Yesterday, ICG Commerce announced it had signed Pinnacle Foods Group, a consumer foods company, to a three-year procurement BPO agreement. The deal, widely rumored for some time in the market, is anything but a transactional type of lift-and-shift, low-cost, labor-centric BPO approach. According to the announcement, "ICG Commerce will support Pinnacle with spend management across a range of categories, the largest of which include advertising, logistics, capital equipment, and plant-related supplies and services." What I personally find most interesting about the deal is where Pinnacle stands in terms of overall procurement sophistication in the market. Spend Matters research suggests that, compared to consumer-foods companies with more advanced procurement organizations (Sara Lee, Unilever, ConAgra, and PepsiCo), Pinnacle is actually a laggard when it comes to adopting procurement and supply chain technologies, systems and processes.
Historically, companies that opted for a BPO approach often fell further up the adoption curve. The well-known procurement-BPO deal between IBM and Sara Lee is a quintessential example of a more sophisticated procurement organization opting to outsource non-core areas to a BPO partner (most likely to allow them to focus on direct vs. indirect materials and supply chain areas). Moreover, when less sophisticated organizations opt to outsource a functional area, they often prefer a cost-driven "lift and shift" labor approach to outsourcing rather than one centered on process and expertise (i.e., the type in which ICG Commerce specializes). In contrast, this deal with Pinnacle marks an exception to the rule, and could signal an important procurement BPO sign in the market.
In Spend Matters' view, Pinnacle's embrace of a procurement BPO approach that is centered on process and category expertise is a sign that procurement organizations with average or less-than-average performance are finally willing to embrace an outsourcing model that they previously felt threatened by (in contrast to more sophisticated companies). In the CPG and consumer foods markets, Spend Matters research suggests that, on a Geoffrey Moore scale, less than 20% of organizations fall into the category of either "innovator" or "early adopter," and that a significant majority are "late majority" "laggard" companies when it comes to procurement adoption.
Pinnacle's move potentially exposes the largest segment of these verticals to a model they desperately need but were previously unwilling to consider, except in exceptional cases (e.g, a turnaround situation). For these types of organizations, any type of offshore "lift and shift" approach is the wrong answer to procurement BPO. This is precisely why this particular Pinnacle/ICGC relationship represents a positive development that, hopefully, will signal a new trend in the market, allowing lesser-performing organizations to leapfrog their competition from the standpoint of effective procurement execution.