Big corporations are constantly on the hunt for smaller startups that can fill a void. They not only look for innovative solutions but also companies that already have a strong presence and have scaled. – Innovation: Small Businesses Live It, Big Businesses Buy It by Mike Templeman, Inc. Magazine
One of the most interesting aspects of the reports from multiple sources that SciQuest is in play, and that possible suitors include everyone from Oracle and IBM, to Workday is, why now?
This is a dual-edged question in that it equally applies to both the intended target, and the possible companies looking to do an acquisition.
For example, why would a giant like Oracle, be interested in acquiring a relative minnow in SciQuest? According to some pundits, this would make no sense, as it falls outside of their purported corporate development model.
Once again, and keeping in mind that there has been no clear cut information one way or another regarding an acquisition of SciQuest, it is the somewhat dismissive tone of that logic, that I found to be most curious.
Generally speaking, and if you read the above referenced Inc. Magazine article, size does not matter when it comes to big businesses buying smaller ones. As the article clearly states, “Startups and small businesses are the heart that beats the lifeblood of innovation through the business world . . . no matter why you innovate, you can rest assured the business world will take notice.”
So why is innovation important, and why would it motivate a larger entity to buy a small player – even if that meant going outside of its corporate development model. Market Need and Timing.
In the context of the following excerpt from the June 2013 NASPO report ERP and eProcurement Systems, let’s consider a possible SciQuest deal from the standpoint of market need and timing:
“A final point to consider is that ERP vendors are updating their suites to offer their own, branded, eProcurement functionalities. Organizations should evaluate whether the functionality inherent in its existing ERP solution can meet their needs and weigh the loss of some features/ functionality against the costs and impacts of deploying and supporting a separate eProcurement system and the required integration. Organizations should also evaluate the development plans of the ERP system provider to determine whether they have a strategy and are investing to evolve their system to achieve the same best of breed functionality as their eProcurement system competitors.”
What makes this noteworthy is that states are looking for innovation in their eProcurement systems – ideally within their existing ERP platform. However, if that innovative capability cannot be found within their current ERP platform, the availability of separate or ERP-external, cloud-based solutions, provide a viable alternative. This is where players such as SciQuest, Unimarket and Bonfire etc. can make serious inroads.
However, and while recognizing that this option exists, there can be, as highlighted in the report, “significant drawbacks to operating separate from the entity’s primary ERP system.”
So while states have the option to go with eProcurement providers who offer innovative solutions outside of their present ERP system, there is likely an inclination to keep everything under one roof. As a result, it makes a good deal of sense for large ERP players to “partner” with smaller, innovative eProcurement solution providers.
But is partnering enough?
For example hasn’t SciQuest, since 2006, been working with Oracle to provide their procurement solution? In fact wasn’t one of the sessions at this year’s SciQuest Next Level conference titled Maximize Potential with PeopleSoft and SciQuest?
If a relationship already exists, why buy SciQuest when you are already working with them, and have been for the past 9 years?
Market Need and Timing.
According to one public sector insider, while it’s difficult for a state to change ERPs, it is not uncommon if the one they are on is really old. The point that they were making, is that upgrading to the latest version of what you already have vs. going with a completely new ERP, might represent the same level of effort (and perhaps even cost). This is because the “really old” versions of an ERP don’t usually have a direct upgrade path to the new version.
What stood out for me was the reference to some current ERP platforms as being “really old.”
While the definition of old is in and of itself subjective – at 56 I am really old to my young children, but young to those who are in their golden years, Appendix I from the NASPO report (see below) is very interesting.
If you look at just SAP and PeopleSoft alone, there are implementations going as far back as 1998.
Beyond SAP and PeopleSoft, almost all of the states with competing ERP applications appear ready for an upgrade. The question is with whom will they do the upgrade, and how important is having a innovative eProcurement capability.
Taking into account the suggestion that it might be easier to make a change to a new ERP platform as opposed to upgrading an existing one, the implications are fairly clear; innovate in a hurry – especially in terms of an eProcurement capability, or risk losing a longstanding client.
Under such a scenario, it would make a great deal of sense to own the provider of said innovative edge, as opposed to simply partnering with them. After all, if they are a partner, they are free agents, and therefore able to hook-up with any other competitor. That is a risk that ERP providers might be unwilling to take, especially given what is at stake – control of the market for the next decade.
I learned this last lesson when I had two large players competing for a Department of Defence contract, and my little company was the one that provided a definitive competitive advantage.
Market Need and Timing
“I wonder if this is behind the motivation for SAP picking up Ariba and Oracle considering SciQuest. Staging for the future RFPs.” – industry insider
At the end of the day, it is hard to overlook or summarily dismiss the fact that a large percentage of old ERP systems that are currently in use, might be reaching their expiration date. This means that the potential for an ERP provider like an Oracle, to not only maintain their existing market share, but possibly expand it significantly in what is a narrowing window of opportunity, will likely trump holding fast to a corporate development model.
What do you think?