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Microsoft-Hubwoo deal reflects rising interest in business networks

Business networks can increase efficiency and reduce errors in organizations' P2P processes, and ERP vendors are starting to take note.

Sorting through stacks of invoices and issuing paper purchase orders can dramatically slow down an organization's procurement and accounts payable processes. Enter business networks: community-like platforms that connect buyers and sellers and allow them to transact electronically. As networks have scaled in size over the past decade, one expert said ERP vendors are taking note of the potential value for their customers.

Microsoft's recently announced partnership with Paris-based B2B company Hubwoo, provider of a market-leading business network, extends Hubwoo integration to Microsoft Dynamics AX ERP customers. The announcement comes almost a year after SAP's acquisition of Ariba.

ERP vendors' interest in business networks is likely an accelerating trend that springs from procurement and accounts payable (AP) professionals' growing awareness, according to Andrew Bartolini, managing partner and chief research officer at Ardent Partners, a supply chain management research and advisory firm based in Boston.

"What we're seeing in our research both of large and midsized procurement [and] AP organizations is there's much greater interest in networks, so this is going to be [an] interesting space to watch over the rest of this decade," Bartolini said. "There are many application providers that don't have a network strategy today, and if networks continue to gain in importance, they need to have one."

'Open' platforms could add value for users

Pat Fitzhenry, global ISV recruitment and enablement director at Microsoft, said the Hubwoo partnership is largely a response to SAP's acquisition of Ariba. He explained that Microsoft had announced a similar partnership with Ariba weeks before last year's SAP deal, but abandoned it once the latter company was acquired. "SAP is our biggest competitor, so for us to continue in a partnership is simply something we wouldn't do," he said. "That made the decision of [putting] Ariba out of the picture a very simple one." He said when Microsoft began to research other business networks, Hubwoo "quickly rose to the top."

Rinus Strydom, Hubwoo's chief marketing officer, said the first phase of the companies' joint go-to-market strategy will focus on making Hubwoo's business network available in Dynamic AX customers' procurement and AP modules, while the second will extend capabilities on the sell side. Fitzhenry said Microsoft's strategy with Hubwoo is "similar but not identical with what we were going to do with Ariba prior to them being acquired."

So how do Ariba and Hubwoo stack up? While Hubwoo has slightly more registered businesses on its network, Strydom said Ariba "is about three to four [times] our size when you look at the volume of commerce." 

Tim Minahan, senior vice president of network strategy at Ariba, said Ariba's size advantage in terms of commerce is often a key attractor for the business network. "The Ariba Network is the largest and most global business network in the world by a wide margin," he said. "Just like people go to Facebook because that's where their friends, family and colleagues are, businesses come to Ariba because the bulk of their supply chain is already connected and transacting there, so they can reap benefits much faster."

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Strydom also characterized Hubwoo as an "open" platform, meaning the company will continue to work with other ERP vendors -- not just Microsoft. "We just announced this joint go-to-market with Microsoft [and] the Dynamics product line, but you'll also see us over the coming years work with other large enterprise players," he said. Ariba's network is similarly "platform agnostic," and users of any ERP system can use and transact via the business network. 

Bartolini said this strategy could be beneficial to users. "It's like the opposite of diminishing returns -- the more people that come to the network and begin to transact creates more value for everyone," he said. "So in that regard, having that open network policy has the potential to add more network participants sooner, which would be a benefit to the customers."

Bartolini added that the Microsoft-Hubwoo partnership will extend the use of business networks to medium-sized organizations -- a segment of the market that has been underserved by business networks. "This partnership is opening a door to a large number of companies that previously had no access to a business network," he said.

Business network best practices

Bartolini said business networks can help streamline an organization's procure to pay (P2P) process by increasing transactional efficiency and reducing errors. "The electronic transactions are cheaper, [they take] fewer people to manage, there's greater certainty, [and] if there are issues you're able to resolve them more easily because there's visibility," he said. He listed five points for companies to keep in mind when choosing a business network: "The number of existing and active suppliers in the network, the geographic reach of the network, the vertical focus, the capabilities and information available to buyers and sellers and cost."

Jeanna Cooper, E-services manager at Consol Energy, said blocked invoices were a challenge for the Canonsburg, Penn.-based organization before implementing Hubwoo in 2006.

"We projected a $25 million ROI in three years, and we hit it in two and a half years," she said. "That was based on things like invoice reduction, [and] not as many blocked invoices. It also increased our discount set that we were able to take because everything was lined up, and didn't get blocked in the system." Today, Cooper has one main wish list item. "I really believe the next step in procurement is master data, and [Hubwoo] has started down this path, but they're not quite as far as I would like them to be," she said.

Cooper advised others adopting a business network to be especially careful when adding a high-volume supplier to the system. "You always have to think about volume. It can be your best friend but it can also be your arch nemesis," she said. "If you put on a high volume supplier without careful testing and getting everything as right as possible, you can get buried in a mess that you have to manually clean up."

Emma Snider is the associate site editor for Follow her on Twitter: @emmajs24.

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