Consortia Buying: An Upcoming Trend in Outsourcing | Article

planetsLike the point in time between two astrological signs, leading enterprises worldwide are situated on the cusp of an accelerated value chain in the outsourcing model. In this new way of doing business, buying groups and cooperatives will share resources and, as a group, dramatically leverage their scale and aggregated purchasing power for outsourced services that benefit each member of the buying group.

The early adopters of consortia buying of outsourced solutions will not only achieve dynamic business transformation and competitive advantage faster and more cost effectively, but they will also drive new ways of using outsourcing, changing its value proposition forever.

Consortia buying of business process outsourcing (BPO) services is about to explode worldwide and will become a major trend in 2004-2007 among Global 1000 and mid-market companies. That’s the prediction of Joe Vales, Senior Partner of Vales Consulting Group, and Richard Tinervin, Founder and Managing Partner of Tinervin Advisors. They predict that, by 2007, the consortia buying model will comprise 20 percent of mega deals (more than $1 billion in total contract value) in outsourcing.

Vales, a visionary pioneer in BPO and advisor in outsourced back-office processes, and Tinervin, a renowned expert in the global financial services and asset management arenas, jointly advise leading enterprises worldwide in assessing the value and risks in this evolving business model.

Co-opetition, a cornerstone of consortia buying, enables faster, more cost-effective business transformation as peer firms in an industry pool their resources and collaborate on mutually beneficial solutions. “The business needs and value proposition for consortia buying are compelling,” says Tinervin. “But it involves gorilla firms coming together, and a highly effective governance structure is a critical foundation in ensuring mutually beneficial outcomes for the firms in such a buying group.”

“Along with governance to manage the issues where the buying group’s firms have separate interests,” adds Vales, “complex relationship management skills and the ability to bring all parties together in a mutual way will be crucial to success in such an arrangement.”

They cite the troubled history in early efforts at asset management (joint-venture spinouts and shared-services centers), many of which failed. “They didn’t talk up front about the tough issues, such as mutual service level agreements and juggling or consolidation of assets for their common good,” states Vales. “It’s difficult to sustain a relationship among multiple players over a long-term contract.”

But Vales and Tinervin believe consortia buying has a better chance of succeeding. “The Global 1000 are sophisticated players,” affirms Tinervin. “They are already experienced in leveraging consortia buying as well as the issues associated with outsourced relationships. They also are accustomed to operating with best practices and benchmarks, and they use expert advisors in structuring their business solutions to minimize risks and capture strategic value.”

Recent news headlines point to outsourcing provider firms also adopting the group concept in tackling competitive advantages, Vales points out. “Major firms are going to market together in a dynamic way that enables them to compete with top-tier providers. The reality is, in today’s business world, companies can’t win alone.”

Business Process Outsourcing: The Coming Wave of Consortia Buying” (first published in the Outsourcing Project: Achieving Competitive Advantage through Collaborative Partnerships) is the first in a series of executive briefings authored by Vales and Tinervin on the consortia buying and outsourcing model. In this briefing, they trace the evolutionary roots of consortia buying and profile some early collaborative initiatives in North America and Europe. Their paper also discusses key success factors and global predictions for this revolutionary trend in outsourcing.

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