ISG Provider Lens™ Procurement BPO and Transformation Services - Global 2021 - Procurement BPO Services
BPO and Transformation Services 2021
This IPL report has been developed to provide research-based, objective insights into business process outsourcing (BPO) and transformation service providers for enterprise procurement leaders and users.
In the rapidly evolving “age of digital transformation,” procurement encompasses four related areas in enterprises: First, it helps drive innovation within an enterprise and accelerate business improvement; second, it expands the scope, influence and value of procurement across complex categories of direct and indirect spending; third, it focuses on enterprise success as the key measure of successful deployment; and four, it enables business agility within an enterprise through rapid enablement of digital innovations.
An enterprise procurement’s typical, core responsibility is to enable and manage the procurement of necessary goods and services in the most efficient, cost-effective and risk-averse manner sustainable. This enables not only ongoing cost savings, risk avoidance, and business continuity but also enables competitive advantages. Leading providers work with enterprise clients to unlock this advantage with the following: first, enabling cost reductions in external spend and internal operational efficiencies (often substantially adding to a client’s bottom line); second, enabling, developing, and building critical and sustainable supplier relationships that drive further savings and help reduce the risk of business disruption; and third, enabling and sustaining improvements in operational efficiency.
The challenge of procurement is that the more strategic it becomes to an enterprise, the more complex it must become; correspondingly, the more procurement needs to be transformed into both an efficient and streamlined function and an adaptable, agile business organization. The current uncertain business environment in many markets, and accelerating, aggressive investment by many competitors further complicate matters, pushing enterprises toward BPO providers rather than encouraging them to adapt what they have or build new environments on their own. We see an acceleration in demand for procurement BPO and also a rapid rise in demand for procurement transformation services.
The global spread of COVID-19 further accelerated interest in, and growth of, procurement transformation services. As COVID-19 spread, supply chains broke and cashflow was disrupted or even came to a halt. Access to resources became limited and unpredictable. At the same time, incompatibilities within and between systems, operations and organizations were made painfully visible. Procurement BPO goals of efficiency, cost reduction and risk aversion became even more challenging to enable, let alone achieve. Transformation of procurement functions, operations and systems is the means through which an increasing number of enterprises are successfully correcting problems surfacing or made worse by COVID-19. When executed effectively, such transformation also enables improved future agility and adaptability that can support and protect enterprises through future market disruptions.
The good news for enterprise procurement leaders is that most providers of BPO services also provide procurement transformation. Unfortunately, not all providers focus on the same aspects in both service types. This first-ever IPL Procurement Services study is to assist clients in assessing providers and their services (BPO and transformation) versus their own needs. ISG’s companion Provider Lens™ study on procurement software platforms and tools provides an equally objective assessment of relevant platforms used by enterprises and services providers to help establish and expand a solid software foundation for procurement transformation, agility and maturity.
BPO Trends
Successful procurement BPO is built on a solid operational foundation, which, in turn, requires provider excellence in several fundamental areas that include the following:
- Transformational frameworks and operational automation: Leading providers utilize adaptable, repeatable frameworks that enable significant automation within and between operations. This enables significant and ongoing cost reduction with critical uniformity ― something that, in turn, reduces training needs, support costs and the costs of integration and management.
- Relevant software engineering and development resources: Top providers invest heavily, and effectively, in software development; leaders stay ahead of current and emerging software developments. These robotic process automation (RPA), artificial intelligence (AI) and machine learning (ML) tools drive procurement goals and objectives, as well as underlying application programming interfaces (APIs), coding methodologies, and libraries and languages to enable the most effective offerings.
- Delivery center strengths: Having a large number of delivery centers is helpful. But the capabilities of providers’ delivery centers relative to customer and provider partner needs are more important and should answer the following relevant questions: Can they serve selected geographical and vertical markets effectively? Do they interact seamlessly with each other and with customer systems and organizations? Do they enable significant and sudden scaling up or down of customer requirements?
- Category expertise: Category management expertise is becoming increasingly critical as products and services (including digital) rapidly evolve, and as sources, suppliers and prices vary, depending on supply chain factors impacted by COVID-19. Category management requires a thorough understanding of the nuances of products and services being sourced and paid for, including the factors that drive usage, cost and availability. Good category management enables significant business advantage for most firms, especially as procurement organizations “scale up” to effectively manage more indirect and direct complex categories
- Industry vertical expertise and experience: The ability to serve customer needs specific to selected industries has gone from being a differentiator to being a core, expected capability for most providers. As customers learn and improve their own business models within the verticals in which they participate, they expect and need procurement services and providers to know and deliver what is needed and will be needed.
