, if you don’t have a connected supply chain, you miss out on the advantage of getting new processes rolled out.

Social networks typically have a status feed. In our case, once you're connected on Tradeshift, once you have a supplier up and running, if you want to roll out any new business process, any kind of new connectivity, it is as easy as pushing a new app. Whereas somebody who doesn't have this technology and is rolling out a new business process, we're talking about a three- to five-year lifespan to get to the old supply chain. So agility, speed, and just not being disrupted are the three key reasons I will point to.

Gardner: Alex, Christian paints the picture of business networks as existential. You really don’t have a choice, but a lot of companies are still struggling with how to go about this. Is there an order to it? How should I begin rationally without getting caught up in complexity and losing control of my company? What advice, Alex, would you give companies on how to start the process of becoming a digital business, and to retain governance, but still get the agility benefits?

Back to basics

Atzberger: If your company is conservative or wondering about how best to take advantage of this, you know, you would have to go back to some of the basics. Of course there has to be a business case. Start with a business case around the benefits and the cost. What does the infrastructure currently cost you, the paper based processes cost you, to do business with your suppliers? What are the benefits that you would have, as Christian pointed out, if you could actually extend more and more capabilities over the network, and that itself is very good.

Then the second piece is to engage some things like Design Thinking, about envisioning what the future could be like. Bring together different people out of your companies cross-functionally to think about how you could envision doing more with the assets you have in actually creating new capabilities.

And that’s where things get really exciting, when you think about maybe we shouldn’t be thinking about the network just as something where we have a buying from, but maybe it is something that we become a supplier into. We have many customers, by the way, who do both, who are both buyers and suppliers on the network, and they are valuing that as well.

Anything that you digitize doesn’t mean that your business becomes somehow less involved, somehow detached from your suppliers. It’s actually the opposite.

Finally, it’s about understanding. Anything that you digitize doesn’t mean that your business becomes somehow less involved, somehow detached from your suppliers. It’s actually the opposite. You become more relevant. You, as a buyer, become a customer of choice to your supplier.

That’s very powerful, because at the end of the day, you can argue that, as a consumer, you start to prefer those companies that have a digital relationship with you. That’s what networks have built and allow you to do -- build a digital relationship between your suppliers and the buyers.

As far as conservative companies, I'm happy to talk to them, Dana. If you have any names, send them my way. We love to engage and we love to have that conversation, but it comes back to the fact that there is a real value in this, and it gives all the things that Christian talks about with the agility and other benefits as well. It both makes sense strategically, as well as from the business case, and if those things come together, companies have a great future.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: SAP Ariba.

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The next BriefingsDirect big-data use case discussion explores how technology providers have teamed as an ecosystem to deliver new dynamic and rapid analysis capabilities to the retail industry.

We’ll explore how the Extreme Apps for Retail initiative places new knowledge in the hands of on-site sellers -- to the customized benefit of shoppers at the very point of sales and in real time.

By leveraging power of SAP HANA big-data software infrastructure, Hewlett Packard Enterprise (HPE) hardware, and Capgemini targeted analysis and intelligence, these Extreme Apps are designed to make the physical retail experience king by leveraging the best of online assets – all brought to enhance the user experience at the mobile edge.

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To learn more about how individual buyer information and group buying behavior inferences combine to customize the buying experience anywhere and anytime, please welcome Frank Wammes, Chief Technology Officer, for Capgemini Continental Europe. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: We’ve had so much change over the past five years in retail. It’s a vertical industry that’s under lots of pressure with a need for innovation. What, in your mind, are the top trends driving this desire to use big data to better enhance users’ ability -- at the retail site -- to get customized buyer experiences and customized deals based on their individual needs and wants?

Wammes: Retail indeed is one of the industries which is most impacted by the outflow of financial crisis in 2007-2008, where a lot of companies struggled. They ask: “Okay, how are we going to revive our business?” It's been an industry where you could see the winners and the losers very clearly. But there are a few things that everybody in the retail industry is now thinking about and need to answer.

Wammes

First of all, the big opportunity that retailers have is leveraging the whole big-data movement. There is so much data that retailers have about their customers and the consumers, structured and unstructured data, that they can benefit from. The only question is how they'll do that and they're going to make sure that all the data that they processed comes to action in order to create better experiences in the store or on the website.

The second big trend is how to gain the loyalty of your buyers? We see that it’s very easy for consumers to switch between different brands, between different retailers, between different stores, and loyalty is something that came in the past but it’s something that will not come automatically now or in the future.

But if you give a client a real custom experience, and they know that every time they come to you they'll get the same experience and they’ll get the benefits because of their loyalty, they'll adapt their needs in real time and will keep their loyalty towards your brand. So the second question is how do you increase their loyalty.

And third, it’s really the combination of the online and physical retail experience, the only general experience that people have. How do you make sure that during the buying journey of a customer, they continuously have the same experience?

Wowing the buyer

We always joke that if you go to a retail outlet in your specific country, how many retailers, when you have bought something online and you want to cancel it and you want to buy something in the store, can you go to that store, cancel that order, and make sure that you can take a physical good out of the store? In 95 percent of the cases, that will not be the case. It’s very easy to surprise your customer if you can do it. So how can you wow your buyer and give them the real experience?

Those are the three big things: leveraging all the data to increase the loyalty in both online and offline worlds.

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Gardner: It’s interesting that we're using big-data and intelligence to, in effect, combine what happens online with what happens in real-time and real space. Until fairly recently, people expected their online shopping experience to be the one where analysis was being derived from their actions, from their history, their clickstream, and so forth.

It's fascinating that we're able to now bring analysis to the physical site, and it seems that shopping is one of those things where so much more can be done when you're actually in touch with the goods, to be able to feel them, see them, try them on.

Why have we had a problem getting to this point where we can combine the best of online analysis capabilities and data gathering with the physical world? What have been some of the problems that needed to be solved in order to get to this point?

From an online perspective, we've been able to give you much more personalized offers or a better experience towards your needs using the intelligence and the big data.

