For most tech-company CEOs and entrepreneurs, having a platform business model and successfully taking it to scale is stuff of legend. Due to their network effects and ability to create a virtuous cycle where the benefit of a product or service increases as more people use it, platform business models have become the dominant business model for the digital economy.
Platforms have proven themselves in the high tech and B2C space with household names such as Apple, Airbnb, Microsoft and Uber and in recent years have become the go-to strategy for B2B industry clouds such as those of GE Predix, Philips HealthSuite and many others.
At the recent SAP Ariba Live conference in the Netherlands, I had an opportunity to sit down with Barry Padgett, President, SAP Ariba, to discuss what is one of the world’s largest and most successful platform business models – the SAP Ariba network which supports over 3.3 million companies in over 190 countries, and which conducts over $1.7 trillion in commerce annually. That’s over two times the annual commerce volume of Alibaba, Amazon and eBay combined.
I was curious to understand Mr. Padgett’s views on the company’s platform strategy, the power of ecosystems, his approach to further expanding the SAP Ariba ecosystem, and where enabling technologies and trends such as AI, IoT and Industry 4.0 may take the company in the future. Here’s some of the insights from our conversation.
Strategic tenets of the platform approach
In terms of the tenets of his strategy, Mr. Padgett recognizes that while everyone sees themselves as a platform, in reality it’s very hard to do and doesn’t happen overnight. The Ariba Network has taken over 20 years to reach its position of industry scale today. While the hard part of building scale in the platform has been completed, Mr. Padgett has considerable plans for the future. Next steps in the strategy are to continually add incremental business value, to expand technical scalability through innovative engineering, and to continually seek opportunities for competitive differentiation.
As SAP Ariba continues to grow, there’s tremendous opportunity to tap into the SAP account base and the synergies with SAP core customers, but also to continue to grow the non-SAP business. Today in fact, over 40% of the business is with non-SAP accounts as SAP Ariba onboards many customers in the larger end of the mid-market.
Procurement with purpose
Beyond the growth of the business, the company has placed a large emphasis on “procurement with purpose” and this was a major focus at this year’s SAP Ariba Live event with invited speakers from Shell and Save the Children International among many others.
Due to the volume of commerce transacted on the platform, and the sheer number of suppliers on the network, the company is in a tremendous position to really help its customers impact positive global change in the supply chain. This includes impactful improvements in areas such as corruption, child labor, slavery/forced labor (where there are over 40 million forced laborers worldwide), conflict minerals, human trafficking and poverty.
One of the ways it’s doing this is via its Supplier Risk module that makes risk due diligence a natural part of the procurement process. The module has access to syndicated data from more than 600,000 sources and utilizes continuous monitoring and machine learning techniques to analyze over 200 environmental and social factors that companies can use to profile their suppliers against.
The power of the ecosystem
Part of the power of platform business models is due to their ecosystems and the ability for third-parties to innovate and extend the platform with new products and services. This is often termed “permissionless” innovation where third-parties are essentially free to innovate rapidly through use of APIs and without extensive pre-work, negotiation or burdensome governance.
Mr. Padgett sees two dimensions to SAP Ariba’s continuous build-out of its ecosystem. The first is to continue to expand vertical services in the purchasing and procurement domain and to seamlessly integrate the various modules to improve the customer experience. In this regard, the company is staying firm in its core mission as the world’s largest business network of buyers and suppliers with no compelling need to move into adjacencies or try to disrupt other markets.
The second is to continue to expand all the underlying horizontal platform services that enrich the platform such as treasury, payments, identity, authentication and data services. To help clients gain real-time, actionable insights into their supplier networks, SAP Ariba has onboarded several partners such as Made in a Free World which provides visibility into slavery footprint data around the world.
The next big thing in procurement
The recent CPO Survey 2018, “What’s the Next Big Thing in Procurement”, jointly conducted and sponsored by Dr. Marcell Vollmer, Chief Digital Officer, SAP Ariba and Prof. Karsten Machholz, Strategic Procurement and Supply Chain Management, University of Applied Sciences Wurzburg-Schweinfurt, collected 452 responses from procurement and operational leaders across the globe and was released to the public at SAP Ariba Live in Amsterdam.
The survey explored new and groundbreaking insights on trends and challenges that are shaping the future of procurement. In the research, IoT was seen by respondents as the largest current technology trend, but RPA and AI were seen as the future.
In terms of his perspective on AI, Mr. Padgett recognizes the immediate near-time value of robotic process automation for reducing costs and improving efficiencies in procurement in areas such as order management, invoice management and contract management. The survey clearly supports this view with 63% of respondents seeing automation as important and having it on their roadmaps. In addition, there’s tremendous opportunity on the table for CIOs and CPOs to extract business value since only 5% of respondents have highly automated systems and processes today.
Mr. Padgett also has longer-term value in mind where AI can truly empower procurement with purpose through cognitive and intelligent procurement. In this later stage, AI moves beyond automation to “provide buyers and suppliers with options instead of data so that they can create ethical, sustainable supply chains, all while extending their competitive advantage”.
Procurement’s role within industry 4.0
Another interesting area we discussed was that of IoT and Industry 4.0. In the German vision of Industry 4.0, which envisions a world of smart factories, smart machines and smart products, the items being manufactured communicate details of their own manufacture while moving down the production line in real-time – thus enabling mass customization even down to a lot size of 1.
SAP Ariba’s recent announcement with SAP regarding the launch of their Manufacturing Network highlights some of the possibilities – including 3D printing and manufacturing as a service – when next generation procurement is connected to next generation design and manufacturing in a cloud-based, collaborative business network.
The network provides a cloud-based collaborative platform integrated with SAP Ariba solutions connecting customers with manufacturing service providers, such as suppliers of 3D and computer numerical control (CNC) printing services, material providers, original equipment manufacturers (OEM) and technical certification companies.
With all these avenues for growth, innovation, collaboration and for procurement with purpose, it may well be that we’re still at the beginning of the SAP Ariba network’s ultimate evolution. It’s a platform business model success story that’s still unfolding.