HP does a 180 -- Now it's Apotheker's company

This guest post comes courtesy of Tony Baer’s OnStrategies blog. Tony is a senior analyst at Ovum.

By Tony Baer

HP chose the occasion of its Q3 earnings call to drop the bomb. The company that under Mike Hurd’s watch focused on Converged Infrastructure, spending almost $7 billion to buy Palm, 3COM, and 3PAR, is now pulling a 180 in ditching both the PC and Palm hardware business, and making an offer to buy Autonomy, one of the last major independent enterprise content management players, for roughly $11 billion. [Disclosure: HP is a sponsor of BriefingsDirect podcasts.]

At first glance, the deal makes perfect sense, given Leo Apotheker’s enterprise software orientation. From that standpoint, Apotheker has made some shrewd moves, putting aging enterprise data warehouse brand Neoview out of its misery, following up weeks later with the acquisition of Advanced SQL analytics platform provider Vertica. During the Q3 earnings call, Apotheker stated the obvious as to his comfort factor with Autonomy: “I have spent my entire professional life in software and it is a world that I know well. Autonomy is very complementary.”

There is potential synergy between Autonomy and Vertica, with Autonomy CEO Mike Lynch (who will stay on as head of the unit, reporting to Apotheker) that Autonomy’s user screens provide the long missing front end to Vertica, and that both would be bound by a common “information layer.” Of course, the acquisition not being final, he did not give details on what that layer is, but for now we’d assume that integration will be at presentation and reporting layer. There is clearly a lot more potential here — Vertica for now only holds structured data while Autonomy’s IDOL system holds everything else. In the long run we’d love to see federated metadata and also an extension of Vertical to handle unstructured data, just as Advanced SQL rivals like Teradata’s Aster Data already do.

Autonomy is clearly a gem, but HP paid dearly for it.

Autonomy, according to my ovum colleague Mike Davis who has tracked the company for years, is one of only three ECM providers that have mastered the universal document viewer – Oracle’s Stellent and an Australian open source player being the others. In contrast to HP (more about that in a moment), Autonomy is quite healthy with the latest quarterly revenues up 16 percent year over year, operating margins in the mid 40 percent range, and a run rate that will take the company to its first billion dollar year.

Autonomy is clearly a gem, but HP paid dearly for it. During Q&A on the earnings call, a Wall street analyst took matter back down to earth, asking whether HP got such a good deal, given that it was paying roughly 15 percent of its market cap for a company that will only add about 15 to its revenues.

Not doing well

Great, expensive acquisition aside, HP’s not doing so well these days. Excluding a few bright spots, such as its Fortify security software business, most of HP’s units are running behind last year. Q3 net revenue of $31.2 billion was up only 1 percent over last year, but down 2 percent when adjusted for constant currency. By contrast, IBM’s most recent results were up 12 percent and 5 percent when currency adjusted. Dennis Howlett tweeted that it was now HP’s turn to undergo IBM’s near-death experience.

More specifically, HP Software was the bright spot with 20 percent growth year over year and 19.4 percent operating margin. By contrast, the printer and ink business – long HP’s cash cow – dropped 1 percent year over year with the economy dampening demand from the commercial side, not to mention supply chain disruptions from the Japanese tsunami.

As HP tries aiming higher up the software and services food chain, it deals with a market that has longer sales cycles and long-term customer relationships that prize stability.

By contrast, services grew only 4 percent, and is about to kick in yet another round of transformation. John Visenten, who ran HP’s Enterprise services in the Americas region, comes in to succeed Ann Livermore. The problem is, as Ovum colleague John Madden states it, HP’s services “has been in a constant state of transformation” that is making some customers’ patience wear thin. Ever since acquiring EDS, HP has been trying – and trying – to raise the legacy outsourcing business higher up the value chain, with its sights literally set in the cloud.

