Understanding the procurement services market landscape (Part 1) — Our interest, the challenges and opportunities

In the last quarter of 2021, following a period of study, Spend Matters’ analysts Pierre Mitchell and Xavier Olivera published a series of research papers examining the procurement services provider market landscape, covering source-to-pay technology specialists, global consultancies, strategy consultancies, regional firms, global BPOs and MSPs (read here for our description of each). Why? Because we felt it an often overlooked yet hugely important part of digital procurement transformations.

The research, which comprises a look at the market and 34 providers within it across 6 industry categories, stating how and where each specializes, is published in 9 parts as listed at the end of this article.

Having concluded the series (and condensed our findings into a serviceable list of recommendations for procurement leaders) and produced a Procurement Services Market Landscape report available to our Pro subscribers, we’d like now to turn our attention to why we initiated that research and what’s behind our growing interest in the procurement services landscape.

As our analyst Nick Heinzmann says:

“Software doesn’t deliver and implement itself, and digital transformation doesn’t just happen. Despite all the talk of automation and the looming presence of AI stealing all of our jobs, the reality is that technology still involves a lot of people. So too does running a procurement function, whether that be technology topics like implementation or bigger initiatives like strategy determination or outsourcing.”

The reality is that implementing and rolling out technology, undertaking digital transformation initiatives, developing strategic objectives, managing change and so on still involves a lot of time and resource to do well. Services of all kinds are needed to formulate and execute transformation strategies. And it’s an area of increasing importance to the S2P procurement tech providers as well as the service providers and consultants.

To explain the backdrop to this growing landscape of players, let’s hear from one of the chief architects of our research, Pierre Mitchell, to contextualize our interest and explain what makes Spend Matters a trusted source of evaluation.

The services ecosystem — What’s the great interest?

“Let’s start with the core to all of this,” explains Mitchell, “that is the CPO and procurement, because at the end of the day, procurement is a business service in its own right.”

He explains that procurement, basically, strives to offer spend management services and supply management services to help the business get the most out its money and to get the most value out of the supply market. It also has to meet new challenges, bring in innovation, keep relationships going, and keep goods and services flowing. But ultimately, it is striving for agility to meet dynamic needs and proactively create a set of valuable services to support them.

To date, Spend Matters has provided a lot of intelligence for procurement organizations looking for new digital tools or apps, and has helped them understand the tech provider market and make good choices. But it’s not just the tech side that is procurement’s strength, it’s knowledge.

“It’s hard for procurement to run all required services from one function,” explains Mitchell, “and there’s probably little budget to do so anyway. While it’s cutting deals and running sourcing processes, procurement is also trying to add more and more considerations to its armory, particularly in terms of ESG and sustainability in the supply chain. But it’s an even bigger challenge than that. Procurement is having to consider who should be concerned with how you construct these services and supply chains and how you digitize them.

“So it’s all becoming much more complicated and more wide-reaching, because procurement is becoming an ecosystem assembler. And it’s not just a tech ecosystem, but one of providers of all types. Procurement is the keeper of all the extensions to the procurement business to really help the business units and other many functions create value for the organization and external customer.”

“On top of that, when markets are changing and disrupting your business, you find yourself sitting on the firewall between the business and the supply market of a very dynamic ecosystem. It’s really complicated, and you need to put some method to the madness and be able to assemble a set of services where services providers can be a secret weapon as part of that procurement service delivery.”

How we navigate the complex services market

Helping the CPO to understand and tap into this large services network is what primarily has initiated Spend Matters’ coverage, because during the course of their SolutionMap research our analysts have revealed that it’s an even bigger market than the entire tech market.

“We haven’t formally sized it yet,” explains Mitchell, “but it’s roughly a 12-billion-dollar market, even without the BPO element. It’s big and very fragmented and similar to other supply markets with 20% of the providers making up 80% of the market revenues, with easily over 200 firms (not even counting the niche category-specific players out there).

“We are really becoming an ‘everything as a service’ XaaS world, and procurement is a service provider within in. CPOs are starting to put more rigor into how they architect their set of services and how they interact strategically with other senior business leaders. Strategic category managers are starting to face more and more interaction with business units, like IT, Finance, HR; more is expected of them to deliver value to all and to incorporate ESG goals and sustainability into their strategies (which must be business-approved). At the same time they are juggling operational services, especially around high-volume tail spend. When you are working with 10,000 suppliers and very few resources, it’s very difficult to go deep AND broad with them. Don’t get me wrong, technology is critical, but other service provider models such as MSP models of varying flavors can also be deployed.

“Organizations don’t always have the people power or the specialist training to do this. But many service providers do. The job for the category manager is to tap into this massive and complex services market to create their own mini-ecosystem to help serve their internal and external customers.

“This is a more complex task than we might think. The market is complicated and you are also working with internal stakeholders that have their own ideas about how they too should be providing services and the service providers that THEY want to work with. So we need to look into the different sets of opportunities in terms of where the services markets help support all business services. For example, I know a global brand name firm that brings a service partner ecosystem to bear to help stakeholders outsource their low-value-added nuisance activities. It helps increase stakeholder satisfaction and it actually increases spend under management!

“Here’s another example: rather than a traditional sourcing consultant coming into your business and sourcing your cloud spend on a contingency basis, newer digitally deployed service providers can help you do this remotely at the click of a button. Similarly, if you aren’t good at contingent workforce management, and can’t afford a VMS system, there are MSPs that use leading VMS solutions in a supplier-funded model that is ‘free’ for the buyer. So suddenly a third party is managing more and more of the spend … and in this case you don’t have to go to IT begging for funding or approvals because it’s a managed business service that just happens to have nice technology underneath.

“So this whole area offers so much potential value to procurement, and this is why we believe it needs to be better understood.”

Next time we’ll look at what Spend Matters is doing to facilitate this knowledge for CPOs, and what makes us qualified to do so.

Tap into our services market knowledge here:

• The drivers behind how procurement services are increasingly consumed in the market, the spectrum of service types/sectors within the market
• How we evaluate the market itself, coverage of market sectors and players and what this information tells us

We then take a detailed look at each of the six procurement services market segments, the providers within them, their promises and pitfalls:

• S2P technology consultancies, market details, highlighting 7 provider profiles
• S2P regional consultancies, market details, highlighting 6 provider profiles
• The various forms of a Managed Service Provider (MSP) model market and 4 provider profiles
• Strategy consultancies, market details and 4 provider profiles
• Global consultancies, market details and 6 provider profiles
• The business process outsourcing (BPO) market and 7 provider profiles, completing our analysis of the initial 34 providers in this market

In the grand finale of our “Procurement Services Market Landscape Report” we summarize the results of our research, the trends in the evolving market of service providers, the developments in service provision and service productization and help the CPO make sense of a fragmented and volatile technology ecosystem. We also give a comprehensive list of recommendations for procurement leaders looking to extract more value from the ecosystem of providers.

We have also defined the market in its many dimensions and produced a Directory and buyer’s guide of who is playing and where — here you can also access a free synopsis of the report.

If you’re a procurement professional and want to see if your current/potential service provider has the credentials you need, please get in touch.