Business Network

CIAB FEBRABAN: More Differences than Similarities in Brazilian Banking Technology?

I recently attended CIAB FEBRABAN (roughly translated as Congress and Expo of Information Technology) sponsored by FEBRABAN, the Brazilian Federation of Bank Associations, in Sao Paulo Brazil. The theme for the 22nd edition of the conference was “The Connected Society.” Like many conferences, the event consisted of educational sessions along with an exhibition hall. As I can barely say “good morning” (bon dia) and “thank you” (for a woman, obrigada) in Brazil’s national language, Portuguese, I did not attend any of the educational sessions. But the session themes were similar to those from recent US financial services events—innovation, cloud computing, information security, mobile technologies, social media and big data. Just about every technology solution used by commercial banks was represented in the exhibit hall. Hardware vendors displayed ATMs, cash counting machines, card readers, image capture scanners, data centers “in a box” and security devices. Software providers presented integration services, core banking systems, mobile online banking, ATM driving software, business intelligence and payment hubs. Service providers discussed business process outsourcing (BPO), data center operations, application development and call center outsourcing. Many of the vendors were leading global providers such as IBM, Microsoft, HP, EMC, SAS, SAP and GXS. But in talking with Brazilian bankers and service providers, they stress the uniqueness of the Brazilian financial services landscape. Looking across the solution set, I believe there are more technology similarities than differences. One example is integration services. When GXS expanded its presence in Brazil with the 2009 acquisition of Interchange Serviços S.A., GXS already had a market presence with its business-to-business (B2B) e-commerce solutions. Interchange was one of the largest in-country providers of electronic data interchange (EDI) services and its customers included more than 50 banks. GXS Brazil banking clients use the same types of managed integration solutions that GXS provides to more than 250 financial services firms around the globe. The technology differences in Brazil evolved from a period of hyperinflation driving improvements in transaction processing speed, standardization of consumer invoicing (Boleto Bancário) and payment processing, and a need to support social welfare programs. In response, companies like GXS developed financial portals that manage collections, payment receipts and payment file validation for corporate clients. We were also a pioneer in the development of a “Correspondente Bancário” (CORBAN) solution for capturing, processing, authorizing and managing consumer payments made at banks, merchants and post offices. The key take-away from attending my second CIAB FEBRABAN conference is that the Brazilian financial services sector is well-served by established hardware, software and services offerings from global providers. However, providers also need to take into consideration some of the unique characteristics of the Brazilian financial system when developing solutions for this increasingly important geographic region.

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Transaction Banking: EBICS – a double-edged sword?

In this blog I share some of my thoughts on the balancing act that banks need to perform if they are considering EBICS as an eChannel for Transaction and Corporate banking. These thoughts are based on my involvement in a number of discussions during the last two years, which has helped me to identify some of the key considerations and pitfalls, from both a bank and corporate perspective. Here they are: EBICS-enabled corporates face fewer barriers to do multi-banking or switch banks. EBICS typically addresses SME, mid-market and some large corporate requirements for bank connectivity. Lower in the range of eChannels are Online Banking and host-to-host while SWIFT connectivity is higher. The real difference between EBICS and host-to-host channels is the increased simplicity for one corporate to split traffic between several banks, allowing more flexibility when a new (or better) Financial Institution is needed. From a bank’s business perspective, this forces a balancing act between promoting EBICS (better, cheaper, faster channel), versus making customers aware that they can also move away from €œsticky€, bank-specific host-to-host channels to access an €œopen€ network. Migrating existing and new corporates to EBICS cannibalises other host-to-host channels. Legacy host-to-host channels will probably stay around as the investment already made by corporates and any improvements in operational efficiency don’t always justify adopting EBICS. This results in a €œtail end€ of bank customers who will stay on legacy channels, impacting economies of scale as banks run legacy channels with fewer users. This isn’t all bad as maintaining legacy channels can be the bank’s unique differentiator, in region or by industry. This is why I believe that an EBICS strategy should always embed a €œphased exit strategy€ for the other channels it cannibalises, and there should be a business investigation on how legacy channels can still be maintained but operated in a different way. My company, GXS, does this by offering EBICS capabilities to banks, as well as host-to-host and SWIFT on a single Managed Services platform. EBICS is both a Channel and a Client Payments Authorisation function. A typical payment flow starts within the corporate’s infrastructure, where a payment release management workflow checks outgoing instructions (prompts for signatories, multi-eye approval, amounts thresholds). After which the payment file (batch or single instruction) is released to the bank. One €œflavour€ of EBICS allows corporates to turn this process on its head, which is a significant change in terms of business practice for both the corporate and the bank. Payment files can be released to the bank, to be authorised (or rejected) at instruction level at a later stage using a set of standard EBICS messages. This Distributed Electronic Signature (VEU) allows payment orders to be authorised by multiple subscribers, even different customers, independently of location and time. EBICS on its own is not a commercial differentiator for the Bank. EBICS is far from being widely adopted across Europe, even in France where ETEBAC and X25 were supposed to be phased out a while ago. If you picture yourself in two or three years from now, EBICS is highly likely to be one of the top five corporate channels, along with SWIFT, host-to-host (AS2, AS3, FTP), online banking and €œcloud€ banking (application-level integration for mobile or ERP integration). Enabling an EBICS banking channel ensures a level of client retention, even the opportunity of winning new clients from competing banks who don’t roll out this channel early. It is clear to me that corporates are looking for value-added services through the EBICS channel. Whether they are SMEs, mid-market or corporates, EBICS needs to offer more than a means of submission. EBICS value-added services should be sticky, adapted to the Bank’s core market and provide the €œunique reasons to buy€ over and above EBICS connectivity itself. EBICS + SEPA = 3x more work for Corporates. Putting EBICS into the wider European context, corporates are already busy planning or executing their migration towards SEPA and working with the Payments Services Directive in mind. Let’s not forget that significant effort and investment are directed towards changes from a people, process and technology perspective. Banks will inevitably collide with a wider agenda that sometimes may take priority above EBICS. Concretely, as soon as corporates execute their migration onto the Bank’s EBICS, they will inevitably dilute their effort with their other critical plans: rolling out new SEPA business processes, ERP and payment systems upgrades and will want to test and go-live with all their new kit at the same time. My tip here is to be prepared to make room for these other plans.  At the end of the day, if a Corporate Treasurer asks for an updated on-boarding timeline for EBICS in the middle of the final test with the bank, it’s probably because three or four other internal related projects are in the way of his EBICS critical path. This type of challenge risks a migration plan both at macro level for the bank, but also impacts the business relationship itself and recognition of revenue for the bank. GXS can typically steps in help the bank with Client Enablement Services in such situation. My concluding thoughts are that EBICS is both an opportunity and a risk from a commercial perspective. It is first and foremost a Bank marketing message – a value proposition – that needs to take into account the moving parts mentioned above, and needs to be carefully crafted, neatly articulated around the business and technical decisions made by the bank.

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Can Anyone Dethrone Apple from its #1 Ranking in the Supply Chain Top 25?

