Executive Summary: ISG Provider Lens™ Procurement Software Platforms and Solutions - Global 2022
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ISG Provider Lens™ Procurement Software Platforms and Solutions - Large Accounts - Global 2022
ISG Provider Lens™ Procurement Software Platforms and Solutions - Midmarket - Global 2022
Software platforms’ core value in enterprise procurement transformation
Software platform renovation or replacement has become the de facto first step toward effective, sustainable digital business transformation for procurement organizations worldwide. Most platforms and providers can help optimize core procurement functions and operations, reduce costs by 30 percent and improve efficiency by at least as much. The most effective, market-leading platforms can elevate and integrate entire procurement organizations and operations to a level of capability and efficiency not previously possible. This has not changed significantly from our previous study in 2021. Platforms and providers are doing the same things very much as they were 12 to 24 months ago. They are excellent at what they do, and market demand has been massive for what they already offer. There have been few compelling reasons to change what they do and how they do it.
The greatest changes and improvements have been investment and expansion in the use of automation and AI. Automation has expanded substantially to include more advanced machine learning to enable improved and scalable efficiencies. Automation has also increased from mostly repetitive procurement functions within processes to multi-function operations and entire processes. AI advancement has centered on these uses of machine learning to help reduce the need for human labor.
The Problems with Procurement
Almost two years on, the business world continues to feel the impact of COVID-19 disruption on sourcing, procurement and overall supply chain management. Continued and cascading disruption continue to force large and midmarket enterprises to re-think and re-invent sourcing and procurement.
In most firms, the procurement organization 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holes in compliance and increasingly complex interconnections with a growing range of new and old, advanced and outdated trading partner and supplier systems for finance and ERP.
With COVID-19, unpredictability of suppliers, goods and services expanded, and unauthorized or nonstandard “ghost-spend” intensified, which added complexities to already-complex, tail[1]spend activity. Relocation and dislocation of procurement, supply chain and finance organizations and individuals further worsened these problems.
Hence, it comes as no surprise that ISG research indicates that more than half of large and midmarket enterprises continue to report concerns about managing and improving procurement and sourcing. These concerns are driving massive year-to-year growth in procurement BPO and transformation outsourcing; ISG sees annual growth in the number and value of contracts for procurement services of between 20 percent and 35 percent, depending upon provider and market. Leaders in our Procurement BPO and Transformation Services study continue to report revenue growth in excess of 30 percent year to year
How Does This Translate to Procurement Platforms?
ISG sees the use of modern software platforms as a first step toward eventual digital business transformation for most procurement organizations in most markets.
As noted in our 2021 and 2022 procurement BPO and transformation services studies, ISG sees two camps of post-COVID procurement improvement seekers: those seeking immediate improvement with a path toward long[1]term, sustainable improvement; and those seeking to reinvent their procurement and sourcing organizations and operations as soon as possible – to enable and implement the procurement environment of the future, today.
Outsourcing procurement to BPO service providers is one path that can deliver immediate improvements and savings while enabling long-term transformation. However, outsourcing is still not an approach that many firms wish to pursue. For these, implementing a comprehensive software platform can deliver the scope of improvement available through BPO while retaining responsibility and control over critical business operations.
In addition, the modular approach of leading procurement platform vendors can enable sequential, tactical improvements that deliver immediate value while building toward long-term procurement transformation.
Procurement software platforms enable significant improvement now, mostly by standardizing data, system and program interfaces, user experience, and policy application and enforcement. Platforms, including consistently and effectively applied automation, enhanced with machine learning and natural language processing (NLP), can substantially improve existing operations while identifying areas of further optimization. Case studies suggest that first-year operational savings average between 15 percent and 30 percent. Properly implemented and used, platforms provide a solid foundation for strategic, sustainable, measurable and continuous improvement.
We must also acknowledge that leading procurement software platforms form the core of most service providers’ procurement BPO and transformation offerings. While services providers do build solutions with their own software platforms and tools, they also leverage leading, comprehensive procurement platforms to anchor core technology, data and user interface/user experience environments.
The Midmarket’s Compressed Continuum
Midmarket firms tend to have the same, and often, worse procurement challenges as large enterprises. Smaller firms face the same sourcing and procurement disruptions, but also tend to be more sensitive to them because of having fewer resources. Their margin for managing errors and disruptions is much thinner.
Midmarket firms also tend to have greater challenges with informal, shadow spending and spot buying. They often have fewer formal procurement policies and controls in place and have fewer experienced people available to manage and enforce these. Flexibility is often prioritized over strict adherence to guidelines.
Because they tend to have less-well defined and less-controlled procurement environments, midmarket client firms frequently consider new software platforms as part of overall procurement reinvention, and not as a first step in the direction of transformation. Midmarket firms need to make most of the same improvements as do larger firms – but they also often need to make those improvements sooner due to greater economic pressures.
Ongoing Vendor Disruptions to be Aware Of
Even the most successful Leaders in our study are dealing with challenges that affect their ability to deliver the value required by clients. And for many, these challenges are increasing as client demand for their offering surges. Significant challenges include the following:
- Skill shortages – Every software vendor reviewed in this study reports shortages of skilled staff, including challenges hiring and retaining staff. This is spurring a rapidly expanding scope of investment in automation and AI by providers ISG has identified as Leaders and by a few Challengers as well, seeking to reduce reliance on human labor where and when practical. Buyers need to be aware of potential disruptions as vendors scramble to automate more internally, and augment product and services management.
- Partner and channel scrambles – Vendors are also scrambling to partner with more technology, software and services firms as another means of addressing increased demand. Vendors’ sales, implementation and support functions also face shortages. All vendors reviewed in this study seek more channel partners to resolve these needs.
- Waves of acquisitions – Periods of significant growth with important shortages tend to spur investment in acquisitions by larger vendors. They seek combinations of resource scale and additional capabilities, both of which often take too much time to build internally. Acquisitions can benefit clients but create disruptions that impede vendors’ ability to serve those clients.
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