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HfS Blueprint Report Procurement Outsourcing Services Excerpt for Accenture July 2013

Brian Dubiel Principal Analyst brian.dubiel@hfsresearch.com

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Table of Contents

Topic Page

Executive Summary 3

Research Methodology 6

Service Provider Capabilities 15

Service Provider Profile 19

About the Author 21

Executive Summary

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Introduction to the HfS Blueprint Report:

The PO Services HfS Blueprint Report is part of the series of Blueprints by HfS. Unlike other quadrants and matrices, the HfS Blueprint identifies relevant differentials between service providers across a number of facets under two main categories: innovation and execution.

HfS Blueprint Report ratings are dependent on a broad range of stakeholders, with specific weightings based on 1,355 crowd-sourced responses. Stakeholders include:

PO Enterprise Buyers PO Service Providers PO Industry Influencers (sourcing advisors) HfS Analysts

Procurement Outsourcing (PO) Services

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Key Highlights in Procurement Outsourcing Services

PO market is still in growth mode. HfS sizes the PO market at $3.4B and estimates CAGR to remain above 12% in the coming years - exhibiting signs of nascent adoption and market immaturity.

Few providers truly offer end-to-end, or an “industrialized” PO service. Most service providers have yet to deliver full-scale practices in the PO space, with only a select number of providers (Accenture, IBM, and Infosys) really capable of delivering a tested industrialized solution or an end-to-end value chain procurement solution.

Clear differentiation between transactional and sourcing providers. Strategic sourcing’s broader benefits to the company include reducing indirect spending and tail-spend management. Providers that perform well in this part of the value chain include Procurian, Accenture, GEP, and IBM. Other providers exhibit greater strengths in the transactional elements of the PO value chain, such as AP and invoice reconciliations. Examples include Genpact, Capgemini, and HCL.

PO is still seen as a supplement to a global operations strategy. Most often as part of larger finance and accounting (F&A) BPO deals, today’s PO deals are often ancillary parts of multi-process BPO engagements. As part of the study, it found that more than 35% of all deals are part of a bigger multi-tower contract. This trend is subsiding however as buyers’ maturity and vision grows in this space. Service providers should be aware of these changing industry dynamics and begin to look at PO as a focal part of delivery rather than an ancillary part of a deal or contract.

Technology is becoming a real differentiator in the market. From analytics to platforms to dashboards, the exposure and adoption of these newer IT procurement offerings are changing the overall landscape of procurement outsourcing. Buyers are looking for providers to not only take over procurement processes, but also to manage the underlying technology.

Transactional based pricing still eludes the market. The adoption rates of “per PO or invoice” or “transactional” pricing models remain very low. Fewer than 10% of all PO deals include some form of either.

Research Methodology

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Research Methodology

Data Summary

More than 550 data points were collected on over 395 live multi-process Procurement Outsourcing contracts.

Data were collected in Q1 of 2013, covering 33 buyers, providers, and advisors/influencers of Procurement Outsourcing and business services.

This Report is Based On: Tales from the Trenches: Interviews with buyers who

have evaluated service providers and experienced their services. Some are supplied by service providers, but many are interviewed through interviews conducted with HfS Executive Council members and participants in our extensive market research.

Sell-side Executive Briefings: Structured discussions with service providers intended to collect the data necessary to evaluate their innovation, execution, market share ,and deal counts.

HfS “State of Outsourcing” Survey: The industry’s largest quantitative survey, conducted with the support of KPMG, covering the views, intentions, and dynamics of 1355 buyers, providers, and influencers of FAO and business services.

Publically-available information: Financial data, website information, presentations given by senior executives, and other marketing collateral.

Participating Service Providers

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Key Factors Driving the HfS Blueprint

Evaluation Criteria

Two major factors:

• Execution represents service providers’ ability to deliver services. It includes:

– Solutions in the Real World – Quality of Customer Relationships – Flexible Pricing Models

• Innovation represents service providers’ ability to improve services. It includes:

– Vision for End-to-end Process Lifecycle

– Integration of BPO and ITO – Vision to Tailor Solutions for Specific

Industries – Leveraging External Drivers

Criteria Weighting

Criteria are weighed by crowd-sourcing weightings from the four groups that matter most:

• Enterprise Buyers (40%) • Service Providers (30%) • HfS Research Analysts Team (20%) • Advisors, Consultants, and Industry

Stakeholders (10%)

Weightings from this report come from the January 2013 HfS State of Outsourcing Study.

