Client Insights, Managing Consultant, IBM Center for Applied Insights
This is the second post in a 3-part series about our new Sourcing research. My first blog post in this series looked at current outsourcing market shifts - a broader and more strategic view of sourcing relationships. Today I am exploring the financial impact of sourcing decision-making. Enterprises that source broadly across the organization and with a primary focus on innovation perform better financially – racking up 2x the revenue growth and 5x the gross profit growth compared to their peers.
To learn more and read the full report, access our new white paper here: Why Partnering Strategies Matter: How Sourcing of business and IT services impacts financial performance.
Partnering strategy and financial outperformance
An initial look at average revenue growth and gross profit growth across segments suggested a potential correlation between partnering strategy and business performance. You can see below that respondents who are both sourcing broadly and sourcing for innovation, outperform by considerable margins (as you may recall we are calling these outperformers 'Enterprise Innovators'). However, we knew that a number of other factors – such as industry, company size, geography – could be influencing these results.
We initiated analysis to help rule out firmographic characteristics as the reason for Enterprise Innovators’ outperformance. Against a slate of financial measures, each based on 3-year 2011 compound annual growth rates, Enterprise Innovators trended higher than the average of the other segments combined. This overall pattern is statistically significant. However, since this sourcing study is observational, we could not definitively conclude that Enterprise Innovators’ approach to sourcing causes better financial performance based on this correlation. To help make that case, we used an analytical technique called propensity score modeling.
Propensity score analysis matches Enterprise Innovators with other organizations in the sample that have similar firmographic characteristics, such as industry, company size and geography. In this case, we calculated propensity scores using 68 Dun & Bradstreet variables – those which showed a significant difference between Enterprise Innovators and the other segments.
For a more detailed description of this analysis, please see the complete report.
Enterprise Innovators scored higher than other businesses on all financial measures even after propensity score matching, suggesting their approach to sourcing – i.e., sourcing broadly to drive innovation – was a contributing factor to this higher performance.
My next blog post in this series will look at top business priorities and partner capabilities across the sample, and then explore how Enterprise Innovators structure, scope, and govern their sourcing relationships. Please log in and leave a comment!