Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 2)

In the first post in this series, I looked a bit at IBM's new procurement outsourcing strategy and offering, especially in the strategic sourcing arena. After reflecting on this offering for some time, it feels to me that companies considering outsourcing indirect spend categories from a sourcing perspective would be well served to consider IBM as an option. They should not fall hook, line and sinker, however, for Big Blue's marketing lines about how they are necessarily capable of managing spend better than anyone else because of their size and past experience (going back to Gene Richter). In fact, I'd argue that when it comes to nimbleness and willingness to consistently seek out further cost reductions and work with the supply base under current market conditions, organizations might well be served by folks like ICG Commerce who also bring similar outsourcing category expertise but without the legacy spend bureaucracy of an organization as large as IBM.

Moreover, even though IBM is involved in spend aggregation and both its total internal spend and client spend volumes represent significant sums, we all know that there are points of diminishing return when it comes to these sorts of models in at least some categories. Still, IBM should certainly be on the strategic sourcing outsourcing short list for companies debating this approach and wanting to reduce indirect spending costs. In general, from what I have heard, customers often find IBM's sourcing and category management capability their strongest overall area in their procurement outsourcing offering.

Enough on this strategic sourcing thing. Today, I'd like to expand this analysis to IBM's procure-to-pay (P2P) services as well as go beyond the marketing spin to delve into what IBM's latest move really means for customers. And in an additional post or two, I'll provide more context and clarity for what IBM's latest procurement outsourcing moves mean for the procurement outsourcing market, as well as wrapping up my overall analysis. Let's first begin by investigating what IBM's P2P outsourcing services bring and with what types of organizations they might be a good fit.

In explaining their P2P offerings, IBM suggests, "for companies that prefer to retain sourcing responsibilities in-house, IBM's P2P services enable them to reduce the cost of the procurement function while increasing standardization and controls. This allows them to focus on their core business activities while using IBM to manage transactional activities. IBM also provides call center support for both employees and suppliers to help improve the satisfaction and efficiency of the procurement experience." In other words, IBM is taking responsibility for the transactional and back-office management side of the requisitioning, approvals and payment process. In some cases, this work may involve taking over the management of existing in-house technology (e.g., Ariba, SAP, Oracle, etc.). And in others it might involve bringing in an IBM partner (e.g., SAP/Hubwoo) for a hosted eProcurement solution.

IBM's Bill Schaefer, who runs the procurement outsourcing business unit for IBM, suggested to me that in their P2P approach, "what we find is that we need to be very flexible. When we think about P2P, it's about driving efficiency and control over the process. The ingredients that make it more successful are that we've built a strong set of infrastructure around the world to support our own and our client's needs. We have operations hubs in Budapest, Manila, China, etc." When it comes to technology, at least one of IBM's clients has invested in "an Ariba platform that we support," according to Bill. In other cases IBM "takes over and finishes an implementation" and provides hosting through partners as well. In short, IBM is "not trying to drive clients to a particular technology platform "but rather what they're "trying to do is to be flexible."

But how is IBM perceived in the field? Having spoken to various IBM customers, employees and partners over recent years, here are a few things I've heard consistently:

  • IBM is very structured. If they commit to something, they'll most always achieve it (i.e., the exact scope of work) in the time frame articulated
  • In general, team members are impressive and they do not under staff projects/programs from an outsourcing standpoint or put overly junior resources on programs as a rule
  • IBM may position itself as flexible, but you "pay them for it"; they're high up on the "if you pay me to do something, I'll do it" scale rather than pursuing anything outside of an initial scope
  • Clients have mixed experience with IBM's PO sales / account management style. While IBM prices on a value and business-case basis, they are careful to manage only to what has been promised or articulated
  • IBM team members can come off as dominating -- they bring a strong point of view and process toolkit and favor this over a truly empathetic client approach

Ironically, one of the hallmarks of the recent IBM announcement regarding their procurement outsourcing offerings was to make their solutions more discrete and approachable. In Bill's words, "We are willing to come in on a focused basis. The perception in the market was that IBM was end-to-end only and we are hoping to change that."

However, when I questioned IBM if they changed their sales compensation structure to favor smaller deals rather than end-to-end relationships, they ignored my question. So I went digging myself and found from some sources that the old structure appears to remain in place. So in short, even though IBM is attempting to break out and productize their procurement outsourcing offerings to make them more approachable, the actual behavior of reps in the field will most likely remain the same as before, focusing on the mega-deal approach and more important, proving that you can't crack Big Blue into smaller indigo stones.

Jason Busch

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