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How the HfS Blueprint Scores are Compiled

Provider G Provider J

Provider B Provider G

Provider A Provider B

vs.

vs.

vs.

…

After providers respond to the HfS’ Blueprint RFI, and upon completion of client references and fact checking, HfS analysts conduct a paired comparisons survey of service providers in each category of evaluation. This can be as many as 700+ unique provider comparisons.

Using ExpertChoice, an advanced statistical analytics platform, the data/rankings are compiled and compared across all provider comparisons to identify inconsistencies within the scores.

After a further data refinement, the criteria weightings are used to give each service providers a score in each of the evaluation criteria components.

Once aggregation and scoring is complete, the service providers’ scores are plotted, producing the HfS Blueprint.

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HfS Blueprint Scoring Percentage Breakdown EXECUTION 70.72%

Quality of Customer Relationships 27.47% Quality of Account Management Team 11.74% How Service Providers Engage Customers and Develop Communities 6.83% How Service Providers Incorporate Customer Feedback 8.9%

Real-world Delivery Solutions 23.7% Actual Delivery of Services for Each Sub-process 10.89%

Strategic Sourcing 5.77% Transactional Procurement 3.22% Supplier Management 0.71% Contract Management 1.18%

Geographic Footprint and Scale 4.11% Usefulness of Services to Specific Client Needs of All Sizes 8.7%

Flexibility to Deliver Both End-to-end Solutions and Point Solutions 3.76% Experience Delivering Industry-specific Solutions 4.94%

Flexible Pricing Models to Meet Customer Needs 19.55%

INNOVATION 29.28% Vision for End-to-end Process Lifecycle 11.72%

Concrete Plans to Deliver Value Beyond Cost and Investment Into Future Capabilities 4.6% Integration of Technology into Business Process 3.19% Continuous Improvement Methodology and Capability 3.92%

Vision for Industry-specific Solutions 9.63% Ability to Leverage External Value Drivers 7.93%

Leverage New Technology, Security, Social Media, Mobility and Cloud Capabilities 3.9% Incorporate Regulatory Requirements Quickly and Proactively 4.03%

TOTAL 100.00%

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Execution Definitions EXECUTION How well does the provider execute on its contractual agreement and how well does the provider

manage the client/provider relationship?

Quality of Customer Relationships How engaged are providers in managing the client relationship based on the following metrics: quality of account management, service provider/client engagement, and incorporation of feedback?

Quality of Account Management Team What is the quality level of professional skills in the account management team?

How Service Providers Engage Customers and Develop Communities How well does the service provider engage clients and develop client communities?

How Service Providers Incorporate Customer Feedback

How have service providers taken feedback and incorporated that feedback into their product/solution?

Real-World Delivery Solutions Does the solution provided compare favorably to the service agreed upon when taking into account delivery of services for each sub-process and geographic footprint and scale?

Actual Delivery of Services for Each Sub-process Taking into account each sub-process and the entire macro-process, does each sub-process sum to successful delivery of the service being provided? For example, in the finance and accounting macro-process of order to cash, are all sub-processes being delivered upon successfully?

Geographic Footprint and Scale Specific to the category, to what degree do service providers have geographic locations that offer strategic value and do they have scale?

Usefulness of Services to Specific Client Needs of All Sizes

How flexible and experienced are providers when tailoring solutions based on client size, location, and type of solution (end-to-end and single-point)?

Flexibility to Deliver End-to-end Solutions and Point Solutions

How flexible are providers with delivering multi-process end-to-end solutions versus single-point solutions?

Experience Delivering Industry-specific Solutions How well does the provider deliver industry-specific solutions (for example, healthcare, insurance, and financial services)?

Flexible Pricing Models to Meet Customer Needs How flexible are providers when determining pricing of contracts?

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INNOVATION Innovation is the combination of improving both services and business outcomes.

Vision for End-to-end Process Lifecycle

This is the strategy for delivery services to each part of the processes "value chain". For example, in finance and accounting, the components of the value chain may include order to cash, record to report, and procure to pay. In customer relationship management, the components may include outbound service, inbound service, quality, training, workforce management, call routing, self service, and customer insights/analytics.

Concrete Plans to Deliver Value Beyond Cost and Investment in Future Capabilities

Clear understanding of what value levers exist and how the service provider will deliver that value. Examples of value may include labor arbitrage, technology, analytics, quality, revenue, global scale, and flexibility.

