SAP’s Gordon Donovan on the core of services procurement

Everything is a service these days. So, with XaaS becoming ever more dominant, procurement gets both the opportunity to help organizations navigate these waters and the challenge to reconsider procurement’s relationship with the broader organization. To examine what ‘services procurement’ means when everything is a service, Pierre Mitchell, Chief Research Officer at Spend Matters, sat down with Gordon Donovan, then Global Director for Market Research at SAP (he has since become SAP’s Vice President of Research for Procurement and External Workforce) to discuss.

Listen to the conversation in full here.

What is core?

Prior to his research role at SAP, Gordon spent over three decades working as a procurement practitioner. Those years, especially the last three years, have informed a central question: what is core? The example he highlighted was the failure experienced by an Australian cold supply chain logistics company. The specific failure was in the transportation of cold goods, which prompts the question ‘is the transport of goods that you will be selling or making into something core to you?’

Or, turning to his own experience in healthcare procurement, Gordon asked whether the delivery of medical equipment to and from warehouses should be insourced by the healthcare establishment. “Because,” he explained, “if we don’t have items to go to hospitals, it means that you both physically and literally cannot operate on patients. And what’s your core business? It’s patient care.” There is a case, then, that logistics is a core concern of hospitals.

Establishing a clear idea of what your organization’s central business concern is, of course, critical. However, in services procurement and in a procurement landscape increasingly shaped by a XaaS model, it is essential because it is easy for procurement to become confused. As Pierre noted, procurement gets in its own way: “When we think about where services sit in a spend taxonomy and category management, it’s like we twist ourselves up into knots. Do we look at outsourcing when considering services? Do we put all the services on indirect? No. Services permeate through the entire category taxonomy.” Gordon credited the outsourcing boom of the ‘90s with this permeation of services.

But there reaches a point where you must consider whether your outsourced work has become integral to your operations. Strategic insourcing of operations becomes a concern, especially if all a market’s outsourced services get bundled by one monopolistic services provider. “When does the make/buy discussion come back to say this is now core?” Gordon asked. ‘“Is it better that we take control of this, because the market’s getting so centered around a single provider that if I want to differentiate my product or service then I can’t just do what everybody else does.” Asking such questions, however, presupposes a radically different role for procurement than the one it had so far played.

Not your traditional source to pay

The skills needed to procure services are fundamentally different from those for procuring goods. And with the sweeping shift to a services model, procurement and businesses in general have been caught out by the need for a new way of working. It almost requires a new C-suite member.

Pointing out how serving external customers now means wrapping other services, support and upselling around the core product, Pierre said “If you’re going to do that, you’re not doing all those services. You are now orchestrating a whole set of services.” A company may have a Chief Digitalization Officer, but organizations across the board are missing a Chief Externalization Officer. Instead, as Gordon brought up, C-suites want procurement to re-examine organizational operating models with a focus on the outsourcing/insourcing question because it has the market knowledge and supply knowledge to strategically pick apart services and orchestrate them individually.

The clearest call for procurement’s help is HR. Citing the Harvard Business Review, Gordon stated that if services procurement continues to develop as it has — and it looks like it will — then collaboration between HR and procurement has never been more important. The need has become even more acute due to realizations made during the coronavirus pandemic, namely that remote work worked, remote external work worked and remote contingent work worked. These successes opened opportunities in sourcing external services and the risks that come with relying on such services. Pierre mentioned how in healthcare, the pandemic forced a re-evaluation of travel nurses and other health contractors: “How do we qualify all these essentially independent contractors? It’s a pretty rigorous process. So, you start looking at the services almost like the supply chain. In short, labor, which was once the sole purview of HR, has become reframed in the terms procurement uses.”

The reframing also moves procurement from its traditional source-to-pay concerns to proving its value as an organization’s orchestrator. “If procurement is serious about adding value beyond savings and becoming a strategic advisor to the business,” Gordon said, “then these are the types of things that add value to the organizations: think about how we buy; how do we manage and ensure compliance in these areas?” It starts from defining what is core to the organization, unpicking the services that are best insourced and treating the remaining services as something to procure.