Transcript of a BriefingsDirect Podcast on the use of SaaS and cloud models to help IT operate like a business.

1. Major Services Trends in IT Change Role and Responsibilities
of IT Procurement and Management Tools
Transcript of a BriefingsDirect Podcast on the use of SaaS and cloud models to help IT operate
like a business.
Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: Ariba
Dana Gardner: Hi. This is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're
listening to BriefingsDirect.
Today, we present a sponsored podcast discussion on how the priorities and functions of
enterprise IT are changing, and rapidly. A number of trends and
advancements are changing the game for IT leaders, especially in terms of
how they themselves operate like a 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 increase far outside the four walls of the company. IT needs
to increasingly support ecosystems and better apply extended enterprise process governance.
This is being required, even as costs are still being squeezed and automation applied more deeply
across operations. The past several years have certainly spurred a changing set of expectations
for IT leadership to adjust to.
So how can IT adjust? What must they do differently? We're here now with an executive from
Ariba to learn how CIOs are seeing the world anew and how they can develop newer strategies
for making IT get more central to help businesses drive and innovate.
Please join me now in welcoming Jason Kurtz, Vice President of Network and Financial
Solutions at Ariba. Welcome to the show, Jason.
Jason Kurtz: Thanks, Dana. Great to be here.
Gardner: As I mentioned, there's a shift here that's happening fast. It seems that there's a
difference between running IT now and just two or three years ago. Why is that, and what has
changed from your perspective?
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

2. 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.
Gardner: I'm really interested about this notion about how IT needs to operate more like a
business. It seems as if, in the past, IT had a bit more leverage or freedom to say, "Listen, this is
new and fresh and it’s not exactly a science, so tell us what you want, give us some time, and
we'll come back."
Now, they're being asked to behave more like logistics or human resources, sort of a mature
business function. How do you see that manifesting itself? What is it that IT needs to do in terms
of becoming more like some of the other business units, divisions, 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 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

3. companies to just experiment and see what happens is dramatically less, and you see IT
organizations taking on a much more ROI driven approach.
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, partner, or find ways of
creating sub-units in the organization.
There's this sort of dual track where you make yourself more important by being integral to the
business success, elevating your role, but at the same time, identifying things that aren't
something that you can differentiate from third parties, more commodities now than ever, and
then looking to get those outside of your purview, your budget. How do you see that shaping up?
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 way.
Gardner: You and I first started chatting about this almost a year ago, when we were in Boston
at a conference. We were talking about how the IT function now has to get more into that nuts
and bolts of ERP, procurement, and spend management, because it's not just an internal
operations function. It's mixing and matching services, deciding what's core and what’s context,

4. doing the upfront analysis, and cost benefits, and deciding what you can outsource, what works
better, faster, cheaper, and so forth.
For the benefit of our audience, an IT audience, tell us about Ariba. They might not be that
familiar. You guys are very familiar to the folks who are doing procurement and supply chain
management functions. Give us the elevator pitch. How does Ariba take what it does and how
does that then apply to IT?
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.
Gardner: Just to be clear, you guys offer a lot of these services as SaaS or cloud services?

5. Kurtz: One hundred percent of what we do is offered by the cloud, correct.
Gardner: One of the interesting things about IT that we mentioned is that they're looking to do
more with less. They're looking to automate. They're looking to divide core and context and
make some good choices on that.
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. Is there anything you guys bring to the table that also gets at this issue about licensing
software, managing the lifecycle chargeback, that sort of thing? If not, is that something you plan
to do?
Kurtz: We have many customers who use our spend management solutions to manage their IT
spend. I think this is really what you are getting at, 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.
Gardner: So this is again an instance where IT is sort of catching up to other more mature
business units, functions that have been around for decades, if not longer. Having a set of
established processes, methodologies, and the system of record to back that up is sort of a no-
brainer, but do you still encounter organizations who are doing this with spreadsheets and more
manual processing? 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 transaction 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.

6. 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 Discover 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.
Couldn’t IT extend that as a service of the services they provide? They had to do this for ERP
internally, so why wouldn’t IT want to get involved with partnering in service providers like
yourself and then embedding that more into the organization or extending it across your inter-
enterprise and extra-enterprise activities?
Kurtz: It makes all the sense and 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.
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.
Gardner: It seems that IT can have a role as a service broker or service manager increasingly
into procurement supply chain extended enterprise commerce activities by supporting an
outsourced or hybrid approach, melding in a sense their past practices with new ones and then
segueing over time into more of a cloud approach. It seems like that’s sort of a no-brainer from
my perspective.
Do you have any examples of organizations that are doing that, specifically IT organizations? I
know sometimes you can name companies and many times you can't, but at least can you point

7. some examples of a use case scenario where IT is not only taking something like the Ariba
Network and their processes and services, applying it to how they do IT procurement, but also
extending their value as a service broker to other aspects of the business?
Kurtz: Let’s take an 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.
Gardner: I think we can expect to see more organizations looking to cloud and SaaS services for
these types of procurement, extended supply chain, and commerce activities. This is bound to be
coming into IT more and more. IT might as well get out in front of it.
From where I'm sitting, it also helps them with some of these larger issues we talked about,
which is to help them run more like a business, reduce their costs, and focus more on the areas
where innovation is going to be part and parcel of their relationship at the high level with their
business leaders. It makes a great deal of sense.
How about looking at IT transformation? When we think about solidifying data centers, reducing
the number of applications, this also gets at the heart of that. They don’t have to be building
applications, supporting the infrastructure for these types of apps that are internal. Any thoughts
about another layer, another dimension, of cost reduction, because we're taking a whole set of
applications out of IT's responsibility?
Kurtz: Absolutely. We're seeing all customers take advantage of this opportunity, and
particularly they look to the cloud or SaaS solutions like Ariba. About 50-60 percent of

8. 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. Thats a very common trend in the market, and specifically
within Ariba’s customers, and we expect to see that trend continue.
Gardner: I'm afraid we are about out of time. We've been discussing how CIOs can develop new
strategies for making IT even more central to how businesses thrive and innovate and leveraging
SaaS and cloud models and looking to have a better handle on measuring costs, service
management, and then looking at how Ariba can bring the whole supply chain procurement and
spend management, process management to that problem set as well.
Any last thoughts, Jason, on how your set of values have a relationship to IT? I think it’s kind of
perhaps an eye opener for folks to think this way, but to me it makes a lot of sense.
Kurtz: A couple of thoughts. One, the most important thing to keep in mind is that at Ariba we
really view our goal, 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.
Gardner: I would like to thank our guest for his time. We've been here with Jason Kurtz. He is
Vice President of Network and Financial Solutions at Ariba. Thanks Jason.
Kurtz: Thank you, Dana. I appreciate the time.
Gardner: And thanks to our listeners for joining this sponsored podcast discussion. This is Dana
Gardner, Principal Analyst at Interarbor Solutions. Thanks for listening, and come back next
time.
Listen to the podcast. Find it on iTunes/iPod and Podcast.com. Sponsor: Ariba
Transcript of a BriefingsDirect Podcast on the use of SaaS and cloud models to help IT operate
like a business. Copyright Interarbor Solutions, LLC, 2005-2011. All rights reserved.
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