Last week we had the privilege of moderating a webinar with two of the key Gartner analysts – Debra Hofman and Stan Aronow – responsible for the Top 25 Supply Chain rankings.  As you have probably heard by now, Apple was ranked #1 on the Top 25 list for the fifth year in a row. This should not be surprising given Apple’s product innovation, brand strength and supply chain prowess. But it does beg the question – Can anyone dethrone Apple from its position atop the rankings?  Even the likes of P+G, Walmart, Dell and Cisco, each long admired for their supply chain excellence, seem unable to overcome Apple’s lead.  During the webinar there was some interesting debate about Apple’s position and how long it could retain its advantage. Below are the notes captured from the discussion.  These statements are paraphrased (versus exact quotations), but will give you a sense of the issues. One audience member asked if an FMCG leader such as Nestle, Unilever or P&G would ever be ranked #1.  To answer the question the analysts explored the reasons why Apple is so highly ranked in the first place.  Half of the Top 25 Ranking score is based upon financial performance.  But the comment was made that “trees don’t grow to the sky as far as growth patterns.” Most high flying companies hit a middle age in their life cycle.  Apple started to hit its middle age but then renewed itself.  However, the analysts believed that at some point Apple will return to mean performance on financial metrics.  The other half of the Top 25 Ranking score is based upon opinion polls from supply chain leaders and Gartner analysts.  Apple continues to maintain a very strong supply chain brand.  Much of their strength is derived from their willingness to break the rules in how they operate. Another audience member commented on how they were surprised that Apple’s ranking was not influenced by all the negative publicity surrounding its contract manufacturer, Foxconn.  The Gartner analysts indicated that they were surprised not to see a greater impact as well. However, they explained that Apple has a “very strong halo effect from its supply chain brand” and its highly desired product suite. As a result they have a “suit of armor around them.”  When the reports about working conditions and labor rights at Foxconn were distributed there were a few dents put into Apple’s armor, but the damage was not significant enough to sway the voter pool.  The analysts encouraged voters that felt strongly about sustainability and corporate social responsibility to factor these into their opinion polls. To answer the original question of who could possibly unseed Apple from the top spot, Stan Aronow suggested this year’s #2 player – Amazon.com.  Since its early days as an Internet retailer Amazon has been a threat to brick and mortar businesses. Consider the competition between Best Buy and Amazon over the past 12 years in the consumer electronics category. Amazon has become a threat in the tablet space with its Kindle device.  The Internet giant is a threat to content generators.  Nine out of the company’s top 10 products are now digital. Amazon also has been very creative on the physical side of its supply chain.  The online retailer has optimized its logistics so it can perform intraday delivery within large cities.  Amazon is also very innovative in its cloud computing offerings, which many people were highly skeptical of after the launch. What do you think – will Amazon.com displace Apple in the 2013 rankings?

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[Infographic] The Cost of Unsecured Records in the Healthcare Industry

Although most healthcare providers would like to adopt a digital documentdelivery system to manage PHI and other records, many obstacles remain for thosewith limited resources. The ability to access and transmit sensitive documentsquickly from a single, secure database helps to ensure compliance withgovernmental regulations and, most importantly, translates into faster, bettercare for patients. For more information about the cost of unsecured health records refer to theinfographic below.

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HMRC Clarify UK e-Invoicing Guidelines

Last week HMRC released a technical note that explains the proposed forthcoming modifications to the existing UK VAT invoicing rules, reflecting the changes introduced by the EU Council Directive 2010/45/EU. Before I give my perspective, perhaps a little paraphrased pre-amble from HMRC will establish their position; “ The changes assist business by removing or largely reducing current VAT obstacles to the use of electronic invoices, simplifying a number of existing VAT invoicing requirements and removing some existing administrative burdens associated with VAT invoices… …The aim is now to have a consistent set of rules that will be uniformly applied across the EU, making things simpler and removing uncertainty for businesses. “ So far, so good. “ …the existing EU rules for electronic invoicing allowed individual member states to impose additional conditions on taxpayers wishing to use electronic invoicing to those imposed on taxpayers using paper invoices. This includes the requirement to use specific technologies such as electronic signatures and Electronic Data Interchange (EDI) as a means of ensuring the authenticity of origin and integrity of content of the invoice… The UK has not opted to impose any of these additional conditions for electronic invoicing of goods or services supplied in the UK…,” Ok, so the new EU rules do not allow the UK to impose a specific method for guaranteeing the authenticity and integrity of an electronic invoice. In truth, the existing UK rules are flexible as they indicate that digital signatures and EDI are two compliant methods and that a third option, ‘any other means’ was also possible; an advanced electronic signature; electronic data interchange (EDI); or any other means for supplies within the UK. What exactly is ‘any other means’? As described by HMRC… “ …the authenticity of the origin and integrity of the invoice data are guaranteed… as long as you are able to impose a satisfactory level of control over the authenticity and integrity of your invoice data… “ OK, I digress. Let us continue. “ …but such a requirement remains a possibility in the case of intra-Community transactions, where another member state may require an electronic signature or EDI as a condition of accepting the invoice. For this reason the current UK law includes the options of electronic signature and EDI…” Well this is smart, as some countries have different thoughts on compliance, and France for example has clear rules for electronic signatures and EDI. “ …The fact that many member states do impose the requirement to use electronic signatures and EDI has the potential to make the use of electronic invoicing less attractive to business and the differing requirements and rules across the EU is a recognised obstacle to the wider use of electronic invoicing…” Maybe – maybe not. Spain, Germany and France (and the UK) all use these methods and seem to be doing ok. The Nordic countries are the most successful, but it is not clear if the liberal tax regulations there have provided impetus for adoption, or government mandates or B2C adoption by banks. “ …Under the new simplified rules individual member states can no longer impose conditions in relation to the use of electronic invoices. Instead, it is for an individual business to determine the method used and the only condition imposed is that the customer must agree to the use of electronic invoicing. In this sense, paper and electronic invoices are now treated equally… ” Great! e-Invoices are now treated the same as paper and business now get to determine which method they want to use (didn’t they already?). This is really going to help increase adoption! Ok, what are the methods from which a company can choose? “ …The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services. ‘Authenticity of origin’ of an invoice means the assurance of either the identity of the supplier or the issuer of the invoice. ‘Integrity of content’ of an invoice means that the content required to be shown on an invoice has not been altered… ” Brilliant! What are the common methods for achieving this..!!? “ …UK legislation will be amended to remove the electronic invoicing and EDI requirements and make it clear that the choice is one for business to make… ” Wha..? Hang on a minute… So, to make things clear for businesses HMRC is removing the two most established methods of guaranteeing authenticity and integrity from its guidelines? Ok, Wait a minute, let’s step back a statement or two… how do I now prove authenticity & integrity? “ …any business controls which create a reliable audit trail between an invoice and a supply of goods or services… “ Alright! That seems pretty straightforward… but what are ‘business controls’? I checked through the technical note, only to find a single reference to the word ‘controls’, and that is in the sentence above. Maybe I should check the existing UK regulations and see what they say; “ In order to establish the authenticity and integrity of your electronic invoicing you will need to be able to demonstrate that you have control over the: completeness and accuracy of the invoice data; timeliness of processing; prevention or detection of, possible corruption of data during transmission; prevention of duplication of processing (by the recipient); and prevention of the automatic processing, by the recipient, of certain types of invoice on which VAT may not be recoverable – for example, “margin scheme” invoices. Additionally you must: be able to demonstrate that you have a recovery plan in case of a system failure or loss of data; and maintain an audit trail between your electronic invoicing system(s) and the internal application system(s) that are used to process the electronic invoices. “ Seems pretty straightforward… So, if I am ever audited, what e-Invoicing method can I use that guarantees my company will not be penalised? Well, I can think of two… EDI and electronic signatures… OK, so I am being facetious an perhaps a bit too hard on HMRC as their intentions are honourable, but by removing the two most commonly used methods from the rules, even as examples, they have described less tangible evidence as to what constitutes authenticity and integrity. Section 4.8 of the existing UK rules already referenced HMRC’s desire to not be too overly prescriptive and a preference for ‘good business practice or businesses’ own controls’, so unfortunately, without providing examples of solutions such as EDI that do provide compliance, how are companies ever going to be 100% sure? It seems to me the new changes clarify the UK rules to the point of translucence… …and just to add insult to injury, section 2 of article 233 of the new EU directive states; 2. Other than by way of the type of business controls described in paragraph 1, the following are examples of technologies that ensure the authenticity of the origin and the integrity of the content of an electronic invoice: (a) an advanced electronic signature within the meaning of point (2) of Article 2 of Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures*, based on a qualified certificate and created by a secure signature creation device, within the meaning of points (6) and (10) of Article 2 of Directive 1999/93/EC; (b) electronic data interchange (EDI), as defined in Article 2 of Commission Recommendation 1994/820/EC of 19 October 1994 relating to the legal aspects of electronic data interchange, where the agreement relating to the exchange provides for the use of procedures guaranteeing the authenticity of the origin and integrity of the data.

