Earlier in June, Everest Research published their latest report examining the procurement BPO market. Supply and Demand Chain Executive picked up on the news in a recent article, suggesting that the "Emerging market for procurement outsourcing services seeing marked increase in activity as new players join the fray and more established firms jockey for an edge." In the first installment of this post, we'll share additional perspective from SDCEXEC's highlights as well as the views of our partner firm in procurement BPO research, Horses for Sources. In Part 2, check back for our opinion of the increasing role of technology in procurement BPO going forward.
Everest suggests in the article that, "the nascent PO market is quite dynamic, characterized by new players entering the market, revised value propositions and significant alliance activity." Elaborating on this analysis, Everest observes that last year, "the PO supplier market witnessed the emergence of alliances and partnerships between procure-to-pay (P2P) and sourcing-focused suppliers to compete against global end-to-end source-to-pay (S2P) suppliers such as Accenture and IBM." In 2009, "suppliers engaged in capability investments, primarily focused on enhancing technology and end-to-end S2P capabilities, and willingly took on componentized engagements that allowed buyers to pursue a phased approach to PO."
To get a second perspective on the subject, I reached out to Phil Fersht, Chief Jockey at Horses for Sources for his opinion on where the market was headed. Phil suggests that "Procurement BPO is becoming increasingly tied to F&A BPO, with evaluations around parts of the P2P function being increasingly dovetailed with accounting processes, and decisions being made by the finance leads." Horses analysis suggests that "The hottest segment is the mid-market ($1bn-$3bn revenues), where a recent HfS research study of 1000 shared services and outsourcing professionals shows that close to one-in-four mid-market enterprises are expecting to use a service provider to take on some of their F&A processes, and around one-in-ten of both mid-market and high-end enterprises ($3bn+) will move into some form of procurement BPO, for the first time, over the next 12 months."
Yet don't expect that many mega deals on the horizon. Phil believes the majority of procurement BPO deals will be much more targeted affairs: "However, unlike pre-recession days," Phil notes, "most of these engagements will not be 'big bang' affairs, with most deals sizes at the $1m-10m (TCV) levels. Most customers are looking at smaller incremental approaches to BPO, and are dovetailing BPO with broader shared services strategies."
Phil also suggests that: "In addition, we are seeing a greater amount of hybrid IT/BPO being evaluated, where more companies are looking at technology replacements and upgrades alongside the BPO engagement. More specialist/general BPO 'parent-ships' that encompass SaaS-based procurement apps, underpinned by transactional BPO support are becoming popular -- for example, IBM leveraging Hubwoo, Capgemini and its recent IBX acquisition, and Genpact's involvement with ICG Commerce. This bears bad news for Ariba, which pulled back from a BPO strategy in recent years and has failed to progress its attempts to partner with HP on deals."
Stay tuned as we share additional perspective on the future of hybrid IT/BPO procurement approaches, including Ariba's potential role in this environment.