Is There a New Normal in Procurement Outsourcing?

Now that Phil Fersht has joined the dark side of the force -- leaving AMR Research to work for an outsourcing provider -- can we still take him seriously as an objective industry observer? Of course, especially considering the continued quality of his recent posts. Most recently, I read one of Phil's numbers on what he describes as the "new normal" in outsourcing. According to Phil, "There isn't a lot of secret sauce these days for what many clients are currently demanding, where in the past, incumbent service providers could play the "capability game". With many of these skills becoming mainstream, the competitive playing field has leveled out." This is the "new normal" as Phil describes it. Despite this, the former analyst argues that outsourcing's future will clearly move back into being a differentiated game at some point. In his words, "while clients demand cost-arbitrage today, the next wave of efficiency gains can't continue to be found from swapping out higher cost for lower cost". But how long will the "new normal" last, especially in the procurement arena?

I'd argue it has the potential to last for quite some time. When I look at outsourcing providers in the procurement sector, I continue to see little differentiation, especially in indirect sourcing and category management (ironically in some areas of technology, such as P2P implementation and hosting, I think differentiation does still exist, especially when it comes to driving supplier enablement and maximizing spend volumes). You need look no further than the stale Accenture Tiger Woods slides that continue to harp on the same benchmarking data year after year in hopes of convincing prospects to pull the trigger on an outsourcing engagement. Granted, some providers, especially those who can truly claim to achieve greater savings from spend aggregation across clients, might achieve slightly better indirect results, but I honestly don't see a lot of difference between the approaches of the top half dozen players (other than the quality of marketing material -- a number of Indian providers still tend to fall far short than their Western competitors in this regard).

So, perhaps, the new normal is here to stay in procurement outsourcing, especially considering the rather low-levels of adoption we tend to see in the indirect domain. This statement also goes for outsourced commodity, geographic and supply markets research delivered in an offshore fashion which so often tends to result in getting out a result based on the amount of time you have to put into specifying exactly what you want and teaching your provider where to find it -- which in my view, can often defeat the purpose. But perhaps in the future, as technology integration and usage becomes an even greater competitive differentiator and companies once again turn to outsourcers for proverbial best practices (e.g., working capital management optimization programs) that cross procurement and other functional lines, we'll see greater differentiation and a "new, new normal".

Jason Busch

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