IBX CEO on recent acquisiton by Capgemini

It was recently announced Capgemini acquired on-demand purchasing systems provider IBX, including what it claims is the industry’s first global end-to-end procurement-as-a-service offering. As part of the SSON Smart Procurement Series, SSON spoke to Leif Bohlin, CEO of IBX to find out what this means for the provider and the procurement industry as a whole.

SSON: Can you explain what the Capgemini acquisition of IBX means for IBX and the procurement industry?

Leif Bohlin: Well maybe I should put it a little bit into context because I think it is all linked - the history, the market consolidation, the market development and so on. IBX has been around for almost ten years and we started off with a focus on e-procurement. We have expanded our services from having a focus on procurement or resources to focus on the pay area. So today we are focusing on source to procure-to-pay. And we have also expanded our geographical scope, starting off in Sweden going on to the Nordics, Europe and then finally during the autumn of last year – we moved into the US.

The market has also consolidated quite a lot, there is just a handful or a few players left in this market, and IBX is one of them. We currently have 100 customers on the buy side, and about 27,000 connected on the sales side. But having said that even though the market is continuing to consolidate we also see that the market has developed in terms of procurement, and the purchasing function has been developed this year as well. This demonstrates that a lot of companies have actually transformed their purchasing functions and continue to do so. A lot of companies and customers have actually been through a journey taking the procurement function from having a module focus into having more of a value added function, thus creating value. And also being much more linked into the companies overall strategy instead of working below one of the other functions that are parallel to the organisation.

During this period we have started to adopt tools and also provide reinforcement tools. But we are also seeing a growth in outsourcing of procurement to BPO. Following these trends, we at IBX have realised that we were too small to be part of that business, and we didn’t have the vertical coverage and the infrastructure to do it. So we entered into the partnership with Capgemini about a year ago, in order to be able to address that market together with them.

SSON: Why Capgemini over other BPOs?

Leif: One of the main reasons is there is a history between the companies - there is also a network, and that is basically where you start this kind of partnership - it’s between people actually.

I think there is also another difference between Capgemini and some of the other competitors as they have a decentralised company and a high customer focus, which is very important for us. There is a also an entrepreneurial culture within Capgemini, which was also key in terms of nominating them as a potential company acquiring IBX, because that is very much the history and structure of IBX.

SSON: IBX also use additional third party organisations such as SAP to provide procurement solutions, are there any plans to change that following the Capgemini acquisition?

Leif: Well I don’t see that it will be that much of a change, because I mean the whole purpose of the acquisition - of combining these two companies is to actually be able to provide. It is not about changing the services and the value proposition of IBX. I think the uniqueness and the strength of this is that we are creating a broader portfolio. We will continue to offer the services and the products of IBX, but we will also add on the experience, the networks, the competence and also the customer base from Capgemini in terms of BPO. And I think having that complete portfolio is unique right now in the market - no-one else has that combined offering.

SSON: Do you think it is enough to compete with the likes of Genpact, Accenture or IBM on the same scale?

Leif: Absolutely. We know that it is enough. We will announce quite a big deal that we have signed, which is probably the largest BPO Procurement deal at the moment.

SSON: Do you think you could announce it here on SSON?

Leif: I don’t know yet, it is not decided when or how the announcement will be, you will probably hear in February, and I think that will create some attention in the market actually. And that will be a very good example of this new model. If we think we can compete with the other ones - absolutely. I think we are ahead of them in terms of the offerings we have right now, because no-one else can actually offer a BPO technology platform and consulting under the one name. And the problem with having the partnerships, and that’s what we realised when we had the partnership with Capgemini, is that when you go to the customer, talk to the customer and then you make your offering - the customer is about to sign the contract for somewhere between three to six years. And you do that with the partnership, and that is not really a strong value proposition, because the customer knows that even if we sign with Capgemini and IBX - we do not know what will happen to that partnership tomorrow. Now we are in a position to offer concept, strategy and delivery according to our customer’s needs and take the full responsibility.

SSON: At the moment Leif the market is seeing a lot of similar acquisitions, do you think this is a good thing, or do you think the competition is being taken out of the market, making it a little less interesting and competitive if you like from an industry perspective?

Leif: I think it is necessary in terms of business level of the global market. It is also the market that will go towards standardisation and industrialisation in order to be efficient. I don’t think it is a bad thing - that is the way the market is developing. I don’t think that that will weaken the market. I think we will see stronger players that will be able to continue to develop the offering because I think there are a lot of interesting dimensions in this moving forward.

