Executive Summary: ISG Provider Lens™ Procurement BPO and Transformation Services - Global 2022
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Global enterprise procurement goals today: Immediate improvement, future transformation.
Globally, the COVID-exacerbated disruption of business and supply chains continues to force large and midmarket enterprises to re-think, and re-invent, sourcing and procurement.
In most firms, procurement was already experiencing challenges due to nonstandard practices, inadequate controls, holes in compliance and increasingly-complex interconnections with a growing range of new and old, advanced and outdated, trading partner and supplier, finance and enterprise resource planning (ERP) systems.
With COVID-19, unpredictability of suppliers, goods and services expanded and intensified unauthorized or nonstandard “ghost-spend,” and added complexities to the already-complex tail-spend activity. Relocation and dislocation of procurement, supply chain, finance organizations and individuals worsened these problems.
Therefore, it comes as no surprise that more than half of large and midmarket enterprises globally report that they are concerned about their ability to manage procurement and sourcing, to the point where they are considering outsourcing (business process outsourcing (BPO)) or complete transformation within the next 24 months – and for many, as soon as possible.
Disruption is Delivering Growth for Providers
Disruption translates to tremendous opportunity and growth for procurement service providers. The average provider revenue growth reported for 2021 was 20 percent year-to-year. Several Leaders identified in this report reported revenue growth as greater than 30 percent for the said year. We expect 2022 to be another banner year for the demand for procurement services, but most providers are likely to see a reduced revenue growth rate because the market is attracting more players, thus increasing competition.
BPO as a Prelude to Transformation
ISG sees two camps of post-COVID-19 procurement improvement seekers: the ones seeking immediate improvement, with a long-term, sustainable improvement path; and the ones seeking to re-invent their procurement and sourcing organizations and operations as soon as possible to implement the procurement environment of the future.
While procurement re-invention/ transformation is by far the most-discussed approach, ISG sees a more robust market interest and investment in procurement BPO. Data gathered from service providers for this report suggests a ratio of 10:1 for BPO versus transformation engagements.
Some of the largest and best-positioned providers reported just a handful of procurement transformation engagements through 2021, while the same providers report dozens of BPO engagements in the same timeframe.
This could mean that BPO engagements are being considered instead of long-term transformation initiatives. But ISG research into enterprises and procurement service providers indicates that for many, if not most, large enterprises, BPO is actually the first major step toward procurement transformation. Successful BPO engagements not only focus on improving efficiencies and reducing costs, but also on identifying, and repairing or preventing, current and potential future problems. We can see the foundation being laid for thousands of follow-on transformation engagements over the next few years and widespread improvement in procurement and sourcing.
This continuum, from procurement BPO through transformation, is reflected in the list and scope of providers that ISG sees as the most competitive, and which were assessed for this study. The rosters of providers for BPO and for transformation services are very similar; the primary differences are in the providers’ approaches and results. The ones recognized as Leaders are the providers that, most consistently, deliver business value – critical improvement in procurement – to enterprise clients.
The Midmarket’s Compressed Continuum
As they tend to have less well-defined and less controlled procurement environments, midmarket firms frequently consider BPO as a part of procurement reinvention, and not just as a first step in the direction of transformation. The continuum is much the same as it is for large enterprises, but more compressed in terms of time. Midmarket firms need to make the same improvements as larger firms, but they often need to make those improvements within a shorter time frame due to greater economic pressures.
Caveat Venditor, Caveat Emptor: Disruption to Come
The surge in demand for services has been profitable for service providers. But it has also created problems for them that are beginning to affect clients. ISG expects the situation to worsen through 2022.
Even the most successful Leaders in our study are dealing with issues that affect their ability to deliver value to clients. The following challenges are the most significant:
- Skill shortages – Each provider reviewed in this study reports shortages of skilled staff, including challenges in hiring and retaining. This is spurring investment in automation and AI by Leaders and by a few Challengers as well, who are seeking to reduce dependence on human labor where and when possible. Buyers need to be aware of potential disruptions as providers scramble to automate and augment a massive range of projects and service management activities.
- Partner and channel scrambles – Providers are also scrambling to partner with more technology, software and services firms to address increased demand. With sales, implementation and support functions all seeing shortfalls, providers are seeking more channel partners to resolve them.
- Waves of acquisitions – Periods of significant growth with critical shortages tend to spur investment in acquisitions by large firms. They seek combinations of resource scale and additional capabilities, both of which often take time to build internally. Acquisitions benefit clients, but create disruptions that impede providers’ ability to serve clients.
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