The trick is that as HP tries aiming higher up the software and services food chain, it deals with a market that has longer sales cycles and long-term customer relationships that prize stability. Admittedly, when Apotheker was named CEO last fall, along with enterprise software veteran Ray Lane to the board, the conventional wisdom was that HP would train its focus on enterprise software. So to that extent, HP’s strategy over the past 9 months has been almost consistent – save for earlier pronouncements on the strategic role of the tablet and WebOS business inherited with Palm.

Longer perspective

But HP has been around for much longer than 9 months, and its latest shifts in strategy must be viewed with a longer perspective. Traditionally an engineering company, HP grew into a motley assortment of businesses. Before spinning off its geeky Agilent unit in 1999, HP consisted of test instruments, midrange servers and PCs, a token software business, and lest we forget, that printer business. Since then:

• The 2001 acquisition of Compaq that cost a cool $25 billion, under Carly Fiorina’s watch. That pitted it against Dell and caused HP to assume an even more schizoid personality as consumer and enterprise brand.
  
• Under Mark Hurd’s reign, software might have grown a bit (they did purchase Mercury after unwittingly not killed off their OpenView business), but the focus was directed at infrastructure – storage, switches, and mobile devices as part of the Converged Infrastructure initiative.
  
• In the interim, HP swallowed EDS, succeeding at what it failed to do with its earlier ill-fated pitch for PwC.

Then (1) Hurd gets tossed out and (2) almost immediately lands at Oracle; (3) Oracle pulls support for HP Itanium servers, (4) HP sues Oracle, and (5) its Itanium business sinks through the floor.

Logical moves, but it’s fair to ask, what is an HP? Given HP’s twists, turns, and about-faces, a difficult one to answer.

That sets the scene for today’s announcements that HP is “evaluating a range of options” (code speak for likely divestment) for its PC and tablet business – although it will keep WebOS on life support as its last gasp in the mobile arena. A real long shot: HP’s only hope for WebOS might be Android OEMs not exactly tickled pink about Google’s going into the handset business by buying Motorola’s mobile unit.

There are logical rationale for dropping those businesses – PCs have always been a low margin business in both sales and service, in spite of what it claimed to be an extremely efficient supply chain. Although a third of its business, PCs were only 13 percent of HP’s profits, and have been declining in revenue for several years. PCs were big enough to provide a distraction and low enough margin to become a drain. And with Palm, HP gained an eloquent OS, but with a damaged brand that was too late to become the iOS alternative – Google had a 5-year headstart. Another one bites the dust.

Logical moves, but it’s fair to ask, what is an HP? Given HP’s twists, turns, and about-faces, a difficult one to answer. OK, HP is shedding its consumer businesses – except printers and ink because in normal times they are too lucrative – but HP still has all this infrastructure business. It hopes to rationalize all this in becoming a provider of cloud infrastructure and related services, with a focus on information management solutions.

As mentioned above, enterprises crave stability, yet HP’s track record over the past decade has been anything but. To be an enterprise provider, technology providers must demonstrate that they have a consistent strategy and staying power because enterprise clients don’t want to be left with orphaned technologies. To its credit, today’s announcements show the fruition of Apotheker’s enterprise software-focused strategy. But HP’s enterprise software customers and prospects need the assurance that HP won’t pull another about face when it comes time for Apotheker’s successor.

This guest post comes courtesy of Tony Baer’s OnStrategies blog. Tony is a senior analyst at Ovum.

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Why data and information management remain elusive after decades of deployments and how to fix it

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Read a full transcript or download a copy. Sponsor: The Open Group.

Why is it still difficult for businesses to get the information they want in the way they can use? Why has this been a persistent problem for decades?

We recently conducted a panel discussion, held in conjunction with the recent Open Group Conference in Austin, Texas, to explore these questions and examine the state of data and information management strategies. The discussion centers on the latest in the framework approach to information and data, and takes a fresh look at how an information architect can make a big difference.

To help better understand the role and impact of the information architect, and also how to implement a successful data information strategy, please welcome the panel: Robert Weisman, CEO of Build The Vision Inc.; Eugene Imbamba, Information Management Architect in IBM's Software Group, and Mei Selvage, the Lead in the IBM Community of Information Architects. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions. [Disclosure: The Open Group is a Sponsor of BriefingsDirect podcasts.]