- Procurement outsourcing transition expertise: Transitioning customers from in-house to outsourced procurement systems, operations and even management requires substantial provider expertise, frameworks and resources. Leading providers have developed and refined not only transition services, but also optimized communication, training and change management for customers.
Transformational Trends
Procurement BPO providers that excel in transition and change management for customers tend to be among the leaders in our transformation services quadrant as well. Transformation includes a number of operational, organizational and technological transitions, many of which customers have not experienced, at least on the scale associated with core procurement transformation.
To minimize, prevent, and overcome resistance to change, providers of procurement transformation services must create and deliver a significantly improved (and hopefully, advanced) degree of business improvement with obvious enablement of future business capability and improvement. Accomplishing this, especially during global business disruption, requires not only the capabilities of the above BPO service providers, but also the following:
- Emphasis on unification: One goal of transformation should be to enable uniformity of experience, technologies, operations and outputs across all aspects of procurement (and increasingly across procurement , finance, change management and HR). This requires unification of organizations and systems that, in many cases, developed and grew in technology and functional silos. Not every system or user has to use all technologies in the same ways. But systems, results, user experiences and interfaces (at least) need to be able to work together throughout procurement in cost-effective, easily understandable and replicable manners. This requires unification of responsibility, strategy and expectations, in addition to unification of technologies and services.
- Integrative approaches: The above unification helps to consolidate, coordinate and reduce complexity in many areas of procurement. But providers’ approaches must also be integrative in nature. Aligning and intertwining relevant processes, stakeholders and systems to deliver specified, measurable improvements requires a combination of flexible, integrative approaches that also include change management and adaptive governance.
- Capital-friendly pricing: A critical goal in disruptive periods, such as the current COVID-19 crisis, is preserving working capital. The irony in needing to spend more to transform procurement so that we spend less in the future on procurement is not lost on leading providers of transformation services. Like their leading procurement platform and software counterparts, leading transformation service providers are moving toward outcome-based pricing and payment options, wherein the cost of services (and often, of related software) is offset by cost savings in procurement operations. Depending upon circumstances, some providers will negotiate guaranteed cost savings through near and long-term procurement improvements.
- Readable, scalable and reliable roadmaps: It is not enough to change and improve procurement today. True transformation enables ongoing and adaptable change by provider and customer alike. To accomplish this, providers must have robust, yet flexible, strategic roadmaps along with their capabilities and offerings, and must make these visible and understandable to customers. Otherwise, change initiated by the provider can trigger significant uncertainty and disruption within a customer’s own business, and between the customer and its own suppliers and trading partners. A true transformation partner should also allow a customer to scale dynamically, based on emerging business conditions such as managing additional or complex spending categories and different geographies, or responding to crises such as COVID-19.
- Adaptable business and ecosystem models: Business management software and services are increasingly less distinguishable from one another. Software and services are increasingly intertwined parts of a spectrum of offerings and adaptable to customer circumstances, depending on the type of business value required by each customer. To compete in such an environment, platform and services providers both partner and mimic each other. Procurement provider partner ecosystems show an increasing emphasis on co-selling, co-delivering, and co-managing, therefore, selecting, contracting with and managing providers becomes increasingly complex and challenging for enterprise customers. This requires effective transformation providers to adapt their own business and technological architectures and operational models.
Transformation as Future BPO
Most enterprises expect their transformations to be sustainable, and remain as future, standard operational models for procurement. But given that transformation, done correctly, is an ongoing endeavor, future BPO models must themselves enable and support a continuous state of transformation.
As noted previously, most of the providers in this study’s BPO quadrant are also in this study’s transformation quadrant. Differences in their positioning are based on differences in their relative market strengths and portfolios.
What leading providers in both quadrants have in common is a strategic mindset and roadmap that combines BPO with ongoing transformation. In order to become leaders in either quadrant, providers must be able to continually transition customers to emerging procurement environments. In effect, tomorrow’s BPO emerges from today’s transformation. Customers that understand and are able to position themselves to operate in, and take advantage of, such an environment will experience the strategic and tactical benefits of both.
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