Today, IBM announced that it has entered into a definitive agreement to acquire procurement sourcing, supplier lifecycle and contract management advanced technology provider Emptoris.  Financial terms have not been disclosed and the acquisition is expected to be completed in Q1-2012.

Supply Chain Matters considers this announcement to be very significant for the sourcing and procurement technology market because it adds another large and influential player to compete with the existing ERP players for buyer choices in this technology area. This market is about to become much more dynamic.

This announcement comes nearly a week after IBM’s other acquisition related announcement related to DemandTec, a cloud-based provider of pricing and demand optimization software. We had planned to dedicate a commentary just to this acquisition, but IBM has obviously stepped-up the clock speed for end-of-year acquisition announcements related to its Smarter Commerce umbrella.

Supply Chain Matters had the opportunity to attend IBM’s Impact 2011 conference last spring.  In our summary impressions commentary, our takeaway was that IBM is moving quickly and aggressively to make a renewed presence in supply chain related software that will umbrella B2B/B2C commerce and supply chain intelligence capabilities.  We believed at the time that something big was underway, and events to date certainly reinforce that belief.  When we assimilated our 2012 Predictions for Global Supply Chains, we had IBM in mind when coming up with prediction seven, our belief that there would be increased M&A activity within hot supply chain technology areas in the coming year. Obviously, IBM is first out of the gate in that dimension.

The IBM Smarter Commerce umbrella encompasses four broad segments: Buy-Sell-Market-Service processes.  According to this morning’s analyst briefing, Emptoris will augment the Buy segment of the unfolding IBM Smarter Commerce product strategy.  As with similar acquisitions such as that of Sterling Commerce, Emporia’s stand –alone brand will be subsumed by the IBM Smarter Commerce branding of technology and services offerings.  Existing Emptoris headcount will similarly be assimilated, but IBM executives were naturally reluctant to go into any specifics other than praise for Emptoris’s existing team.

The specific implications for the market and for Emporia’s existing customers are many.  The following is our initial observations:

For the market:

  • IBM becomes an even more significant player in supply chain related technology, especially for the dimension of integrating customer fulfillment, supply chain networks, sourcing and procurement together in an integrated information stream.
  • For the specific sourcing and procurement technology arena, whereas best-of-breed remains a compelling alternative to ERP offerings, IBM has the potential to add a third dimension, multi-entity B2B networks that connect Buy and Fulfill.
  • The notion of providing procurement focused customers with both advanced software and complete business process managed services options just got more compelling because IBM now has the potential to bring both elements together as a single vendor. Emptoris has previously had strong relationships with Accenture and other consulting, procurement BPO and systems integrators.  That could change as Emptoris becomes the preferred option for IBM Global Services. For its part, IBM executives were quick to point out that they are comfortable with co-existence with current ERP and global services integrators and that a level of maturity has been reached regarding the reality of customer needs.
  • IBM continues to broaden its strong influence on existing IT teams to now encompass Chief Procurement Officers (CPO) and other C-Suite executives that have continued concerns regarding their global supply chain management capabilities. IBM is moving its strong influence into supply chain functional decision makers as well.  IBM was not shy in expressing its goal to make this advanced technology available to broader geographic markets, including China.
  • IBM has always demonstrated detailed due-diligence in its acquisition choices, and obviously surveyed the existing landscape of advanced procurement technology providers, including the other big elephant Ariba. The open question is what happens next, since the dynamics of this market have obviously changed.

For Existing Emptoris customers:

  • According to IBM, both companies remain independent until this transaction formally closes, expected in the first quarter of 2012. Emptoris technology will then come under the umbrella of IBM Smarter Commerce division.
  • The acquisition by IBM will obviously bring the potential for bigger pockets and for added resources in product development, enhancement and services. Look for more emphasis on industry-specific requirements in the sourcing and procurement of both direct and indirect materials and services. The transition period however could be a bit rocky as Emptoris is assimilated into a very large organization.  For its part, IBM has shown a rather positive track record to date in assimilation, going as far as to appoint a dedicated IBM Integration Executive as a firewall to internal in-fighting or perceived overlaps. However, Emptoris has had its own share of recent acquisitions and the integration effort may well be a bit more complex.
  • Look for some senior executive changes of existing Emptoris management.  Obviously, the current era of the private equity stewardship, leadership and funding by Marlin Equity Partners will come to an end, with perhaps a lucrative financial reward. IBM will have to make subsequent decisions in providing a management structure that can now rely on broader executive leadership. In the analyst briefing, IBM did demonstrate a keen awareness to Emporia’s current stellar reputation for high touch customer service and more than likely will not want to mess that up.
  • IBM has acknowledged that current Emptoris contractual terms and conditions will be honored. Over time, these agreements will fall under those of IBM and its sales teams, and Emptoris products will be listed within the IBM product catalog.
  • Finally, Emptoris customers stand to gain, over time, broader choices in needs to tie supply chain cost saving mandates to other supply chain process dimensions, and to enhance advanced analytical capabilities. IBM Industry Solutions General Manager Craig Hayman was quick to point out his vision and belief that: “we want to embed analytics into the fabric of business processes”.

At first take, this announcement has potential positive connotations for existing Emptoris customers and prospects, and rather dynamic ones concerning the existing advanced procurement technology market.

Supply Chain Matters will provide added commentary as further information and additional conversations become forthcoming.

Bob Ferrari

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