Wammes: Once you went online, people could capture where you came in from through your IP address. So if you consistently came through that IP address you didn’t even have to have a loyalty card. We knew that you were a returning client.

We probably knew that you bought something. That was the reason why, from an online perspective, we've been able to give you much more personalized offers or a better experience towards your needs using the intelligence and the big data.

The issue was that in the physical store, once you entered, we didn't know who you were. Probably at the counter, at the moment that you already made your purchase, you drew your loyalty card. That was the moment that we could do something for you, but that was already at the end of the purchase.

A lot of the technology has changed. One of the things is that you can have your sales agents in the stores, or your sales representatives in the stores, and have them use tablets.

So once people are shopping in the physical store, I can create a contact moment and I can probably ask them for their loyalty card or if they've bought something, yes or no.

Beacon technology

Even more important, one of the other things that you can do now is with beacon technology. Once you come in with your phone and you already have a connection to the company because you're in some kind of a loyalty program, you already downloaded an app from that specific store, at the moment that you enter, we know that you entered.

We can upload a picture on the sales rep's mobile device, so that he can proactively approach you and say, "It’s so good that you came back again. How was the coat that you bought last time?"

The moments that we can have in these interactions with our customers within the retail store gives us the possibility to the leverage from the insights and the big-data capabilities. That's something that we didn’t have in the past.

That is the thing that helps. Now, we have the capabilities and the technologies to crunch all that data in real time. It's good that I can recognize my customer, but more importantly, I now have the technology to instantly, in real time, crunch all the data so I can give him this personal experience.

Gardner: I can see why you are calling it “Extreme Apps.” It really is powerful and interesting that you can do all this now –- to have someone greet me and recognize my last purchase and follow up on that. Clearly, with my opt-in at a store,  I'm giving them information, but I'm getting a lot back in return. It really is groundbreaking.

This is something that we're also actively looking into, making sure that the retention of the consumer will be increased.

Is this something that we're seeing only in retail or are there other vertical industries, not to go too far a field from our discussion, but is this something that’s applicable beyond retail and is that something you’ve considered?

Wammes: There is a little bit of retail in a lot of different industries. We initially focused on hardcore retail. The reason we did it is because we looked the industries where so much transactional data is coming in that we can crunch the data and use the power of in-memory analytics. That was the starting point.

Then you can look at utilities, because with the utilities there are so many streams of information and so many transactions that you can crunch the data and get a personal experience, particularly now with the deregulation of the utility industries. This is something that we're also actively looking into, making sure that the retention of the consumer will be increased.

The banking industry, the insurance industry, all have this kind of retail perspective. On the other hand, we're also are in talks with some oil companies that have their retail outlets, sometimes directly or sometimes indirectly.

We had some discussions with a very large beverage producer. We said they could perhaps offer analytics as a service towards retailers, so that the retailer themselves don’t have to buy the analytical capabilities. The companies could offer this as a service so that they have more influence and insight on what’s happening with their product. Perhaps they could put that into the hands of an independent party so that the retailer doesn’t see all this insight.

We see the retailer as the starting point because of this experience, the customer experience, that you directly can enhance. But there is a lot of retail kind of experience in the banking and insurance industries. So the opportunities are more diverse, and it all leads to how can I optimize the personal experience the individual buyer has with our company.

New combinations

Gardner: It’s fascinating. We're really combining the physical world, the mobile tier data, across existing industries in really new ways.

Let’s explore how that “Extreme” experience benefit on the front-end is made possible by some extreme technology on the back-end, so to speak. We have several different players involved here: SAP, HPE, and Capgemini. Explain to me how these partners in this ecosystem have come together, and what each contributes to the ability to deliver these capabilities.

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Wammes: Definitely, because it is extreme, but it also required some extreme engineering of new technologies in order to create it.

What we have done is a combination of some very strong partners of ours, where we try to leverage the new technology. First of all, it started with SAP HANA. It was also the question that SAP posed to us. We have HANA as the in-memory engine, but we have it just as an engine. Can you, with your creativity and your industry knowledge, create some solutions on top of it? That’s where this whole Extreme Apps started.

SAP comes in with their traditional Business Suite, but the Extreme Apps are explicitly built into the SAP HANA platform.

SAP delivers the HANA technology, and what we also offer, but this is optional. We also say that if you don’t have a proper back end to provide you all this data and to capture all the data and all the transactional data, Capgemini has built a retail template on top of the SAP Business Suite. So we have a preconfigured retail solution for those companies that don’t have a proper or a state-of-the-art enterprise-resource planning (ERP) system yet Capgemini’s One-Path solution.

First of all, SAP comes in with their traditional Business Suite, but the Extreme Apps are explicitly built into the SAP HANA platform. HPE delivers the hardware and the services, the hybrid cloud expertise. Together with SAP and HPE we look at the architecture, because you always want to have all your data in memory mode. We also took in technologies like Hadoop to make a distinction between the hot data and the cold data that we work on in our analytics space.

What Capgemini added on top of it basically was the algorithm. We leveraged on the algorithms that we had to put into this Extreme environment. It runs now on the Capgemini data centers, on the HPE systems , but we can leverage this in multiple ways.

You can host it in the Capgemini data center, you can have it installed on-premise, we can have it in the cloud, and we can also deliver it as the normal traditional license and transaction price. But we also engineered it together with SAP and HPE so that you can also have it in a price-per-month scenario.

Gardner: So in addition to this flexible-deployment capability -- where you can bring these Extreme Apps anywhere, anytime, anyplace -- you also have a set of APIs available so that this can be customized and adapted to a mobile, web, point of sale, and so forth client. Tell me about the role of the API and the ability to customize apps and delivery.

Two big scenarios

Wammes: If you look at the Extreme Apps that we have right now, we have two big scenarios. We've already built other analytics around it, but there are two big scenarios. One is the Market Basket Analysis and the other is the Next Best Action.

The Market Basket Analysis is the tool for the merchandise agents. They want to know whether if they make a promotion, does it really add to the margin of the company, or if they look at a certain promotion, why is it performing better in location A compared to location B?

