My colleague Pierre Mitchell wrote a prediction (see: 2014 Predictions: The Industrialization of Services, including Procurement Services) regarding how business services were becoming “industrialized” and outsourced and therefore ripe for better services spend management. He's on point strategically, but there are also some other reasons, and I'm going to call out five of them. Basically, the weak support for services procurement in nearly all the eProcurement vendors (except for the VMS specialists) has gotten to a point where practitioners have had enough and are seriously looking for better support in a services-centric world (XaaS - "everything as a service" right?). But, let's get down to brass tacks…
With apologies to the late Rodney Dangerfield, services procurement “doesn’t get no respect.” Or at the very least, it hasn’t gotten the respect it deserved in the past. Sure, a material percentage of the Global 2000 have instituted some type of system and controls for overseeing contingent spend in at least a rudimentary tool. And many have either outright hired a managed services provider (MSP) to administer aspects of their contingent workforce program design and delivery or put some of this responsibility onto a larger, preferred staffing firm (but whatever you do, don’t take what MSPs tell you about their project and SOW experience experience with anything but a grain of salt). Yet few companies give services procurement the respect it deserves. The fact HR still often has a seat at the services table is testament to this. Kidding, OK!
But the procurement of services is certainly as important – if not more – to modern businesses today, including manufacturers, as the purchasing of raw materials, semi-finished, or finished parts and components – and even assemblies and finished products. Services – including outsourced IT services and software and contract manufacturing – are what keep businesses growing while minimizing (in theory) risk and working capital requirements.
Yet far too many companies are only beginning to realize this. The good news: things are about to change. And not just in a manner such that organizations manage their contingent workforce more securely and efficiently. The converging factors are many. Here are five reasons (there’s more, mind you):
1) A newfound interest and capability centered on the measurement and improvement of services delivery. Some of the work we have learned that Impacore has done, in Germany, as an example, in the measurement and relative performance benchmarking of specialized consultancy services, can fundamentally change and realign the value companies get from professional services firms. It’s fascinating and much bigger than you think. Stay tuned as they expand into new markets.
2) A continued focus on working capital management and keeping CAPEX in check. In an environment where corporates would rather spend money on acquiring companies or simply watching their bank balances (or perhaps in 2015, Bitcoin) grow rather than making large capital investments, the buying and engagement of services from third party providers as a substitute for “make” decisions involving human capital and related equipment (e.g., servers, network infrastructure) will continue to increase.
3) A newfound realization (it’s about time!) that while the acquisition of services are essential to our businesses, our compliance and control mechanisms are typically not what they need to be to reduce risk of all sorts – including information access, facility access, background screening, regulatory/workforce compliance (e.g., worker classification), and the like. And who better than procurement to take on this responsibility, extending out the same paradigms for supplier on-boarding, supplier management, supplier development, supply chain risk management, contract management, and general supplier compliance like they have in recent years in the areas of direct and indirect materials.
4) The rise of a number of very good vendor management system (VMS) options in the sector. While there are significant nuances between the top providers (and specialized and standout capabilities in areas such as non-contingent resource tracking, analytics, SOW, etc.), it’s all but impossible to go wrong with the top tools even for complex implementations (which is not something you say about eProcurement where project failures still happen to the best of us). Moreover, it’s possible to fully integrate services procurement capabilities and tools (including a VMS) into a world where you already have ERP, eProcurement, and e-sourcing.
5) An increasing focus on applying specialized capabilities against specialized categories. This is especially true in the case of such areas as marketing, print, telecom, legal, outsourcing, and general professional services. More procurement organizations are finally bringing in specialists from the business or outside the organization to run these categories. Specialized tools are also rising up in these areas as well that foster standardized processes, measurement, and compliance.
Services procurement is not just here to stay. It’s the big new thing in procurement. Join us as we dive deeper into the many topics and areas that comprise the buying of services. And in the meantime, don’t let anyone fool you by claiming that services procurement just means the buying of contingent labor. By our calculation, that’s only 10-20% of the services opportunity (and challenge) inside most companies.
VMS and Services Procurement M&A: Customer Tips and Tactics (free research download)