Procurement services study series (Part 8) — BPO market details and 7 provider profiles

This installment of the Spend Matters PRO research series “Procurement Services Market Landscape Report and Directory” looks at providers of business process outsourcing (BPO), and it completes our analysis of the initial 34 providers in this market that we have organized into six procurement services groups:

• Source-to-Pay Implementation Providers
• Regional Consultancies
• Managed Service Providers (MSPs)
• Strategy Consultancies
• Global Consultancies
• Business Process Outsourcing (BPO) Providers

Part 1 highlighted the study findings and the 34 providers (see our services vendor directory to learn more about the providers and view the PDF profiles). Part 2 detailed how procurement professionals can understand the market and the six market segments shown above and the providers in those segments. Parts 3-7 analyzed the first five services groups: S2P consultancies, regional consultancies, managed service providers (MSPs), strategy consultancies, and global consultancies. Part 9 is the series wrap-up post, which gives stakeholders and CPOs more guidance on the services market and how to use the six types of providers.

In this Part 8 installment, we’ll dive into the leading BPO providers — not just as an assortment of service operators that we’ll profile, but also as ecosystem builders that are on the vanguard of creating the next generation of spend/supply management services.

One could also argue that the previously analyzed groups of providers, the global consultancies and strategy consultancies, would be better positioned on the vanguard because they’d be bringing the latest digitally-steeped transformation approaches and IP, without being weighed down by legacy client/technology bases. BPO providers could counter that actually running those services is the more difficult task, especially with fees contingent on performance on many dimensions. And mega firms that perform both consulting and BPO services will claim the best of both worlds even though objectivity may suffer if they gently nudge transformation clients toward their own BPO services.

The roles of traditional service providers are evolving as CPOs become more deliberate and sophisticated in their requirements for digitally-enabled S2P transformation services — as well as becoming more demanding of BPO/MSP services on multiple dimensions of value (process efficiency/effectiveness, spend reductions, revenue/innovation uplift, risk reduction, ESG, stakeholder experience, etc.).

The extent of “drive-by” consulting projects that develop PowerPoint decks of recommendations are thankfully getting more infrequent — just as old-school “lift-and-shift” BPO projects used to be justified on offshore labor arbitrage. Each of these service segments are evolving with similar themes (e.g., productized services and re-usable IP to more scalably transform across clients) and also evolving toward each other to provide full lifecycle service support.

Yet, the market coverage of these areas has been limited to either BPO provider/market research or consulting research. In our research, we tried to understand who the players were across ALL the service segments, to group them by what capabilities they have, and to shed light on how those service groupings and providers matched up to buyer requirements. Many questions about this market have not been fully explored, and this research summarizes our findings in trying to answer the following questions:

• Rather than compare providers on a single 2x2 quadrant, how do the providers tend to “naturally segment” based on key client requirements for speed-to-value, service/technology portfolio customization, transformation approach, ecosystem approach, etc.?
• BPO service line “towers” typically align to business functions, but how well is S2P really flowing across procurement teams and finance departments, in what direction, and what are the success factors and stumbling blocks?
• How are firms not just “crossing the chasm” within S2P but also integrating procurement into other areas, such as supply chain, risk management, talent/workforce management, IT sourcing, working capital, FP&A/”spend planning” and other areas? These six capabilities are a subset of the two dozen capabilities that we assessed.
• Also, speaking of capabilities, how well are providers supporting not just steady-state, outcome-focused processes, but also enabling procurement/enterprise center-of-excellence (CoE) capabilities like benchmarking, training, project/program management and digital-related (strategy, analytics, data management/governance, and agile/design-thinking)? These seven capabilities are also formally assessed.
• To what extent can these services and capabilities be served up in a flexible manner (i.e., capability X in category set Y in process set Z) rather than just a “black box” service? We highlighted a long list of granular managed services in the earlier MSP section of this series? To wit: Will the provider teach you to fish (and show you the best fishing spots and how to use the right gear in the right way) rather than just catch your dinner? For a CPO, will a BPO provider empower and enable your senior-most category leaders with IP and CoE-on-demand capabilities — or will they only push a model of their own category leaders to directly engage with your stakeholders?
• Speaking of modularity: To what extent can a buyer mix and match different types of technology environments that align with their corporate IT landscape? Some providers can operate popular S2P apps/suites, but others run a fairly proprietary tech stack, and the problem gets messy when considering the digital platform providers across IaaS, data/analytics, RPA, AI/ML, and other areas in the digital “ecosystem.” Providers that learn to tame this complexity and to flexibly configure their spend/supply services “at scale” will have a differentiated value proposition, especially for CPOs who need to configure their services within very heterogeneous enterprise environments.

Providing configurable/hybrid digital options is an important differentiator for some providers, and so is the ability to support various operating models involving procurement, peer functions, Global Business Services (GBS) entities (from which many BPO providers were conceived and that these providers often ingest), CoEs, and industry-specific business units. This flexibility is also reflected in the commercial models of the providers as they generally migrate from input/FTE pricing to activity/output based pricing (e.g., process-based SLAs) to an evolving blend of outcome-based metrics (e.g., spend savings and freed cash) and capability-centric subscription elements (e.g., tech, data, intelligence, training, etc.) that are tuned to evolving client requirements as the clients transform.

Before diving into the details of the BPO segment for our PRO subscribers, we’ll leave readers with a final thought, and it’s about changing the thinking and challenging the assumptions about BPO.

Above all else, CPOs (and their stakeholders) must be “supply market intelligent” and know how to tap that market power for themselves and therefore for their stakeholders and shareholders (given the 5X-10X ROI of procurement done well).

But just as chasing cheap manufacturing labor around the world has created brittle and complex supply chains (with an accompanying loss of internal manufacturing knowledge), the same holds true with complex brittle service chains and BPO service contracts built on labor arbitrage and lift-and-shift models (usually with some digital transformation work built on the front-end or back end to reduce process friction through process simplification/standardization and automation using RPA and other tools).

However, modern industry (“4.0”) is digital, especially for service flows from the business-process-level (“BPaaS”) down to a microservice performed by a bot or piece of code, and there is no BPaaS service area more deceptively complex (and valuable) than procurement, especially when procurement is about provisioning and orchestrating externalized services rather than just “doing deals and pushing POs.”

And just as low-cost country manufacturers have used technology to upgrade their legacy processes to flexible intelligent robotics, the leading BPO providers are using digital to do the same with their business services, and not just replacing people with bots, but quickly moving up the value curve to deliver higher-impact spend/supply services. They are learning to do so at scale (and it’s definitely a work in progress with a few large capability gaps to close) in a one-to-many model (i.e., where BPaaS mirrors SaaS) so they can configure these services for any client with any spend profile and any legacy IT assets — and do it with a dizzying assortment of digital platform technology (not just vanilla S2P apps/suites).

It’s also a matter of survival for them and a moment of truth to invest and do it right. Eventually, it’ll be the same situation for CPOs, who will need to either tap that digitally-powered service innovation (not just from BPO providers) to embed in THEIR service portfolio, or eventually get replaced by it!

The good news (and bad news) is that based on estimates from the market-leading BPO procurement firms that we engaged and researched, the procurement BPO market should grow at 70-80% higher relative growth rates than the other BPO market segments. The prize here is too large to ignore, but seizing it is a tricky business. CPOs need to formulate both their transformation strategy and their “procurement as a service” strategy to help choose the best procurement-service provisioning models before then finding the best-fit providers.