2020 Predicaments in Services Procurement — No Light at the End of the Tunnel

kentoh/AdobeStock

(Editor’s note: Spend Matters’ analysts are taking on the new year by looking at their areas of procurement technology to see what’s broken and what can and should be fixed this year. Here, analyst Andrew Karpie lays out problems in services procurement. In another piece also published today for our PRO subscribers, he lays out his predictions for 2020.)

In some industry verticals, services is the largest and most poorly managed non-payroll spend category. But the buying and consuming of services in most enterprises is managed and controlled incompletely and ineffectively  — leading to potentially billions of dollars of unnecessary spend and opportunity costs (foregone value). A problem of such enormous scale and complexity is not going to be addressed overnight.

Various estimates suggest that, in the U.S., spend on temporary staffing services represents an average of only about 33% of total services spend across all enterprises (though that percentage can vary widely, depending upon the type of business/industry). But outside of spend on temporary staffing services, most enterprises have had, at best, fragmented and limited visibility into their non-staffing contingent workers and their complex services spend — to say nothing of control over the whole services source-to-pay lifecycle.

Part of the problem is organizational, as procurement and HR often view the contingent workforce segment of services spend very differently in terms of priorities and the strategies (and service/solution providers) used to manage it. Technology solution fragmentation is also a major problem. The inadequacy, fragmentation or absence of complete, fit-for-purpose technology solutions for managing the broad range of different services spend types represent one set of obstacles to making major gains in management of services spend in the short run. This set of obstacles is tied to the non-technological barriers of legacy enterprise architecture (i.e., silos, etc.), run-of-the mill organizational inertia and the difficulty of changing, even as the services world evolves.

As we head into 2020, thinking about the future of services procurement, what should we know about the technological obstacles and non-technological barriers to significant progress on addressing what must be overcome?

Inadequate services procurement technology solutions

Though we may be getting closer as we enter 2020, there are not yet any completely functional, comprehensive, integrated (i.e., with a common integrated data model) end-to-end solutions for managing a broad scope of contingent workforce and complex services spend. While there are established VMS and procurement solution providers as well as some new(er) entrants looking at new ways to address services spend, there is still a gap for enterprises that want a full lifecycle S2P solution for procuring services across a broader set of services spend categories.

One reason is that technology solutions used to manage services spend over the past 20 years have grown up along two separate paths, in two separate silos:

  1. Vendor management systems (VMS): Originally designed to manage temporary staffing services (i.e., manage suppliers and the onboarding, use and payment of temporary workers), some VMS providers, over the past 10 years, have extended their solutions to address non-staffing contingent workers and some categories of complex services — with varying degrees of completeness and effectiveness. But temporary staffing services remain by far the largest spend category for VMS providers.
  2. Procurement software solutions: Originally designed to manage the acquisition of direct materials and indirect goods, some of these S2P/P2P suite and procurement point solutions have been adapted to address some aspects of purchasing services (i.e., some categories, some processes in the end-to-end management lifecycle) — again, with varying degrees of completeness and effectiveness.

Each of these two types of technology solutions have been hamstrung in their own ways

Vendor management systems

VMS providers’ extended solutions for non-staffing contingent workers and complex services (aka “SoW”) have been limited in their market penetration, possibly due to limitations in their designs and capabilities (e.g., support limited types of services; lack sufficient contract lifecycle management capabilities, etc.) and the lack of readiness of enterprise organizations.

Beeline and SAP Fieldglass started down this path in the past decade. But while spend under management within these and other VMS solutions is growing, it’s still a drop in the bucket. More recently, in 2017, a new workforce/services management platform solution, VNDLY, was launched and is getting traction; but it's still a bit early to tell what will emerge out of it.

There has also been the arrival of various solutions that complement the VMS provider offerings (e.g., direct sourcing/talent pool solutions like TalentNet, Shortlist, et al; and enterprise extensions of online work/services platforms like Upwork Enterprise, Field Nation One, et al. While they seem to be getting increasing traction, these solutions do not currently seem to aspire to be anything other than purpose-built, category-specific solutions.

Procurement software solutions

Procurement software solutions have tended to tweak and reuse their goods procurement functionality (e.g., supplier management, purchase orders, contracts, AP) to accommodate the management of services in limited ways through approaches like service catalogs and SOWs implemented in a contract management module.

In addition, nearly all procurement software solutions — not having implemented an entity for human workers in their data models — could not address temporary staffing or other contingent workers that could be tracked down to the human worker level, whether those workers were self-employed, employees of service providers in professional service spend categories, or employees of temp staffing agencies.

Acquisition/integration of other solutions has been pursued by some providers to close both of the above gaps. SAP started down the road of integrating Ariba and Fieldglass in 2014, but it is still not there yet, especially since those in turn need to be integrated to SAP ERP solutions (which has turned out to be “problematic” to say the least). Coupa acquired and began its integration of DCR Workforce in late 2018, but the integration is still a work in progress. Ivalua, which has a worker entity in its data model, is moving incrementally in this direction (so far without acquisition/integration). Its offering is still skeletal and is not being officially/heavily promoted, but we shoukd keep an eye on developments there in 2020.

Legacy enterprise architecture* and organizational inertia

Beyond the gap in fit-for-purpose technology solutions for services procurement, legacy enterprise architecture, associated assumptions/discipline knowledge, and organizational inertia have also imposed barriers and obstacles. In fact, procurement functions are still largely organized within the legacy paradigm of the manufacturing industry (i.e., direct materials and indirect goods and services procurement), despite the massive shift in GDP from manufacturing to services and the structure of firms over the past decades.

