Are investment bankers and Wall Street bad for business? by Jon Hansen

Posted on November 29, 2014


In what many consider to be a controversial article titled The Myth of Ariba, a former executive for the company said the following; “Ariba was a real company with a real product that got swept up in its own hype, with unfortunate consequences,” and that “Ariba was basically a fraud . . . creating [the impression that Ariba was constructing a global marketplace]. . . even though this was seen as being “a rather impossible task.”

According to the article and related book, they “went through the motions” of building this marketplace because “the stock was the only thing that mattered. A valuable stock gave Ariba currency it could use to buy other companies.” In the end, “Ariba started out very much as a real company, but was actually blindsided by the Internet boom.”

Ariba For Dummies

The origins of my disenchantment with Oracle go all the back to the vendor’s early days when Ellison was forced to lay off approximately 10 percent of the company’s workforce due to questionable accounting practices.

The practices to which I am referring centered around upper management encouraging Oracle sales representatives to push customers to buy “the largest amount of software all at once” without actually paying the full pop. The company’s finance people then claimed these future sales in the then present quarter. Problems arose when said revenues failed to materialize, leading the company to restate its earning on two separate occasions.

Not surprisingly, this led to a class-action lawsuit that was ultimately settled out of court. Even though Ellison later admitted that “Oracle had made an incredible business mistake,” for me the die was cast as it demonstrated his inability to look beyond the here and now.

Oracle CEO Larry Ellison Speaks At Oracle OpenWorld 2012

The above excerpts from both an upcoming radio interview, and an old Procurement Insights post, may likely raise a red flag regarding the potentially damaging influence the investment banking world and Wall Street has on the procurement profession.

However, a strange e-mail exchange with an investment banking firm this past week regarding SciQuest not only raises a red flag, it actually sets it on fire and waves it in a manner the removes any doubt as to the origins of the high rate of eProcurement initiative failure.

Let me begin by saying that procurement solution providers have to move beyond the investment bankers and stock evaluations mindset, to deliver meaningful results and value at the end user level.  Or to put it another way, instead of being rewarded for sales and increasing stock prices, vendor success should be based upon positive outcomes at the customer level.

Now one might suggest that there is an indisputable link between customer success and sales. However, based on the well documented high rate of initiative failures over the years, the link between the two is tenuous at best.

With regard to the latter point, the following exchange with the aforementioned investment banking firm did little to change my mind.

To start, and within a matter of a couple of hours after posting my article SciQuest “Sales” Execution Troubles? on Wednesday, I received the following e-mail from an Equity Research Associate for an investment bank on the west coast:

“Do you have a few minutes to talk about SciQuest today? Shouldn’t take more than a couple minutes.”

Seeing that this is not the first time that an investment banking firm has contacted me regarding my coverage of the industry, and in particular a specific vendor, I said sure.

Based on our twenty minute conversation, the following day I wrote and published a post regarding the highlights of the discussion titled Call from investment banking firm regarding SciQuest post telling.

End of story – although I did find it interesting that the associate brought Coupa into the discussion.

The next day, I received an e-mail from the associate which read:

“Thanks again for taking the time to speak with me this week. It was definitely a thought provoking conversation and I look forward to speaking with you about these topics in the future.

I should have mentioned this when we spoke, but could you exclude/remove my firm’s name from any published articles? I don’t have any concerns about the content, I just don’t have the authority to speak for our firm and it could be a compliance issue for me if it stays up on the site. Anyway, hope you had a great thanksgiving – look forward to speaking with you again soon.”

While I found it to be a little strange, as a matter of courtesy I accommodated the associate’s request to which he responded in yet another e-mail:

“Perfect – greatly appreciated. Have a good weekend.”

Once again, and from my perspective, end of story.

Then a short time later I receive yet another e-mail from the associate, which read;

“Hey Jon,

Thanks again for having that call this week – just wanted to clarify a couple things so we are on the same page. Part of my job working in equity research is trying to learn as much as I can about the industries that our companies operate in. Often, we will get in touch with industry professionals (such as yourself) to get a better idea of how the industry views particular companies and their products. It’s always helpful to get these views from both sides – IE speaking with industry professionals that are positive and negative on different products.

 I just wanted to reiterate that our conversation was informational in nature. Our firms current view on the stock is public information and I hope I didn’t give you the wrong impression about our firms current recommendation simply because of the topics we focused on during the call.  In speaking with you, I’m trying to learn as much as I can about the industry so that we can adequately asses the future prospects of our companies under coverage.  

 Thanks again for your time and insight. Hope you have a wonderful Thanksgiving, have great weekend and I look forward to touching base with you in the future.”

Similar to my belief that people who answer a question that hasn’t been asked should give one pause for thought, I responded as follows:

“While I appreciate your e-mail, I must admit that I am not sure as to your intent with sending it?

I frequently receive calls on a regular basis from analysts and investment banking firms usually looking for a more accurate and unbiased picture of what is actually happening in the marketplace.  

I assumed that given your long history with SciQuest, you were trying to ascertain what my coverage meant, upon what it was based, and how much I know in terms of “pending” events.  I also presumed that at least in part, your request that I take your name out of the post was due to the fact that it would not look good that such a staunch supporter of SciQuest over the years was actually calling someone who had been justifiably and accurately critical of the company.  I mean, think about the optics for a moment . . . your contacting me actually adds creditability to my position on the company – not that more creditability is needed.  Let’s face it, and according to the end user market with whom I am connected and serve, the die is pretty much cast in terms of how they feel about SciQuest.  So whether (your firm’s) name was or was not in the post is almost academic.

In fact, your request that your company name be removed from the post actually raises more of a red flag as my subscribers had already received and shared the original post that referenced (your firm’s name).”

My point here is that if SciQuest and those that “support” them spent as much time on properly implementing their solutions as opposed to spin management and stock valuations, procurement would be an infinitely better and more productive world.

Spin Doctor Cartoon

This also applies to any other vendor that is more focused on playing to the markets as opposed to delivering on their promises to the end client.

By the way, what’s up with Coupa? 😉


Posted in: Commentary