Digging Into IBM's Procurement Outsourcing Strategy and Offering (Part 4)

In the initial posts in this series, I examined IBM's procurement outsourcing offering in detail, as well as its recent announcements about becoming more flexible in how it packages its strategic sourcing and P2P outsourcing offerings. In this final post, I will conclude my analysis by discussing what IBM's procurement outsourcing strategy means for both customers and competitors (not to mention substitute offerings from consulting firms on the strategic sourcing side).

From a customer perspective, I think IBM's latest move could potentially be well received, albeit with a few caveats and concerns. Here are a few quick thoughts on the matter:

  • IBM represents a proven commodity in the procurement outsourcing world. But while they claim to be the largest provider in the space, there are many ways of accounting for size (e.g., revenue, customers, breadth, etc.), so I think this claim can -- and should -- be interpreted as only a single data point. But more important, IBM has proven to me and others that they definitely fall in the "you won't get fired for hiring IBM" segment of the larger and safer providers in the market.
  • While IBM is positioning flexibility in its offerings, I suspect that until sales incentives are aligned with product/solution marketing, business developers might usually be driven to push larger deals to hit their quotas rather than leading with the actual flexibility that IBM's marketing claims. However, in the current deal climate which is generally favoring smaller initial relationships, it's possible the IBM BPO sales team might well be forced into smaller initial deals regardless of actual compensation incentives. Regardless, customers should be aware of this and should make sure that any terms for smaller deals are not necessarily richer for IBM on a margin basis than larger ones (you can accomplish this by having IBM bid on both a targeted category or process basis as well as a broader one).
  • When it comes to strategic sourcing, it's important to be aware that there is a rather fine line between full service management consultants who will hold your hand throughout the process (from negotiation to savings implementation to invoice auditing to re-negotiation) and what IBM is pushing on the outsourcing side. Decide if you really want outsourcing (i.e., someone else taking full ownership of the opportunity as well as significant upside) or if a consulting firm -- even IBM -- working on a time and materials basis (or cheaper contingency basis) is a better fit for indirect categories. In the cases of telecom, IT and other areas, you might very well find you'll save more once the outsourcing fees are factored in by leveraging consultants vs. outsourcers (especially with category specialists).

From the standpoint of IBM's competitors, here are a few quick thoughts on what IBM's news and current positioning means:

  • IBM has a good story to tell, but they have a reputation for being both transactional (e.g., "put another quarter in the parking meter" if you want a slight contractual change) and stiff. In other words, while IBM might no longer be a culture of martini-sipping men in boxy suits, there is clearly an IBM way that may or may not mesh with certain companies and prospects you may be competing with them against. In fairness, part of this culture stems from wanting to understand specific client needs and to continually prescribe the necessary remedies once a relationship is established. But still, a scope change is a scope change when it comes to costs.
  • IBM comes off to me as much more polished than the offshore providers. When it comes to procurement outsourcing, the overall fit and finish matters far more than whether or not your back-end development team is CMM level 99999. I think customers will appreciate this in many cases and IBM's offshore competitors need to think about stepping up their overall packaging.
  • IBM's latest move to provide more discrete offerings is something nearly every provider in the procurement outsourcing market is already doing (and that IBM was doing already, albeit quietly). This latest move is further proof that clients want to quite often start small and work their way into a broader procurement outsourcing relationship.

When it comes to technology, I agree 100% with IBM that flexibility and market knowledge is key. Any outsourcing partner in the procurement space should have intimate knowledge of all of the core transactional procurement and payment systems they're likely to encounter (e.g., Ariba, SAP, Oracle, PeopleSoft). While outsourcers might want to develop relationships with specialists when things become far removed from the ERP code block (e.g., spend analysis, sourcing), they should be highly prepared to work with any existing systems a client may have versus simply trying to introduce a preferred P2P platform.

What do you think about what IBM's latest news means for customers and procurement outsourcing competitors? And is there anything I've missed so far in my analysis of IBM's offerings? Please drop a line or post a comment if you'd like to share your thoughts.

Jason Busch

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