Eighteen years ago, one man had a vision to take on, improve and ultimately manage the procurement function for British companies.
And what better to call his firm, than the “buyingTeam”? I mean, what else are you supposed to do when you’re in the procurement services business? However, when the affable Matthew Eatough decided to expand his business into the United States, a little whisper in his ear convinced him it was time to sex-up the name and relaunch his firm as ‘Proxima‘ (you can read more here about the relaunch) as they settled into their new Chicago digs.
Today, Proxima has earned a reputation for going far beyond the administrative indirect procurement activities to delivering category management and strategic sourcing solutions for clients such as British Airways, Universal Music and Prudential, with a reputation for tailoring solutions for clients in dire need of improving their procurement processes. Now the firm’s challenge is to broaden its unique brand of procurment expertise into the US market, so I managed to grab some time with Matthew to find out more about the grand Proxima plan…
Phil Fersht (HfS): Matthew, can you tell us a little bit about you and your background and how you came to lead a procurement outsourcing company?
Matthew Eatough (Proxima): It has been a long journey, 18 years. My original move into this business was a slightly odd route. I was involved in the management of a turn-around situation for a relatively small retail and manufacturing business, which was subject to a buy-out in the early 90s.
A large portion of the financial impact of turn-around t was focused around negotiating supplier terms and putting some professionalism into the procurement processes. I don’t think we fully understood what we were doing at the time and I think it was just something we did because it was a financial necessity.
Continuing this cost reducing approach, we gradually became a cost management business which has developed over the years with the latest iteration being from buyingTeam to Proxima.
In many ways, I’ve learned most of what I know about Procurement ‘on the job’ over nearly two decades. The business turn around entry path is quite important and is probably still in my professional DNA. Many elements of Proxima’s methodology, approach, mission and vision look at procurement from a business perspective – which means not only making the procurement function better, but also delivering true value back to the business, enabling the business to achieve its strategic goals and objectives.
PF: Okay, so you’ve been around for 18 years but you’ve only recently decided to make a move into the US market. Why did it take so long… and why now?
ME: In the early 2000s we were much more in the consulting arena than outsourcing. I therefore see the business as a 7 or 8 year old start-up rather than an 18 year old start-up. In terms of ‘why now’, we were very keen to attain critical mass in the UK before expanding into the US.
In order to make our expansion a success, it was necessary to have US fulfillment capabilities to effectively service our blue-chip client base (we have been delivering procurement services for UK based clients in the US for 5 years). Further to this, we needed 2 or 3 stand-alone US reference clients because although I think the US market will respect what’s being done overseas, a US based CFO / CPO will probably be more work with an established business with US clients. We’ve been fortunate to acquire 3 clients in the last year and we are now making a major push to build our capability depth and breadth in the US.
The US is clearly the largest single market, and the most advanced in terms of its appetite or business services and outsourcing. We are also seeing an interesting development in the US in that the market seems to be splitting into several distinct approaches. One approach is of a very standardized, efficiency focused and arguably slightly industrialized approach to procurement. You have the operational BPO firms that really seem to be all about lowering the cost of service delivery which, we think, leaves a large untapped opportunity in the US market for us. Our approach is different; we focus far more on how a company strategically embraces the management of its third party suppliers to power the business. I strongly believe our approach will enable us to succeed in the US.
PF: What are the top two things that you feel differentiate Promixa in today’s market?
ME: A major differentiator is that we fundamentally believe that for procurement to be a transformational experience, there is a level of ‘intimacy’ that needs to be imbued in the client/provider relationship. This intimacy needs to be at both at a delivery level and a senior management level – to really bind and sustain the procurement transformation as opposed to simply running a remote BPO operation. I think that if if this is done well the client gets a whole range of benefits including savings.. However if a business wants to go from immature to world class in the management of procurement to help drive its wider strategy then it also needs to have a more sophisticated approach than simply measuring savings.