Integration of Technology Into Business Process How does the service provider integrates applications with manual labor to improve value to clients? Service providers may provide cloud-enabled technology, SaaS, workflow, or analytics applications.

Continuous Improvement Methodology and Capability How well does the provider execute on improving the business processes and capabilities of their solutions?

Vision for Industry-specific Solutions Does the provider have a vision for services specific to certain industries?

Ability to Leverage External Value Drivers How well have providers integrated external value drivers into their services? Examples include cloud solutions, security enhancements, incorporation of regulatory changes, and use of new collaborative tools.

Leverage New Technology, Security, Social Media, Mobility, and Cloud Capabilities

How well does the provider leverage new technologies/enhancements, mobility functionality, and cloud capabilities into their solutions?

Incorporate Regulatory Requirements Quickly and Proactively

How well does the provider incorporate the latest regulatory requirements and proactively integrate future regulatory requirements?

Innovation Definitions

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Definition of Procurement Outsourcing Services

Procurement Value Chain: 10.89% of Total Score

Strategic Sourcing

• Spend Data Management

• Demand Management

• External Marketplace Analysis

• Sourcing Strategy • Sourcing Event

Management • Proposal Evaluation • Negotiation

Transactional Procurement

• Procurement Help Desk

• Accounts Payable • Invoice/Receipt

Match Reconciliation • Asset Management

Supplier Management

• Supplier Enablement • Supplier Help Desk • Supplier

Accreditation Management

• SLA Monitoring • Vendor Relationship

Management

Contract Management

• Contract Repository • Contract

Administration • Contract Template

Management

HfS Value Chain Definition:

Value chain refers to the series of departments that carry out value-creating activities to design, produce, market, deliver, and support a company’s product or service. In this usage, we refer to the range of primary processes and support services that providers offer to their clients.

5.77% 3.22% 0.71% 1.18%

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Winners Circle and High Performers Methodology To distinguish providers that have gone above and beyond within a particular line of delivery, HfS awards these providers a “Winner’s Circle” or “High Performer” designation. A brief description of the general characteristics of each designation are below:

Winner's Circle: Organizations that demonstrate excellence in both execution and innovation.

• From an execution perspective, providers have developed strong relationships with clients, execute services beyond the scope of hitting green lights, and are highly flexible when meeting clients’ needs.

• From an innovation perspective, providers have a strong vision, concrete plans to invest in future capabilities, a healthy cross-section of vertical capabilities, and have illustrated a strong ability to leverage external drivers to increase value for their clients.

High Performers: Organizations that demonstrate strong capabilities in both execution and innovation, but are lacking in an innovative vision or execution against their vision.

• From an execution perspective, providers execute some of the following areas with excellence, but not all areas: high performers have developed worthwhile relationships with clients, execute their services and hit all of the green lights, and are very flexible when meeting clients’ needs.

• From an innovation perspective, providers typically execute some of the following areas with excellence, but not all areas: have a vision and demonstrated plans to invest in future capabilities, have experience delivering services over multiple vertical capabilities, and have illustrated a good ability to leverage external drivers to increase value for their clients.

Service Provider Capabilities

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HfS Blueprint 2013: Procurement Outsourcing IN

NO

VATI

ON

EXECUTION

High Performers

Winner’s Circle

Accenture

GEP Procurian

Capgemini

Infosys

Corbus

WNS

Proxima

Aegis

TCS Xchanging

IBM

HCL

Genpact

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Major Service Provider Dynamics – Highlights

EXECUTION

• Accenture continues to lead. Accenture’s ability to provide both sourcing and transactional elements of the PO value chain, geographic footprint, and excellent customer service delivery make it the clear choice for buyers. Its complete integration of Ariba Services and ability to provide niche offerings have solidified its ~20% market share.

• Procurian excels in category-specific sourcing. Recent acquisitions in category-specific capabilities (Media IQ) have grown Procurian’s ability to manage more complex categories, showing ability to rival the likes of Accenture/IBM.

• Infosys gains momentum. Leveraging its rapidly growing footprint, Infosys won 20 new PO engagements in 2012. It has shown the ability to compete with the likes of Accenture, IBM, Procurian, and GEP as the PO elite.

• Proxima gains ground. Late to the party, Proxima has expanded its footprint, particularly in the UK, in terms of scale and client base. HfS estimates that Proxima’s revenue grew ~42% in 2012, winning over $15M in new contracts.