SSON: Where do the main challenges lie following the acquisition, will it mean a big internal restructure?

Leif: No, it will not. We will create a new entity within Capgemini, which is very much built on an IBX foundation. We will remain pretty untouched. What we will do is merge IBX with the BPO procurement organisation within Capgemini. So basically we will add that service to IBX plus the global structure, global network and infrastructure within Capgemini.

SSON: How will this affect your current clients - will you be able to go to them with a new offering?

Leif: We will inherit a very interesting client base. Capgemini’s customers, who are using our BPO services, but not the IBX technology as well as the IBX customers, who are not using BPO. For both groups we have now a strong offering. However, they can still run their services as they used to.

SSON: Procurement outsourcing is one of the fastest growing sectors. But I wonder what your vision is of the future of purchasing and how this will manifest itself in the IBX, Capgemini delivery model?

Leif: I mean the trend has been there for quite a while and I think that was kicked off by the automotive industry. In the past, going back in history, the purchasing function was under-utilized in companies and just seen as a transactional function or department kind of supporting the rest of the organization with a very limited strategic value, which I think was very wrong. Now purchasing is climbing the value ladder, I mean there are many examples of companies where purchasing has a strategic role in companies like Dell, Wal-Mart, IKEA and a number of other companies, where those organisations are built around purchasing department or procurement departments. And I think that’s what I think more companies are starting to realise now, that purchasing is equally important to all other departments. And we have seen with the manufacturing industry and with some clients who we are working with which is basically redesigning the whole model right now.

SSON: Moving away from procurement - in a recent interview, you mentioned that you don’t see the down-turn ending in 2009. And I wondered what your economic outlook was for 2010-2011?

Leif: I think it is very different depending on industries and markets. We have customers who are in the heavy manufacturing industry who have been hit very, very hard. And they are not very optimistic about 2010. You can see the same thing in the construction industry, while there are other industries like some of the consumer good industries and some of the telecoms industries, which have not been hit that hard. I think it is very different from industry to industry, and of course there are geographical differences - so there is no one answer to that, but it will definitely take time.

We can also see an increased focus on costs and in the purchasing departments or the procurement departments within companies. I think it was very clear last year when we looked at our customer base; all of a sudden there was a change of focus within the purchasing department within companies. Because, it was very much about saving money and doing it quickly, and you could really see a difference there between the companies that had done the transformation and who had more of a purchasing function and more of a strategic view and strategic position within the company. These guys were prepared, and for them it was not really a big challenge that they had done that. While there were other examples where maybe the purchasing function hadn’t done that shift and all of a sudden there was a decision taken in the company to re-allocate forty or fifty engineers who had worked for R and D or development departments in the past and this changed as Corporate said lets have them work for purchasing or cost reduction. So purchasing became responsible for the fifty engineers. If you are prepared for that and you have a strategic mindset then that is not a problem, but otherwise it becomes a challenge and you are actually not able to deliver - that is what we saw in many cases.

SSON: Is there any other industry space that you are looking to move into for example healthcare, as opposed to telecommunications and manufacturing?

Leif: We have been focusing on indirect materials primarily all the way and from the beginning, that is what we are going to continue to do, that is where we see the strongest growth in the BPO business as well. We are not addressing any industries that specifically. We see that there might be an opportunity where we develop industry specific companies. If we get a number of customers in a specific industry, for instance we have developed competences in the construction industry because we have Skanska as a customer and have had for quite a long time and they have been using our e-procurement solution for direct material meaning that we have been part of that development and we know that industry. That might very well happen in other industries as well, but to start with the most important thing for us right now is to really continue to develop that best-in-class confidence within direct materials and sourcing then it might be to move into new industries.

SSON: I would like to end this interview by asking you what excites you most about the Capgemini acquisition of IBX? What should we look forward to seeing?

Leif: There are one or maybe two things - first of all, in the last maybe two years we have seen that e-procurement and e-sourcing are all maturing. I think, by this acquisition we are now back in the mode of actually being in the forefront of the industry, we are creating something unique and we have that front runner position - for me that is very important and that is important for the whole organisation with IBX. I think the second thing is actually to be truly global which we will now be with the Capgemini footprint and that is what we have seen is becoming essential for us, because we are dealing with global customers and we are operating on a global arena and we are competing with on the global ground.