Sourcing Value

AUTHOR: Ben Hutt   DATE: 01.05.07   ISSUE 1, 2007

The Early Days

Sourcing Value was founded in 2002 by four like-minded individuals who shared a passion for building a business and a desire to control their own destiny. Brad McBean, Arjun Narang and Michael Johnson all met whilst working for the Mitchell Madison group in the late 1990s. They were united by common goals, and teamed up with David Hardy (then a Senior at McKinsey & Co) to form Sourcing Value. The company was to be founded on the principle of “practical excellence” , and their mission was to deliver measurable, long term performance improvement in large companies to increase their profitability.

Brad says “………it was vital in the early days that all four of us had aligned interests, and we all got along really well. This was important because it was really tough – we were based in “The Shed”, a spare room above a garage with no toilet, and because of our savings-based payment model, basically worked for minimal cash-flow in the first year. We nicknamed this period the Salvation Army years.”

"We work to create collaborative relationships and deliver long-term benefits for our clients," said Brad McBean, AGSM alumnus and Sourcing Value founder.

Photo: Brad McBean.

Brad’s background had been as an engineer, and his AGSM MBA provided the platform to transition into management and then further into Consulting. Coincidentally three of the four partners gained the AGSM MBA at different times. Arjun being the exception gained his at IMD in Switzerland.

Asked to reflect on the value of this education Brad remains extremely positive. He recalls how the MBA was originally devised to educate engineers and provide them management skills. He has good memories of his AGSM experience, noting in particular a lesson learned from Geoff Waring who said something to the effect that “if something does not require the business to expend a lot of time, resource, and money then it is not a genuine business strategy”. This phrase was certainly vindicated in the early years of Sourcing Value.

The business flourished through a succession of small successful jobs. These early clients included the AGSM and helped develop the company’s reputation for creative problem solving and delivery of tangible results.

The early business model was around risk-sharing with clients. This meant that fees for engagements were paid if savings were achieved by the project. This directly opposes the standard consulting model where fees are paid by clients typically on a ‘day-rate’ structure over the life of a project. They believed this structure was necessary to overcome the hurdle of credibility they faced when talking to major businesses but most of all they believed in themselves enough to put their success and their livelihoods on the line.

On this subject Brad remains passionate – “If we could not back ourselves with measurable results, how could we expect anyone else to believe in us?"

Sourcing Value as it is today
The company is about half way to becoming an established business. They are still building, but compared to the early days they have a platform for success.

“We have secure relationships with a number of Top 100 clients, talented staff, and the beginnings of a culture for success. We still act like a startup in many ways and encourage entrepreneurial spirit in our team, but we have solid infrastructure and models for delivery which enable us to provide successful outcomes for our clients”.

The company’s culture warrants some discussion. The company now employs twelve full time staff, of whom nine are international.

“……we are truly multicultural, and include two Canadians, two Indians, a Brit, a German, a Russian, a South African, and a Malaysian.´

This illustrates well the company’s policy for recruitment where what is important to Sourcing Value is people’s education, a background in strategic environments, and the ability to solve tough problems. An MBA is a good signal of these qualities, and as such Sourcing Value currently employs five AGSM MBAs.

The earliest of these graduated in 1992, and the most recent recruits completed in 2006.

“……we believe that this demonstrates the consistency and quality of the AGSM MBA. As we continue to grow, Sourcing Value will continue to pursue the best and brightest graduates that AGSM produces. Our plan is to grow to a total headcount of twenty over the next three years and it would be no surprise if AGSM graduates go some considerable way to making up this number.”

The company has come a long way since foundation and now serves mainly ASX100 clients. Sourcing Value are normally engaged to help clients with complex buying decisions and contract negotiations. This can include issues around the outsourcing of critical functions, sophisticated supply chain restructuring, or the purchase of key strategic inputs.

“……essentially what we do is generate quality outcomes for both clients and suppliers…….often these include substantial cost reductions and increased efficiencies for both parties.”

So, what does the future hold for Sourcing Value? Research into global industry trends by The Aberdeen Group indicates that there is set to be an explosion in demand for the outsourced management of corporate spend in Australia. Sourcing Value’s view of the world certainly supports this but it is not true for all categories of spend.

“………we believe it makes sense, particularly where there are areas of spend which are not particularly strategic, or where there are economies of skill, scope or scale available to a company through outsourcing.”

The company does however acknowledge that lessons learned in the global rush to outsource IT and service centre functions to low-cost countries earlier in the decade must be heeded, and that making these decisions and managing them correctly is full of potential elephant traps.

“…….it is important to structure contracts appropriately and generate incentives for all parties. This is essential for there to be delivery of ongoing value. We work to create collaborative relationships and deliver long-term benefits for our clients”.