ROI: Divide and Conquer

A decentralized company made up of 10 smaller organizations realizes that it isn't easy being big. A centralized procurement system makes it a whole lot easier, though.

[From iSource Business, January 2002] Mergers and acquisitions may be all the rage these days in the business world, but some companies have found that decentralizing is the way to go to better meet the needs of specific niches in the economy. However, a decentralized company has its own Achilles' Heel, as it creates several smaller companies that greatly need centralized purchasing to reduce maverick buying, streamline indirect goods purchasing processes, and lower the costs associated with purchase orders.

So it was with Mastech Corp., a provider of e-services to large corporations, which had amassed a half-billion dollars in sales and 5,500 employees since it was founded in 1986.

Many companies, had they experienced a similar situation, would have been content to stay in place and enjoy the comfort that follows success, but Mastech realized that it also had shortcomings: it was a giant of sorts, an ocean-liner in a sea of compact powerboats. Despite its accomplishments, the amount of time it required to react to change was cumbersome. So, in March 2000, Mastech made a risky move. From one giant corporation, Mastech divided into five smaller, nimbler and more specialized companies, and, in the end, became a global portfolio of independent companies, each targeted at a specific niche of the Internet economy.

Today the enterprise is made up of 10 separate companies and goes by the name of iGate Capital. But Mastech's renaissance as the new iGate Capital had implications beyond new business models and company stationary. Each new iGate company, decentralized and operating as its own entity under the umbrella of iGate, together spent approximately $15 million per year on office supplies, information technology equipment, and other indirect goods and services. With an indirect spend that large, it is no surprise that iGate embarked on a search for a centralized procurement solution that had common processes, infrastructure and suppliers. It was a strategic move aimed at streamlining the processes associated with procuring indirect goods, significantly reducing maverick buying, and lowering the cost for producing and approving purchase orders.

iGate entered the search for a centralized e-purchasing system with some strategies already in mind. It wanted to select a well-known and successful technology that would fit all 10 of its portfolio companies. Also, iGate wanted to consolidate its supplier base and negotiate new corporate agreements with preferred suppliers to increase savings.

And the Winner Is...

After narrowing the field of candidates to Ariba and PeopleSoft, iGate decided on PeopleSoft eProcurement for several reasons. The first was because the provider already powered iGate's financial, human resources and asset management departments. "The decision was a no-brainer," explains Frank Corris, iGate's director of procurement services. "It just became another element in our infrastructure "' It works very seamlessly with our other PeopleSoft systems."

iGate also had a good cost-savings track record with PeopleSoft in its other departments. According to Raghavan Stinivas, iGate's director of information technology, it had been successfully reducing costs in the automated departments since deployment. "Our substantial internal experience with PeopleSoft products reduced our e-procurement implementation costs by nearly 50 percent," he says.

With the provider selected, iGate went to work negotiating new trading agreements with preferred suppliers of computer equipment, courier services, copier leases, printed materials, office supplies, wireless services, and office furniture. These new contracts included the purchasing of all iGate's holdings, aggregating the buying volume of its partners to achieve the lowest possible prices. Corris says that because iGate is paying for the implementation, maintenance and license agreements, the choice to espouse the solution is easy for all of iGate's portfolio companies.

It's All About ROI

Since the implementation of PeopleSoft's eProcurement, iGate has realized tangible benefits consistent with the strategies it had set out in the beginning of its solution search. To date, 70 percent of iGate's indirect spend is now processed through PeopleSoft eProcurement. Also, the new, negotiated agreements have reduced the cost of office supplies by almost 15 percent and copy machines by 23 percent. In addition, the cost of laptops and desktops has been reduced by 10 percent, and shipping costs have dropped by 33 percent. Finally, maverick buying of indirect goods has been significantly reduced, and iGate's internal buyers experience a more efficient business process.

While PeopleSoft's eProcurement system was a good fit for iGate and went a long way in making the decentralizing transition smooth, Corris stresses that employees and senior management need to buy into the system for it to really be effective. "To any company embarking on something like a new e-procurement system, I'd say this: don't underestimate the importance of change management." He adds that training is the key for any company wanting to mitigate employees' fears surrounding change, encourage use of a new system and reduce complaints.

Now, nearly a year later, iGate Capital and its portfolio of companies have gone from using a cumbersome purchasing system that was riddled with inefficiencies to cruising with an essentially paperless operation. "The only piece of paper we actually generate in the whole process is when we cut the check for payment," Corris jokes. He adds that, "Another significant 'hidden' benefit is that [iGate has] been able to unify indirect procurement across the entire multi-company organization: a single, Web-based, well-defined, well-documented, easy-to-use, unilateral business process." From ocean liner to quick powerboat, iGate's turnaround in its purchasing processes indicates that such a move can be done, and it can be done well.