Our further differentiator is that our overall USP has nothing to do with labour arbitrage. One of our core strengths is our ability to concentrate the types of processes that are managed better into a shared service delivery centre to drive effectiveness and efficiency whilst at the same time allowing us to invest more of our overall margin into having top-end, on-site client facing resources truly driving change and achieving excellence for our clients giving all of the scale benefits of an outsourcer with all of the intimacy benefits of a top class in-house procurement function…
PF: Our research has shown that it is stand-alone procurement outsourcing deals that have fueled the market growth. We saw 23% growth in the last year and we’ve seen 430 multi-process procurement outsourcing contracts now in play. Would you class yourself specifically as a pure play procurement firm at this point or are you getting involved with broader deals with multi-tower aspects?
ME: We are focused on (and very clear believers in) the benefits of being a pure play procurement provider. We think not being a pure play has business compromises at almost every turn. Multi tower deals often disguise the exceptional ROIs available in procurement. Multi tower providers often use procurement results to hide otherwise mediocre business cases for wider F&A mega deals.
PF: We were talking earlier about some of the differences between the business cultures in the US and the UK… as you move into the market here, how would you classify doing business in the US compared to the UK in the outsourcing space?
ME: I think there is at least one book to be written on that subject so I’m not going to attempt to cover that whole ground. In my experience, the differences are that obviously regional geography and local culture is much less of an issue when dealing with US companies.
I think a complexity is that we are divided by common language and you have to be extremely careful to make sure you have fully understood the situation – particularly when we are talking about the softer elements or the HR issues associated with procurement outsourcing. I think there is also an issue that (at least superficially) US corporate management appears to be much more value seeking from its supply base than many Europeans. As such, I think it is much easier to engage with them around understanding the procurement transformation and outsourcing approach.
From my perspective, a big difference between the markets is that certainly at initial stages of discussion, US corporates are far more interested in how we deliver the benefits whereas in Europe they are far more interested in what the benefits are going to be.
I think this is best shown through things like attention given by US executives around what technology is being used and what procurement methodologies are being applied. Whilst in Europe, greater attention tends to be given what they are going to get.
PF: Our recent research with over 500 buyers of outsourcing across the UK and the US found that US businesses understand that they need to transform processes and they need to access new talent caliber to get results. Conversely, a lot of the continental European businesses don’t feel they need change what they do, or their talent. Why do you think there is this differently mentality?
ME: I think that, at its heart, this isn’t just a procurement issue and this applies to the whole outsourcing journey in the US, which is probably 20 years older than it is in Europe. You also have to remember that outside of the UK, the difficulties in actually effecting organizational change as it relates to talent or organizational structure is very constraining for management.
PF: How do you intend to service the US clients from a global nature? Are you looking to increase delivery and capability category in the US or are you going to try and deliver a lot of these from other locations?
ME: We have a strong global category strategy with local category directors supporting this across all our clients. Our fundamental belief is that we are not simply bringing a labour arbitrage solution to clients, what we are bringing is a relationship and deploying intimate market relevant expertise. In order to do that you have to offer local capability. We are busy developing our US team out of Chicago to deliver this.
PF: Tell us a bit about your facility in the UK. How many clients do you service out of that today, and how do you see that evolving over time?
ME: Currently we service 20 large, blue-chip clients out of our on-shore facility in South Wales (United Kingdom). We have about 100 people based there who are entirely focused on running the various category related events and data/analytical processes plus managing many of the various technology solutions and systems for these clients.
The centre offers our clients deep category expertise and a broad range of capabilities that are internationally scalable. We are trying to segment most categories into higher added value (which we seek to deliver very close to the client) and lower added value (which may very well be some of the lower levels of category expertise and are more simpler or homogenous categories).
PF: Who do you find is your ultimate client in the enterprise? Is it the CPO is it the CFO, is it shared services executives? Where do you typically find the new opportunity for yourself?
