More on the UBS procurement outsourcing decision

The announcement that financial services giant UBS are to outsource their procurement operations to a new venture, Chain IQ, caused some interest last week. Moving on from the issues it threw up around the lead investor in the new business, it was also interesting in the sense that UBS chose to go with a start up when they could have chosen from what is now a pretty strong range of existing firms. You can start with an immediate short list of IBM, Accenture / Procurian, Xchanging, Cap Gemini and Proxima and take it from there really.

UBS will not retain an equity stake in the business, so the chief reason for going with a new business expressed by UBS, without a lot of detail we should say, seemed to be that there will be some sort of future shared benefit. So as Chain IQ grows with further clients, UBS will see some further returns. We don’t know yet how this might work, but you could imagine a reducing operational cost charged to UBS or something similar as Chain grows.

But it is also a brave move in the sense that although most of the staff in Chain IQ will presumably – and at least initially – be people who previously were UBS employees, Chain as an independent business will be an unknown quantity. So here are some potential positives and negatives for UBS in terms of taking this step, as opposed to simply going to the existing market players.

Positives

1.       For UBS, being able to play a part in moulding the services, the process and even the culture of Chain very much to their own needs, as opposed to accepting a prevalent Accenture ( or whoever) culture.

2.       Retaining people, processes, systems that the internal stakeholders are familiar with means less chance of a turbulent transition period, compared to a outsource to an existing outsourcing provider.

3.     UBS have presumably been able to negotiate a very good deal – both up front  and in terms of that future potential benefit sharing – given that they are the anchor client for Chain IQ.

4.       Retaining the Swiss ownership and basis for the business as opposed to being in the hands of a UK / US / French / Indian firm has some obvious advantages for a proud Swiss company.

5.       Being part of “their” new business is perhaps more appealing and motivating to UBS procurement staff than moving over to an existing provider.

 Negatives

1.       An existing outsourcer would have capability in systems and processes, and strong category expertise (more than UBS can possibly have, particularly in smaller categories).

2.       An outsourcer might well have taken on many of the UBS staff, but has an existing workforce who could step in anyway. If UBS staff decide they don’t like the idea of moving to Chain, there could be a disruptive period as Chain has to recruit new people rapidly.

3.       With an existing firm, there would probably be fewer worries about future financial stability (is Chain viable if it cannot win any more new clients for 3 years?)

4.       Going to a strong firm might give UBS spend leverage immediately as existing outsourcers are buying larger quantities of goods and services.

5.       Migrating systems (as well as the more mundane issues around premises, terms and conditions for staff etc.) may prove to be harder and more disruptive than it first looks.

So, on balance, we can see why UBS have gone in this direction, without necessarily thinking it is the right decision. I have to say, it feels like one of those where you might call it a “brave” decision.

The future success of Chain IQ will of course depend strongly on their ability to bring in new clients. So in a further post, we’ll look at how other firms might perceive the attractions of the firm and what key issues there may be in that sense.

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