As more services, applications, and data are developed for — and delivered via — cloud models, how do business-to-business (B2B) commerce and procurement adapt?
Or, perhaps we have the cart in front of the horse. Are the new requirements and expectations of modern, global business processes, in fact, driving the demand for IT solutions that can be best delivered via cloud models?
Either way, the promise of cloud aligns very well with the sophistication of modern B2B e-commerce and the pressing need for speed, agility, discovery, efficiency, and adaptability. Ecosystems of services are swiftly organizing around cloud models. How then should businesses best respond?
To answer these questions, BriefingsDirect assembled a group of IT industry analysts and executives at the recent Ariba LIVE 2010 conference in Orlando, Fla., to explore the business implications for e-commerce in the cloud-computing era.
Panelists include Robert Mahowald, research vice president at IDC; Mickey North Rizza, research director at AMR Research, a Gartner company; Tim Minahan, chief marketing officer at Ariba, and Chris Sawchuk, managing director at The Hackett Group. The discussion is moderated by Dana Gardner, Principal Analyst at Interarbor Solutions.
Listen to the podcast (30:26 minutes).
Here are some excerpts:
Tim Minahan: What we’re seeing now is that we’ve really entered the state of new normal. We’ve just gone through a major recession. Companies have taken a lot of cost out of their operations. It’s cost reduction in the form of laying off employees, and reducing infrastructure cost, including IT cost.
If you look at most of the studies out there, the CEOs, CFOs, and COs, are saying, “We’re not hiring that back. We are looking for a new level of productivity, and more agility. To do so we’re going to rely much more on external trading partners, which means we’re going to need to collaborate with them much more.
“We’re also going to look at alternative IT models to help support that collaboration outside of our enterprise, because our ERP investments do very well at automating information and process within the four walls. It stops at the edge of the enterprise and, at the end of the day, we do business. We buy, sell, and manage cash with our external trading partners, and we need to automate and streamline those processes as well.”
SaaS was all about a new delivery model for an existing business process. When you move into cloud, when you move into some of these collaborative processes around supply chain, and procurement, and the financial supply chain, it really involves multiple parties. It’s really about business process transformation, a business process that’s shared among multiple trading partners.
To do that, it’s not just the ability for everyone to share a common technology platform upon which they can collaborate around the process, but rather everyone needs to be digitally connected in a community, so that they can add new trading partners or remove old trading partners, as their needs change.
Mickey North Rizza: We’re actually finding companies are spending more time looking at the cloud. What happens is that you have your trading partners specifically around the sale side and the supply side of the organization. If you start looking just across your own businesses and internal stakeholders, you realize they can actually work together, get the information they need, and spend a lot of time on their business process, using just basic technology and automation components.
But when they start looking at that extended network, into their trading partners, they realize we’re not getting everything we need. We need to pull everything together and we need to do it more quickly than what we’re doing. We can’t wait for on-premise, behind-the-firewall type applications. We need something that’s going to give us both the service and the technology and allow us to work in that trading-partner community in a collaborative environment.
In a recent study we just did, we found that 96 percent of the companies in that study are, or will be, using cloud applications. Within that, we see 46 percent are using hybrid cloud solution. That solution is really around the cloud technology, optimizing across their IT investment and on-premise, typically around enterprise resource planning (ERP), but there are many other instances as well. And then, they’re tying that back in to the cloud services, where it’s actually extending the capabilities from their IT standpoint. And that’s 46 percent out of the 96 percent within that. …
We think there are some great opportunities here for companies to move forward.
Robert Mahowald: There is a lot more possibility now for collaborative commerce, when business applications have built a scenario where a lot of our data and application functionality exists outside of your organization. In that situation, it becomes far easier to source new partners and customers, leverage and trust data that lives in the cloud, and invite authenticated partners to enter into that kind of exchange.
It’s easy to see the way that the cloud has grown up and become more capable to support some of the business requirements that we have. At the same time, many of our business requirements are changing to adapt to a growing wealth of solutions in the cloud.
North Rizza: We’ve also seen the applications come out even from the ERP standpoint in the different pieces that come together to marry that entire ERP system. What you see happen is that every function has a piece of that. You see the various markets that have developed supplier relationship management (SRM), customer relationship management (CRM), and what not, out there in the marketplace.
What’s now evolved is that those business processes really go end to end into that trading partner network. What you are finding is that you can use those applications, but you don’t necessarily have to use those applications. You can use the services that go with it.
The point is that you’re actually making some cost-value trade-offs, lowering your overall cost and extending some of this into your partnerships and your trading partner community. What you’re doing is driving value. At the end of the day, all you want to do is deliver a value, and that’s what’s happening.