You want to leverage a lot of the analytics and the visuals that are already on the web, but that’s through your normal web browser. It’s the professional user using it. We deliver the standard analytics and the standard visuals. There isn't a lot of tailoring around it.

The Next Best Action is a completely different ballgame, Dana. You want to provide the capability to offer something while the user is making his purchasing decision, and that can be through all different kind of things. It can be when a client is shopping on your web site and then you want to have this engine immediately promoting something that is relevant for the user.

It could also be that he walks by your company, and this is an example that we had with a lingerie store. They said when they have the telephone number of a client and they know through our beacon technology she is walking somewhere around our store, we give her a promotion. So we give her a 10 percent discount if she comes into the store and buys within an hour.

We already said it’s good that you give the 10 percent promotion, but wouldn’t it be much better if you give a very explicit promotion based on her buying pattern and based on the buying patterns of others who bought similar kind of products? Then, the promotion really becomes valuable. You want to have the promotion on your mobile. For your sales reps, you want to have it in a specific function, which gives them the opportunity to have a good conversation with the client while they are in the store.

We have developed some standard screens already, whether it's for mobile, tablet, the web. More importantly, all these companies already have their mobile apps, or already have a sales representative outlet. We need to create an API so they can embrace it and incorporate it within their own existing environment, so that they really can start quickly and don’t have to do a complete rebuild of their environment.

This is the way the API works. Through the API they can get the promotion data and can incorporate it in their existing applications.

Gardner: Frank, where are we on the roll-out or milestones for this Extreme Apps for Retail initiative? Tell us a little bit about that: when it started, where we are now, and when we should expect to see more of these apps in actual use.

Adding value

Wammes: It began about two years ago when we had the discussion with SAP, where they first started to build applications on top of HANA. How can you add value from an industry perspective towards this technology platform? That’s where we started. We built it.

We also crafted it together with a clothing retailer. It was not just created within the buildings of Capgemini and with the help of HPE and SAP with no client. We built it together with a client. We immediately knew the issues that they had, and not only leveraging our own industry expertise. So that was basically the first client.

And then we went into a do-it-yourself retail chain, where we implemented it. We saw that when the users, and particularly the professional users of the application, saw what the potential is, what you can do with real-time, in-memory capabilities, immediately additional questions emerged.

We started with these two applications, but then the question was, "If you have my point- of-sale-data, can I also create a report so that I can show my CFO what the daily sales are, but in a very advanced graphical way?" By the way, we leverage all the standard visualizations that you get with HTML5. So you can set up many libraries.

If a client installs one of the main scenarios, we already provide them with the reports that we have and that we build from the other clients.

So quickly, we had four or five additional reports that were built, because we already worked on the past data. This is where we are right now. We have the two main scenarios. If a client installs one of the main scenarios, we already provide them with the reports that we have and that we build from the other clients.

We have some additional algorithms and test environments where we continuously are in discussions with our clients. Which algorithm is most valuable to your business? We said, "If you're an SAP dominant client, and you're already leveraging the power of the Extreme Apps, we'll make sure that we extend the scenarios that we have with that algorithm that you have."

We can anticipate that, in the coming year, we'll build more based on the proof of concepts (POCs) that we will do with our clients, where first we'll test the algorithm and then we'll build it into the HANA platform, thereby enhancing the portfolio of the different Extreme Apps scenarios.

Gardner: Given that these services, these apps, are available and are proven in the field, if an interested organization wanted to start leveraging these capabilities, how long does it typically take, and what's involved in getting this actually in implementation?

Wammes: That’s the cool thing. There are a lot of aspects, which you also already have recognized, that required Extreme Apps for Retail. Perhaps the most Extreme is the implementation time.

We leveraged the environment that we have within the organization, the combined Capgemini-HPE environment. If you deliver your data in the data structure that we ask, then we can store your data into Extreme Apps, and within two weeks, you can start experimenting to see whether the technology works for your company.

Improving promotions

Give us your data, and we'll load it into the Extreme Apps environment. For your Market Basket Analysis, you can already do the first analysis, where you can see where you can improve your promotions, whether you are making the wrong decisions and putting items in promotions which negatively affect each other.

We can already provide you environment where you can do your proof of value to showcase that, within a very short time, you can have a return on investment (ROI).

Because we have this API, we can also immediately integrate it within your existing environment, whether it’s your app, your web browser, or your Internet page. You can already start experimenting by giving a little bit more advanced, more analytical capabilities.

So it’s not only that you recommend this product because other people who bought product A also bought product B. Rather, because you bought these series of products, I compared it to people who also bought these series of products, but they then bought product B. So the advancement of the analytics is much bigger than the traditional, "If you buy A, then buy B, because others also bought B."

This is something that we can have installed very quickly, and once you want to go in production, it depends on whether you want to go on-premise, or whether you want to go hybrid. In the meantime, you can leverage the environment that both HPE and Capgemini set up in our own data centers.

It has also been a journey for us learning that it is not only the capability of doing the analytics, but it has changed the way that you can do your business models.

Gardner: So you can integrate to a retail organization’s website capability, their online marketing or marketplace and selling, and any buying capability -- and also reach out to their point-of-sale retail outlets in as little as two weeks?

Wammes: Exactly. I think the combination is now the cool thing that we see, and that’s also Dana, some things that we learned. We started off with the traditional model and we built the scenario. If we went to a client, they needed to buy the HANA license, they needed to buy the hardware, and they needed to buy a scenario from us. Then, we built it in a offering where you do it on a monthly basis. What we're now seeing is that together with other solutions, we can have it integrated in some engine.

So for instance, Capgemini has another piece of intellectual property (IP), which is called RM3. RM3 is a middleware solution where you can optimize your promotion, so you can mix and match the promotions to tailor it as much as possible to the individual need.

But now, we can put the Extreme Apps in it and make the promotion more advanced. We're in talks now with some other clients who have their own engines, where they give promotion capabilities through mobile apps, but they don't have a powerful analytics module behind it to make it personal. Now, they can have this Extreme Apps as the engine.

