Despite the self-serving nature of this article/press release by a procurement group in Asia, it's worth considering whether the Philippines is an overlooked area for procurement outsourcing, especially for back-office buying and transaction-management functions. With all of the attention that Indian-based outsourcing firms receive, perhaps the Philippines deserves equal consideration for key tasks and processes. As a technical support hub, the Philippines has certainly given other low-cost countries a run for the outsourcing dollar. I came across a BCG paper on the subject a couple of years ago, and I saved it because it captured the essence of the region succinctly. It suggests that the Philippines, along with its other Southeast Asia neighbors, "have assumed an important role in the globalization of cost structures … [thanks to] well-educated, low-cost labor forces and fast developing internal market." Still, the region is fraught with potential perils that some might not consider at first glance.

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Over on Horses for Sources, entrepreneur-turned-stealth-researcher Phil Fersht* recently suggested that some big-name outsourcing firms might be tossing in the towel when it comes to selling and delivering higher value offerings that focus more on process and expertise, rather than "lift and shift" labor-driven arbitrage models (which still quietly form the bulk of offshoring deals). Rather than go out with a bang like a Mike Tyson biting off an opponent's ear, they're simply keeling over, asking potential hires capable of working with C-level executives to "sell low-cost IT/BPO services, as opposed to working with existing clients to up-sell more consultative, higher business-value offerings."

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Capgemini's recently announced acquisition of IBX got me thinking this week about what it will take for procurement outsourcing to go mainstream. Fortunately, the timing of my analysis (not to mention the deal timing) could not have been better, as it coincided with a last-minute visit from an expert on the subject who happened to be in Chicago the day following the acquisition. I had the distinct pleasure of catching up this week over some firewater with my old friend and colleague, Phil Fersht, of Horses for Sources fame (or would that be offshore infamy?) Phil knows more about trends in the overall outsourcing market than just about anyone I know, and he's got some fairly strong -- even survey-informed -- views when it comes to procurement outsourcing specifically. In a recent post on his blog, Phil spilled the BPO beans on some survey data that sheds some insight on procurement outsourcing.

In his new study, Seeking the New Normal in Outsourcing Delivery, Phil managed to get 1,055 outsourcing executives across customers/service providers and advisors to share their views on outsourcing and their intentions for 2010. In this rant, I'll share some of what he found, and offer up my own perspective on the situation. In Part 2, next week, I'll offer a no-holds-barred prescription for curing what holds back procurement BPO today (and how providers are just as guilty as companies when it comes to getting the sourcing/purchasing/payables outsourcing equation right).

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Getting up on his virtual sandbox, former analyst Phil Fersht recently proffered his predictions for the outsourcing market in 2010. Even though Phil is no longer officially an independent analyst given his role at Cognizant, I still turn to him first for his opinions on the subject, if for no other reason than he is quick to buy the first round of drinks if he knows that someone is actually listening to him. (Which most others do as well, in most cases, even if they're sober and reading his stuff from a distance.) Because Phil, unlike most analyst types who look at the outsourcing arena, is anything but boring and staid in how he looks at things. Consider his view, which I unfortunately hold as well, that "Labor arbitrage will continue to dominate outsourcing, but the smart providers will be focused on providing consultative value to their clients." In the procurement sector, there are still far too many deals getting done for the wrong reasons, including the labor-cost arbitrage of the kind Phil points out.

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In the first column in this series highlighting Basware's latest connectivity offerings, I talked on a high level about how this offering fits in the context of Basware's overall P2P footprint. In today's analysis we'll go deeper, examining how Basware's open connectivity solution works in practice, which will explain why the solution represents the company's fastest growing offering and revenue line item. In short, the solution's flexibility and ability to sit on top of other invoicing and document exchanges/clearinghouses/networks has enabled Basware to position its connectivity solutions as a complement to other investments that both buyers and suppliers in a particular customer procurement and payment ecosystem have already made.

Historically, especially on a global and cross-border basis, it has been very challenging for companies to connect all of their suppliers through a single approach, let alone a single network. Basware’s connectivity solutions aim to change this and, in doing so, provide a more complete solution that increases the overall efficiency of A/P organizations, driving new levels of visibility, operational cost reduction, and working capital visibility and levers. Not to mention driving a greater percentage of invoicing activity to a virtual, e-invoicing environment.