Here are some excerpts:

Gardner: Tell me, Robert, why it is that it's so hard for IT to deliver information access in the way that businesses really want.

Weisman: It's the general insensitivity to information management concerns within the industry itself, which is very much becoming much more technology and tool-driven with the actual information not being taken into consideration.

As a consequence, a lot of the solutions might work, but they don’t last, and they don’t, generally speaking, get the right information to the right person at the right time. Within The Open Group, we recognized this split about four years ago and that’s one reason that in TOGAF 9 we redefined that information technology as “The lifecycle management of information and related technology within an organization.” We didn’t want to see an IM/IT split in organizations. We wanted to make sure that the architecture addressed the needs of the entire community, especially those requiring information and knowledge.

Gardner: Eugene, do you think if we focus more on the lifecycle management of information and the architecture frameworks like TOGAF, that we'll get more to this requirement that business has that single view of reality?

Imbamba: Definitely, focusing on reference architecture methodologies are a good way to get going in the right direction. I don’t think it's the end of all means to getting there. But, in terms of leveraging what's been done, some of the architectures that have been developed, whether it's TOGAF or some of the other artifacts out there, would help organizations, instead of spinning their wheels and reinventing the wheel, start building some of the foundational capabilities needed to have an enterprise information architecture.

Getting to the finish line

As a result, we’re seeing that each year with information management, projects starting up and projects collapsing for various reasons, whether it's cost or just the process or people in place. Leveraging some of these artifacts, methods, and reference architectures is a way to help get started, and of course employing other areas of the information management disciplines to help get to the finish line.

Gardner: Mei, when it comes to learning from those that have done this well, what do we know about what works when it comes to data and information management?

Selvage: Eugene and I had a long debate over how we know that we've delivered a successful information architecture. Our conclusion comes out three plus one. The first piece is just like any strategy roadmap. You need to have a vision and strategy. To have a successful information architecture vision you really have to understand your business problem and your business vision. Then, you use applicable, proven referenced architecture and methodology to support that.

Once you have vision, then you come to the execution. How do you leverage your existing IT environments, integrates with them, keep good communication, and use the best practices? Finally, you have to get implemented on time and on schedule within the budget -- and the end-user is satisfied.

Those are three parts. Then, the plus part is data governance, not just one time project delivery. You’ll have to make sure that data governance is getting consistently implemented across the projects.

Gardner: How about in the direction of this organizational definition of what works and what doesn’t work?

Weisman: The information architect will soon be called the knowledge architect to start realizing some of the promise that was seen in the 1980s and in the 1990s. The information architect’s role is essentially is to harmonize all manner of information and make sure it's properly managed and accessible to the people who are authorized to see it.

It's not just the information architect. He has to be a team player, working closely with technology, because more and more information will be not just machine-readable, but machine-processable and interpretable. So he has to work with the people not only in technology, but with those developing applications, and especially those dealing with security because we’re creating more homogenous enterprise information-sharing environments with consolidated information holdings.

The paradigm is going to be changing. It's going to be much more information centric. The object-oriented paradigm, from a technical perspective, meant the encapsulation of the information. It's happened, but at the process level.

Gardner: How do you see the role of the information architect as important in solidifying people’s thinking about this at that higher level, and as Robert said, being an advocate for the information across these other disciplines?

Imbamba: It's inevitable that this role will definitely emerge and is going to take a higher-level position within organizations. Back to my earlier comment about information really becoming an issue, we have lots of information. We have variety of information and varied velocity of information requirements.

We don’t have enough folks today who are really involved in this discipline and some of the projections we have are within the next 20 years, we’re going to have a lot more information that needs to be managed. We need folks who are engaged in this space, folks who understand the space and really can think outside the box, but also understand what the business users want, what they are trying to drive to, and be able to provide solutions that really not only look at the business problem at hand but also what is the organization trying to do.

The role is definitely emerging, and within the next couple of years, as Robert said, the term might change from information architects to knowledge architects, based on where information is and what information provides to business.

