Procurement BPO: AMR Reveals The Market Is Growing For All The Wrong Reasons

Even though I have spoken with over a half dozen companies in recent months going down the procurement outsourcing or BPO path, I've also talked to others that question if the trend is really sustainable. One of the expert curmudgeons who believes that procurement BPO is in serious danger of overheating because it's growing for the wrong reasons is AMR's Phil Fersht. Phil recently penned a blog post on his recent analysis of the procurement BPO market which is anything but rosy despite tremendous percentage growth in the market segment over the past year.

Phil notes in his entry that "While the market has grown exponentially, and a 30% increased expenditure last year is eye-opening, the nature of these engagements doesn't give us confidence that this market will sustain its growth ... [because the] "lift and shift" model [that has predominated] could well result in customers losing more than they save."

What's the underlying problem with this, you ask? AMR's latest research suggests that some 80% of current procurement BPO engagements are only focused on labor arbitrage with little or no focus on underlying process or technology improvement. I spoke to Phil earlier this morning and in between bossing his cabbie around the streets of Boston -- Englishmen are always pushy even when they're on foreign soil -- he put the situation in even more direct language: "If this keeps up," Phil remarked, "many companies will end up bringing back some supply management processes they outsourced in 2-3 years time. It's simply not sustainable for many firms, and is based on short-term logic. Plus, the recession is only exacerbating the situation."

I came away from talking to Phil with the impression that many of the services providers are serving the role of bartenders tending to the drunk -- they're not interested in anything but grabbing volume business and putting $1 shots on the bar. And they could care less about the hangover they'll be creating for their customers provided they get a tip along the way. No bottles of Opus One here. Well drinks all around.

Stay tuned for further coverage of AMR's analysis of the procurement BPO market in the coming weeks. Perhaps we'll contrast it with the shot glass is half-full version of the market that Everest is promoting of late.

Jason Busch

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