Outsourcing: Ed Cross, Executive Director – Procurement & HRO at Xchanging (Part 3)

Sramana Mitra: What do you think is driving that trend? Why is procurement outsourcing growing?

Ed Cross: A couple of things. One is that businesses need to save money. Though the global economy is starting to come out of recession, there was a level of retrenching that went on when economic conditions were difficult for businesses. Procurement is a relatively straightforward area to save money. For the CFO or the CEO, procurement outsourcing is starting to enter the mainstream and being seen as a viable approach to saving money, particularly if it’s outcome-based. We tend to charge our customers from the savings that we achieve. It’s a fairly straightforward decision for the CFO to engage somebody like ourselves.

The other key facet for procurement outsourcing is that it’s been around for 10-15 years, and increasingly, the procurement practitioner is seeing procurement outsourcing as part of his lexicon that he or she might use to reduce cost. As with any new offering in the marketplace, there’s always hesitancy among the buyer or user community to try something out. You don’t want to be the first mover.

With procurement outsourcing, now that it’s entering the mainstream, more and more people are aware of it in blue-chip organizations, and they’re realizing that it is a viable option for them. We are seeing, increasingly from the procurement perspective, big blue-chip organizations. For example, we want to deal with Diageo this year to manage their MRO spending globally. Diageo is a very sophisticated organization. It has a strong procurement function, but what they’re clearly doing is saying, “Well, there might be an area where we’re not as good as we’d like to be. We don’t want to make the investment.” Therefore, now they’re open to bringing in a third party to help manage that challenge.

10-15 years ago, a lot of organizations would not make that jump. That’s a key trend. Perhaps, people’s perception of outsourcing as a solution is changing. More and more companies, from a strategic perspective, are realizing or identifying that outsourcing is not just about IT and F&A, it can be about other functional areas within the business. It could be HR or procurement, for example. Companies are a lot more open-minded about what third parties can bring in to their businesses. That’s somewhat of a shift. Maybe some of that is driven by changes in the world economy.

Sramana Mitra: What is your sense of what the opportunities are? Obviously, you are catering to large chunks of the needs of the industry. Where do you see open problems? Within the procurement outsourcing space, what are some of the open issues?

Ed Cross: There’re probably a number of issues for the customer. First and foremost, this is a general outsourcing issue, the strategic consideration for the leadership of any business. A challenge for the leadership of the business is that the closer it comes, the more difficult it gets. When you’re looking at outsourcing as a buyer of services, you think in terms of fairly low-risk areas. In F&A, for example, financial processing has been around a very long time and strategically you think, “Well, there’s not a great deal of risk in outsourcing that.”

From buying organizations, it still remains a concern about how close to the strategic imperatives or center of the business an outsourcing decision comes. A lot of businesses are still hesitant to outsource things that are core to their businesses. That’s the number one consideration that a lot of organizations view outsourcing in the context of fairly repetitive, low-value, and low-risk tasks. I still think there’s a way to go in terms of moving up the food chain in terms of what can be outsourced.

This segment is part 3 in the series : Outsourcing: Ed Cross, Executive Director – Procurement & HRO at Xchanging
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