A lot of new folks come from data modeling backgrounds. They really have to understand business language, business process, and their roles.

Gardner: Please update us on what took place at the Austin Conference.

Weisman: We had some super presentations, in particular the one that Eugene and Mei gave that addressed information architecture and various associated processes and different types of sub-architectures/frameworks as well.

The Information Architecture Working Group, which is winding down after two years, has created a series of whitepapers. The first one addressed the concerns of the data management architecture and maps the data management body of knowledge processes to The Open Group Architecture Framework. That whitepaper went through final review in the Information Architecture Working Group in Austin.

We have an Information Architecture Vision paper, which is an overall rethinking of how information within an organization is going to be addressed in a holistic manner, incorporating what we’d like to think as all of the modern trends, all types of information, and figure out some sort of holistic way that we can represent that in an architecture.

The vision paper is right now in the final review. Following that, we're preparing a consolidated request for change to the TOGAF 9 specification. The whitepapers should be ready and available within the next three months for public consultation. This work should address many significant concerns in the domain of information architecture and management. I'm really confident the work that working group has done has been very productive.

Gardner: Now, you mentioned that Mei and Eugene delivered a presentation. I wonder if we can get an overview, a quick summary of the main points?

Selvage: Essentially, we need to understand what it means to have a successful solution information architecture. We need to leverage all those best practices, which come in a form of either a proven reference architecture or methodology, and use that to achieve alignment within the business.

Eugene, do you have anything you want to specifically point out in our presentation?

Three keys

Imbamba: No, just to add to what you said. The three keys that we brought were the alignment of business and IT, using and leveraging reference architectures to successfully implement information architectures, and last was the adoption of proven methodology.

In our presentation, we defined these constructs, or topics, based on our understanding and to make sure that the audience had a common understanding of what these components meant. Then, we gave examples and actually gave some use cases of where we’ve seen this actually happen in organizations, and where there has been some success in developing successful projects through the implementation of these methods. That's some of what we touched on.

Weisman: Just as a postscript from The Open Group we’re coming with an Information Architecture and Planning Model. We have a comprehensive definition of data and information and knowledge; We've come up with a good generic lifecycle that can be used by all organizations. And, we addressed all the issues associated with them in a holistic way with respect to the information management functions of governance, planning, operations, decision support and business intelligence, records and archiving, and accessibility and privacy.

This is one of the main contributions that these whitepapers are going to provide is a good planning basis for the holistic management of all manner of information in the form of a complete model.

Gardner: Why will the data and information management professionalization, this role of the information architect be more important based on some of the trends that we expect?

Weisman: Right now, it's competitive advantage upon which companies may rise and fall. Harvard Business School Press, Davenport in particular, has produced some excellent books on competitive analytics and the like, with good case studies. For example, a factory halfway through construction is stopped because they didn’t have timely access to the their information indicating the factory didn’t even need to be constructed. This speaks of information quality.

In the new service-based rather than industry-based economic paradigm, information will become absolutely key. With respect to the projected increase of information available, I actually see a decrease in information holdings within the enterprise itself.

This will be achieved through a) information management techniques, you will actually get rid of information; b) you will consolidate information; and c) with paradigms such as cloud, you don’t necessarily have to have information within the organization itself.

More with less

So you will be dealing with information holdings, that are accessible by the enterprise, and not necessarily just those that are held by the enterprise. There will also be further issues such as knowledge representation and the like, that will become absolutely key, especially with demographics as it stands now. We have to do more with less.

The training and professionalization of information architecture, or knowledge architecture, I anticipate will become key. However, knowledge architects cannot be educated totally in a silo, they also have to have a good understanding of the other architecture domains. A successful enterprise architect must understand all the the other architecture domains.

Gardner: Eugene, how about you, in terms of future trends that impact the increased importance of this role in this perspective on information?

Imbamba: From an IBM perspective, we’ve seen over the last 20 years organizations focusing on what I call an "application agenda," really trying to implement enterprise resource planning (ERP) systems, supply chain management systems, and these systems have been very valuable for various reasons, reducing cost, bringing efficiencies within the business.