As one example, consider how in less than five years Lloyds has shifted the great majority of their invoicing down an electronic path. While today, they still must handle 233,000 paper invoices per year, they now receive roughly 80% of their activity virtually, or some 1.163 million e-invoices per year. This has resulted in a high A/P efficiency level. Consider that a single FTE can manage 129,000 invoices per year at Lloyds and that 9 A/P resources handle all of the firm's invoicing requirements. And compare this with more typical top performing A/P department with electronic workflow which handle roughly 35,000 invoices per year according to Hackett Group and Basware.

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In the debate over group purchasing organizations (GPOs), I'm still not entirely convinced that they represent a good investment outside of a handful of select spend areas -- at least for most companies. After all, the payoff for doing sourcing right versus wrong is so much larger for companies who invest in the right teams and processes (not to mention technologies). Moreover, the incremental benefit from a non-leveraged category environment versus one where a party (e.g., a GPO) skims off the top can still be large. This is because in most cases GPOs are nearly always compensated based on a portion of the transaction, so it makes no sense for them to get a price that is any lower than "good enough" from suppliers, since they'll make less as the offer becomes more competitive. But perhaps I’m in the minority in this type of thinking, especially if you consider the arguments that Mark Usher makes in favor of leveraged buying approaches for non-strategic categories.

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Over on Horses for Sources, Phil Fersht recently added fuel to the argumentative fire that IT is becoming less and less relevant inside many organizations. In this post, he suggests that IT outsourcing, the primary reason behind the rebound in services businesses, is further marginalizing nearly all levels of IT in the organization. Here he notes that "much of the bottom-layer of IT has already been contracted out" and "it's now the middle layer of IT professionals which is under threat." Moreover, "CIOs are under pressure to prove the value of maintaining these heavy middle-layers, or move them out of the organization." Phil further suggests that those CIOs that survive "will need to train their staff to think out-of-the-box, to learn how to work more effectively with the business units, and to bring technologies into the organization that can truly impact the business and the corporate culture."

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When I first got a peek inside a full service e-sourcing process in the late nineties, I quickly realized that, despite all the posturing and spin behind how FreeMarkets and others positioned it, the process was really more science than art. Granted, back then, everyone still thought that you needed expensive and analytically driven MBAs to do much of the work behind the sourcing magic. In retrospect, this was obviously not true -- you certainly needed smart team members but, provided they had the right people and quantitative skills, it did not even matter whether they graduated from high school, let alone Harvard. Fortunately today, full service e-sourcing has evolved to a stage where established processes and reliable, low-cost technology have lowered the barriers to entry such that nearly anyone who has done it before can pull together an organization and team to do it well without charging an arm and a leg for their services. Such is the case with UK-based e-sourcing firm e-Three, run by FreeMarkets alums James Anthony and Jenny Saward (Draper).

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Late this afternoon, a Reuters story hit the wire confirming that Anil Kumar, a former McKinsey Director, was no longer with the firm following an internal investigation. Reuters quotes an email note from McKinsey spokesman Michael Stewart noting that "We have concluded our internal investigation and can confirm that Anil Kumar is no longer with our firm … We are unable to go into further details about this matter as there are ongoing U.S. legal proceedings." Kumar, as many will remember from earlier this fall, was a senior McKinsey partner who was accused as part of a Federal probe investigating an insider trading scandal at the Galleon Hedge Fund.

In an earlier column on Kumar, Spend Matters provided some background his pioneering efforts in the knowledge process outsourcing (KPO) area. The same column also took a cursory glance at the culture behind directorship election at McKinsey noting among other things that “given the fact that McKinsey so heavily vets those moving into a Director level role -- on all levels, including the character of the individuals up for promotion -- that there is a reasonable chance that Kumar might be found innocent if his past behavior is any indication of the ethics he brought with him into his Director role.” In retrospect, I supposed we called this one too early.

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In the first post in this series yesterday, I examined some of the factors driving Zycus' impressive growth numbers, drilling specifically into their recent traction with both legacy (e.g., spend classification) and new (e.g., spend analysis, sourcing and contract management) solutions. Today, we'll continue this analysis, examining how professional services and a mini-me offshore version of their competitors' onshore sourcing factory delivery capabilities are fueling an important part of Zycus' overall market ascent. But before getting into professional services, specifically, it's worth pointing out that Zycus has focused as much on global opportunities as those within North America as it has looked for markets and customers to contribute to their growth equation. In fact, Zycus' presence in Europe and Asia is in strong disproportion to the typical focus and size of vendors going after these markets. But this has always been the case with Zycus, which has truly sold a world-product since the early days of its spend classification tool.

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