As HR organizations grow increasingly global, they look for their sourcing advisors to keep pace. That’s what EquaTerra had in mind when it recently acquired Morgan Chambers, helping the Houston-based organization to better take part in the globalization movement.
If this decade should be remembered for anything, globalization is it. After all, 2005 saw the release of the landmark book written by New York Times columnist Thomas Friedman, who captured the zeitgeist of the economic times in “The World is Flat: A Brief History of the Twenty-First Century.”
Furthermore, the emergence of BPO early in the decade demonstrated that global service delivery wasn’t just limited to call-center activities; sourcing for any number of back-office services could take place in India, Eastern Europe, or anywhere else in the world.
So when companies seek to globalize their operations today, they look for authoritative voices with global presence to guide them in the sourcing process, whether it’s an insourcing, outsourcing, or co-sourcing solution. This is a truth that resonates loudly in the mind of Mark Toon, CEO of sourcing advisory firm EquaTerra, which has been one of the go-to consultants that buyers throughout Europe and North America turn to for advice on their HR, F&A, IT, and other transformation efforts. Houston, Texas-based EquaTerra has been the advisor for such mega-deals as the $1 billion Unilever-Accenture contract signed last year, and its quarterly Pulse reports are widely viewed by the industry as a harbinger of forthcoming market trends.
But as a global company, EquaTerra until recently failed to achieve the global reach it sorely needed. Therefore, like many of the clients it serves, the firm decided acquisition was the best route for reaching its goal and this past September bought London-based advisor Morgan Chambers, another well-recognized sourcing firm that serves the HRO sector. The newly merged organization now boasts one of the most well-connected and influential groups of sourcing advisors serving the global market.
“Our European presence was not where we wanted to be,” Toon explained of the company’s decision to acquire Morgan Chambers, noting that the firms have held merger talks on and off since 2004. Although the timing wasn’t right for three years, Toon said that the march toward globalization is picking up momentum now, and from all over the world clients are broadening their footprints, especially firms in Europe. Many EU businesses have reached across borders to tap growing demand throughout the common market. To comprehensively serve these clients, Toon noted, EquaTerra needed a better understanding of each country.
“The thing about Europe is it’s still a very country-by-country market, and [this acquisition] gives us tremendous breadth and depth of service,” Toon said.
Indeed, EquaTerra will markedly extend its reach with the buyout—it now has employees in 19 countries. Most importantly, the deal was a pairing of complementary firms that share a common culture while concentrating on different regions. Toon said the globalization movement requires advisory firms to cater to clients’ needs in all major markets because most are looking to reduce the number of vendors they employ, including sourcing consultants. That means his firm and any others wanting to cater to large enterprises must bulk up in size and geographic reach to survive.
“As a barrier to entry, I just don’t see how small sourcing advisors can exist in the sourcing advisor space,” he added. “They have limited bandwidth to chase things and to operate effectively.”
If Toon is right, the sourcing advisory market may eventually be whittled down to a handful of players. But his predictions may be premature, as the market remains fragmented with many smaller organizations. While EquaTerra is one of the largest in the world serving the HRO market—made even bigger by the Morgan Chambers transaction—there are many competitors, including the likes of TPI, which last year became a failed suitor after a proposed merger of the two organizations fell apart. The deal got as far as a public disclosure of the acquisition by TPI and even a new brand identity for the merged company. However, the two sides failed to reach final terms and called it quits.
Toon said that even though the firms did not merge, he still holds his competitor in high regard. “I will assure you that with the exception of TPI and EquaTerra, no other sourcing advisors can position themselves as effectively,” he added.
Toon, who has two decades of advisory experience including stints at TPI and Andersen/Accenture before he landed in his current role, likes to point to EquaTerra’s impressive list of clients as evidence that global organizations prefer to employ global consultants. In the areas of HRO, FAO, IT consulting, and procurement outsourcing, EquaTerra has won many customers in the Fortune 500. In addition to Unilever, other clients include ABN Amro, American Express, Bank of Ireland, ExxonMobil, General Motors, JP Morgan, Royal Dutch Shell, and numerous other commercial and government entities. A Baylor University graduate with a bachelor’s in management and statistics and an MBA in marketing research, Toon said sourcing advisors serve both buyers and providers of services, even though firms such as EquaTerra are supposed to work exclusively for the buyer client.
According to Toon, the biggest benefit a sourcing advisor offers is helping clients make a timely decision on their sourcing strategy. And these aren’t always around outsourcing. In fact, advisors have no bias toward any particular solution—just what is most effective for buyers. “At EquaTerra, we’ve always been about creating the right solution for the client, whether it’s outsourcing, shared services, or a combination of both. We are looking for what will produce the results the clients are looking for,” he added.
In fact, he said, most of EquaTerra’s clients reach a sourcing decision more quickly than if they embark on a sourcing project alone. This means buyers can implement the most effective strategy more quickly, which typically leads to cost savings and operational efficiencies more quickly as well, he noted.
It also benefits the providers, Toon contended, because clients shorten the selection process. By matching up buyers with the right providers, the request for proposal (RFP)/ request for information (RFI) process moves along more quickly, which also saves providers money and time.
Still, sourcing advisors have been criticized in the past for failing to be neutral. Advisors are often accused of favoring providers that either give direct business or indirectly help to line the pockets of consulting firms. Furthermore, some providers say short of bribing providers, it is impossible to get recommended by some firms to be included in RFP and RFI processes.
Toon defended EquaTerra’s relationship with clients as strictly above board. He said the firm has never accepted any payments from providers and is always vendor-neutral in the sourcing process. He said despite the complaints of some providers, these firms aren’t included in RFI/RFP solicitations because they simply can’t deliver as needed.
Growing Advisors’ Role
Regardless of whether they remain impartial or not, one thing is clear: sourcing advisors increasingly are being included in the sourcing process, even when the deal is not several hundred million euros in size. For instance, at the beginning of the decade, it was rare to see an advisor contracted in anything other than large, multi-process enterprise deals. Today, advisors are being hired for sourcing advice even for single-process contracts such as recruitment process outsourcing (RPO) engagements.
More importantly, buyers are indicating that the use of a sourcing advisor has led to not only a shorter contracting cycle, but also better deal results. Through their knowledge of deal implementation, governance, and change management, firms such as EquaTerra and TPI are able to help synchronize buyer expectations with provider service delivery. In a true matchmaking sense, advisory firms’ mission is to ensure a satisfactory, sustainable partnership for all parties involved. Even for buyers who are looking to renew their existing contracts, advisors provide a comprehensive and updated expertise on current practices and pricing among providers.
“Most companies find that as they start evaluating outsourcing, they don’t have the skill set in-house,” Toon added. And even those who have undertaken an outsourcing engagement on their own in the past may find it daunting to stay current on industry trends, he said.
But with the HRO market experiencing a slowdown in enterprise engagements, will EquaTerra be able to sustain its business? After all, even according to EquaTerra’s own research, the number of large HRO deals has declined from its high in 2005, and some expect a further slowdown.
Toon acknowledged a market downturn, but added that he believes it’s cyclical and not a fundamental decline. He cites provider capacity constraint, in part, for the market’s problems, but he said he believes the market will pick up again as some providers work on their business models to improve efficiency and profitability. In the meantime, many organizations are being careful about who they take on as customers. “Most of the providers will tell you the opportunities are out there, but they are being selective in who they go after,” he added.
And it’s this bullish outlook that encouraged Toon and EquaTerra to acquire Morgan Chambers. Now that the company boasts a more robust geographic footprint, it has positioned itself to serve clients on both sides of the Atlantic and take full advantage of the surging globalization movement.