But, as you know, over the last 20 years, a lot of companies now have these systems in place, so the competitive advantage has been lost. So what we’re seeing right now is companies focusing on an information agenda, and the reason is that each organization has information about its customers, its products, its accounts like no other business would have.

Where I see a lot of trends is that many outsource basic database administration, kind of a commodity or activity out to a third-party where they keep the information architects in-house. That’s where we can add in the value.

So, what we're seeing today is leveraging that information for competitive advantage, trying to optimize your business, gleaning the information that you have so that you can understand the relationships between your customers, between your partners, your suppliers, and optimize that to deliver the kinds of services and needs, the business wants and the customer’s needs.

It's a focus from application agenda to an information agenda to try and push what’s going on in that space.

Gardner: Mei, last word to you, future trends and why would they increase the need for the information architecture role?

Selvage: I like to see that from two perspectives. One is from the vendor perspective, just taking IBM as an example. The information management brand is the one that has the largest software products, which reflects market needs and the market demands. So there are needs to have information architects who are able to look over all those different software offerings in IBM and other major vendors too.

From the customer perspective, where I see a lot of trends is that many outsource basic database administration, kind of a commodity or activity out to a third-party where they keep the information architects in-house. That’s where we can add in the value. We can talk to the business. We can talk to the other components of IT, and really brings things together. That’s a trend I see more organizations are adopting.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Read a full transcript or download a copy. Sponsor: The Open Group.

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HP's eye on Autonomy means it sidesteps RDB and middleware in favor of enterprise information infrastructure

We knew that HP was in acquisition mode for enterprise software, and it seems the $10 billion apple in HP's eye is UK-based software giant Autonomy. [UPDATE: HP also said it's discontinuing it WebOS operations and TouchPad line.]

We'll know more after the US markets close today and HP has its earnings statement for the most recent quarter. But if the Autonomy acquisition is true, it tells us some very important things about HP, its direction and strategy.

Let's look at what HP did not buy (yet). No open source platform and infrastructure (Red Hat), no open source relational data bases (Ingres), no middleware (TIBCO). No business apps (NetSuite). [Disclosure: HP is a sponsor of BriefingsDirect podcasts.]

Instead HP is apparently targeting the element of IT that cuts across all growth areas: information management. Information is exploding and the places it needs to go are expanding rapidly, including all manner of mobile devices.

HP has the data center server hardware, storage and networking infrastructure to support a converged infrastructure -- from soup to nuts -- that supports information in all its forms. That is information inside of applications, databases, flat files, PCs, Tvs, smartphones, cars, refrigerators, and anything else connected and always on. These days that's just about everything.

This information is the key ingredient and life blood to business intelligence, business process management, cloud computing, integration, overall management/governance, social media and networking, and the web of sensors and embedded devices that will create even more … information.

Apple has its various business revenue lined up around consumer content, media and entertainment, and is doing quite well. HP has he opportunity to do the same to the content, media and data that under girds all business, all over the world, all the time.

We also hear that HP will spin off -- ala Agilent -- its PC business. Smart move. This is a global and vibrant business that will continue to generate nice profits on thin margins, but not the growth business HP needs to be in to prosper against IBM, Oracle, and Microsoft. They too, incidentally, know the value of having a business that earns based on the flow and ebb of data and information. But they are too relational database (RDB)-centric.

If we're in the post PC-era, and we are, we may also well be in the post-RDB era, too. And so then what's the era still going strong? Information, and how to make it strategic and managed for all aspects of business and commerce. The middle of the middle of all that grows is a good place to be. Information is the common denominator to all computing and business alignment.

We now know that HP is basing its future of the business of supporting businesses, and in working to dominate the next growth areas. Information use and management will drive the growth in hardware, networking, storage, consulting, and applications development and testing.

And, back to the future, IBM is the only other firm with a similarly full arsenal to take on this task, with Oracle as the third-place wildcard.