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Circles for B2B

One of the features I like most about Google+ is the concept of circles.  Unfortunately, although millions of people have joined Google+ the activity levels are still very low as compared to other social networks.  Even though the concept of circles has not been successful in the consumer space, I think there is a great applicability for the concept in the Business-to-Business (B2B) e-commerce sector.  If companies segmented their various business partners into “circles,” it would then be much easier to apply policies to govern the business processes and service levels for each group. 

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Why Would You Use a Cloud Service Brokerage?

The advent of cloud computing has led to a number of new, innovative business models being introduced to the B2B integration sector.  In earlier posts, I described the concept of Integration Platform as a Service or iPaaS.  In this post, I will discuss the concept of a Cloud Service Brokerage.  The term is widely misunderstood, but the concept is actually quite simple.  I have found the best way to understand the value of a Cloud Service Brokerage is to discuss what life would be like without one.

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What is Fuelling the Growth in Next Generation Cloud B2B Environments?

Over the last few years the growth in internet based e-Commerce and development of cloud based services and social networks has really been driven by four companies, Google, Amazon, Apple and Facebook.  Sure, there have been a whole raft of other companies who have developed consumer friendly websites and ‘Apps’ that helped to exploit the growing consumer interest in using social networking type tools, but these four companies did all the original ‘groundwork’ and laid the foundation for platform based environments. In fact you could argue that the afore mentioned ‘platforms’ have helped to drive enterprise adoption of the platform concept as more and more employees bring their own tablets for to work and request to connect their devices to corporate network resources. The Bring Your Own Device (BYOD) approach to enterprise IT, is literally starting to change the IT infrastructure strategies of CIOs all around the world.  In fact Apple expects to see significant revenue growth in 2012 from the BYOD movement and this has potentially opened up a lucrative new revenue stream for Apple.  Not bad for a company that has hardly spent any money on promoting their devices to Corporates, they have simply allowed the BYOD movement to the talking on their behalf! BYOD does bring some problems, namely how do you ensure security of your network based assets, well Cisco and others are starting to layout their plans for how companies should be embracing BYOD on their networks, here is Cisco’s view of the world. You could argue that consumer based IT is moving at a much faster rate than enterprise IT at the moment and it is surprising what spec of PC or tablet device you can pick up today from your local PC store, you can almost be certain that due to the IT buying cycles of companies, many of the devices found in PC shops will be way ahead, in terms of spec, of PCs waiting to be deployed across countless companies around the world.  Sign of progress I guess! So the one thing that has made Apple’s approach a success and more recently Facebook, Amazon and Google is their focus on building out a platform based environment, on to which developers are then able to build countless apps that can do a multitude of different tasks. iTunes could potentially offer the future model that Corporate IT departments will be looking to take with the design of their future IT environments, or should I say enterprise platform environments.  Apple’s App store has been a resounding success, offering thousands of apps at relatively low cost.  Does this really provide the template for developing future enterprise IT environments?, I certainly believe so, especially bearing in mind the sheer number of PC, mobile and tablet type devices that will need to be supported in future IT environments. Being able to login to a ‘Corporate App Store’ is something that I discussed briefly in an earlier blog entry. In fact looking back through my older blog posts it was back in July 2007 that I posted a blog on how the Apple iPhone could change the way in which EDI was conducted. My colleague Steve Keifer also posted a blog along similar lines. Since then the emergence of the platform environment has changed the way in which we not only deploy applications but how we can use them as a foundation for building a bespoke IT or potential B2B environment from a series of apps. Some of these apps being standalone and others being interconnected to provide the business functionality that a company will require. Facebook, Apple, Amazon and Google have developed consumer focused platforms for deploying their services but what is happening in the enterprise space?  Of the four platforms mentioned earlier, Google seems to have made more traction than the others with deploying their platform into business environments. In fact Google Mail and Google Docs is used by many corporates already, so it is only a matter of time before Google gets a stronger hold on the market.  Apple, through BYOD, will gain traction as CIOs become more curious as to how they can embed their devices and iTunes app store functionality into their business environments.  But what about the more traditional enterprise software and services vendors such as SAP, Oracle and GXS? Well there has been no shortage of press releases in recent months from SAP who continue to build out their cloud strategy, the latest being their proposed acquisition of Ariba to help improve connectivity with external business networks. Oracle recently started to retaliate to SAP’s Cloud marketing activities by outlining their own Cloud intentions, but so far I have not seen anything that clearly defines how these companies will create a truly enterprise worthy ‘platform’, in the mould of the four I mentioned earlier. Well GXS has one of the world’s largest cloud integration platforms already, called Trading Grid and as it was introduced in 2004, it is more established than some of the more consumer focused platforms that I mentioned earlier.  We certainly regard Trading Grid, in cloud terms, as a Platform as a Service based environment, but it is a lot more than that.  Our platform is not only used for exchanging electronic business transactions, it also plays host to numerous instances or examples of hosted integration services. Whether integrating to a back office ERP environments such as SAP or Oracle or providing integration to other business applications. A new term called iPaaS, Integration Platform as a Service, is providing much excitement for many CIOs around the world as it will potentially help to provide the enterprise equivalent of the consumer platforms that I mentioned earlier in this blog entry.  The ability to host a corporate app store, where employees, based on their role in the business, could download business focused apps to allow them to go about their work on a laptop, tablet or other form of mobile device. Alternatively being able to take a number of apps and use these as building blocks to developing more powerful business applications.  All integration mapping etc or external comms requirements would be preconfigured within the apps, you would simply download and use the platform to host these apps. So for example a company may need to develop a new logistics platform for connecting to trading partners in China.  You could download the Inventory Management App, 3PL App with preconfigured customs and border control integration and a Shipment Tracking App that will provide true end to end visibility via a graphically illustrated, possibly Google Earth based, supply chain map. These three apps would be seamlessly connected already, you simply download and then undertake some brief configuration or setup procedure to link with your own logistics providers. As the platform is hosted in the cloud it means that you can get access to your apps anytime, anyplace and anywhere, which is important if you want to ensure full supply chain participation from your Chinese based suppliers. More importantly, as you have had to spend less time building the environment you help to free up internal resources, both people and hardware, which can then be redirected onto other more meaningful projects. I believe this enterprise platform approach will be of interest to many CIOs and Supply Chain Directors in the future but the big four platforms mentioned earlier is driving interest amongst CIOs NOW!  Trading Grid already allows over 400,000 businesses to exchange business documents electronically each year, imagine how an iPasS approach could change the way in which these companies work together in the future. More on the iPaaS concept in a future blog entry.

