When the tech bubble burst, Ariba, like many companies, was in a bit of turmoil. It was very clear that if and when the market rebounded, a new way of doing business would be required. Companies would ultimately demand greater flexibility in the way they purchase and deploy software. And if we were to emerge from the downturn, we had to be able to deliver that. It wasn’t going to be easy; wholesale change never is. But as we saw it, we had no choice. On-demand was not only the future of software, but of Ariba.
In 2005, Ariba, Inc. launched an aggressive plan to transform itself from a traditional licensed software company to an on-demand provider. No company its size had ever willfully given up the addiction to license revenue and survived. But many companies today are at a similar crossroads and must make the tough decisions that can make or break their business.
On-demand wasn’t a completely foreign concept to Ariba. We had already heard about and evaluated its litany of benefits: faster and more flexible deployments, dramatically decreased total cost of ownership, free and frequent software upgrades, and easier maintenance. But as we all learned in the late 1990s, even if things are as good as they seem, old habits die hard. Even when we determined that switching from an on-premise to a hosted model was what many of our customers wanted, executing the change would mean more than flipping a switch.
First off, Ariba was proven in its ability to sell installed software to large Fortune 500 companies. Our success was based largely on selling large deployments to large customers. Selling to smaller customers was something new. And not everyone would go along with the shift in strategy.
The trick in executing any large scale change is to seed to concept across the organization and enlist the support of key stakeholders at all levels to help drive buy-in. In our case, proving ourselves as a viable on-demand provider meant permeating the model throughout every aspect of operations — from application architecture and delivery to pricing, packaging and customer service. It also meant being able to provide specialized service and expertise — something you can’t just pick up at the corner market.
We definitely had our work cut out for us. We decided to tackle the toughest issue first: reengineering 100 percent of our products. We opted to leverage a single code base so that we could deliver our software and services on a common platform. It was a massive undertaking – one that many thought would take three to four years to complete.
But as many organizations have discovered in similar circumstances, you can’t underestimate the power of conviction and commitment. We certainly tried to muster up a “let’s charge the mound” spirit among our engineers, but it took a bit of selling and we weren’t sure they’d go for it. We certainly never expected them to completely revamp our products within 18 months. I think in this case we were simply lucky to have an engineering team that was so dedicated, focused and eager to beat the odds.
Sometimes, the motivation to excel comes from within. S when dramatic changes must occur and demands must be met, I cannot overemphasize the importance of having the right people in the right roles.
Next, we turned our attention to the organization. We reorganized our commercial team and compensation structure. We revamped our marketing efforts. We retooled our service organization and delivery model. No team went untouched. Clearly there were doubters when we first laid out our on-demand strategy, but we held firm.
Key principles for change
As we reinvented Ariba from top to bottom, we followed a path guided by a few key principles that any company embarking on major change should heed.
1. Leadership. Driving major change across any organization is a challenge, because change at the organizational level inevitably means change in the duties and methods people embrace in their day-to-day jobs. And while I believe that people are fundamentally resilient, getting them to embrace change requires strong leadership. From the top down, employees must be provided with the motivation and support they need to achieve the goals that have been set for them. Don’t just tell your team to do something. Tell them why they’re doing it, and where it will take them and their careers, and lead with confidence.
2. Communication. Getting buy-in for a new strategy requires a steady flow of information and regular updates on progress. And communication can’t be confined within company walls. If you are to succeed in your efforts, you must reach out to customers, partners and the marketplace in general. In making the shift to on-demand, we worked very closely with our customers and industry analysts to keep them in tune with the changes within our organization and to coach and support them as effective agents of change within their own organizations and industries. But communication also means listening – to your managers, your customers, your partners, and using that information to fine-tune your communications and overall strategy when appropriate.
3. Courage and Determination. Once you’ve locked in on your vision, you must move swiftly and stay the course. There will always be room for fine-tuning your strategy, but that doesn’t mean altering your mission. We never wavered from our original mission—we simply evolved our products in the way they could be delivered. And, we weren’t deterred by those who said it couldn’t be done.
4. Innovating in Increments. Moving toward a goal isn’t just about staying the course. It’s about maintaining an appropriate pace. Always look ahead, but don’t get too far ahead. Customers will more readily consume innovation when it’s delivered in pieces as part of a gradual and agreed-upon process rather than a totally new platform. Because we made our move to on-demand a few solutions at a time, we were able to successfully reengineer our solutions and deliver them in a way that was manageable for both our company and our customers.
5. Acquire to Advance. Don’t be afraid to buy your way to success. As we moved toward delivering spend management solutions in a new way, we knew we were lacking certain experience and expertise that would take years to build ourselves. So we went out and got it. Ariba has made several key acquisitions over the years, including FreeMarkets, and most recently, Procuri. Brining together complimentary businesses can quickly help you achieve your goals. But, it requires a strong team to pull off acquisitions. Misjudging the time and effort required to successfully complete integration can weigh the organization down and actually impede your progress.
6. Proof of Progress. s strategy shifts and business needs change, you’re ultimately measuring different things at different times, and how you tie these measurements to success can mean all the difference between gaining ground and standing still. At one point, we knew we needed to go from one product to a broad array of products. Nothing else mattered if we couldn’t roll out each product. So the results by which we measured progress were all tied to delivery. At another point in our transition, we were focused on building a service organization. The results we concentrated on then were related to building assets and capabilities that would enable us to drive growth in the marketplace. Our intent is always to do what is best for the organization and our shareholders, but you can’t measure success and failure on stock price alone. You need to focus on the progress that will get you there, and you need to report on that progress. Often.
7. Flexibility. Despite your best efforts, you may not be able to convince everyone to make the same leap at once. For us, it became clear early on that the one thing all of our customers wanted was flexibility in deployment. So we streamlined our operations so that we could continue providing licensed, on-premise products to some customers, on-demand subscriptions to others, and hybrid offerings for those who wanted to enjoy the benefits of both. It was this flexibility that provided the stability we needed for a smooth and successful transition. And it is this flexibility that enables us to continue to show our customers that they matter most.
The road to on-demand has been a journey. We’ve encountered a few roadblocks, but by all measures, the trip has been a success. The moves we made, while widely criticized at first, have proved to be the right ones for both our company and our customers. Change is never easy. But with the right strategy, conviction and execution, it can be done. And the results can be astounding.
Bob Calderoni is Chairman and Chief Executive Officer of Ariba Inc., a leading spend management solutions provider. Prior to joining Ariba, he served as Senior Vice President of Finance and Chief Financial Officer for Avery Dennison, and before that as Senior Vice President of Finance and Corporate Controller for Apple Computer, Inc., and as Chief Financial Officer and Vice President of Finance for IBM’s $8 billion Storage Systems Division. In 2006, Bob was named among the 100 Most Influential People in Finance by Treasury & Risk Management Magazine.