It has also been a journey for us learning that it is not only the capability of doing the analytics, but it has changed the way that you can do your business models. This applies both to the retailer, as well to the conglomerate that we are working with.

Better analysis

Gardner: Of course we know from the benefits of data and analysis that the more data and the longer period of time, the better the analysis. So, you're able to give your individual retailers more insight into individual behavior. They're able to see their own processes, promotions, and enticements work better, but stepping back, you're also, at the Capgemini level, getting a lot of insight into an even larger set of data across multiple retailers, multiple types of shopping environments, and multiple types of buyers.

Does that mean that you're going to get better algorithms and better insights from this larger historical set of data that can then be applied back into this set of Extreme Apps?

Wammes: That is a very good suggestion for an additional business model, Dana, to be quite honest.

Now, we separate the different environments. So, at this time, it’s the environment that we set up and the algorithm work for the specific individual client.

What we now do, which goes a little bit to your point, is that we learn from how the different clients that use our Extreme Apps leverage the Extreme Apps to optimize their promotions and their interactions with the client. That’s the first step.

At this time, we're not at the point that we say we can leverage the knowledge that we take from the multiple client sets. However, what you refer to is something that we've thought of already, but it comes back to the example that I gave on the beverage producer.

That’s where the learning on the multiple clients and multiple different retail stores will kick in.

If you, as a consumer goods company, can provide an engine to a retailer or to a multiple set of retailers, where you say, "We can help you in optimizing your promotions so that, in the end, you will sell more, and if you sell more, we will also sell more."

That’s where the learning on the multiple clients and multiple different retail stores will kick in. We've thought of that concept, but not so much offered the users of our Extreme Apps solutions. It's more in the context of whether consumer product companies can offer this as some kind of analytical capability towards different retailers?

Gardner: Perhaps, Frank, in a year or two we will have another conversation where we will talk about how synergistic shopping works. When you buy one type of product, it might mean you will be buying another soon, and some coordination and intelligence can be brought to that.

Wammes: Yeah, definitely.

Gardner: In the meantime, do you have any examples of either named or unnamed organizations that have put the Extreme Apps for Retail to use? What business benefits they get from it? Any measurements of success, such as, we were able to increase share of wallet, we were able to increase larger sets of purchases by certain buyers? Anything along the lines of proof points for how well this works?

Business cases

Wammes: Yeah. Well, I can mention some industries. We can't disclose specific types of retailers. When we looked at the business case that we got for the do-it-yourself company, their main business case was on the Next Best Action.

They saw the potential to do an increase of about 25 percent, because they could better target the promotions that they gave. It was also because we started to introduce the Next Best Action on the apps and on the website, which is a very growing business of course in that specific industry. So making sure that the up-sell and the cross-sell emerged was really the business case on the do-it-yourself side.

With the food retailer, it’s much more about the merchandized planning. What we saw particularly was the promotion. That was a business case where it was something about four percentage points of improvement that could be achieved easily. So there wasn't much action.

They saw the potential to do an increase of about 25 percent, because they could better target the promotions that they gave.

The benefit really was that, through the analysis, we could see which products had affinity with each other, but also what the potential financial benefit between those two products were if you would not put them into promotions again, or if you put them explicitly into promotions?

As an example, and I think it’s the most easiest example, but everybody understands it, if you sell crisps in your promotion, don't put your beer into the promotion, because there is such a high correlation between people who buy beer and will automatically buy crisps as well. So don't do that.

Through these kinds of correlations and affinities, we could have a four percentage point improvement on the revenue, making sure that people would not do the promotions again.

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We were able to reach a couple of percentage points because we could sell products which were very slow selling and where you could have issues on your expiry date. We could identify what kind of products they would sell. So if I have this low turnover of goods, but I put a promotion on high turnover of goods, with a high probability that the low turnover of goods would sell as well, then I would get rid of the inventory.

We also saw that the three percentage point potential was really about don’t put something on promotion where a product with a high affinity is out of stock.

These are the real examples that we have in the different industries.

Gardner: Now, these are benefits that are clearly significant to the seller. We're talking about retail, where it’s very competitive, and there are large revenue numbers involved. So a couple of percent is a lot.

But what about the buyer? Have you done any surveys or questionnaires, found out why the buyers are benefiting from this, and what it makes in terms of loyalty develop with them?

Personalized experience

Wammes: The research was really on the business case and the elements that I gave to you. So, I can’t give you the exact numbers on the loyalty.

However, in our interaction with our clients was that they said that it's the opportunity to give this personalized experience in a relatively inexpensive way. We always use some clients as the real best practice on how can you integrate your online and offline shopping experience.

So for instance, for us, Burberry is one of the stars in having a very integrated omni channel experience. What we see beside the business case effects that we just discussed is that they said the fact that they can really have a personalized conversation when somebody enters the store, with data already up front, gives high value. However, we didn't measure it.

I have a very good case in The Netherlands. There was a very large retailer that went bankrupt on December 31. They had 10,000 employees, and on the verge of the new year they got to hear that they are unemployed. They were one of the oldest big retailers in The Netherlands, big department store.

I've visited that department store a lot. The issue always was that when I came to the floor, there were no people that came to help me. They didn't come to advise me. They didn’t come to assist me. When I finally grabbed a product to buy, I had to stand in a big line, because there were only a few cash registers on this very big floor.

Technology is not threatening that. If you apply it in the right way, you strengthen it.

It’s a very bold statement, but I think their future would have been much brighter if somebody would have approached me and already knew that I bought something because they have a loyalty card and they knew what I bought in the past. They knew what my interests were. And they could have greeted me and said, "Mr. Wammes, it's so good that you're here again. Can I show you around because I noticed that you marked it as interest on our online store and let me show you?"

I could buy it from that person as well, because they have this integrated credit card mechanism attached to their tablet. That would really be a complete transformation of doing business in that department store. If so, 10,000 employees wouldn't have had that bad message at the end of the year.