• Capgemini struggles to maintain steam. The past couple of years have seen Capgemini fall short in their plans to grow their PO footprint. Zero deals were signed in 2012, and only four were signed in 2011. Excellent account management teams have helped solidify Capgemini as an execution leader, however.

INNOVATION

• Value beyond cost through consulting. Service providers such as Accenture, GEP, Proxima, and Procurian that have traditional backgrounds in management consulting are able to provide procurement strategy services as part of their core offering. These providers leverage experience in procurement transformation, adding value beyond cost/labor arbitrage. Winner’s Circle providers can support strategic procurement consulting on top of the general execution of PO services.

• Infosys’ rivals the leaders in innovation. In terms of developing specific innovative solutions for clients, Infosys has gone well beyond the typical client experience. Infosys has experience in developing a procurement platform for one of its largest CPG clients. This tangible value proposition is unique to this industry.

• IBM continues to leverage its strength in technology. IBM’s heavy investment in cloud and analytics over the past few years have shown in its BPO business. This has propelled IBM to stand above all others in the development of PO-specific IT solutions in spend analytics and other value solutions.

• Proxima and HCL hone in on regulatory practices. Both providers offer clients proactive monitoring of regulatory changes, a tangible value-added service especially for those in highly-regulated environments such as financial services.

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Future of the Procurement Outsourcing Market Industrialized PO will take form. PO will become commoditized within the next five years, where client and

vendors will share technology and clients will simply hand off specific indirect categories or tail-spend to providers to manage. Transactional elements of the PO value chain will first be commoditized, slowly expanding into the strategic sourcing elements of the value chain.

Client relationships onshore will drive success. End-user relationships are more important in procurement than other BPO functions. Thus, on-site delivery is positively critical to drive these relationships. HfS expects providers to set up more regional centers to provide proximity, time zone, language, and market knowledge, similar to the IBM/Accenture onshore models as well as those that can supplement onsite-procurement staff such as GEP or Procurian. This will limit the market effectiveness of Indian-centric providers.

Procurement consulting firms will be challenged. Procurement outsourcing providers have been slowly ramping their consultative capabilities in this space. Procurement consultants such as ISG, Bain & Co, Michel Page, A.T. Kearney and Denali, will be directly challenged by more traditional outsourcing firms. HfS expects the consulting market to evolve as buyers will seek benchmarking effectiveness rather than process or transformative consulting.

Greater adoption of spread-technology in procurement outsourcing. Platforms and the incorporation of such into the procurement process is increasingly becoming more popular and important to buyers. Technologies, such as Infosys’s client-developed platform and Capgemini’s IBX platforms, look to transform procurement by providing a complete end-to-end solution. HfS predicts that the next step for these platforms will be their connection into P2P, pushing compliance and savings to a new frontier. Capgemini’s recent acquisition of NetSuite, a global cloud ERP solution, and its proposed integration with its current IBX procurement platform is an example of a provider proactively adapting to this trend.

Service Provider Profile

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Accenture

Client Industry Verticals Key Clients Global Operations Centers Technology Offered

• Banking and Financial Services • Energy and Utilities • Electronics and High Tech • Retail and CPG • Pharma • Government

• APAC Financial Services Company • Automotive Parts Company • Cisco • City of London • Givaudan • Global Financial Services Company • Large Specialty Retailer • Major Utility Supplier • HOCHTIEF • Microsoft

• Headcount: ~1,900 FTEs

• India: Bangalore, Chennai, Gurgaon, Mumbai, Noida • China: Chengdu, Dalian, Shanghai • Philippines: Cebu, Manila • Western Europe: France, Germany, Ireland, Italy, the

Netherlands, Spain, and the U.K. • Central & Eastern Europe: Czech Republic, Poland,

Romania, and Slovakia • Canada: Vancouver • U.S.: Chicago, Pittsburgh, San Antonio • Latin America: Argentina and Brazil

• Accenture proprietary tools include: • BPO Navigator, MySupplier Portal,

Buyer Portal, Telecom Expense Management Process Outsourcing (TEMPO), Document Flow Manager, Enterprise Document Manager (EDM), Transaction Compliance and Analytics Tool (ATCAT), PTP Analytics.

• Oracle, SAP, Ariba, Concur, Emptoris Sourcing & Contract Management, CombineNet, Aravo, Fieldglass

Strengths Challenges

• Accenture offers the deepest and broadest procurement outsourcing capability in the market today, led by its industry-leading strategic sourcing team, which has fully integrated its 2010 acquisition of Ariba Services (formerly Free Markets). Accenture has experience in nearly all indirect categories, and it can leverage its industry-specific management consulting talent for unique requirements and transformation work.

