Analyst Q&A – 2012 Outlook (2)

Posted by Andrew Bartolini on September 26th, 2011
Stored in Articles, General, Strategy

Today, we continue with the second part of the content from my recent media interview that focused on the current business cycle and where we are headed in 2012. Part one is here.

Q – In the context of today’s challenging financial environment, where are the biggest opportunities?

AB – Let’s look at where we’ve been – Having been to the precipice in 2008, but not fallen in, it took a great many companies a few years to begin to get comfortable again with larger investments and the idea that growth could, once again, be possible. Looking at the supply management technology market, if 2009 was a very tough year for investments of any sort, 2010 was certainly an improvement. And yet, 2010 did not start strong. For the first half of the year, many companies acted like we weren’t out of the woods yet and that a double-dip recession was right around the corner. It was only in the second half of the year that the pent-up demand really cut loose. The first half of 2011 was very strong, but recent conversations with a handful of CPO-types indicate procurement budgets are still under pressure.

Looking more broadly at all of the different types of investments, we’ve seen and expect to continue to see extreme volatility across many commodity groups. One area that has stayed relatively flat and is primed for big investment is human capital – hire more people. The labor market remains very attractive from an employer’s standpoint and is one of the best areas to invest in today. Of note:

  • High, longstanding unemployment
  • A wealth of talent available in the market
  • The competition for quality jobs is extreme and has put big pressure on wages

Given the bullets above, procurement & supply chain have a tremendous opportunity to hire in outside expertise in the near-term. Done well, the ROIs can be quite compelling. I’m reminded of a former Chief Procurement Officer who hired a former salesperson with 20 years experience working in the electric/utility industry to join his team as the energy category manager. The industry was recently deregulated in the region and as such, the team had no real depth of category knowledge (in part because it did not feel it needed to). By hiring someone who’s been on the other side of the table, this CPO found that the new category manager earned 10 times his annual salary in the first contract he negotiated.

Second opportunity: If we are bracing for another downturn, companies should be making investments that help them become more efficient and more effective. The supply management technology markets have rebounded, but remain competitive – if you know what you are doing, good deals are there to be had. These solutions, which automate sourcing, procurement and accounts payable drive efficiencies that have a real bottom-line impact. How many of these solutions are deployed today enables companies to get a payback in the first year or 18 months.

Q – Global supply chain trends – With the shuffling going on in the global supply chain, who are the winners and losers in 2012?

AB – As the transportation and telecommunication infrastructures in third world countries continue to advance, having a global workforce becomes more than a benefit, it becomes a necessity. Over time, all work will migrate to where it is done best. While you may still need the interpersonal or the cultural capabilities or the local investment at times, oftentimes, you do not. Clear losers in this scenario are the American, Canadian, and Northern/Western European workers. We are in the very early stages of a global trend that will continue to see jobs move east and south. Think about this – if the owner of a 20-person shop, can outsource her legal and accounting to a group based in India or Mexico and save 60%, that’s a no-brainer. Larger companies that offer greater scale opportunities for the outsourcing providers are no-brainers too. There may be ebbs and flows, but the overall employment trend for the “West” is downward sloping.

The big winners are

(1) Businesses that can leverage a global workforce

(2) Ironically, if you look at the shifts in the global supply chain and the pace of innovation in the market,  other “winners” are the consumers in those “losing” markets – US, Canada, UK, Germany and the rest of Western Europe

(3) Other winners are the second and third world countries that are developing the industries to support production demand. The job migration is helping other countries establish a real middle class. The Arab Spring, at least what happened in Cairo, a major outsourcing hub, was aided by an empowered middle class that has been emerging from the underprivileged segment in society. This is not to suggest there weren’t many other or larger issues driving the recent Middle East uprisings, but economic factors are certainly one part and the outsourced jobs that land in the Middle East are helping to create a middle class in these countries. I wonder what impact the huge growth that India has experienced over the past decade has contributed to what is happening there today.

(4) Oh, other winners – oil companies are huge winners in a world that sets production a half world away from the marketplace.


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