Gardner: You're basically saying that the personal touch in the retail environment is empowered now and can come back. We've all noticed in the past years, even decades, that the amount of personalization, personal touch, and human interaction in sales has gone down; it's very much self-service. If it remains self-service, what's the difference between online and bricks and mortar? Not very much. So you really with this capability, this Extreme set of Apps bringing the relevant nature of person-to-person sales and service interactions back into vogue -- and making it very economically powerful.

Wammes: Exactly. You've hit the nail, as we say in The Netherlands. One of my colleague said it's all about relevant personal experience, and it should be relevant personal experience. Technology is not threatening that. If you apply it in the right way, you strengthen it. And I think that's really where we can have a great omni-channel, relevant personal experience delivered towards the consumer.

Gardner: We're just about out of time. I just want now for a brief moment look to the future. Now that we've taken this significant step into Extreme Apps for Retail, what comes next? What might we consider the next chapters in being able to leverage these capabilities around real-time, vast data being brought to bear, fast APIs for implementation and delivery of the visualization and other data, and then this newfound empowerment of that salesperson, that personal advisory service, at the retail outlet? What might we expect in the next months and years?

More artificial intelligence

Wammes: Well, let me start far in the future and then bring it back a little bit. If I go far to the future, bringing in even more artificial intelligence (AI) will not only even enhance the creation of strong algorithms that increase this relevant personal experience, but also AI, in contrast, will give robotics a chance to interact with us.

There are already some examples, for instance, robots driving around in airports to help people along the journey. But the sales agent will be supported by AI to give more relevant personal experience towards our client. AI is definitely something that will kick in in the coming years.

The roll-out of beacon technology, so that we really can recognize the individual consumer, is something that will be more broadly explored in the coming years in the industry.

The most powerful part of the solution is that we put a toolset into the hands of people who, in the past, were always limited by the IT department.

We've seen a lot of companies talk about big data, but a lot of retailers are still struggling a little bit with how to really apply it? What we've seen is with the clients who implemented the Extreme Apps for Retail is that because people were exposed to the enormous power of what in-memory, big data solutions can bring, all of a sudden the imagination is awakened.

In some of the examples that I gave earlier people said, "If you have this data anyway, can you then give us some very nice visual analytics to use that?" The most powerful part of the solution is that we put a toolset into the hands of people who, in the past, were always limited by the IT department, because it was difficult to build, it costs lot of money, and was very difficult to maintain.

With the new technologies, it's very easy to create stuff that is very visual and powerful. Therefore, the imagination becomes the limit of what we can do. That's perhaps the most surprising part, and that’s the thing I can't answer, because I don't know yet what kind of things people will come up with. But we're entering an area where imagination becomes a driving force of the things that we can do.

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Gardner: For those who are reading or listening to our conversation today, if they want more information about how to learn about this to start the journey towards understanding how it might benefit their organization, where would you point them?

Wammes: First of all, they always can contact me at frank.wammes@capgemini.com or go to my Twitter account, @fwammes. If you go to the Capgemini site, there's a section called Ready2Series, and Ready2Series is the solutions where Capgemini owns their own IP. Under the Ready2Series, you'll find more information about the Extreme Apps, and you can learn more from the solutions that we have there (https://www.capgemini.com/sap/sap-hana/extreme-applications-for-retail.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: Hewlett Packard Enterprise.

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SAP Ariba's chief strategy officer on the digitization of business and future of technology

The next BriefingsDirect technology innovation thought leadership discussion focuses on advancements in business applications and the modern infrastructure that supports them, and what that combination portends for the future.

As we enter 2016, the power of business networks is combining with advanced platforms and mobile synergy to change the very nature of business and commerce. We’ll now explore the innovations that companies can expect -- and how that creates new abilities and instant insights -- and how companies can, in turn, create new business value and better ways to reach and serve their customers.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy.

To learn more about the future of technology and business networks, we’re joined by Chris Haydon, Chief Strategy Officer at SAP Ariba. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.

Here are some excerpts:

Gardner: Now that we have cloud, big data, and mobile architectures aligned, how does that support where we can go with new business applications and processes -- to get entirely new levels of productivity?

Haydon

Haydon: It's an exciting new age. The new platforms, as you say, and the applications coming together are a kind of creative destructivism. We can start all over again. The value chain is changing because of digitization, and technology needs to respond.

So what you hear are buzzwords like adaptivity, configurability, or whatever, but these are table stakes now for business applications and business networks. This digitization of value chains forces us to think about how we bring the notion of multiple constituents within the organization, in terms of the adoption, and then couple that with the agility they need to do to deal with this constant and increasing rate of change.

Gardner: People are talking more about “digital business.” It means looking at not just new technologies, but how you do business, of taking advantage of the ability to have insight into your business, sharing that insight across ecosystems with partners. Where do you see the real advantage in action now for a business-to-business (B2B) environment?

Outcome-based conversations

Haydon: We hear about the technology and it’s important, but what we really hear about is the outcomes. We have very outcome-based conversations with customers. So how does the platform with the business network give you these differential outcomes?

What's pretty evident is that you have to be closer to your end user. And it's also about the cloud paradigm adoption. You're only as good as your last transaction, your last logon, your last order, or your last report -- or whatever business process you're running in.

It's this merger of adoption and outcome, and how you string these two things together to be able to deliver the customer benefit.

From a technology perspective, it's no longer acceptable just to think about the four walls or your firewall; it's really about that extended value chain. So this is where we're seeing this merger of this business network concept, this commerce network concept in the context of these business applications.

We're really starting to emerge from B2B, and it's grown out of the business-to-consumer (B2C) world. With the Facebooks, the LinkedIns, or the Ubers, now you're seeing leading practice companies needing to embrace these larger value chains or commerce chains to give them the outcome and also to help drive differential adoption.

From a technology perspective, it's no longer acceptable just to think about the four walls or your firewall; it's really about that extended value chain.

Gardner: For organizations that are really attracted to this and recognize that they have to compete with upstarts, if they get this right, it could be very disruptive.

