21 April 2014

Enrico Camerinelli

enrico camerinelli - Aite Group

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Financial Supply Chain

In the world of international trade, the process of exchanging payments, information and documents between buyers, sellers, banks, and other involved parties is becoming increasingly important for financial institutions. This community aims at presenting views and innovative ideas related to this financial supply chain space.

SAP and Ariba: A marriage with no honeymoon?

08 October 2013  |  6518 views  |  0

In May 2012, giant German ERP vendor SAP acquired Ariba, a sourcing strategy and B2B network provider (http://dealbook.nytimes.com/2012/05/22/sap-agrees-to-acquire-ariba-for-4-5-billion/?_r=0). Since then, SAP and Ariba have actively deployed solutions in the financial services domain, including SAP’s Financial Services Network (FSN), the connectivity hub that connects banks and other financial institutions with their corporate customers on a secure network owned and managed by SAP. A year later, Ariba signed a strategic partnership with Discover to support B2B payments over the Discover Network. 

While it is clear how Ariba and Discover intend to partner by linking the physical supply chain (i.e., via the Ariba Network) with the financial chain (i.e., Discover Network’s payments), after almost 18 months SAP has revealed no clear strategy on how it intends to leverage the Ariba acquisition for financial services. The combination of the Ariba Network and SAP's FSN should enable SAP to integrate the physical and financial chains of its customer base, but no such announcement has been made. What will SAP do with Ariba? While Ariba's “arm's-length” management policy may reassure some of its existing clients that their investment in Ariba will preserved, the firm should provide some clarity on future direction for those waiting to see what integration process they await and what fruit the process is likely to bear. 

Otherwise, the market will suspect that the acquisition was purely about driving shareholder value. Ariba’s shareholders enjoyed a once-in-lifetime premium of nearly 20% over the company’s share value when the company was acquired by SAP, and some may accuse SAP of grabbing control of a specialized and highly populated B2B network with no true intentions other than expanding market reach. While this option would not be inherently wrong, it would certainly dilute the expectations on SAP's ability to build a globally integrated B2B financial supply chain. 

The upcoming EuroFinance event would be the ideal venue for SAP to provide a clear strategy proposition regarding the future of SAP's FSN and Ariba. Will it make an announcement, or won't it?

TagsWholesale bankingInnovation

Comments: (1)

enrico camerinelli - Aite Group - Boston | 31 October, 2013, 17:59

This is an update to my previous post.

At Eurofinance 2013 Sanjay Chikarmane- SVP & General Manager, Global Technology Solutions at SAP- explained to me SAP's view on the respective roles that SAP FSN and Ariba Network will play: Ariba Network will connect businesses allowing them to exchange data for B2B relationships. SAP FSN will take care of connecting the corporate side with banks to transact payments instructions and messages.

Both systems will co-exist to cover the physical (i.e, Ariba Network) and the financial (i.e, SAP FSN) chains of interconnected companies. The illustration in http://www.slideshare.net/tcameri/sap-ariba-integration-model should further help visualize SAP’s strategy.

My comment: The conversation with Sanjay was very useful as it validated initial predictions of what the Ariba and SAP systems were supposed to deliver. That the two systems will co-exist to cover different portions of a company’s value chain also explains why they are managed as independent entities. There is however no official public position from SAP on this matter as the full strategy is still “under construction” and will be made available in 2014.

I would recommend instead SAP to adopt a more courageous approach and illustrate its plans for the integration without any further ado.

 

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enrico camerinelli

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sr. analyst

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Aite Group

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