Services procurement — essentially, the procurement of temporary staffing services — emerged as its own category that mirrored the model of procuring physical resources and commodities. At the same time, complex services was subsumed into (or buried in) the indirect “mega category.” The result: Complex services spend categories have remained largely undermanaged, and the loop between service “purchasing/costs” and “service outcomes/value” has never been closed. This is where some services-specific providers (e.g., ServiceNow, whose CEO Bill McDermott just arrived from his previous CEO post at SAP) have easier ground to cover.

At this point in time, the responsibilities and capabilities for managing various aspects of the procurement of different types of services (in the broad sense) are fragmented across organizations — and there really are no standardized models and disciplines. While in some enterprises, there may be fairly standardized programmatic models for managing temporary staffing services, that’s about as far as it goes. Some enterprises may organize the procurement of complex services (such as consulting, marketing or legal) under category managers, but there are neither standardized or best practices — nor are there taxonomies and processes to address complex services. The best firms are using some form of a center of excellence to bring these worlds together.

* Enterprise architecture is the organizing logic for business processes and IT infrastructure reflecting the integration and standardization requirements of the company's operating model. The operating model is the desired state of business process integration and business process standardization for delivering goods and services to customers. — The MIT Center for Information Systems Research (MIT CISR)

Conclusion

Put bluntly, the organization of services procurement in and across enterprises presents a significant challenge/barrier to a more comprehensive, integrated approach to the managed procurement and consumption/management of services. Not only is there fragmentation and disorganization around procuring services (broadly speaking), there is a lack of alignment to fit-for-purpose services procurement technology solutions.

While VMS may support a limited scope of services procurement like temporary staffing, adequate solutions for complex services are, at best, at an early stage of maturity. As far as complete technology solutions for managing the full spectrum of services in an integrated way, that still appears to be further down the road.

Bottom line — there is no quick fix here. And it is still hard to draw conclusions of what will emerge in the coming years. However, do not abandon all hope! We can extrapolate current developments into 2020 and make some educated predictions about what will likely happen — and even a few predictions that may not be likely but are still worthy of consideration. We’ll discuss this in today’s PRO brief.

Share on Procurious

Voices (2)

  1. Cris Buningh:

    Andrew, excellent article!

    You are painting a bit of grim future for Services procurement initiatives and I am afraid I have to acknowledge most of the key blockers in this domain.
    I would like to add one blocker which is the inability of service requesters to specify their needs in terms other than “bums on seats”, e.g. outcomes/gigs.

    However I do see opportunity for corporates to make great progress.
    First of all because the demand is generally specified quite simple as “bums on seats” and the contracts are overwhelmingly “time and material” a great deal of coverage can be achieved thru relatively simple tools like VMS’s.
    Secondly growth of supply options in the Freelancer/Gig market will enable new ways of more agile sourcing without major management infrastructure.
    Thirdly I think a people centric datamodel can be superimposed on existing applications which will greatly improve control, compliance and insight in all types of non-employees. Starting point there must be on/offboarding systems, Active Directories, Physical access systems, etc.

    So a lot can be achieved in moving toward a total workforce management without full maturity or integration of the legacy systems in this space.

    It will however require senior management sponsorship and active collaboration of HR, Procurement and IT to make things happen.

    1. Andrew Karpie:

      Cris, Thank you for your comment. My faux gloom is based only on the scope of the “overall services” procurement problem (incuding complex services categories) — and my enjoyment of being an agent provocateur. I would agree with you that incremental or individual-organization-driven progress is not only possible, but necessary. The more organizations attack the problem, the better.

      Your point about the dominant behavior, specification of “bums in seats,” is a good one I hadn’t thought of. It’s the ingrained request option/mindset, and it is the most enabled by technolology (though I think it is changing across some of the technology providers’ enablement the requisition process — new providers like Globality, et al and some more conventional providers are enabling specify-the-outcome/SOW-like requistions and outcome-based-payments options). But it’s all still fairly early, I think you would agree. For a whole lot of hiring managers, the basic options are requesting a temporary human resource (possibly in a VMS) or raising a PO in the eProcurement system to engage/contract with service provider company. It’s not surprising that the path of least resistance is the former, particularly if the work that needs to be done is not large.

      But the options in the middle — what I once called SoW-lite –are barely supported yet (and that is one of a number of the drags on corporate use of independent workers/freelancers). I speak mainly of the US, and it may be different in the EU. In any case, having closely followed new corporate adoption of independent workers, freelancers, gig workers over the past 8 years, I’ve been seeing a very slow increase, gated by compliance concerns, infrastructure and behavioral patterns. The usage does seem to be speeding up a bit here and there, but I’d be surprised if there was a big tipping point in the next few years. I am certaunly looking for such conditions!!

      I don’t have a good sense of how easily existing systems can be orchestrated and engineered around a “people-centric” model. I do see some of that being done, but at a great expense enaging large consulting/integration firms. Nonetheless it is happening at some organizations. But this may not be answer for many companies. But I have a sense that you may know more that I do about options that other, non-leader companies may have. It’s definitely a new frontier that seems to be getting attacked — rather, chipped away at — in different ways from various directions.

      Now coming back to the central basis of my faux pessimism… while corporates (and some of their tech providers) are responding the potential to source talent/workers directly, outside of traditional channels, corporate management/control of the wide array of complex service categories. Here the problem is not so much sourcing what is needed (hundreds and hundreds of billions of $/Euros are being spent on all kinds of services every year). So the problem is gaining more visibility, control and optimization management. This is where there is a big hole today, in my opinion.

      That said, no organization should be discouraged from making the appropriate level of effort/investment improving supply access and spend managementin any of these areas. The first step is start looking at the whole problem (opportunity) across the organization and breaking it down into priority, manageable, solveable chunks, without losing sight of the whole.

      Thank you Cris, for insights and challenges!!

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.