When we think about having all of your data accessible, when we think about processes being automated, at some point you're able to gather more data and analysis and process refinement that you can then reapply to your business, creating perhaps algorithms and abilities to add intelligence in ways that you couldn’t never do manually.

How do we get companies to understand that feedback loop and get it instituted more rigorously into their organization?

Haydon: One thing we see is that with the technology we have today, we can hide that complexity from the users and embed it in the way that end users need to work. Let’s talk a little bit about an SAP Ariba example here. If you're going to create a new sourcing event, do you really want to have to think about the business you do with your current suppliers? Absolutely, but wouldn't it be great when that’s all managed by extra information presented right in front of you?

On top of that, wouldn’t it be also great to know that these three new suppliers in this category, in this geography that you haven't thought about before, and wouldn't it also be great that they could be automatically invited at no extra friction to your process? So you get more supplier diversity. You're able to also let suppliers become more involved in the process, earlier in the process.

We're redistributing this value chain in terms of linking the insight and the community to the point of where work is being done -- and that’s part of that transformation that we're seeing, and that’s how we see it in the Ariba context. But we’re also seeing that in the larger business-network and business application context across SAP.

Knowing your needs

Gardner: So to borrow the B2C example, if Uber is our poster child example, instead of my standing outside of a hotel and having visibility of all of the cars that are driving around that neighborhood, I could be a business and get visibility into all of the suppliers that are available to me. And those suppliers will know what my needs are before they even get to the curb, so to speak.

What's the next step? When we gain that visibility, when we have supply chain and buyer and seller synergy, what comes next? Is there some way to bring that value extended to the end-user at some time?

Haydon: The next step is network resource planning. This is the awareness about your supply base, but also what other stakeholders in that process might mean, and this is what it could be for the end user. It's not just about the supplier, but also about the logistics provider. It’s about how you might have working capital and finance.

The next step is network resource planning. This is the awareness about your supply base, but also what other stakeholders in that process might mean.

What if you could dynamically match or even have a conversation about differential service levels from a buyer or supplier? I'm okay to take it tomorrow if I can get it at 8 a.m., but it's $2 cheaper, or I am happy to take it today because of some other dependencies.

This is a type of dynamic “what if,” because we have the technology platform capability, in time real-time memory analytics, but also in the context of the business process. This is this a next generation capability that we'll be able to get to. Because the network is external to the application, because together we can understand the players in the network in the context of the business process, that's where that real next evolution is going to come.

Gardner: It sounds as if we're really starting to remove the margin of error from business. We're starting to remove excess capacity, become fit for purpose through that dynamic applicability of insight and analysis. How much can we squeeze out? Do we have a sense of how substantial these business network capabilities will become? What sort of payoff are we anticipating when we can remove that margin of error, with tighter integration across ecosystems? What’s the gold piece that we are going after here?

Haydon: Well it’s a big, big, big number. Even if we go back a couple of years -- and there’s some good work being done on just the inefficiencies and the first sort of magnitude on paper -- and that’s just moving something from a paper format and dematerializing that into an electronic format. Four years or five years ago when a study was done on that, that was conservatively somewhere between $600 billion and $1 trillion just in the Global 2000 corporations.

There is an order of magnitude more opportunities globally from just this compression of cycle times, in the broader sense, and responsiveness and adaptability throughout the whole world globally.

At SAP Ariba, we just passed a great threshold in 2015. We ran more than $1 trillion in commerce across our business network. If you just start doing a little bit of math around what a one percent or two percent improvement of that can be from better working capital management, or more flexible working capital management, just pure straight productivity and just competition, of leveling the playing field for the smallest micro-supplier through the largest international supplier, and just leveling that all out. There are stupendous gains on both sides of the balance sheet.

Adoption patterns

Gardner: When it comes to adoption patterns, some organizations may have been conservative and held back, perhaps resisted becoming cloud-based. What sorts of organizations are you seeing making a bold move, not just piecemeal, and what can they get a lot done in a relatively short amount of time?

Haydon: In industries where they are traditionally conservative, they really do need to change their value chains, because that’s what their customers are demanding. And so, financial services, where historically you would think the old “big iron” approach. Those types of companies are embracing what they need to do on cloud to just to be more adaptive, to be faster, and also to be more end-user-friendly, and the total cost of ownership approach from the cloud is really there.

But we're a long way away from on-premises applications being dead. I think what the cloud gives enterprises is they can go largely to the cloud -- and we see companies doing that -- but that the legacy-hybrid, on-premise model is really important. That’s what’s great about the cloud model. You can consume as you go. It doesn’t all have to be one big bang.

For pragmatic CEOs, CFOs, or CIOs, that blend of hybrid is the legitimate strategy -- where they can have the best of both worlds. With that said, the inextricable pool of cloud is there, but it can be a little bit more on their own terms, on what makes sense for their businesses.

We talk about our cloud applications, and we have leading, leading practice, widely, broadly adopted source-to-pay cloud applications in a fully integrated suite.

Gardner: We have been at the 70,000- to 80,000-foot height on this discussion. Let’s bring it down a bit lower. Help our readers understand SAP Ariba as an entity now. What does it consist of in terms of the software-as-a-service (SaaS) services that have been acquired and built, and how that then fits into a hybrid portfolio.

Haydon: Number one, we fundamentally believe in Ariba, and it had to give differential outcomes to our customers, that linking cloud applications with the business-network construct will give you better outcomes for the things we just spoke about earlier in the conversation: visibility, supply chain, adaptability, compliance, building on networks of networks to be able to deliver different outcomes, linking to payment networks like we have done with Ariba and Discovery, linking to content networks like we have done with eBay, but bringing them into the context of the business process can only really be enabled through networks and applications.

From an Ariba perspective, we like to think of it in three pillars for everyone. We talk about our cloud applications, and we have leading, leading practice, widely, broadly adopted source-to-pay cloud applications in a fully integrated suite.