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RightFax Health IT Integrations

One of the greatest strengths of OpenText’s RightFax fax software is itsbroad integration options and unmatched interoperability. As my boss is fond of saying, “It’s not a question of what we do integratewith, but what we don’t.” When it comes to healthcare information systems (HIS) that manage hugevolumes of protected health information (PHI) and other sensitive data, secureelectronic records transfer like fax can be a life-saving communicationssolution. Just to be clear, we’re not talking about fax machines, (rememberthose boxy old screeching dinosaurs?), we’re talking about securely sending andreceiving document images using voice technology between IP addresses. If that’stoo much of a mouthful, you can just call it fax over IP, or FoIP (pronounced“foyp”). Also, we’re not talking about a few dozen or even a fewhundred faxes, but rather thousands or hundreds of thousands of faxes amonth. We have spent the last 25 years designing the world’s best fax-based documentdistribution software and servers, and we have proudly deployed more than100,000 servers around the world, (more than 10,000 in the healthcare industryalone). Healthcare providers have a lot of options when it comes to designing thearchitecture of their HIS, and when you talk to healthcare IT professionals,they are generally focused on two things aside from basic functionality:scalability and integration options. If they rely on fax to transmit PHI, theyneed to consider the leader in integrated fax solutions: OpenText. Need to view faxed PHI from your mobile device? There’s an app for that. Wantto send a fax from your email client? We can do that. Want to control which ofyour staff has access to specific document types? No problem. If an externalaudit or other discovery request requires rapid access to a specific record orgroup of related records, our fax software will save you the trouble of leafingthrough mountains of paper documents and enable you to retrieve and deliver yoursensitive information quickly and securely from the desktop. Let’s put it this way: If your application/device can print, it can befax-enabled. This has been a true statement since the very first RightFax faxserver was deployed, and our capabilities now extend to XML-based applications,all SMTP-based email, Oracle, SAP, Exchange, and 100s of the most popularMFPs. Most medium to large clinics, hospitals, and health networks rely on someform of electronic medical record (EMR) system to share PHI (52 percent ofrespondents to a recent survey said they used EMR last year, up from 17 percentin 2009). But they also need their records management strategy to work alongsideother systems, often between several different vendors and platforms. WithOpenText RightFax fax server and Alchemy document server, one thing they won’thave to worry about integrating with is their fax. Our products integrate withdozens of crucial HIS systems from all of the leading vendors and innovatorsincluding McKessen, GE Healthcare and Allscripts. Many of these vendors actuallyrequire RightFax to fax enable their HIS products. To learn more about how RightFax HIS integrations help healthcare providersstreamline records management, click here.

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The Four Basic Models of B2B – Which Is Best for Your Business?

B2B models

When your company exchanges business documents electronically with your trading partners – your customers, suppliers, logistics providers and/or banks – one of the decisions you need to make is what type of communications you will need to connect to each one. To help you decide, described below are the four basic approaches for connecting to your trading partner community and the issues and benefits of each. 1.  Direct Connection Model In the direct model your business connects directly to each of your trading partners for sending and receiving electronic documents. Your IT organization is responsible for all mapping, translation, technical support and tracking documents. As long as everyone agrees on a single connectivity protocol, e.g. FTP over VPN, RosettaNet, OFTP, AS2, and the community size remains relatively small (generally less than 100) this approach works well.  This is how B2B was handled in the in the early days of EDI. But, as the size of your community grows, you need more resources to implement and support each new trading partner. You need to continually monitor communications, manage trading partner calls and resolve issues quickly. Quick issue resolution is critical since the documents being exchanged (e.g. orders, invoices, ship notices) are frequently the lifeblood of your business. Adding to the complexity, trading partners frequently insist on using different protocols, particularly if they are also trading with other enterprises. Now you must support multiple protocols, requiring more resources. The graphic below illustrates the direct B2B scenario. Your business is represented as the “Enterprise” connecting with six trading partners who are trading other partners as well. This model is sometimes called the “spaghetti model,” or the “spider model” because of its complexity. Very few businesses today connect directly with all their trading partners because of the support issues. 2.  Network Model To avoid the complexity of the direct model, many companies decide to work exclusively through a B2B Service Provider, which, in the days prior to the internet, was referred to as a Value-Added Network (VAN). In this model, you have a single connection to the Service Provider using whatever protocol you prefer – e.g. AS2, SFTP, FTPS, FTP over VPN, RosettaNet. Likewise, your trading partners connect to the Service Provider, each selecting the connectivity protocol that best meets its company’s requirements. In this way, each trading partner makes an independent decision regarding its preferred connectivity protocol and relies on the Service Provider to mediate the differences between the protocols as needed. The Service Provider facilitates the exchange of electronic documents via its network. The Service Provider also relieves all community members of the resource-intensive responsibilities for supporting all communications issues; ensures data security and non-repudiation; and provides audit information, reporting, backup and recovery.  The Service Provider charges transactions fees for these services. Your business is still responsible for all mapping and translation as well as some reporting and translation-related technical support. The graphic below illustrates the network model of B2B. Your business is represented as the “Enterprise” connecting with the Service using a single communications protocol. Likewise, each trading partner is connected to the Service Provider as well using their varying preferred protocols. Use of the network model for 100% of a B2B trading community was extremely popular before the rise of the commercial use of the internet and large trading networks.  Today, while it’s still used by many companies, it’s much less common to have 100% of the community on the network. 3. Hybrid Model The hybrid approach to B2B is a combination of the direct and network models. Typically, businesses will connect directly via the internet to their trading partners with whom they do the highest volume of transactions, using one or two preferred protocols, in order to save on Service Provider transaction fees.  The business continues to leverage the Service Provider for trading with the large number of lower-volume trading partners as well as for those that require a protocol other than the one or two that are used to connect directly. The graphic below illustrates the hybrid model of B2B.  Your business is represented as the “Enterprise” connecting directly with the two partners in green.  You also have a connection to the Service Provider for trading with your partners in blue. For large communities, the hybrid model is much more commonly used today. 4. Managed Model In the managed model, the business outsources the entire B2B process to an external Service Provider.  This greatly reduces resource requirements, expenses and complexity The Service Provider receives your business documents directly from your ERP system (SAP, Oracle, etc.) and then assumes responsibility for all the mapping, translation, technical support, data center operations and document tracking. Once documents are ready for delivery to your trading partners, the service provider delivers them either directly to the partners or via the network, depending on the individual trading partner requirements. The graphic below illustrates the managed model. Your business is represented as the “Enterprise” that connects to the Service Provider. The Service Provider connects you directly with the two partners in green.  It also connects you with the rest of your partners. Companies are increasingly outsourcing their entire B2B process to avoid purchasing and managing complex, expensive B2B mapping, translation, and communications software.