Chris Sawchuk: One benefit that we didn’t touch on during our discussion here is a benefit I call the “democratization of collaboration.” When you think about the past, it has always been the big companies who could collaborate. They had the tools, they had the investments, they had the dollars.
What you’re now had seeing is an environment where anybody can participate. Small, large, etc. all become connected in this world. That just takes things to a different level than what we’ve experienced. Just economically, everyone is now connected across the board in a much more equal and level playing field.
We now have the opportunity, the focus on agility, and the focus on where we’re going. It’s a much more volatile world. We’ve got to build more agility and more variabilization into our business models, not only our staffing, our people, the way we do business, and our technology tools, but also the more extended value chain. Where we draw the lines between what we do becomes much more transparent and it’s easier to make those decisions than we have in the past.
Minahan: There is a massive movement afoot in the enterprise space that’s beginning to blur the line between enterprise applications and the community. What got in the way of business-to-business collaboration before was that there was no transparency. There was no efficient way to discover, qualify, and connect with your trading partners, before you could even collaborate with them.
There was a level of un-trust, a higher transaction cost that artificially inflated prices and costs that went around things. The ability to get rid of all the paper, connect digitally with everyone, and then open this up in a community environment, where you can collaborate in a host of different ways and not just around the transaction really is transformative.
As companies begin to look at particularly “extraprise” type applications, the community is going to become more and more important, whether that’s the community of you and your trading partners, or a community of you and your peers, that can help you design the better process.
Sawchuk: What’s going to be key over time is think about the lives we live today and the informational overload that we have. As you can rate these communities, there is going to be all kinds of information intelligence created. How do we dissect that and make it smart, relevant, timely, and in bite-sized chunks that we can deal with?
So the question is whether we’re going to create all this community, all of this collaboration, all of this information in services, and then be able to dissect that and make it relevant for what we are trying to achieve. It’s going to be a key differentiator.
We’ve always been in a time, where we try to get access to more information, more knowledge, and more intelligence. We’re quickly moving into a period of time where it’s going to be an overload of that kind of information.
Minahan: An important component, and which Chris is talking about, is taking that intelligence and putting in context of the business process. The reason we have information overload today, or one of the reasons, is because of the information that’s out there. We’ve aggregated all this information. I’m doing business process over here, and, oh God, I go over there to get that information. It’s the ability to aggregate information and put it right within context with other business process.
So, I’ve gone out and aggregated my spend. I know where my spend leverage is. Guess what! I now have this market intelligence on what’s going on, pricing in the season that I’m supplying the market, and what other buyers are experiencing in the market.
It might not be such a good time to go out and source that, so maybe I will go my second largest category of spend and source that first. That’s the type of the analytic that you need, which is in context with the business process.
Mahowald: It’s important, as we start to put more and more business activities into these communities — and more and more of our data and transactions happen outside the organization on SaaS services — that we understand exactly what that means for organizations, where customer data and our own data actually resides and how we can find it during an audit in a way that guarantees that we’ve met our business requirements.
We don’t want to restrict ourselves and say don’t participate in this community. I think it’s healthy and it ultimately drives tremendous value for us. What we do want to say is that we have to apply the same kind of governance and rules that help us manage our processes that are now onsite in this new world, where we are participating in communities and SaaS services. The same thing should apply.
North Rizza: Basically, what we see the best companies doing [around cloud computing] is that they start to understand what their overall business objectives are. Then, they peel that back and say, “What am I looking at in my different functions across the business and what does that mean, if I want to improve the process and I want to get those end results?”
As they starting peeling that back, they soon discover that it’s usually around revenue cost savings. It’s also about improving the business process and reducing cycle time. When you put all those together and you look at a recent study that we just did, you recognize that there are very large gaps between those that have already deployed cloud-based technologies and solutions.
Then, you step back to those that are even considering or using them as part of their overall extended enterprise. What we’re finding is that the gap is so large and its benefits are so great that there is no reason you wouldn’t want to take all that and put it in there.
The bottom line is that if you don’t do it, there isn’t even a ton of money on the table. You’re not able to take out the cost that you want to take out. You can’t get the products in there and teach the individuals the business process and cut down your cycle time that you’re going for. And most importantly, you’re not getting your revenue. You’re leaving it on the table.
Dana Gardner is president and principal analyst at Interarbor Solutions, which tracks trends, delivers forecasts and interprets the competitive landscape of enterprise applications and software infrastructure markets for clients. He also produces BriefingsDirect sponsored podcasts. Follow Dana Gardner on Twitter. Disclosure: Ariba sponsored this podcast.