Xchanging xchanges focus and appoints Chirag Shah to head up procurement business

Xchanging, the business process outsourcing firm, has made significant announcements over the last few days.

Following the departure of Ed Cross, Chirag Shah has as expected been appointed Executive Director of Xchanging’s overall Procurement business. He also joins the Executive Committee (which Cross also used to sit on). Shah was the founder and CEO of MarketMaker4 (MM4) , the sourcing software firm Xchanging bought last September.   Dave Bowen, CEO of MM4, takes on the additional role of Managing Director, Procurement Services, Xchanging Americas, and Alan Buxton (also ex-MM4) is now CIO for the  Procurement business.

So the Xchanging / MM4 deal is beginning to look like a “reverse acquisition”! And indeed, the other part of Xchanging’s announcement laid out a deeply significant change to their business strategy in the procurement arena. It appears that the firm is moving towards being more of a software business, with procurement services still a significant element of the package, but with software taking centre stage. Here’s what Xchanging said:

“Chirag will lead a repositioning of the procurement business, integrating Xchanging’s market-leading procurement services with an enhanced technology platform, underpinned by MM4’s eSourcing suite. He will focus on delivering ongoing product development and technology innovation, leading to new offerings and a broader supply chain focus”.

That move towards software also seems to be talking place in other parts of the Xchanging business. Last week the firm acquired two software firms - Agencyport and Total Objects – in the Insurance sector, where again Xchanging were originally very much outsourced service providers. Those two acquisitions cost Xchanging some £80 million, a not inconsiderable sum for a business with a market capitalisation of around £400 million.

So what is the attraction of the software business compared to outsourcing? Well, Xchanging may be influenced by the success of MM4 in the months since the firm was acquired. Software firms probably in general attract a higher market valuation that outsourced service providers, an important factor for a firm whose share price is still below its issue price in 2007.  And the new approach should allow Xchanging to widen its customer base – until recently, this was a firm with a high concentration of business with a few key clients.

On the other hand, the firm might confuse the market somewhat. I have already been asked by someone, “do I still put Xchanging on my procurement outsourcing short list or not”? Software is also perhaps more susceptible than outsourcing to innovation amongst competitors. And there are other differences, from the shape of the sales cycle and process to accounting rules and regulations.

But it’s a bold and interesting move from Xchanging. We’ll have more on the MM4 product next week, and hope to follow up with some views from Chirag Shah himself before too long.

 

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