In the first post in this series, we shared a number of the basic details surrounding ISM's acquisition of the North American practice and assets of ADR (ADR North America) as well as ADR North America's China business. Continuing our coverage of the acquisition, we'll tackle a number of additional elements of the transaction, and most important, what it means for the ISM mission, its members and its global presence. Starting first, I think it makes sense to quote my colleague from across the pond, Peter Smith, who is also covering the news on Spend Matters UK. Peter suggests that ISM expansion into China -- and the operating company ADR North America had established in the Chinese market, which was part of the transaction -- was surely a strategic factor in the deal.
In one of his posts from earlier in the week, Peter offers up the following observation: "the presence in China has obvious potential as that country grows and professionalises its own purchasing and supply chain activities. The UK-based Chartered Institute of Purchasing and Supply (CIPS) has built student membership very successfully in China, and is probably ahead of ISM there in terms of 'education' services. But the opportunities for training and consulting are probably even greater in the long run, and there CIPS is weaker; indeed, as well as ISM, both the Dutch and German Institutes have offices in China, which CIPS doesn't."
From a competitive standpoint, Peter captures what ISM conveyed to the two of us, nothing that ISM does not view CIPS as "'competitors in any real sense." Paul Novak (CEO ISM, ISM Services, Inc. and ADR-ISM China) told Spend matters that "we've never come up against CIPS in a competitive situation in China." In his post, Peter further notes, "CIPS and ISM have discussed collaborating to serve certain large global corporates, although nothing tangible has come of this as yet."
Aside from the impact of any CIPS/ISM collaboration or perceived competition, we believe those most likely to scrutinize the deal with a critical eye are current ISM members or partners in the consulting business. As Peter suggests, "smaller consulting firms in the sector may feel aggrieved that ISM are now competing with them." Yet in Spend Matters' view, this fear is likely not deserved, given the small size of the ADR practice and the overall ambitions and mission, based on what we've been told, of the venture for ISM. If anything, the possibility exists that boutique consultancies with specialized expertise could find ways to partner with ISM to provide additional expert support, as required. And larger consultancies with growing procurement practices such as AT Kearney, Deloitte and others have nothing to fear, given that the overall revenues of ADR were smaller than the size of a larger, single engagement they might undertake in six weeks or less.
As for the organization and formation of the new for-profit company, ISM Services, Inc., Paul Novak shared that such structures are not uncommon in the least in the US, given the operating limitations of 501(c)3 organizations. In contrast, in the UK and certain other countries, non-profits are allowed to run "businesses like a business," as Peter Smith puts it, provided they use the profits generated to fulfill a charitable purpose (i.e., answering in the affirmative to the question: are you addressing the public good by generating profits to feed into a broader, charitable mission?)
When it comes to services delivery, the acquisition and new structure should round out the ability for ISM to deliver additional value to members, as Novak positions it. ISM told Spend Matters that the transaction will enable ISM to get more actively involved in "consulting on the front-end before training" and to "support training programs with in-company small group coaching and category management support," providing synergy between training and consulting work that cold span "enabling new processes, building category strategies, analyzing supplier relationships/supply risk and realigning people," among other possibilities.
In our final post looking at this transaction, we'll provide more Spend Matters analysis about what this acquisition means for ISM members -- and the broader procurement membership, certification and training communities.