Xchanging position themselves for the fight

Xchanging have been through what we commentators term an “interesting” last twelve months or so.

A profits warning in February on the back various issues, a large goodwill write-off from their major Indian acquisition, followed by their founder, David Andrews, stepping back from the business, with Ken Lever, the CFO, taking over.  The share price collapsed, but has come back a little, and a huge win in the procurement space (L’Oreal) has helped get them back on track. It appears (tempting fate..) that the worst is behind them.

They’re unusual in our space in that they are not a pure play procurement outsourced service provider, like ICG Commerce, or buyingTeam. But neither are they an Accenture or IBM, in size or scope, or in the fact that procurement is very important to them, representing around a quarter of the business.

So their breakfast meeting last week for the analyst and consultant community – basically, folk who might help them to win more business – felt almost like a business re-launch. Lever and most of the senior team were there and spoke briefly, and then we had what I thought were very open and honest answers to questions. Lever is obviously very different to Andrews. He could appear to be on a different plane to the rest of us, incredibly bright and visionary, whereas Lever seems like a pretty normal guy, a capable CFO-type and manager rather than a charismatic leader. But maybe they’ve had their fill of charismatic leaders for now.

That image thing is important actually. Xchanging have cultivated a somewhat exclusive image and a bit of a “we do things our way” approach – for instance, with their unique enterprise business partnership model, and an unwillingness sometimes to get involved in competitive bid situations. Even their marketing, with their sponsorship of the boat race being the most obvious element, seemed a little – how shall we put it – exclusive. (And I speak as someone who just missed out on coxing in that event many years ago...)

But there were clear signals last week that they’re not wedded to the partnership model; and, as Lever said, they want to compete and win in open, competitive situations. You can also expect their marketing to get more targeted and direct, I suspect. On the corporate side of things, they have appointed Geoff Unwin as Chairman - he's an ex CEO of Cap Gemini, a serious player and ex or current Chair of firms like UBM, Liberata and Halma.

Also on the positive side, they’ve always recruited very good people – two ex-CIPS Presidents and other impressive people in their procurement division if we go back a couple of years (Rich-Jones, Rushton and Docherty was a top-class team).  There’s a been a changing of the guard more recently, but it is still a strong line up, headed by Ed Cross. Their procurement positioning is a combination of strong technology capability (much of the rest of the Xchanging business is very heavily technology dependent) with deep category capability, and a belief in delivering measurable savings – their ability to baseline and measure savings has always been a market-leading strength.

As Cross said, the recession has been good for procurement, with an “acceleration of opportunities” both for internal functions to make their mark, and for outsourcing firms. With Xchanging getting ready to get stuck in and position themselves to compete very actively, the field of credible outsourcing providers for procurement is stronger than ever.  Specialists like Xchanging, ICG Commerce (aiming to get more active in Europe), buyingTeam and 4C, as well as newer entrants such as Efficio and the "generalist" giants such as Cap Gemini, Accenture and IBM  - perhaps we will see this market finally taking off, as many have predicted for some years now.

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First Voice

  1. Jaye Cook:

    Interesting to see the progress on the rollercoaster of Xchanging, but I’m really not sure about the sustainability of a ‘no win/no fee’ model. My view is that this type of commercial arrangement tends to derive conflict between stakeholders, who are looking for better supplier service and more ‘value’, and an outsourced procurement function focused on out and out unit price reduction – Perhaps mutually exclusive goals.

    If an outsource provider or consultancy is paid a fixed fee, they can offer the best solution for the client (which may not generate a unit price reduction), without impacting their revenue. Perhaps a commercial structure based on fixed fee plus a bonus for client satisfaction would be a more appropriate future approach.

    I’d be interested to hear the thoughts of others on the Xchanging model, and their future prospects in the outsourcing space….

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