Functional and executive immaturity mean the expected tide of procurement outsourcing deals is still far off shore
Several years ago, the consensus among business professionals was that the next big wave of outsourcing was going to be procurement. Companies specialising in outsourcing ran into the water with their surfboards at the ready expecting to “hang-10” to profitability. But something unexpected happened on their way through the surf.
This big wave turned out to be a breaker that sputtered and stalled. The outsourcing service providers diligently went to the shore assuming this was just a minor setback and cast their gaze to the horizon, knowing that at any moment there would be a resurgence and that procurement outsourcing would be universally accepted as a viable and effective business option.
So they waited, and waited. And if you look you can still see them on the shore of unrealised expectations.
But the Everest Research Institute, one of the surveyors of this market, has noted that procurement outsourcing can become a “game-changer”, with a five-times savings multiple over other types of business process outsourcing.
It raises the question: why aren’t companies falling over themselves to take advantage of this kind of opportunity? It would be easy to dismiss the reticence as a fear related to loss of control, concerns about the ability of the service providers to deliver to expectations, and multiple change management issues. Yet these are all concerns that every other business area, from IT and HR to finance and call centres, had but were able to overcome.
As we know all too well, procurement departments used to be the elephant burial ground of organisations – places for staff members that either no one was quite sure what to do with or who were near to retirement. In the early 1990s, a light bulb flickered within a number of companies when the realisation hit that there was a significant competitive advantage to be had if a converged strategic approach was applied to the procuring of goods and services.
Yet today most procurement teams are still struggling to be perceived as a vital piece of the corporate success jigsaw. Companies have ignored the fact that procurement has moved from tactical to strategic to value-add and how this can significantly advance the bottom line. The corporate “parent” cannot see how procurement has ”grown up” because it is easier to disregard its intricacies and developments than it is to invest the time and effort to develop an understanding. Therefore procurement continues to languish in the “tactical toddler” preconception.
What does this have to do with the reticence in embracing procurement outsourcing? Simply put, procurement professionals are slowly gaining respect among their corporate colleagues at the strategic level. To contemplate outsourcing at this juncture may look counterintuitive to this mission. In most companies the senior echelon is just beginning to grasp the strategic expertise residing within procurement and its value equation. Outsourcing would strengthen the myth of procurement being transaction-orientated – exactly the perception that procurement is attempting to quash.
Additionally, the C-suite of executives is not comfortable outsourcing an enigma. HR, finance and IT are much easier to comprehend and they are used to interacting with these functions on a regular basis. Procurement exposure has usually been limited to very large buys, or when something goes awry with a minor purchase.
So the outsourcing of procurement functions will continue to lag behind, until the professionals in this area have appropriately marketed their value proposition to the organisation and they feel secure in the belief that outsourcing will not diminish their corporate stature. Simultaneously, the veil of mystery surrounding procurement will be lifted so that those in the C-suite will have clarity around the procurement outsourcing proposition.
In the long term, procurement outsourcing makes good business sense. Too much time and effort is wasted by procurement teams, particularly in the procure-to-pay and indirect spend arena, and by shedding this “hair shirt” it would be much easier to reach the strategic and value-add zenith within their enterprises. Unfortunately, as long as procurement teams feel undervalued and the C-suite isn’t fully imbued with “procurement intelligence”, the dearth of these deals will continue.
And for those lingering at the shore line expecting the big wave? Better reach for your sunscreen, because the wait will continue for a number of years.
Patricia Moser-Stern (patricia@i3advantage.com) is president of i3 advantage, a consultancy based in Markham, Ontario
