Could eSourcing soon change forever?

January 14th, 2008 at 05:14am David Bush - Iasta

I have heard from a few different sources that an eSourcing vendor is close to being acquired by a major consulting firm. Now this would not be the type of acquisition that has already occurred, between Perfect and Cormine, which has virtually no impact on the eSourcing landscape. The potential acquisition I speak of, would be considered a major event and bring a multi-billion dollar monster into the fold. Although, I have been told this a few times now, I should mention that I still do not really believe it and also have had other reliable people say that there is no way this can occur.

My intention of this post is not to speculate on this particular rumor. I did want think through some of the potential ramifications of a deal like this, should it ever happen to these companies, or any others. What happens to the general eSourcing space if it shifts from software to consulting? Will there be a “land-grab” of other acquisitions and alliances? Will innovation suffer? Will eSourcing users be effected? etc, etc.

Obviously, SAP and Oracle are already a big part of the eSourcing decision process, so having very large companies involved is nothing new. In most cases, these companies gobble up more users from the sheer ERP momentum, technology spending, and IT influence/power - which typically dwarfs procurement. Rarely, do the ERPs win with their functionality, their services, or have the procurement department willfully choose their products. Our experience has been consistent that the decision comes down to how much the sourcing team can make autonomous decisions about technology and resist the overwhelming force coming from IT and the executive corner office, who has had long term relationships with consulting firms. Many times, the decisions made by internal committees and sourcing teams are overridden by an executive that only goes back to the previous engagement.

This scenario is different, though. We are not talking about multi-billion dollar software giant any more. Now, it is companies of equal size but with procurement and supply chain expertise, that are willing and capable of selling multi-million dollar sourcing services. Will this have a long term effect on eSourcing? Of course it will, but how great will the impact be?

• Possibility 1: Innovation reduction - Let’s face it, innovation is almost exclusively the territory of smaller software vendors. We make things happen, then bigger companies either copy or acquire it. By reducing the number of smaller eSourcing vendors, innovation may potentially suffer for a period. This lack of innovation will, strangely enough, be coupled with cost increasing since the overhead will be so much different to operate the new “software” company.
• Possibility 2: The Domino Effect - If the technology industry is good for one thing, its predictability. As history has proven, time and again, once an arms race begins, it generally does not stop until the nukes cover every square inch of the Earth. I would imagine that, if this type of acquisition occurs, it would lead to, at a minimum, multiple tight (possibly exclusive) alliances and, more likely, a string of copy cat acquisitions that lock up technology. This only makes sense for the acquiring company, since the the supply of quality eSourcing vendors is very tight. They could have very strong competitive advantages if they squatted on good solutions for themselves. Conversely, eSourcing providers that hold their ground, will have the world as their oyster.

Note: This has been tried before, and the insider stories about the consultants that would not even recommend the product they owned, are shocking. As a result, the eSourcing vendor languished for years with no direction or hope for success. This is despite a tremendous start and being a leader early in the decade. So, although something looks great on paper, it has failed miserably in the past and is not guaranteed to succeed.

• Possibility 3: Skills erosion - Just like taxes, it is almost guaranteed that when large consulting companies get embedded, they foster a culture of laziness and complacency. “Oh, just let the consultants do it” becomes a well tread mantra. If a huge services company acquires hundreds of software licensed clients, it is very conceivable that there will be major cost increases and talent erosion, as they get deeper involved in all the processes around eSourcing.
• Possibility 4: Vendor absorption - This does not even seem like a question. If a services company takes over a technology company and it represents under 1% of its revenue…bye bye. We will not be hearing much from this vendor any more, as they will just become a pawn to be moved about while $10,000,000+ outsourcing deals are negotiated.

One thing is for sure, nobody can see the future. I feel that I know enough about this area to throw some opinions out there, but I have no real insight. However, I have speculated this exact situation would happen, but I thought it was another eSourcing company that would be the target. They now seem to be off the table, since their fate was sealed in ‘07. We shall all see soon enough, 2008 will much of the same that 2007 offered.

Entry Filed under: General, e-Sourcing Marketplace

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