From a cloud perspective as well, you can have the Lego-block approach, where we can take any one of our modules, from spend visibility all the way through the invoicing, and start your journey there, if that's your line-of-business requirement, or take the full suite approach.

Intrinsic to that offering, of course, is our business network. Why I bring that up is that our business network and our cloud applications are agnostic. We don't actually care, from a cloud perspective, which back-end system of record you wish to use.

Of course, we love and we believe that the best out there is S/4HANA from SAP, but there is also a larger market, whether it's the mid-market or whether there are other customers who are on other journeys on the enterprise resource planning (ERP) for legacy reasons. We can connect our cloud applications and our network to any one of those.

Three levels

So, there are three levels: network, our end-to-end cloud applications, and last but not least, and which is really relevant from the technology journey, a rock-solid platform. And so I am moving toward that platform that runs our cloud apps and our network in conjunction with SAP for the security, for the privacy, for the availability, for all of these really important things that enterprise customers need.

Also, you have to have the security to run these business processes, because they're entrusting those to us, and that's really what cloud means. It means entrusting your business processes to us to get a differential outcome for your business.

Gardner: As organizations try to become more of a digital business, they will be looking to bringing these benefits to their ERP-level business applications, their supply chain and procurement, but increasingly, they're also looking to manage better their human resources and recognizing that that's a dynamic marketplace more than ever.

Haydon: Yes.

Gardner: So let's talk about how the business network effect and some of these synergistic benefits come to play in that human resources side of running a digital business?

Leading companies today want to have agility on how many full-time employees they can hire, and how to manage contingent or temporary labor aspects.

Haydon: That's also one of the great parts from an SAP portfolio. I like to think about it two ways. There’s human capital management internal, and there’s human capital management external. Leading companies today want to have agility on how many full-time employees they can hire, and how to manage contingent or temporary labor aspects.

From an SAP perspective, what's great is that we have the leading cloud for Human Resource Management and Talent Management solutions with Success Factors, and we have also have the market-leading Contingent Labor Management solution with Fieldglass.

Together with Ariba, you're able to, one, have a one-visibility view into your workforce in and out, and also, if you like, to orchestrate that procurement process to get sourcing, ordering, requisitioning and payment throughout.

From a company perspective, when you think about your spend profile, 30 percent to 70 percent of the spend is about services as we move to a service-based economy. And in conjunction with SAP Ariba and SAP Fieldglass, we have this broad, deep, end-to-end process, in a single context, and -- by the way -- integrated nicely to the ERP system to really again give those best outcomes.

Gardner: When people think about public clouds that are available to them for business, they often couple that with platform-as-a-service (PaaS), and one of the things that other clouds are very competitive about is portraying themselves as having a very good developer environment. But increasingly, development means mobile apps.

Haydon: Yes.

Mobile development

Gardner: What can we gain from your cloud vision as being hybrid, while also taking advantage of mobile development?

Haydon: From a platform perspective, you need to be “API First” because if you're actually able to expose important aspects within a business process, with an API layer, then you give that extensibility and that optionality to your customers to do more things.

Let’s talk about concrete examples. An end-to-end process could be as simply as you could take an invoice from any third-party provider. Right now, Ariba has an open invoice format. If someone chooses to scan it themselves and digitize it themselves or something that a customer wanted to do, we could take that straight feed in.

If you want to talk about a mobile API, it could be as simple as you want to expose a workflow. There's a large corporate mandate sometimes to have a workflow. If you travel, there's a workflow for your expenses, a workflow for your leave request, and a workflow for your purchase orders. If you want that cost – the end-user that has five systems or would rather come to one, you can have that API level there.

There is this whole balance of how you moleculize your offerings to enable customers to have that level of configuration that they need for their individual business requirements, but still get the leverage of not having to rebuild it all themselves.

That's certainly a fundamental part of our strategy. You'll see that SAP is leading in itself under our HANA Cloud Platform. SAP Ariba is building on that.

That's certainly a fundamental part of our strategy. You'll see that SAP is leading in itself under our HANA Cloud Platform. SAP Ariba is building on that. I don’t want to flag too much, but you’ll see some interesting developments along that way as we open up our platform from both an end-to-end perspective and also from an individual mobile perspective throughout the course of this year.

Gardner: Now this concept of API First, it's very interesting, because it doesn't really matter which cloud it’s coming from, whether on a hybrid spectrum of some sort. It also allows you to look at business services and pull them down as needed and construct processes, rather than monolithic, complex, hairball applications.

Do you have any examples of organizations that have taken advantage of this API First approach? And how have they been able to customize their business processes using this hybrid cloud and visibility, reducing the complexity?

Haydon: I can certainly give you some examples. This just starts from simple processes, but they can actually add a lot of value. For example, you have a straightforward shipping process, an advanced shipping process. We know of an example where a customer took 90 percent of their time out of the receiving and made the matching of their receiving receipting process almost by 95 percent, because they can leverage an API to support their custom bar-coding standard.

So they leveraged the standard business-network bus, because that type of barcode that they need to have in their warehouse, and their part of the world, was there. Let’s wind the clock back three or four years. If we had asked for that specific feature, to be very candid, we wouldn’t make it. But once you start opening up the platform at that micro level, you can actually let customers get the job done.

But they can still leverage that larger framework, that platform, that business process, that cloud that we give them. But when you extend that out for what it could mean, again, full payment, or for risk, or for any of these other dimensions that are just typically organizational processes to the current -- whether it’s procurement or whether it’s HR recruiting or whatever it's like -- it gets pretty exciting.

Big data

Gardner: One of the other hallmarks of a digital business is having aspects of a business work in new ways together, in closeness, that they may not have in the past. And one of the things that’s been instrumental to business applications over the past decades is this notion of a system of record or systems of records, and also, we have had this burgeoning business intelligence (BI) now loosely called big data capability.

And they haven't always been that close, but it seems to me that with a platform like SAP HANA, combined with business-networks, that systems of record and the data and information in them, and the big data capabilities, as well as accessing other data sets outside the organization, make a tremendous amount of sense. How do you see the notion of more data, regardless of its origin, becoming a common value stream to an organization?