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Does Supply Chain Excellence Offer a Competitive Advantage?

Traditionally companies viewed their competitive advantage as being derived from the products they developed and sold to their customers.  However, in today’s hyper-competitive marketplace even the most innovative products tend to be quickly replicated by competitors or counterfeiters overseas.  As a result, many large companies have begun to view the source of their competitive advantage as not only from their products, but the way they run their business. For large manufacturers and retailers, business operations are largely influenced by their supply chain.  Retailers and manufacturers of consumer goods, automotive vehicles, high tech equipment, aerospace and defense products are increasingly seeking differentiation from the way they combine partners, processes and technologies to maximize supply chain efficiency. Consider the following examples: Wal-Mart—differentiated its supply chain with the use of regional distribution centers, cross-docking, everyday low prices and most recently the use of technologies such as RFID. Tesco – followed a similar model to Wal-Mart with cross docking and distribution centers, but it also gained competitive edge in demand forecasting through its ClubCard loyalty program. Toyota—differentiated its supply chain with Just-In-Time (JIT) manufacturing and strong supplier relationship management. Dell—differentiated its supply chain with direct-to-consumer sales and build-to-order manufacturing models as well as its online storefront technologies. GE—differentiated its supply chain model with Six Sigma to improve quality as well as through early technology investments in EDI and e-marketplaces. Zara—differentiates its supply chain with a vertically integrated approach that allows for rapid introduction of new products and low inventory turns.  

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ERP and B2B – You Complete Me

Are you considering another update or version of your B2B integration software?  Is an important customer demanding a new business process that your current software does not support?  If so, it may be time to pause and reevaluate your overall approach to B2B integration. Should you continue with your current software-based approach or should you change to a managed service model? Below are three factors you need to consider when making that business-critical decision. 1.       Cost Software-Based Approach One of the first factors is to assess the scope of your software update. Are you considering switching to a new software solution from a new vendor?  Even if you€™re not, the new version of your current vendor€™s software can be the equivalent of buying a totally new system requiring a new software license, new hardware and additional personnel with new, specialized skill sets.  Many companies struggle with the one-time expenses associated with an upgrade, including: The need to outlay significant CAPEX for the acquisition of software licenses, server hardware and storage devices. The need to staff up the team to perform the migration from the old platform to the new platform.  They€™ll need to redevelop the maps, test the new environment, onboard the trading partners and add new functionality. The risk is all with the customer.  Whether successful or not, the vendor gets paid. The risk is even higher if the migration is in conjunction with an ERP upgrade, data center move or other IT initiative. There are also ongoing operational costs to consider, including the personnel to do map maintenance for current trading partners, new trading partner setup, communications monitoring, help desk support, reporting and analysis. You must also consider the cost of ensuring enough resource availability to deal with ever-changing technology requirements, such as  new communications protocols or standards versions,  and new demands  from trading partners  to implement new business processes, such as electronic invoicing or cross-docking in their distribution centers.  Managed Services Model With a managed services solution, you offload all the day-to-day operations of your B2B integration program to a third party, including map maintenance, new trading partner setup, communications monitoring, help desk support, reporting and analysis. Typically you pay an up-front implementation fee and then an ongoing monthly fee that is aligned with your usage of the application.  Moreover, when the managed services provider adds new system capabilities or implements an updated version it is usually at no additional cost and is often transparent to your processing. You reap the benefits without interruption to your business processing.   In addition, you can redeploy the personnel currently assigned to the B2B program to support your other resource-intensive initiatives Research indicates that when considering the total cost of ownership, companies typically save between 20 and 40% when using a managed services approach.  But it is not all about cost. 2.       Customer Demands With a software-based solution that you manage in-house, you will need to have to have enough staff with expertise in the ever-changing and complex standards, communications and technology capabilities your customers may require.  The managed services provider is responsible for remaining current with the latest technology changes and can provide the skilled staff to quickly respond to your customers€™ demands for new documents, new document formats and new protocols as well as other requirements, such as data encryption, compression or other special technical capabilities.  3.       Visibility and Data Quality Typically, standard B2B software provides basic transaction monitoring and error alerting.  Staff must be assigned to continual monitoring activities and procedures must be in place to resolve all ongoing issues. A managed services provider typically provides end-to-end visibility into the lifecycle of all your transactions. The provider not only monitors transactions, but also proactively troubleshoots errors and resolves problems.  To ensure data quality, some providers enable you to proactively track €œin-flight€ transactions and processes against business and compliance rules to prevent errors before they impact your business.

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ERP is Incomplete

When most people think about the business applications that manage processes such as forecasting, manufacturing, logistics and accounting they think of ERP.  But as the level of outsourcing in the supply chain has increased, more and more of these business processes are being performed outside the four walls of a company – and outside the purview of traditional ERP applications.  In fact, even functions such as purchasing, shipping, invoicing and payments have never been the exclusive domain of ERP. 

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To Drop Ship or Not to Drop Ship? That is the Question (to ask Your Suppliers)

drop ship

For retailers, meeting customer demand no longer relies on how much free space is in your back room. Online shopping has helped retailers open up their channels and satisfy even the pickiest of consumers. Now, you can carry the most popular products as well as those that may only appeal to 1 or 2 consumers. Great, right? Well, it can be. Loyal customers can now shop their favorite brand online, and in many cases right from a customized phone app. And, thanks to new go-to-market channels, they have access to more styles, colors and sizes than ever before. Customers can order from the website, by phone, through an app or in the store and send products sent to their home, the store or split in packages of four. The choices are endless and so are the potential headaches. The idea of drop ship/direct-to-consumer means shifting fulfillment to your suppliers. You most likely have a process for enabling your vendor community when it comes to the brick-and-mortar channel, but when you’re trying to mitigate the madness of cross-channel, which suppliers can you trust? What should you expect and of whom should you expect it? Implementing cross-channel purchase order support makes for complicated supplier lifecycle management. More trading partners will be involved, the enablement process for direct-to-consumer programs will differ slightly and overall order volume will increase. But, none of that matters to your customers. They just want their stuff delivered when and where they want it. Thankfully, technology is available to help ease the process. However, rather than simply relying on technology and, often times, a new and separate merchandising team, retailers need to establish clear expectations for their suppliers across the various channels. Will the products be purchased by the retailer similarly to their store inventories, and then either housed at a distribution center or fulfillment center for shipping to consumers? Will the retailer engage in a direct-to-consumer model with their suppliers, opting only to take “ownership” of the inventory after it has been purchased by the consumer? Understanding the expectations of the buyer and the capabilities of the supplier is extremely important. Trading partners need to clearly establish which products are intended for which channels. For drop-ship or retailer fulfillment, suppliers need to be able to meet consumer-level, not store-level, requirements: Custom Branding: Many retailers want their branding on everything from labels to packing slips on shipped items. Some suppliers can mimic your brand and make sure customers aren’t left wondering why their exclusive high-end product was labeled from Jumbo Jim’s Warehouse, while others can’t. If this is important to you, make sure to ask. Delivery timeframes and service level commitments: Critical to a consumer-driven marketplace, as a retailer you need to know when items will arrive. Everyone has different time frames to which they can commit. Having an up-front commitment for overnight vs. three day shipping is the difference between a happy customer and one without the green glitter wedges they want for their big event. Specialized Packaging: Sometimes customers want packages wrapped up with a little bow… literally. Can the supplier handle special requests such as gift wrapping, customized boxes or whatever crazy request may come? Determining limitations up front keeps everything on track. While some suppliers excel at drop-ship, for many others it is a steep learning curve. Ask these questions to make sure your supplier drops the product into the consumer’s hands, instead of dropping the ball due to miscommunicated expectations.