• Accenture combines its strategic sourcing capability with a market-leading F&A outsourcing capability for a complete end-to-end source-to-pay solution. However, for customers who seek a niche solution, Accenture has been aggressively developing point solutions for category management, tail-spend management, SRM, and risk management.

• Geographic coverage. Accenture’s procurement outsourcing service has a global geographic footprint in North America, Europe, Asia, and Latin America. This can be augmented by the broader Accenture BPO footprint.

• Client care. Accenture provides outstanding thought leadership and community building for its clients, including its bi-annual Procurement Mastery research program and the Accenture CPO Circle.

• Although technology independent, Accenture can bundle a wide variety of technology solutions for S2P and category-specific needs.

• Limits to industrialized product capability. Accenture’s technology-independence limits its ability to industrialize its procurement outsourcing capability. By comparison, Procurian, GEP, Capgemini, and Infosys all offer integrated platforms. However, Accenture is leveraging its strategic relationships with SAP and Ariba to have the Ariba solutions as its integrated S2P platform.

• Selective of opportunities. Accenture is very selective in its pursuit of procurement outsourcing clients, putting relatively limited effort into winning commoditized lift-and-shift P2P deals aggressively chased by its Indian-based competitors. Accenture’s sweet spot is companies looking to aggressively transform their procurement capabilities.

• Sometimes perceived as expensive. While Accenture offers flexible pricing models, as well as risk-based pricing, some clients report that Accenture’s strong pricing discipline and frequent inclusion of its higher cost management consultants result in higher pricing than its competitors.

Market Share: 19.4%

“Winner's Circle”

Blueprint Leading Highlights

• Strategic Sourcing

• Transactional Procurement

• Engagement of Customers and Development of Communities

• Geographic Footprint and Scale

• Continuous Improvement Methodology and Capability

• Vision for Industry-specific Solutions

About the Author

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Principal Analyst, HfS Research

brian.dubiel@hfsresearch.com

Overview • Covers the Procurement and Finance and Accounting Outsourcing industries for

HfS Research. • An acknowledged industry expert in BPO operations, having worked on multiple

engagements including areas such as KPO, FAO, PO and LPO domains.

Previous Experience • Served as the outsourcing category manager for State Street Bank • Initiated and developed State Street’s Outsourcing Center of Excellence, creating

corporate outsourcing tools and methodology, and standardizing knowledge for internal business lines to better govern their outsourcing providers and sourcing events.

• Procurement experience: Brian has also helped manage the introduction of several important internal initiatives. These included instituting a best in class vendor segmentation model among State Street’s vendor base, the creation of a formal category sourcing planning process and assisting in the development of a Vendor Management Office program.

Education • Dual BA in Economics and Philosophy from Trinity College • MBA with an Operations and Supply Chain concentration from Northeastern

University

Brian Dubiel

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About HfS Research

HfS Research (www.HfSResearch.com) is a leading independent global analyst authority and knowledge community for the business and IT services industry.

HfS is unique in the fact that it serves the research and strategy needs of business operations leaders across finance, supply chain, human resources, marketing, customer management, IT and core industry functions. In addition to researching business operations strategies, HfS educates and facilitates discussion among the world's largest knowledge community of enterprise services professionals, currently comprising 120,000 subscribers. HfS Research also facilitates the HfS Sourcing Executive Council, the acclaimed elite group of sourcing practitioners from leading organizations, which meets on a bi-annual basis to share the future direction of the global services industry and discuss the future enterprise operations framework.

Led by recognized industry expert Phil Fersht, HfS Research differentiates itself with its global team of expert services analysts with real industry experience, provocative and opinionated research, unrivalled market analytics, and a view of technology as an enabler for business process improvement. Its on-demand expertise relationship model helps clients leverage HfS knowledge and strategic insight in a rapid, responsive and engaging manner.

In 2010 & 2011, HfS was awarded Analyst of the Year by the International Institute of Analyst Relations (IIAR), the premier body of analyst-facing professionals, and achieved the distinctive award of being voted the research analyst industry's most Innovative Analyst Firm in 2012.

Now in its sixth year of publication, HfS Research's acclaimed blog “Horses for Sources” is widely recognized as the leading destination for unfettered collective insight, research and open debate of sourcing industry issues and developments.

To learn more about HfS Research, please email research@HfSResearch.com.