The beauty of procurement is that is was never really geared up for cheap and cheerful labor-arbitrage based BPO. In short, most procurement functions have been cut to the bone in most organizations, and many still rely on fax machines, photocopiers and copious filing cabinets of yellowing contracts to get the job done.
Shipping this stuff off to far flung offshore destinations for a few FTE savings has rarely proved to work very well. However, creating a capability where clients can plug in to a whole new experience of procurement capabilities, category expertise, spend management analytics and gain-share opportunities As-a-Service is now happening for many ambitious buyers and service providers.
The procurement outsourcing market has evolved significantly since 2013 since HfS launched its first Blueprint, covering 14 service providers, to this new report that covers 18, co-authored by analysts Charles Sutherland and Hema Santosh. This new report is looking very closely at the evolution of procurement services from its legacy outsourcing roots in lift and shift mega-deals, coupled with strategic sourcing consulting, to the increasingly available As-a-Service solution models offered today.
The latest HfS Procurement-as-a-Service Blueprint captures the transition of service providers into the As-a-Service Economy:
What has changed since 2013 in procurement outsourcing services?
If we look at where we are today, or starters, we’re living in a post Procurian world, as its acquisition by Accenture in late 2013 shifted the competitive landscape. Both were in our 2013 Winner’s Circle and when combined they created a market leader by share and by innovation. When we first commented on the acquisition we expected several more would quickly follow especially for Genpact and Capgemini who needed to replace the partnerships they had been developing with Procurian. It turns out that rather than buy at least for now, those service providers who had gaps in capabilities or technologies turned to partnerships instead.
Indeed, partnerships between service providers born out of the transactional procurement market (e.g. TCS, Genpact, WNS) and those out of the technology (e.g. GEP) or strategic sourcing (e.g. Proxima, AT Kearney) are more prevalent in 2015 than they were back in 2013 as service providers construct end-to-end offerings to better compete with Accenture and IBM in particular.
But acquisitions didn’t end with Procurian. Xchanging has followed suite with two more that have revitalized their presence in North America and brought them a new proprietary technology base. While Infosys has accelerated the value of the 2011 acquisition of The Portland Group by utilizing their procurement consulting skills
Internal investments have also mattered over the last several years with service providers increasing their development budgets significantly while also spending on adapting solutions models. In fact over the last two years we have seen previous solution models of end-to-end procurement lift and shift and sourcing consultancy become impacted by the arrival of more modular technology supported service delivery models. While still not the broad norm, this “As-a-Service” approach is setting roots in many service providers and we expect this to increasingly be the norm in the years to come.
So in many ways the last several years have been less revolutionary than they have been evolutionary with a slow and steady acceleration for all end-to-end service providers in the breadth of their offerings and only modest movement in their Blueprint positioning as a result. It should be noted though that the specialist service providers have markedly picked p their game in the last few years and now have a much more prominent place in our evaluation than before.
What matters today in procurement outsourcing
- We are seeing slowing growth. Procurement outsourcing while still much smaller than F&A or HR is becoming a substantial multi-billion market and with that we have seen a slowdown in overall market growth from 10%+ a few years ago to something more in the 6% range and so the competition for new clients and renewing deals is greater than ever.
- The nature of transactional procurement is changing. Transactional Procurement for the last decade has often looked like a “lift and shift” model supplemented by post transition process excellence projects by service providers. In the last 18 months, we have seen a rapid evaluation of the potential first for robotic process automation and of late cognitive computing as well to this process in order to move away from the labor arbitrage heavy model of the past and to improve overall delivery speed and quality
- Sourcing and category management still in demand. Client value creation and service provider differentiation often depend on the breadth and depth of the available sourcing staff in the service provider. The battle to hire and retain sourcing expertise is significant especially as clients in both North America and Europe are looking for the on-site availability of consultants from their outsourcing service providers. Many of the strategic actions undertaken over the last several years by the service providers including acquisitions and partnerships have been made in order to address gaps in organic indirect sourcing category coverage.
- Procurement technology and technology management has never been more important. Service provider technology has always played a role in procurement delivery but in the present market with the increased availability of SaaS solutions it has increased again in importance. We have increased the attention and weighting given to technology in this iteration of the Blueprint and spent even more time reviewing service provider capabilities and strategies for technology as well as what it feels like to be an enterprise client today that is increasingly reliant on technology they no longer control to deliver procurement results.
- Moving to As-a-Service. We are certainly not there yet, but procurement outsourcing service providers have made extensive efforts over the last several years to further transform their offerings from “lift and shift” transactional procurement together with consulting led sourcing to more modular, integrated, technology based as-a-Service solutions.
Which service providers are taking advantage of this market?
Our 2015 Blueprint Winner’s Circle members who led in our evaluation of the criteria on Service Provider Execution and Innovation are: Accenture, Capgemini, (promotion) GEP, IBM, Infosys and Xchanging (promotion).
Our 2015 High Performers include: Denali (new entrant), DSSI (new entrant), Genpact, Optimum Procurement (new entrant) and Proxima.
So what does HfS expect will happen next as this market unravels?
Crystal ball gazing in procurement has proven to be challenging over the last few years but let’s throw caution to the wind and make at least three bold predictions about where we will be by the next Procurement As-a-Service Blueprint.
- There will be a much greater commercial adoption of As-a-Service in procurement as current trends towards modular processes and hosted software make further inroads.
- There will be much more extensive adoption of robotic process automation and cognitive technologies in procurement than we have seen so far. For most service providers these are still at the PoC or limited deployment stage in procurement but we don’t see that being the case for much longer.
- Some of the recent partnerships especially for sourcing and category management not lasting the test of time and leading to increased efforts to grow organic capabilities
- Attracting and retaining leaders in strategic sourcing and category management will continue to be a struggle for many service providers as that is part of the solution we don’t see diminishing in value or importance anytime soon.
So that’s our take on Procurement As-a-Service in 2015. Please do share your thoughts with us as this important segment of the business process market continues thrive, and…
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