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How to Fix the Services Procurement Machine: A New Operating Model for Procurement and its Stakeholders

04/12/2018 By

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Spend Matters welcomes this contributed content from Stefan Zorn, vice president of customer success at Globality

The services procurement machine is broken, that much is certain. In the sourcing of high-value, complex services, cost consciousness has dominated where quality should have lead. Compulsive risk avoidance has allowed larger suppliers to capture the services market, excluding expert small and mid-sized providers from the selection process. But these misplaced priorities are far from the only reason for malfunction. The machine also broke because it hasn’t kept up with the rapidly changing, real-time global economy.

Today, companies operate in a business environment where new market opportunities and competitive challenges can emerge overnight. To stay afloat, business leaders need not only to quickly respond to such competitive threats but also to proactively defend against them, offering innovative solutions to business problems. And since solving many of these problems will require specialized expertise that often sits outside the four walls of the business, choosing the right services providers has become critically important.

To ensure businesses can access and maximize ROI from these relationships, procurement needs a new, more effective way of working with all of its stakeholders to source, manage and deliver services. It needs a new services procurement machine that can fully address the challenges of the modern business.

What does this look like? To help businesses succeed in today’s economy, companies must replace the old services procurement machine with one that runs an entirely new operating model. In particular, this new system features three key changes to the way procurement approaches services provider selection and delivery.

1. Stronger Integration with Stakeholders

First, the new machine must run on stronger, integrated relationships between procurement and its various internal customers.

In the old model, procurement operates as a silo, filled with players who are viewed as cost obsessed and risk intolerant. What’s more, stakeholders in many organizations view procurement as unknowledgeable about their categories, and thus shut the function out from managing any aspect of them, from RFX to vendor selection and even general strategy. For example, the head of a corporate legal function has built decades of experience in his or her field, as well as a vast network of legal peers who could help inform selection of outside counsel. Procurement, however, might only touch legal sourcing twice a year — at most.

This disparity of expertise between stakeholders and those responsible for sourcing a service further points to the fact that procurement teams need a new way forward. We propose that sourcing experts reframe their relationship with stakeholders to position themselves as enablers with expertise in an area that stakeholders lack: strategic sourcing.

To enable true sourcing of services informed by deep category expertise, new technologies and companies like Globality have recently emerged to help businesses strategically source new service partners. Savvy services procurement professionals can take advantage of these new technologies and tools, driven by machine learning and AI-driven matching techniques, to help stakeholders uncover new service provider options, as well as leverage category expertise from many different projects rather than limiting such insights to a single company. By bringing solutions to the table that stakeholders would not be able to easily identify on their own, procurement can earn the respect that underlies a stronger, more positive relationship.

2. Getting Involved Further Upstream

Alerting stakeholders to these new firms and opportunities, however, requires implementing the second component of the new operating model: procurement must work further upstream as a trusted advisor to stakeholders for services sourcing.

Typically, stakeholders avoid engaging with procurement until the last possible moment. In addition to the common complaints cited above, stakeholders avoid working with procurement early in provider selection because they fear the tedium of the typical RFP process. To make matters worse, several recent high-profile supply chain failures have led CEOs to increasingly scrutinize procurement performance generally, which has led to even stricter purchasing policies and processes. Stakeholders now expect scenarios like a six-month waiting period to onboard a new supplier, or a 12-month crawl to negotiate a master services agreement for a consulting project.

Procurement groups can avoid these situations by streamlining the RFP process, making it faster, more effective and more appealing to all parties involved. Modern solutions for services sourcing enable this by transforming the cumbersome RFP into an intuitive and continuously-learning process that is used to define and scope a project. These platforms leverage a combination of artificial intelligence and in-house industry expertise to not only create an RFP much faster than previously possible but also match companies with outstanding service providers.

By eliminating the use of empty templates and better defining the scope of a project up front, procurement can offer an attractive alternative to the tedious old RFP process. This new approach ensures matches with services providers are made in days, not months, helping procurement bring real solutions to stakeholders quickly — a key way to build the trust that leads to earlier involvement in services provider discovery.

3. Prioritize the “Hidden Gems”

Of course, increased upstream involvement is not the only opportunity here. Ultimately procurement’s reframed relationship with stakeholders will help businesses achieve the third component of the new operating model: prioritizing innovative, “hidden gem” suppliers over larger services vendors.

Just as the business world is becoming increasingly complex, digital and globalized, so too are the various services a company needs to procure. Businesses need trusted partners with deep industry knowledge and category expertise that can help them expand into new markets while delivering consistently high-quality outcomes.

Usually, such engagements are the province of the large, global firm. In many cases, this is because larger firms are better suited to thrive in companies that have complex risk requirements, as on-boarding a new supplier is often very difficult. In addition, delivering services to stakeholders is more complicated than delivering goods, because stakeholders must have a certain level of comfort with their provider to effectively complete a project. And once they’ve already had good experiences with a provider, procurement will find it all the more difficult to suggest an alternative.

Yet in spite of these barriers, businesses are also finding that the levels of service provided by these larger firms are insufficient. In fact, many organizations find that smaller firms often staff with more seasoned talent who can deliver superior results for lower fees.

For instance, our recently published report “Global Trends in Hiring Outside Counsel” found that many general counsels at major international companies want to work with smaller firms, despite their difficulty identifying such partners. GCs want to work with these smaller firms because they are more innovative, quicker to vet and have superior expertise. And when GCs do have the opportunity to work with a smaller firm instead of a large one, the differences are compelling: levels of dissatisfaction were three times higher with larger law firms (19%) than with smaller rivals (6%).

Enabling this desire to work with smaller, more innovative providers is how modern services procurement solutions can support a new operating model for procurement and its stakeholders. As an example, Globality helps procurement quickly and easily evaluate suppliers through its select network of services providers. Businesses within this network must have fewer than 500 employees, and a prior screening of the provider’s capabilities, leadership team, past work, local market expertise and financial stability ensure businesses are matched with the true “hidden gems” of a given industry.

A New Operating Model

Just as today’s businesses and technologies are advancing quickly, new solutions exist that can revolutionize the services procurement sourcing process. By helping procurement strengthen relationships with stakeholders, gain access to the sourcing process upstream and identify “hidden gem” suppliers, these modern technologies can deliver high-quality service outputs to the business at far lower costs. We’d say that’s a pretty good case to trade in the outdated, analog processes for new, digitally driven and modern operating model.