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Interview: Ariba's Jason Kurtz on how IT financial trends are maturing technology procurement and spend management

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Read a full transcript or download a copy. Learn more. Sponsor: Ariba.

A number of major trends are changing the finance game for IT leaders, especially in terms of how they operate like a business within the business. There's a heightened emphasis on measuring cost, service management, hybrid computing, and outsourcing that leverage software-as-a-service (SaaS) and cloud models.

There's also a recognition that collaboration and coordinated business processes need to expand to far outside the four walls of the company. IT needs then to increasingly support ecosystems and better apply extended enterprise process governance, while striving to save money.

So how can IT adjust to these financial pressures? What must they do differently? BriefingsDirect recently interviewed an executive from Ariba to learn how CIOs specifically are seeing the world anew financially, and how they can develop mature strategies for making IT more central to helping businesses innovate productively.

Jason Kurtz, Vice President of Network and Financial Solutions at Ariba, is interview by Dana Gardner, Principal Analyst at Interarbor Solutions. [Disclosure: Ariba is a sponsor of BriefingsDirect podcasts.]

Here are some excerpts:

Kurtz: We've certainly seen several big changes. One is in the resource-constrained world. There are bandwidth constraints to support business innovations.

When I talk to CIOs, one of the biggest issues on their minds is, how do I make sure I am allocating more of my time and efforts in technology that supports business growth and innovation, versus the maintenance of existing systems? That's very different than the focus that you would have had in years past in terms of driving internal automation. That's one big change we've seen.

Two is clearly the adoption of SaaS technologies and the impact that's having on IT organizations. We see it completely changing the way companies think about IT investment, not just capital expenditures versus operating expenditures, but the roles and responsibilities that an IT organization has and how it interacts with its internal customers within the functional parts of the organization.

Three, I think you referenced it a little bit earlier, is not just a maniacal focus on managing costs, but also the adoption and return on investment (ROI) that is generated from IT investments. There's always been a focus on getting a good ROI, but I think it’s a much more significant focus across the organization on doing that, and particularly from an IT organization in terms of making sure that they have the ability to measure that.

Inter-enterprise collaboration

Four was just a focus on inter-enterprise collaboration. Rather than focusing on the internal process efficiency and effectiveness within the four walls of a company, CIOs are starting to realize that the next wave of productivity will be outside their four walls, what some refer to as inter-enterprise collaboration, meaning how an enterprise automates the processes and the way it collaborates with its customers and suppliers throughout the supply chain.

... About 50-60 percent of companies who are moving to a SaaS environment or the cloud are doing it because of the cost reduction opportunities inherent in not having to deploy, manage, and support applications.

Not only do they get the cost benefits of that, but they typically have time-to-deployment benefits and less time-to-realize-value and flexibility benefits that they didn’t have due to resource constraints within an organization. That's a very common trend in the market, and specifically within Ariba’s customers, and we expect to see that trend continue.

Gardner: I'm really interested about this notion about how IT needs to operate more like a business. What is it that IT needs to do in terms of becoming more like some of the other business units or functions?

Kurtz: It starts with a really well-defined set of goals and objectives. Why are we going to undertake something, what are we hoping to accomplish with that, and how are we going to measure that? What are the key performance indicators (KPIs) that we'll be able to track success with.

To your point, there were certainly times in the past when everyone was buying into the latest and greatest technology, or something that was new and cutting edge, and wanted to try and experiment with it. Given the economic times over the last several years, the willingness of companies to just experiment and see what happens is dramatically less, and you see IT organizations taking on a much more ROI-driven approach.

Given the economic times over the last several years, the willingness of companies to just experiment and see what happens is dramatically less.

So it's having a very well-defined business case for investments or initiatives that they're taking on, and making sure not only they understand what that business case is, but their internal stakeholders understand what that business case is and are committed to signing off on delivering those resources.

And it's not just an IT approval, but it's a CFO approval in many cases, and they're really holding their internal customers and stakeholders' feet to the fire and measuring on a regular basis what the ROI is for that specific initiative. We've seen a dramatic shift in the governance around that kind of ROI and adoption process with all of the initiatives that we see our customers undertaking, much more so than we would have seen two, three, or five years ago.

