5 Areas for Services Procurement Professionals to Watch in 2019

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As we start off 2019, more procurement professionals may want to be on their toes with respect to the changing contingent workforce and services environment. With that in mind — and recognizing the wicked challenge of making even short-term predictions in this space — we are not offering predictions per se but rather commentary on several broader trends.

No promises, no New Year resolutions. Instead, we’d like to point to some areas we will be (and perhaps you should be) watching in 2019. To avoid being caught flat-footed as new developments and opportunities arise, practitioners would be advised to keep their eye on five areas.

1. Sourcing and Management of Complex Services

U.S. businesses spend trillions of dollars across complex, non-contingent workforce services categories (e.g., professional services/consulting, MRO, commercial real estate, IT, telecommunications, marketing, legal). But only a fraction of this spend is systematically sourced and managed by a procurement organization, and only a miniscule portion of that spend passes through any kind of procurement technology solution (i.e., e-procurement/S2P, VMS/SOW, CLM, spend analytics).

Nonetheless, in 2018, there were subtle indications of an increasing focus on complex (non-contingent workforce) services categories, most visibly in the (presumably market-driven) evolution of technology-based solutions. SOW spend under management within VMS solutions saw continuing double-digit growth. Coupa’s introduction of Services Maestro and its subsequent acquisition of DCR Workforce (including its best-in-class SOW/services module) brought a formidable new player to the market. A number of e-procurement/CLM/S2P solution providers have either demonstrated or discussed emerging service-related solution capabilities (e.g., see an October post by  OpusCapita, The Inevitable Challenges with Procurement of Services).

The past year also saw the launch of a healthcare-category specific solution, Medpricer’s mSource, for the sourcing and management of hospital “purchased services.” Also notable were stirrings in the area of service marketplaces and provider networks, including Jaggaer’s partnership with Science Exchange (which recently added freelance marketplace Clorus to its service provider marketplace) and the emergence of sourcing/marketplace solutions like Globality and Maistro. Finally, upstream on the supply side, external online platforms that deliver specific kinds of services/outputs (not independent workers) continue to take root in enterprises of all sizes (see our July 2018 brief on “Next-Generation Digital Service Providers” Part 1 and Part 2).

Whether there will be additional developments this year remains to be seen, but we think procurement of services is an area to keep an eye on in 2019. One way to do this is to stay on top of the Contracted Services/SOW SolutionMap.

2. Independent Contract Workers (ICWs)/Services Micro-providers (SMPs)

Even as the buzz of the gig economy gradually recedes, now is not the time to take one’s eye off the ball when it comes to the use of ICWs (interim workers with whom an organization contracts directly) and their cousins SMPs (incorporated service providers that employ or subcontract just a handful of workers). Though the number of ICWs/SMPs engaged in any given organization will likely be much smaller than the numbers of temp agency and professional services workers, there appears to be ample evidence organizations will be using more of them for a number of reasons (filling skills gaps, speed and lower costs of direct sourcing and technology-enabled channels make the sourcing and management ICWs/SMPs feasible in the first place).

It appears likely that the use of ICWs/SMPs in organizations will be increasing (depending upon the organizational function and skill categories). And while one needn’t fear a tsunami, there are a number of developments that may accelerate the increase in numbers of and spend on ICWs/SMPs  across the organization. These are a few to keep one’s eye on:

  • Defined/formalized S2P processes for ICWs and SMPs, recognizing that “contractors” can be engaged as individual persons or as business entities. These may involve direct sourcing (i.e., without a traditional intermediary), self-sourcing from private talent pools, streamlined SOW/contract management and other processes specifically designed/tailored for the engagement and management of ICWs/SMPs. Technology support can come from a range of different solutions. To name one as an example, TalentNet is well geared to enable direct sourcing as well as self-sourcing from private talent pools For more on this whole subject, see  Services Procurement Practitioners: Is It Time for ‘SOW Lite’?
  • Proactive, portable and possibly case-dependent classification and compliance services for ICWs/SMPs. Existing third party-provided services range from worker classification and legal entity compliance (e.g., MBO Partners, IC PreCheck) to business insurances and license validation (e.g., Bunker). These models reduce friction when businesses wish to source and engage ICWs/SMPs rather than wait until the middle or the end of the sourcing and engagement process.  For more on this subject, see The Freelance Frontier: How the Future of Independent Work is Happening Now and watch the recorded webinar.
  • Payments and financial management capabilities for ICWs/SMPs, potentially the most powerful accelerant of the use of ICW/SMP by larger organizations. Why? PYMNTS.com reported on a shift of preferences — partly fintech-driven, partly generation-driven — toward non-bank payment systems, real-time payments and financial apps. It also reported that “85% of gig workers would work more often if paid faster” (a consistent finding among other studies). Alternatively, ADP’s new payment capabilities (i.e., real-time payments and even advances, non-bank Wisely cashcard payments and personal financial management tools) were conceived with ICWs in mind. In terms of deeper financial management support for ICWs and SMPs,  Freshbooks and Intuit come to mind.

The main point is that organizations’ use of ICWs/SMPs will grow over time, and it makes sense to keep at least a half-open eye on this particular area as a significant accelerant of that growth.

3. Digital Networks of Providers

In recent years, a lot of attention has been paid to online freelancer marketplaces and freelancer management systems (FMS), both of which often handle both ICWs and SMPs. But an important development that has gotten less attention is what we term, generically, “digital networks of providers.” Some VMS solution providers have, most notably, moved in this direction, but other solution providers have done so, as well, though perhaps less prominently.

These networks consist of software that enables organizations to select, onboard and actively engage a range of providers of services (e.g., compliance), software (e.g., FMS) and flexible talent from “alternative” sources (e.g., online ICW/SMP marketplaces) as part of an integrated (potentially “guided”) multichannel buying experience. They also provide a range of actual, integration-ready providers/partners that organizations can choose from in building out their own ecosystems of digitally connected providers.

Perhaps the most visible of these today is the Digital Partner Network offered by SAP Fieldglass. Earlier in 2018, we covered the launch of the SAP Fieldglass network in SAP Fieldglass Introduces its Digital Network to Support Multichannel Services Sourcing and Engagement  and The SAP Fieldglass Digital Network: What Is It and What Does It Mean?.

Still earlier, we introduced the concept of what we called an integrated self-sourcing network (ISN). Contrasting it with FMS, we discussed a new model, pioneered by Beeline, noting, “ISN is a specialized inter- and extra-enterprise cloud-based solution that encompasses and augments an existing VMS, or conceptually any talent acquisition and management system. Functionally, ISN is an end-to-end, source-to-pay, e-purchasing solution.”

We think that, over time, digital networks of providers will play a major role in the expansion of the use in larger enterprises of alternative, flexible workers and services. It is thus a key area practitioners should watch in 2019.

4. Blockchain (Not Bitcoin) at Work

We understand and acknowledge the importance and potentially transformative impacts of artificial intelligence (AI)/machine learning (ML) in procurement and, specifically, in contingent workforce and services procurement. But there is little point in restating the obvious.

Beside AI/ML, we think that blockchain has an understated and under-appreciated role to play in contingent workforce and services procurement. First, however, we think some separation of cryptocurrencies from these blockchain-based solutions needs to occur.

These solutions, which have significantly increased in number over the past several years, have generally emerged through ICOs (inital coin offerings) as online work/service marketplace start-ups with some type of crypto-currency-based tokens as the medium of exchange. But as one commentator in the space recently noted:

The early generation of blockchain micro-task companies hit snags early on. Corruption was rife, and the reputation systems failed. Reporting by Decrypt showed how [players like Storm and Coinworker] refused to pay users until their token fell in value, and then only offered 25 percent of the agreed payment— even after the coin had already fallen in value. And, because these systems rely on trust, it’s easy to create ‘sockpuppet’ accounts — fraudulent accounts created to artificially upvote specific users into high-paying positions. These platforms are still operational, but users are wary, and their coin values have plummeted.