ME: I think we typically only have two economic buyers – split 50/50 in terms of CFOs and CPOs. Both tend to use our services in slightly different ways.
I think CPOs typically are looking for an augmentation of what they do. The CPOs that we work with generally managing the entire supply chain – and are looking to effectively outsource their indirects.
The CFOs that we work with are responsible for providing end-to-end capability to the business. We really become accountable as a CPO in those environments.
I do think it is an interesting differentiation and the underlying deliverables are very similar but it’s a different message to the client’s business.
PF: The final question I have is around technology. Are you being very technology agnostic around your approach and focusing much more on the process at this point, or are you looking to get more involved in some of these platform-based deals?
ME: I think we, the provider community, is on a journey and I don’t think any one is getting this 100% correct right now. If you look at the history of the major providers, their origins were in the dot.com era during the late 90s, early 2000s in which they invested massively in technology and automation systems and I think ultimately they probably got very modest returns. Capgemini made the acquisition of IBX and in my mind it is unclear that this has given them any positive differentiation as a procurement outsourcer… I’m not sure anybody, including IBM, has the greatest technology narrative in this market. I don’t think anyone has yet cracked the correct positioning of technology in procurement outsourcing.
Also, through our multi-client shared services model, we are running a very large procurement function. Getting the technology, work load, customer relationship management, supplier relationship management and specific procurement application right is absolutely essential. That’s increasingly where the market seems to be moving at the moment. That’s increasingly about Proxima and how we use technology to provide a great service rather than how we use technology to embed ourselves in the client.
I think there is another side to the technology question which is where we have much more of a position, which is how CRM can help with stakeholder management.
So in answer to your question, we are really technology agnostic and we are very happy to operate client’s platforms or happy to provide them with our own technology. We really don’t want technology to be any sort of barrier to engaging with a client in anyway. To do that I feel we have to be both flexible and agnostic.
PF: When you look at how you are building a procurement services firm, what would your advice be for procurement professionals… some of them might be a little nervous about outsourcing. What would your advice be to them in terms of how they can develop their career paths and get involved in more strategic decisions within the enterprise?
ME: I think you have touched on something that is very intriguing and that probably exists more in the procurement world than in any other functional discipline and whilst I think there are signs that it’s changing it’s still noticeable issue in procurement that there is a distrust with many in-house procurement professionals about the career merits of outsourcing providers. I find that genuinely a backward looking view of the world. If I were a young procurement professional I would think some time working on the provider side would be great for my development regardless of whether I intend to stay there forever. I think you can get a completely different set of experiences in a provider environment than you can get in-house..
I think you can accelerate the level and range of experiences you get probably on a 3 or 5 to 1 ratio – I think two years of provider experience is equivalent to 6 years in-house in the early stages of a professional career.
PF: Do you think this use of the word outsourcing in the vernacular and the perception it implies is getting a bit dated? In the old days outsourcing was really about ‘lift-and-shift’. It was moving IT staff, it was moving F&A staff out of the organization and using offshore augmentation, but today most of the providers don’t want to take on a lot of new staff – its more about a service. It is really about “business services” today and not “outsourcing services”?
ME: I think you touch on something really interesting. One of the problems we collectively have as an industry is when we say outsourcing, we mean added value and services but the client often hears BPO, which is fundamentally labour and technology arbitrage and cranking a handle. I think there is a really interesting analogy around marketing services agencies (which in essence is an outsourced industry). These agencies don’t call themselves outsourcers because they would contend that they are really about having a value adding partnership with their customers over many years. However, because they are marketers they have been much cleverer about avoiding the BPO label. I do think we need to find a new collective description of this sector which clearly positions us somewhere between a consulting and BPO proposition.
PF: Matthew – it’s been a pleasure hearing our story and am sure many of our readers will be wishing you the best as you expand your business Stateside.
Matthew Eatough (pictured) is CEO of Proxima. You can read more about Proxima by visiting their new website.