Gardner: I've seen where the way that IT is able to cut cost, but also actually increase their influence and impact within the organization, is to identify core-versus-context types of IT activities, and for those non-core ones, look to increasingly outsource or partner.

Non-core activities

Kurtz: Again, a trend that fits exactly in line with that is that we see customers taking advantage of the cloud or SaaS, particularly for non-core activities.

Take, for example, integration. Integration is required in today's world, whether you're integrating within your four walls or outside your four walls, but is that really a core competence that you want to have as an organization. Or, do you want to rely on third-party integration as the service solution providers who can usually do the integration work faster, cheaper, and more flexibly? We're seeing that's just one example of ways customers are taking advantage of that.

Also, of course, the solutions that Ariba provides in the spend management space, we're seeing where customers want to focus on the core enterprise resource planning (ERP) capabilities around finance and operations and leverage tools like Ariba's Spend Management Suite to help their organizations buy better and connect with their ERP, but do it in a cloud-type of way.

Gardner: One of the things that I keep coming up against when I talk to folks in IT is that there’s still the manual paperwork at the spreadsheet level, when it comes to managing contracts and licenses and keeping track of use-pattern licensing, and how to charge back for that. It’s a nightmare for them.

Kurtz: We have many customers who use our spend management solutions to manage their IT spend, whether that’s the sourcing and negotiating of hardware or infrastructure or contract labor or software licenses, managing the contracting process and the ongoing contracting lifecycle of that, all the way through the procurement of it and then the relationship management aspects of it. We absolutely support those processes that IT organizations need to manage their cost within their organization.

We see 80 percent of business-to-business transaction still completed completely manually. We see 85 plus percent of invoices and payments still being paper based or people cutting checks.

Gardner: Is IT really a laggard when it comes to automation at this level?

Kurtz: You would be really surprised how much we see in terms of the world continuing to be a very manual set of processes and capabilities. If you look at it not just within IT, but if you take a step back and look at it on a broader basis, across the market, we see 80 percent of business-to-business transactions still completed completely manually. We see 85-plus percent of invoices and payments still being paper based or people cutting checks.

We see the vast majority of early payment discounts are completely missed. Some estimates indicate that 70-plus percent of all early payment discount opportunities, which procurement and other organizations work so hard to negotiate, get missed. The estimate on what this cost companies around the world is $650 billion in economic impact annually.

The very core of this problem is how an IT organization connects their internal systems, most likely ERP, within an organization to the systems and ERPs of their customers and suppliers to automate that supply chain. That’s where the big automation opportunity, efficiency, and effective gains are, or will be, next is just because the proliferation of all the combinations of systems within your organization, your suppliers, your customers.

Just think about the number of combinations that can be and how it can be very, very challenging and difficult to connect those systems into the optimal or most efficient supply chain.

Gardner: For the benefit of our IT audience, tell us about Ariba. How does Ariba take what it does and then apply to IT?

That community includes our network that connect buyers and sellers, whether they're collaborating with suppliers, looking for new business opportunities, or helping to manage their working capital.

Kurtz: Ariba, at the highest level, helps companies buy better, sell better, and manage their cash better, and we do that in a couple of ways.

One, by providing technology or applications that have capabilities across each of those functions around buying, selling, and managing cash. Then, we have a community that is part of our Commerce Cloud, as we refer to it. That community includes our network that connect buyers and sellers, whether they're collaborating with suppliers, looking for new business opportunities, or helping to manage their working capital. It's a network that facilitates documents, information, and financial supply chains.

Then, we have a variety of capabilities to help our customers adopt and be successful. Some of that’s delivered by us and some of it by partners who plug into the cloud. At the highest level, that’s a little bit of what we do.

How our IT organization is taking advantage of that I think was your next question. We see a proliferation of organizations taking advantage of the ability to plug into the Ariba Commerce Cloud in different areas.

