by Bill Huber, Partner, ISG
When SAP, the enterprise application software company, announced yesterday that it agreed to acquire Ariba, the procurement and supply chain world took note. Ariba is the leading procurement and e-commerce solution in the marketplace, with an enviable install base. As the giant in the ERP market, SAP has competitive transactional procurement capabilities.
Six years ago, almost to the day, SAP acquired privately-held Frictionless Commerce for its supplier relationship management (SRM) suite of software to create “targeted, fill-in acquisitions that add superior functionality to its broad solution portfolio.” In particular, SAP was interested in moving into “on-demand” e-sourcing applications. In the subsequent years, SAP has continued to invest in its procurement and supplier management solutions and offers a high degree of functionality in many of the same areas that are currently provided by Ariba. SAP valued Ariba at approximately 20% above Ariba’s then-current trading value, with a purchase price of over $4 billion. Since Ariba is the second largest cloud provider, the move positions SAP to better compete with Oracle in the cloud market.
SAP has announced that it plans to combine Ariba’s open global trading network and SAP’s solutions and analytics to drive “a new era of business-to-business collaboration.” SAP will also consolidate all of its cloud-related supplier assets under Ariba. Regardless of the final disposition of redundant tools in the Ariba and SAP suites, it is clear that the Ariba Supplier Network (ASN) is a key jewel in this transaction.
The ASN allows buyers and sellers to transact on the same platform, provides increased transparency on purchases, and streamlines the purchasing, billing and payables processes. In effect, the ASN has the potential to eliminate the need for much of a company’s billing and payables staff, a traditional sweet spot for companies that use finance and accounting BPO. SAP’s reserves of cash and global customer base should accelerate the enhancement and adoption of the ASN, with a corresponding reduction in demand for the aforementioned F&A BPO services. Of course, while the Ariba acquisition is big news, the broader trend is something that service providers have fully understood and have factored into their strategic planning for a number of years.
It is also worth noting that many service providers offering source-to-pay services have already developed platform-based procurement offerings based on the SAP SRM platform improved with service provider “bolt-on” enhancements. These providers have strong relationships with SAP, including a long history underlying application implementation and support services in addition to BPO. Most of the same providers also have extensive experience with Ariba.
So what does all of this mean? Here’s our view:
- Service providers have already been pursuing strategies to move BPO activities upstream, beyond “horizontal” transactional processes. This trend will continue, especially in the vertical space, which will more than offset the entry-level invoicing and payables process work that will decline with improved automation.
- Providers will review their platform-based strategies as more information becomes available regarding the SAP/Ariba product roadmap. In-process source-to-pay implementations will continue to fulfill current project commitments on existing platforms, but longer-term investments will clearly evolve as SAP provides greater clarity.
- Source-to-pay BPO offerings will become more sophisticated, leveraging the cloud-based capabilities of the new SAP/Ariba combination, offering deeper analytical and collaborative services as part of an enhanced value proposition.
Stay tuned for more on this and other BPO news. What do you think about this development? Weigh in by posting a comment below.