A recent survey from the Centre for Strategic Supply Research (or CAPS to you and I) found that almost two-thirds of supply chain professionals viewed the procurement of services as being more problematical than just plain old materials and component procurement.

Why so? Well, if the survey’s findings are to be believed, the sheer weight of supplier numbers for the buying of direct services - on average respondents dealt with 105 active suppliers, as opposed to 36 active suppliers for the purchasing of direct materials – dictates that buyers often struggle to develop a proactive management approach.

Couple this with, amongst other factors, the fact that less than 60 per cent of services spending takes place through formal systems and processes and you get an understanding of why this is still an area giving many in procurement a considerable headache.

However, according to CAPS, the comparative neglect of services procurement spend in recent years – and the outsourcing of many other back-office operations – means that greater focus is now being placed on an area that can, the research claims, deliver the kind of cost savings needed at a time when many organisations are doing up their belts just a notch or two tighter.

Some companies are already well ahead of the competition, most notably Bank of America, who claims supply management is involved in 100 per cent of its service purchases. To prove their point they’ve upped their resources in an area that is, typically, short in both numbers and the requisite talent.

This lack of resource was identified by CAPS as being one of the fundamental issues facing services procurement, something that could change if others follow BofA’s example.

I just returned from an 8-day visit to India organized around the theme The Future of Work. We traveled with a group of  executives from North America of which many were from the areas of talent sourcing and HR. The visit was organized by the Human Capital Institute in Toronto and DNL Global in Dallas. It was fascinating even for one who grew up in India. The delegation visited the EDS BPO center, Microsoft’s largest development center outside Redmond, various schools and attended the National HR Conference on the Future of Work.

What does this have to do with Procurement, you ask? The operative word is ‘sourcing’ as in sourcing of talent. This word seems to have entered the HR vocabulary as a broad substitute for ‘recruiting’. I like the usage. It implies having to actively search for a source of a company’s primary asset – its people – rather than simply greeting them at the front door when they apply. Sources are increasingly diverse – internal markets, passive candidates, alumni, overseas workers, headhunters, contractors, free agents, staffing firms, part timers, shift workers. It seems logical to think of recruiting as, at least, partly a sourcing activity.

Notes from the trip:

• The central equation of employment has changed, perhaps forever. In the old equation, employees offered their loyalty in exchange for security. Now they offer their talent in exchange for meaningful opportunities. This is a Daniel Pink (“A Whole New Mind”) observation and oft quoted at the conference in New Delhi. I believe that sourcing this talent will go far beyond traditional notions of recruiting. It will extend to the redesign of jobs to maximize their appeal to the knowledge workers everyone is trying to attract.
• Anything that can be done at the end of a wire will probably be outsourced sooner or later. This includes voice and data dependent processes. We visited the bustling EDS/Mphasis BPO center in Mumbai. The range of outsourced processes handled here has grown far beyond simple call center support. Work increasingly doesn’t have a specific location.
• What’s good for the goose... Many firms that previously spent huge amounts on third party outsourcers are setting up their own captive offshore shops in India and other low cost locations. This is putting a huge premium on attracting and retaining the right types of workers. Turnover in some places runs 60-70% a year and some multinationals are resorting to mutual non-poaching agreements to stem the tide.
• Progressive companies are creating positions such as ‘Chief Talent Officer’ to acknowledge the changing nature of HR. One such executive from a major multinational pharmaceutical firm was traveling with us.
• Microsoft’s largest development center outside Redmond is in Hyderabad, India. We toured the beautiful campus with its pristine buildings, a standout in the Hyderabad landscape. No formal office hours, people in the gym mid-morning, energetic people everywhere - a lot like what you’d expect at a startup. This type of energy was typical at the places we visited; a palpable sense of excitement at the possibilities that the country is just discovering.

A few months ago, I was in a conversation with a senior IT executive at a Fortune 500 company with a substantial European presence. He had just wrapped up an RFP to select offshore IT providers to handle project work that was conducted inhouse. The project spend was substantial – in the range of €150 million as best as they could tell. He had an interesting problem on his hands - "Now that I have these providers in place, how do I get my managers to send them work?" In other words, how should a manager recognize that a project had the characteristics to be outsourced?

Large sums were riding on getting this right – the average Indian offshore rates are a third of the European or North American rates. This was an area on which I had a point of view. I had begun my career at a major application outsourcing shop, one of the Tata companies, and had stayed in the industry for several years. The bane of the IT outsourcing industry in the early days was figuring out what types of work could be outsourced. There were plenty of failures on both sides – suppliers overcommitting and buyers trying to sweep a mess under the carpet by outsourcing it. We had our own "Top 5" reasons for why outsourcing projects failed:

1. Outsourcing a bad/ineffective process to a partner - outsourcing to shift a problem to someone else

2. Poor project scope definition (this is why managers find it easier to just hire contract workers –project scoping takes discipline)

3. Excessive focus on cost reduction – heart surgery by the lowest bidder?

4. Vendor mismatch due to over representation of capabilities

5. Internal resistance from managers who oppose outsourcing/offshore

Few companies have embraced outsourcing as completely as General Electric. In 2000, they talked about a 70/70/70 model – 70% of all GE work would be outsourced, of that 70% would go offshore, of that 70% would go to India. GE and others came up with tightly defined and repeatable criteria to help their managers make the right outsourcing decisions at the project level. The unit eventually took in outside investors and began serving other companies besides GE.

Back to my conversation with the IT executive. The €150 million was being spent by hundreds of managers making thousands of independent decisions. They were the front line. There was no central coordination. The executive wistfully spoke of wanting something that was as easy to use as Quicken or Turbotax. It was a good analogy – those tools have taken a numbingly complex subject (the tax code) and made it accessible to mere humans. They did it by creating an elegant decision tree that guides users through only the things that are relevant. Companies will have to solve this problem for outsourcing if they are to see the full benefits of the global service delivery model.