Some organizations start with our legacy, which is spend management and helping customers buy better, whether that’s identifying savings opportunities, identifying new sources of supply, negotiating better agreements, managing the contracting process, all the way through, procuring solutions, collaborating with your suppliers and receiving invoices back from your suppliers to managing cash, including payment term optimization, invoice reconciliation, and even working-capital management solutions.

Finally, for sellers, it helps create a marketing channel, new business opportunities, improved efficiencies, and collaborating with and transacting with your customers and prospects.

Modular basis

The nice thing about the way Ariba works is that you can plug in and use any of those pieces on a very modular basis as you need them. That’s been particularly attractive to IT organizations for the exact reasons we talked about before, which is looking for very specific ROI and very specific initiatives around their pain and needs within an organization. We've got the flexibility to help solve those on an individual or holistic need.

And 100 percent of what we do is offered through the cloud.

Supply chain activity

Gardner: We've been describing IT and its relationship to a provider like Ariba through primarily a consumption framework. But it seems to me that there is also the opportunity for IT to take something like the services you offer with your Ariba Discovery and your ability to use the cloud and ecosystem of providers to initiate a process, and then to manage it as a procurement or a supply chain activity.

Kurtz: This is really the next evolution of where companies are going for automation benefits. It's what we think about as extending the ERP into inter-enterprise collaboration. That’s where companies like Ariba can really help IT organizations.

There are some great examples of customers out there who are doing that. If you think about it on the buying side of the world, take a company like Nalco, which is the largest sustainability company in the world. They had really struggled with lack of automation around purchase orders with their customers and then the purchase orders being delivered to their suppliers from Nalco.

They were literally losing five percent of their orders that they just couldn’t track being delivered from their organizations to their suppliers. These lost and delayed orders meant that they couldn’t bill customers in a timely manner. It meant lost sales. It meant extending "days sales outstanding" and significant customer satisfaction issues.

By leveraging Ariba Solution and the Ariba Network they were able to collaborate with suppliers and customers to significantly improve their customer satisfaction.

A team of people were having to call and check on order status and invoice processing payments and payment status, a completely inefficient processes between Nalco's customers, and its supplier partners.

By leveraging Ariba Solution and the Ariba Network they were able to collaborate with suppliers and customers to significantly improve their customer satisfaction, reduce "days sales outstanding," and cut headcount that were very involved in working on things that could be easily automated.

Let’s take another example from the side of the business everyone gets most excited about, the revenue growth or sell side of the house. Fastenal is a great example, where an IT organization helps extend the services it provides internally to its customers externally to Fastenal’s customers by leveraging eCommerce and the Ariba Network to connect and collaborate with its customers.

Real-time acknowledgments

One of the benefits of the extension that Fastenal has done is the ability to collaborate with its customers to provide real-time purchase order and delivery acknowledgements, which have greatly improved customer satisfaction. It has reduced their purchase order error rates by over 80 percent, and it reduced "days sales outstanding" by over 70 percent, a significant working capital improvement.

Other companies are doing the same kind of thing as Fastenal and receiving really good revenue growth or new business opportunities as well. It is not uncommon to see companies like Fastenal finding 50 percent-plus increases in product line cross-sells and up-sells, and seeing even 20 percent plus year-over-year sales growth within existing customers. Then, we have solutions like Ariba Discovery even finding new business in customers that they have never done any business with before.

That’s just an example on the sell side of the house of how IT organizations are extending and can extend the service that they are providing.

One of the most important things to keep in mind is that at Ariba our mission in life is to help extend or complement the ERP investments that many IT organizations have made. We help extend those outside the enterprise and the enterprise collaboration, whether that’s buying, selling, or managing their cash.

You mentioned a few examples of spend management, but also it’s about helping companies sell better, drive revenue growth, and manage their cash better by automating functions like accounts payable and providing benefits to accounts receivable on the sell side.

If you look at it in those terms, we help companies free up their limited IT resources to focus on innovation, not supporting applications or integration or customization, and focus on driving business adoption and leveraging the core internal capabilities of ERP.

Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Read a full transcript or download a copy. Learn more. Sponsor: Ariba.

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