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Has Your Company Appointed a ‘Master of Disaster’ Yet?

In an earlier blog I discussed how global supply chains had been severely disrupted in recent years. I also discussed how the role of the Business Continuity or Supply Chain Risk Manager is becoming increasingly important. But how many companies actually have a Business Continuity Manager or  ‘Master of Disaster’ within their business and what exactly does the role entail? I guess the Master of Disaster could be referred to as a sort of supply chain super hero and this post is quite timely given that the new Avengers film was recently released. I wonder how the Master of Disaster would stack up against Iron Man, Captain America or the Incredible Hulk!  One thing is for sure, in true super hero style they would need some sort of costume, now this is where the Master of Disaster would have to do some work to create a unique identity as a quick check on Google did not reveal many suitable costumes, however I have given them a helping hand by developing an appropriate, supply chain themed, logo. So why is the Master of Disaster so important, what roles do they undertake during a period of disruption?, how do they communicate both internally and across the extended enterprise? and what IT tools do they use to manage disruption? There are certainly a lot of questions that need answering here, but given their importance and relevance in managing today’s supply chains I thought I would try and introduce some of their key roles and activities. Recent supply chain disruptions have certainly brought an element of nervousness to many companies.  Companies and indeed regulatory bodies are looking ever more closely at an organisation’s ability to not only recover from a disaster, but reduce the chances of supply chain disruption happening again in the future.  Ten years ago companies were focused on disaster recovery, how long would it take a business to recover from a disaster.  Today however things have moved on and companies are more interested in how they keep their businesses running during a period of disruption.  This particular process is referred to as Business Community Management.  Essentially this process provides an ability to recover from any given event and this area is certainly becoming important from a competitive differentiation point of view.  After all, if you can either continue production or offer some form of service during a period of disruption then your company will be seen as offering excellent customer service and ultimately customer satisfaction levels will increase significantly. Business Continuity Management (BCM), as defined by the Business Continuity Institute, can be considered as a management process that identifies potential impacts that threaten an organisation and provides a framework for building resilience and the capability for an effective response which safeguards the interests of its key stakeholders, reputation, brand and value creating activities. The Business Continuity Manager, aka Master of Disaster, helps to ensure that people, services or back up procedures are mobilised to fix any issues that may arise and make sure this is communicated succinctly to the affected areas of the business. Business Continuity Managers can also help to identify potential bottle necks, or points of weakness/single points of failure across a supply chain. Business Continuity Managers will also help to prioritise where efforts or the focus should be in recovering from a specific disruption. Without a suitable Business Continuity Management process in place, decision making will have to be taken on the fly and this will inevitably lead to errors being introduced to your supply chain processes. As I mentioned in my earlier blog entry, many companies, especially those with truly global supply chains have established control towers so that they can monitor their supply chains very closely. I also discussed how these control towers were now doubling up as crisis management centres during a period of disruption. IT and B2B technologies play an important role in assisting a Business Continuity Manager with trying to minimise the effects of disruption across the supply chain. The area of information management and collaboration across a supply chain or trading partner community is certainly one of the more important areas that a Business Community Manager will be asked to focus on. I would certainly expect to see the Business Continuity Manager as a key user of a solution such as Active Community which I briefly introduced in my earlier blog entry.  The ability to: identify alternative suppliers very quickly send out a mass communication to potentially thousands of suppliers at the click of a button undertake an assessment of the state of your supply chain following a natural disaster establish some form of supply chain risk database where you can analyse assessment response trends etc, especially relating to how supply chains were brought back online following a period of disruption This is an area that I will take a deeper look into via a future blog entry, but in the meantime if you are interested in learning more, take a look at this supply chain risk related webinar.

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How Fax Technology Protects Patients and Providers

OpenText, the market leader in fax and document delivery, recently sponsoredtwo podcasts on TMCnet as part of a broad-reaching effort to highlight the manyways in which healthcare institutions rely on fax. The podcasts were a follow-upto the extremely informative webinar Simpleand Compliant Solution to the Paper Problem in Healthcare. “Privacy Professor” Rebecca Herold shared her experience working withhospitals to alleviate concerns over information security, and OpenText’s ErikEnderson spoke about a variety of fax solutions specific to the healthcareindustry. Rebecca Herold: The State of Health Record Security (click to listen) Rebecca looked at the intersection between healthcare and fax from theperspective of security. She noted several real-world instances of data securityrisks and breaches affecting both patients and providers. What stood out most inher comments was the central role of fax in healthcare communication, andspecifically in the exchange of protected health information (PHI). “The largest portion of (healthcare institutions’) breaches involve faxes,”she said. “Faxes can simply be sent to the wrong phone number. If that wrongnumber is a fax machine, that’s a problem.” Other security problems with fax simply come from using outdated technologylike traditional fax machines. If a paper fax containing sensitive informationis spit out at a fax machine in a public area–a busy nursing station forexample–it could be seen or even stolen by anyone walking by. Even sending faxby email can be dangerous without a method of tracking fax activity. One solution, she said, is to find a secure digital fax solution formedical record management and delivery like OpenText RightFax and Alchemy.OpenText offers healthcare institutions a way to send and receive faxed medicalrecords from the desktop over a secure network from a central server, reducingthe need for vulnerable paper documents and unsecure emails.Rebecca also talkedabout the importance of compliance with broad regulatory mandates like HIPAA.She noted that secure digital fax solutions like OpenText RightFax and Alchemycan greatly ease the risk of non-compliance.“At the core of HIPAA compliance ismanaging risks. So when you can use technology to manage risk, it’s a goodthing. (OpenText offers) receipt verification, access control, fax number checksand audit logs that record accounting disclosures required by HIPAA.”Finally,she said, document encryption can also mitigate security risks, because manybreach notice laws do not require notification if a transmission is encrypted.Again, RightFax and Alchemy can do this. Erik Enderson: Healthcare & OpenText Fax Solutions (click to listen) Erik said that OpenText fax solutions are predominantly used by three groupsin healthcare: payers (insurance companies), providers (medical professionals),and medical/pharmaceutical suppliers (medical supplies manufacturers and drugcompanies). They turn to RightFax and Alchemy, he said, because of their broadintegration with their existing applications. “It’s no understatement to say that our products’ ability to integrate withnearly any environment or platform is one of our strengths, and it’s franklyhelped us maintain our position as the market leader for 25 years. It’s also whymany clinical application vendors recommend using OpenText fax solutionsalongside their systems…not only EMR and EHR platforms, but also radiology lab,pharmacy and claims processing systems.” Erik believes that the whole point of a good fax solution is to allowhealthcare providers to spend less time pushing paper and more time deliveringquality care to patients. “We have a couple of customers who fax literally millions of pages a day andexperience no unplanned downtime. Clinical staff should be focusing on patientcare, not learning a new application every month.” Erik went on to explain how OpenText’s hosted offering, RightFax OnDemand,can simplify fax even more. With hosted fax, OpenText carries the IT/hardwareburden, reducing operational complexity and allowing hospitals to focus onpatients. Listen to the short (less than ten minuteseach) podcasts • Healthcare Podcast Series 1 – The State of Health RecordSecurity • Healthcare Podcast Series 2 – Healthcare & OpenText FaxSolution To view the healthcare webinar click here.