Blockchain as the basis of work/services intermediation and sourcing and management solutions is very much a work in progress — at the stage of raw innovation and learning from mistakes. The outlines of the potential, however, is perhaps being clarified by first- and second-generation platforms. A number of characteristics make them compelling, in our opinion, including their:

  • Efficient lattice-like architectures
  • Reputation validation capabilities
  • Integration of smart contracting

As online work/service intermediaries, blockchain-based solutions may pose a threat to the current crop of online ICW/SMP marketplaces (although the disruptors also could have their weapon pointed back at them).

What is more important to look at, in our opinion, is the range of innovation in this sub-space, which is now populated with many different solutions and solution models (like freelancing marketplaces, microtasking platforms and even spend management solutions, et al). In the last category, we’ve previously pointed to one such solution provider, aXpire, which states: “Our solutions now provide electronic business process management tools that focus on planning and performance measurement of the client's legal and non-legal professional service providers. We specialize in procurement, enterprise legal and supplier management.”

In a recent Forbes article, the company described the function of its core tech platform, Resolvr:

Businesses are able to receive invoices through Resolvr’s billing platform and then assign them around the mid and back-office electronically prior to approval. AI provides a score on each invoice, allowing accountants and attorneys to quickly determine if the invoice they’re handling is viable for payment, without the need for extensive manual checking. Resolvr also has an RFP portal, currently in development, which will allow intelligent services procurement and response sorting for capex intensive services, such as enterprise-wide software.

Today, aXpire is a specialist, serving financial fund management firms. But the general potential for its solution in the future may not be out of the question.

To get a better understanding of the state of blockchain solutions related human capital, refer to the ultimate list of HR blockchain projects. Blockchain solutions may be the wild west today, but even the wild west was eventually settled. Blockchain applications are emeging very rapidly, and keeping an eye on it in 2019 would be wise.

5. Industry Structure Developments

It’s important not to take the forest for the trees. We analysts (and we think, many procurement practitioners) are extremely good at looking at the trees (e.g., describing them, counting them, costing them, categorizing them, etc.). But -- particularly now, at a time when so much is going on -- it’s crucial to look at the big picture (i.e., in which the forest = the industry) and how it is changing (gradually or rapidly). Here in California, we had to learn the hard way that there are forces that can alter forest ecosystems overnight and radically. We also have to remain aware of the inevitability of earthquakes.

In industry analysis, sudden, far-reaching changes are often referred to as tipping points. It’s not clear if there are any tipping points ahead and, if so, at what time they might occur.  But we are detecting an increase in seismic activity in the space (refer to 4 Seismic Events for Contingent Workforce/Services in 2018 — A Whole Lotta Shaking Going On). Events like Upwork’s IPO and Coupa’s acquisition of DCR Workforce were certainly wake-up calls that change is occurring at the fundamental level of industry structure (and once this starts to happen and fissures start to appear, the process will likely continue — often in unpredictable ways).

Perhaps the most significant wake-up call of 2018 came when we grasped ADP’s “future of work strategy.” We did our best recently to shine some light on this in a four-part PRO series (see here, here, here and here). Looking at ADP’s comprehensive strategy, it’s possible to see how “industry platforms” (like tectonic plates) could be poised to shift, reconfiguring what goes on commercially on the surface. There are many “industry platforms” that could become more prominent in the contingent workforce and services space and, at the very least, serve as innovation enablers and possibly as sources of disruptions.

We don’t know if we will face a big one or some small ones in coming years, but now seems to be the time to start attending to the forest and not just the trees.

May we all proceed through 2019 with our eyes wide open and aware of the possibility of a "big one,” if and whenever it should happen.

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