Is The L'Oreal-IBM Deal Changing The Face Of Outsourcing?

As new engagement models emerge, for enterprises outsourcing is no longer a matter of running processes more efficiently by achieving cost reduction. It is about increasing the efficiency of business processes, and innovating effectively to reach the end business goal and outcome. As a result enterprises are looking to the traditional service providers to reinvent the way they deliver business value to them. According to Frederic Giron, Vice President, Principal Analyst Serving Sourcing & Vendor Management Professionals, Forrester Research, the combination of software assets, strong domain expertise, analytics, and as-a-service delivery models will increasingly allow to deliver that business value.

“I believe you will see a lot more service vendors leverage software assets as part of their delivery models to really focus on bringing very clear business value to the technology they sell,” observes Giron. A recent agreement that L’Oreal USA struck with IBM is a sign of things to come and an illustration of the changing expectations enterprises have from their outsourcing vendors.

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IBM – L’Oreal Deal Details

In one of his latest blogs Giron gives out some of the key elements of this three year agreement between IBM and L’Oreal. The deal is essentially for expert procurement services using advanced cloud analytics , aiming at achieving new procurement contracts and cost reduction to be delivered at the end of the fiscal year. In other words, key features which enterprises will expect and demand from their service providers in the coming years. This sets the tone for deals to come.

• Domain & Category Expertise: L’Oreal taps into the powerful portfolio of IBM procurement services. As part of the deal, IBM brings in strong procurement and category expertise to work along with the existing sourcing team at L’Oreal. Thereby, undertaking complete transformation of its procurement process - buying, compliance and management of its vendor and supply process - ultimately leading to lower costs and increased supplier value. L’Oreal has standardised the procurement system on Emptoris platform.
• Analytics: L’Oreal leverages IBM’s analytical expertise, including a new analytics tool developed by IBM Research. This Compliance Analytics Tool (CAT) uses advanced analytics to deeply mine the procurement data and identify transactions that do not comply with the implemented processes. The tool can also project and evaluate the impact of potential corrective actions, allowing L’Oreal to see more savings hit their bottom line. IBM’s analytical tool is becoming a very strong component of the process and as the procurement process grows and succeeds, the technology becomes incrementally embedded in the process. Together, these will help the marketing and procurement team at L’Oreal gain immediate and broad access to global data to make faster and more insightful decisions, while ensuring purchasing compliance.
• Cloud: The Emptoris solution, that also includes spending analytics tools, is being delivered as a service and hosted on IBM’s SmartCloud offering.

Value has been generated in this deal with an integrated offering of analytics along with the business process of procurement. “By doing so, they move up the value chain by producing more business transformation as well as retaining these service engagements. This makes the ROI and value calculation go over the cost considerations mentioned in business technology contracts,” explains Giron.

What’s Different

So, what’s different and what sets this deal apart from the traditional outsourcing deals that enterprises having been getting into so far? This deal differs in the fact that L’Oreal retains the procurement department and operations and IBM supplements these operations with its different assets. They provide the analytics platform along with the domain expertise. IBM provides the procurement and category experts to work with L’Oreal and aid in their everyday jobs. L’Oreal retains the team and the process, and has complete control over the business function. IBM was to transform the process and retrain the users and augment L’Oreal’s skills with the IBM experts.