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SAP to Acquire Ariba – Drawing a Line in the Sand for Oracle?

In my previous blog I examined Ar iba’s history in B2B and how this may explain SAP’s acquisition, today I will consider what this high-level strategy could look like, what it means for SAP customers, and of course, what it means for Oracle… A B2B Strategy? On the face of things, Ariba looks like a good acquisition for SAP, potentially addressing SAP’s lack of reach outside of their customer base into B2B. By combining all their recent acquisitions, and adding SAP HANA technology in to crunch big data, it looks like SAP wants to be in B2B collaboration, Integration and analytics. I call this automating the physical and financial supply chains in order to reveal the information supply chain. This is why GXS continues to invest in our cloud B2B integration capability, Active Applications and analytics. For me, the question isn’t really what technology SAP gets from this; it is the business rationale behind the recent acquisitions. Based on all the industry commentary I have read on the amount of overlap in product sets and the consolidation process that SAP has to go through, the answer to my question doesn’t jump out at me. So I decided to pose the question from SAP’s biggest competitor’s point of view. Putting my Oracle ‘hat’ on, I would have to ask “what is the real driver?”. Sure, this acquisition may be a step forward in B2B, and explain Crossgate, but with so many product sets couldn’t they have got there anyway? Perhaps a simpler perspective would be to ask “What do SAP really want to do as a business?” and for me the answer is pretty simple “Sell more SAP and beat the competition”. The days of the big ERP projects are over it is said by some, the big focus for big companies is consolidating ERPs into a single global instance, a trend also being seen in B2B. So how can SAP sell more SAP? Encroach on competitor’s territory with new products and solutions with the (reasonable) assumption that they can convert these new companies to SAP. Stick or Twist? It is no secret that the majority of Ariba’s North American customers are Oracle shops. That is to say, they bought Oracle over SAP, so that is their chosen investment platform. If SAP purchases Ariba these North American customers will have a philosophical question to answer, “Can we use SAP Ariba alongside Oracle?”. Seems fairly harmless on the face of things, but if the Ariba solution set becomes tightly integrated into SAP, the value this solution provides is integral to the customer, and assuming there is no viable alternative to SAP Ariba – the question could become “Do we stick or twist with Oracle?”. Outside of North America, it is less clear on how many Quadrem and B-Process customers are SAP and Oracle users. If I assume that the majority are SAP, this acquisition may encourage Quadrem/B-Process to integrate tightly with SAP (but this is just my assumption). If this came to pass, I’m not sure what this would mean for Ariba’s customers in these regions, is Ariba already tightly integrated with Quadrem and B-Process right now? Will Ariba be the preferred solution over CC Hubwoo? Holistically, could this mean that SAP’s real focus is to establish their B2B “collaboration in the cloud” solution in Latin America and Europe, leaving Ariba’s North American (Oracle) customers with all the questions. For Oracle this is potentially a loss of a strategic partner, and maybe was an acquisition target as I read articles that Oracle had been looking at Ariba for some time. Maybe they could potentially see a disrupted customer base in North America, who will possibly be looking for the same type of B2B solutions that SAP could provide. But will Oracle be able to offer anything beyond iSupplier? Oracle may have missed a trick in not acquiring Ariba themselves, because if they had done so they would have had an opportunity to create a bigger footprint in Latin America and Europe. So many questions… but here is the big one for me. It isn’t why SAP buying Ariba? It is what will  Oracle do about it?

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SAP to Acquire Ariba – Another B2B Hub?

In my previous blog I asked how SAP’s consolidation project may affect their customers, in today’s blog I will examine if SAP is now focusing more on B2B. Cloud, Collaboration, Supply Chain, B2B B2B e-Commerce is not new to SAP; Steve Keifer recently blogged how on SAP’s stake in Commerce One was dropped when they were Ariba’s largest competitor. This paved the way for Ariba to become leaders in e-Procurement at the height of the ‘land grab’ where online ‘exchanges’ were the future of commerce. Keifer’s book, Herding Geese outlines this period and it raises the questions to me, why Ariba and why now? Ariba has been followed closely and, trading on the Nasdaq, their profitability has been the subject of scrutiny.  It is clear that they have grown steadily as a result of their focus on sourcing and procurement in the indirect material spend area.  More recently Ariba has attempted to expand across the order-to-pay process adding e-Invoicing functionality and partnering with supply chain finance and payments companies in the Ariba Supplier Network (ASN). This expansion led Ariba into a new area – B2B. Online exchanges are good at consolidating small and medium businesses with low transaction volumes into a single online ‘community’. I wonder if, as Ariba began to come across companies with larger transaction volumes, many already had Electronic Data Interchange (EDI) capability and Ariba realised they had to find an alternative strategy for integrating these companies. The crux of B2B is integration, being able to provide system-to-system connectivity for companies of all size, around the world, with the systems they already own.  At GXS we understand this challenge very well and our B2B outsourcing business has grown fast as we have enabled our customer’s integration complexity. Maybe Ariba realised this as they expanded the ASN, driving  their partnership with Hubspan and their acquisition of B-Process. Hubspan are not part of the acquisition and may be eyeing their relationship with Ariba warily as they are fully aware of SAP’s recent acquisition of Crossgate, who do the same thing. SAP may feel that by acquiring Ariba they will become a leader in Supplier Relationship Management (SRM) and cloud-based business networks, backed by Ariba’s stated goal to reach $1tn in commerce by 2015. In my view there are challenges.  SAP described the ASN as an ‘open network’. I am not sure how they define ‘open’, but for those of us in the e-Invoicing world, Ariba has been perceived as  a ‘closed’ network with limited desire to interoperate. Does SAP really want to be a ‘super-hub’ for B2B? This challenge of connecting networks was addressed by B2B companies when VANS were king, and it will be a key question for SAP.  SAP has stated that they will maintain the openness of the business network, including companies such as Microsoft, Oracle, JD Edwards, Maximo and Peoplesoft, but this overlooks the real complexity of B2B integration and connecting disparate systems and standards. So if SAP is to focus more on B2B, what will its strategy look like? In my next blog we will consider some of the ramifications and what it might mean for SAP’s customers, and importantly, what it may mean to SAP’s largest competitor – Oracle.