Haydon: This becomes the fundamental competency that an organization needs to harness. This notion of the data, and then the data in the context of the business process, and then again to your point, how that’s augmented in the right way, is really the true differentiation for where we’ll go.

We're  working with our customers to identify and remove forced labor in the supply chain, or advance global risk management or even expedited delivery and logistics.

Historically, we laid down the old railway tracks on business processes,  but there is no such thing as railway tracks anymore. You rebuild them every single day. Inside that data, with the timeliness of it, is sentiment analysis so that from a business-network context, it enables you to make different and dynamic decisions.

Within SAP Ariba, we're fundamentally rethinking how we can have the data that’s actually in our environment and how we get that out -- not just to our account managers, not just to where our product manager is, but more importantly, out to our end users. They can then actually start to see patterns, play with it, and create some interesting innovations. We're  working with our customers to identify and remove forced labor in the supply chain, or advance global risk management or even expedited delivery and logistics.

Gardner: Okay, we talked about business-networks in the context of applications working together for efficiency, we’ve talked about the role of hybrid cloud models helping to accelerate that, we've talked about the data issues and some of the development and customization on mobile side of things. What have we missed, what is the whole, greater than the sum of the parts component that we’re not talking about that we should?

Haydon: There are probably two or three. There’s certainly the notion of the user experience and that's a function of mobile, but not mobile only. The notion of reinventing the old traditional flows and thinking that was prevalent even five years ago on what constituted one type of work channel no longer exists.

There's the new discipline of what a user experience is about and that's not just the user interface, that’s also things like they’re just the tone or the content that’s presented to you. It’s also what it does mean on the differential devices and way you’re working. So I think that's an evolving piece, but cannot be left behind.

That's where the B2C world is blazing and that's now the expectation of all of us in that, when we go to work and put our corporate hat on, as simple as that. These two are security and privacy. That is top of mind for a number of reasons and it's really fair to say that it’s in a massive state of flux and change here in the United States, but certainly in Europe. It doesn’t matter which region you are in, APJ or Latin America as well.

Competitive advantage

That's another competitive advantage that enterprises and providers in this space like SAP and SAP Ariba, can, and will, and should, lead on. The last point, maybe a trend, is that you're really seeing very quickly the transition between the traditional service and material flows that exist, and then the financial flows.

We're seeing the digitalization of payments just exploding and banks and financial institutions having to rethink and look at what they're doing. With the technology and the platforms we have, that linking of that is physical flows, whether they be for services or materials and that crossing over to that payment and then the natural working capital because, at the end of that, commerce follows money.

It’s all about the commerce. So it's the whole space in that whole area and that technology is the trend as well. Security UX and the whole payment working capital management or the digitalization of that are the three large things.

Gardner: And these are areas where scale really helps. Global scale, like a company like SAP has, when the issues of data sovereignty come up and you need to think about hybrid cloud, not just in its performance and technical capabilities but the actual location of data, certain data for certain periods of time and certain markets, is very difficult to do if you're not in those markets and understanding those markets. It's the same with the financial side. Because banking and finance are dynamic, it’s different having that breadth and scope, a key component of making that possible as well.

We're seeing the digitalization of payments just exploding and banks and financial institutions having to rethink and look at what they're doing.

There's one last area we can close out on and it’s looking a bit to the future. Some competitors of yours are out there talking about artificial intelligence (AI) more than others, and when you do have network effects as we’ve described, big-data mesh across organization thinking of data as a life cycle for a digital business, not just data in different parts of your organization.

We can think about expertise in vertical industries being brought to bear on insights in the markets and ecosystems. When and how might we expect some sort of an AI, value, API, or set of APIs to come forward to start thinking things through in ways people probably haven’t been able to do up until now or in the near future.

Haydon: The full notion of something like a [2001: A Space Odyssey’s] HAL 9000, is probably a little way away. But then again, what you would see within the next 12 to 18 months is specific -- maybe you call them smart apps rather than intelligent or smart agents.

They already exist today in some areas. You will see them augmented because of feedback from a system that’s not your own, whether it’s moving average price of an inventory. Someone will bring the context of an updated price, or an updated inventory and that will trigger something, and that will be the smart agent going to do all that work for you, but ready for you to make the release.

There still is a notion of the competency, as well, within the organization, not as much a technology thing, but a competency on what Master Data Governance means, and the quality of that data means, and being able to have a methodology to be to manage that to let these systems do it.

So you will see probably in a lower-risk spend categories, at least from a procurement perspective indirect, or may be some travel and these aspects, maybe a little bit of non-inventory materials repair and operating supplies, you probably fair way away from fully releasing direct material supply chain in some of these pretty, pretty important value chains we manage.

Self-driving business process

Gardner: So maybe we should expect to see self-driving business processes before we see self-driving cars?

Haydon: I don't know, I'm lucky enough to live in Palo Alto, and I see a self-driving car three days a week. So we'll back out of that one.

But there is a really important piece, at least from Ariba perspective and an SAP perspective. We fundamentally believe that these business-networks are the rivers of data.

It's not just what's inside your firewall. You will truly get the insight from the largest scale of these rivers of data from these business-networks; whether it be Ariba or our financial partners, or whether it be others. There will be networks of networks.

It's scale and adoption. From the scale and from the adoption, will come that true benefit from the networks, the business process, and the connectivity therein.

This notion of having a kind of the bookend of the process, a registry to make sense of the actors in these business networks and the context of the business process, and then linking that to the financial and payment change, that's where the real intelligence and some real money could be released, and that's some of the thinking that we have out there.

Gardner: So, a very bright interesting future, but in order to get to that next level of value, you need to start doing those blocking and tackling elements around the rivers of information as you say the network effects and putting yourself in a position and then be able to really exploit these new capabilities when they come out.

Haydon: It's scale and adoption. From the scale and from the adoption, will come that true benefit from the networks, the business process, and the connectivity therein.

Listen to the podcast. Find it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: SAP Ariba.

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