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SEPA and Inter-Bank Space: Reaching for the Stars?

It seems to me that there isn’t a single day that passes by without a market announcement, conference or opinion expressed about SEPA. Official implementation guidelines, rulebooks and even the official local language lexicon have existed for years through the European Payments Council. However, one item that is definitively NOT fully covered in my opinion is the inter-bank space of SEPA. And, since this is the area where there is the most concentration of volumes (both SCT and SDD), where a missed settlement cycle could ruin the D+1 Payments Services Directive requirement, I am not surprised that many UK and European Banks have come to realise the importance of their “inter-bank” SEPA strategy. Yes, I know that most clearing banks are already SEPA-compliant and have SCT and SDD in production; however their inter-bank space “backbone” is not so well known nor is it leveraged to its maximum potential. So, here is my short list of the aspects that I think should form part of a clearing bank’s strategy, as well as day-to-day operations and optimisation: Direct Participation to Clearing and Settlement Mechanism(s): The key stakeholder in the Bank’s inter-bank space is the SEPA Automated Clearing House, also known as CSM. Today there are a number of CSMs in Europe, including EBA Clearing  (the Pan-European ACH), as well as a number of domestic and some fully Pan-European CSMs lead by the EACHA (European Automated Clearing House Association). Banks can choose to participate with a single large CSM, however the most efficient model for them is a multi-CSM model. Many banks now want to maximise their reach table and settlement time-frames by targeting CSMs in real-time given their clients’ collections or payments instructions. Billaterals / Correspondent Banking: Correspondent banking was probably the first ever cross-border means of inter-banks funds transfer, before the age of regulated cash clearing and settlement. As part of a multi-CSM strategy (as highlighted above), a bank can still choose to use a bilateral relationship in a specific SEPA country or region. In my opinion, bilateral access is the best option to penetrate a country with a low level of SEPA adoption, a few SEPA Additional Optional Services or still using a number of legacy domestic niche payment instruments. Indirect Participation: Most CSMs offer access through indirect participation, via a sponsor or agency bank. Tier-2, Tier-3 banks and building societies can access the SEPA clearing world as an FI client of a Direct CSM participant. The PSD makes room for a new type of financial institution, called Payments Institutions (PIs). This is a status half way between a Payments Services Provider and a bank, allowing to join CSMs indirectly through a sponsor bank (PIs cannot hold cash or liquidity). Late Settlement Cycles: SEPA isn’t currently a real-time payments instrument; the rulebooks impose a few days between the various steps of the payment (delivery date, settlement date). On top of that, CSMs operate only a few settlement cycles per day (between four and six on average). So, if a bank’s CSM last settlement cycle is 17:00 CET, the bank will probably accept payment instructions from customers for payment the next day up to 16:00 CET (allowing one hour for bank processes for validation, sanctions, AML, referrals, booking entries, etc). From a bank’s perspective, the SEPA value proposition for their clients is directly impacted by the notion of late settlement cycle during or just after business hours. The later, the better. A bilateral relationship or participation in a more domestic CSM could, for instance, increase the cut-off time by one or two hours for a specific country. Reach: Who can help you build the largest list of reachable SEPA participants, in the fastest relative settlement timeframe? Again, this is probably the main driver behind the choice of CSM(s) and bilaterals. End-to-end Settlement Timeframe: The Payments Services Directive, now transposed in national law within all SEPA countries, imposes a D+1 overall settlement timeframe. So, questions to consider include: are your current SEPA inter-bank space relationships still leaving dark holes of D+2 in some areas? If you are already covered on D+1, are your relationships really offering the best price per transaction? Settlement Funding Model: There are a number of options for the settlement of funds between banks. The most efficient and liquidity-friendly agent is probably the European Central Bank’s TARGET2(Real-Time Gross Settlement). Bilaterals often choose to impose the holding of a large amount of collateral on each other to guarantee funding of outgoing funds. In the case of TARGET2 (usually used by most CSMs) the participant banks only need to fund their settlement accounts a few minutes before transfer with the gross value of the outgoing value. Inter-bank Interface Connectivity Business Logic: The most efficient strategy for SEPA around the inter-bank space is to increase the number of relationships; effectively to increase the complexity of the banks’ own interface with the outside world. It doesn’t mean that banks need to host and manage connectivity themselves (such as SWIFT, host-to-host with bilaterals) or the technical interface (such as routing and reach decision logic, file and data transformation). For instance, GXS  provides inter-bank connectivity, business logic and file transformation to maximise the business outcomes of a long-term SEPA strategy. I hope this blog is helpful. It is primarily a “shopping list” highlighting the different levers that can help maximise a banks’ business outcomes. February 2013 will probably kick-off the next round of step changes in banks’ SEPA strategy. I am predicting that the focus will shift from the commercial differentiation of corporates and FIs towards how efficiencies and better service can be drawn out of the inter-bank space.  Let’s see if I am right!

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SAP to Acquire Ariba – An Acquisition too far?

On Tuesday May 22, 2012 SAP’s subsidiary, SAP America, Inc., entered into an agreement to acquire Ariba, a cloud-based business commerce network, for $45.00 per share, representing an enterprise value of approximately $4.3 billion. It’s certainly interesting, but it leaves me, and many others it seems, with questions. What further complexity will this acquisition add to SAP’s current list of consolidation projects? If SAP are aiming to become a giant in B2B how coherent is the strategy? How will this affect both SAP’s and Ariba’s customers, and interestingly – what does this all mean to Oracle? So let’s take a look at what it is that SAP is intending to purchase. B2B is recognised as a $5bn (growth) market globally, the top 2,000 global businesses today spend $12 trillion annually with their suppliers and only $319 billion is conducted on the Ariba network today. Ariba have often claimed that they are the largest and ‘most’ global trading network, but other companies also make strong claims. Ariba has led the way in cloud-based collaborative commerce applications with their e-Procurement and sourcing solutions. They have also made advancements with the Ariba Supplier Network by making two acquisitions, Quadrem mainly focused in Latin America and B-Process, whose geographic strength is in France.  Combined, they claim over 700,000 trading partners, if they are all actively transacting; this is a compelling number across North America, Latin America & Europe. They offer solutions across procure-to-pay, from sourcing through to supply chain finance and payment. On this basis, you can understand SAP’s interest. Acquire, Consolidate, Acquire, Consolidate As my colleague Mark Morley pointed out in his latest blog, SAP haven’t  focused on B2B so far and this acquisition could help them to connect external trading partner into their customer’s existing SAP products: “ Even though there were a few presentations that discussed the role of the business network and in particular the role of B2B, I think SAP still has some work to do to embrace the external enterprise.  This is why SAP’s NetWeaver based cloud integration platform is going to become so important in terms of providing connectivity to external trading partners and other third party cloud platforms.. “ By acquiring the Ariba companies, SAP will now provide this reach (perhaps at the Expense of CC Hubwoo). It is fraught with challenges as Morley points out as – SAP is already in the middle of mass consolidation of a number of acquisitions, and is now adding more complexity with Ariba. SAP customers, and Ariba customers will be diligently following this consolidation with interest. In my next blog I will examine SAP’s new focus on B2B and how Ariba’s history in this market provides both strengths and weaknesses.

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