ISG Provider Lens™ Procurement Software Platforms and Solutions - Software Platforms and Solutions - Midmarket - Global 2023
Modern procurement platforms are the foundation of improvement and the cornerstone of transformation.
Investment in procurement software platforms by large and midmarket enterprises continues to grow globally at between 20 percent and 30 percent annually, a pace similar to that seen in 2021 and 2020. Platform sales are growing at a faster pace than are the sales of the procurement BPO and digital transformation services upon which they rely — and for which they provide the foundation. As noted in our Procurement BPO and Transformation Services study for 2023, services growth has slowed to around 15 percent to 20 percent annually from a previous peak of approximately 30 percent.
Platform growth currently outpaces services growth mainly because platforms are the first step for most enterprises’ procurement improvement journey. Many enterprises expect that they can implement platforms themselves; others choose to acquire a platform and then select one or more service providers to implement and optimize it. Both will likely need service providers sooner than expected due to the complexity of even the most user-friendly platforms and the typically unknown complexities and inconsistencies within enterprise procurement operations. ISG expects that situation will help drive more rapid growth in procurement-related BPO and transformation services in the coming years.
ISG expects growth in procurement platform sales to continue to grow in double-digit percentages for several years to come.
Headwinds Continue to Buffet Procurement Organizations and Leaders
Modern procurement platforms are foundations for enabling or improving procurement (including via BPO), and cornerstones for procurement transformation. They are foundations for BPO in that they provide critical uniformity in UX, data, and APIs or connectors to finance, supply chain management (SCM), ERP and other enterprise applications and data sources. They enable and enforce process alignment and policy adherence. They enable critical operations management that in turn enables process streamlining and operational cost reductions. They lay the groundwork for future improvements including digital transformation of procurement organizations and operations.
The need for improvement arises from global trends buffeting procurement organizations as well as the finance and supply chain management teams and platforms with which they work. Ongoing economic disruptors include global inflation combined with interest rate and exchange rate volatility. Political tension remains high, with the Russia-Ukraine war, U.S.-China tensions and unrest in the Middle East, Asia, Africa and other regions. Social issues including population change, climate change, poverty and sustainability affect procurement as well. These challenges all negatively affect procurement organizations’ mandates to reduce costs in the short term and avoid cost increases in the longer term.
As part of enterprises’ strategic reaction to all of the above — including finding or creating means to smooth supply and use cost variations — ISG sees chief procurement officers (CPOs) getting more involved in their enterprises’ business innovation agendas. This represents a huge opportunity for developers and services providers that can contribute directly to overall business improvement, with advanced and adaptable services and platform offerings, autonomous platforms with stateof- the-art BPO services. These can essentially take over management of at least the more mundane aspects of procurement operation so that the procurement organizations can help accelerate enterprise business innovation.
Procurement Advancements Benefiting Clients
Analysis of client, services provider and platform development activity indicates the following trends and impacts in procurement through at least 2025:
• More direct-spend activity: Procurement software historically has been focused on improving indirect spend management by client firms. But since mid-2022, we find more providers offering (and more clients buying) direct sourcing and spend management as part of procurement platforms. This enables more direct control over goods and materials critical to business operations and outputs, adding to clients’ ability to more effectively manage core vendor relationships and supply chains overall.
• Natural extension along the finance-procurement-SCM continuum: Platforms are enabling and services providers are offering more, better and deeper integration with procurement systems and data from finance through supply chain management. Most consider this a natural extension of processes and data flow, and they offer significant improvements in unifying UX and data, which reduce the technical and functional barriers between these organizations and systems.
• ESG compliance made easier: Environmental, social and governance (ESG) operation and policy inclusion within procurement platforms greatly simplifies clients’ ability to meet current and future regulatory needs while advocating, enforcing and streamlining ESG policy within client and supplier firms. More than 80 percent of enterprises report moderate to significant commitment to sustainable procurement; 100 percent of service providers have ESG compliance management as a service in their procurement portfolios.
• Software platforms remain a foundational element of BPO: All procurement BPO and transformation offerings build around a core procurement software platform. Platforms harmonize data and functions, standardize user experiences and enable rapid integration and interoperation of multiple systems. The importance of platforms has led several service providers to develop their own procurement-focused software platforms, extend the capabilities of their existing cognitive platforms, or both. This adds diversity to client software choices. It is also expected to create conflicts between service providers and their current software platform partners. Furthermore, it could easily engender conflicts of interest among services providers, software vendors and client firms. Objective guidance regarding providers and platforms will become even more important to clients.
• BPO remains a gateway to transformation: Most technology capabilities formerly included in the procurement of digital transformation services are now part of platforms and providers’ BPO portfolios. We see BPO engagements increasingly intended as means to improve efficiencies and operations quickly while also acting as a template for future and ongoing transformation. Provider sales pitches position BPOs extensively as a first step toward long-term continuous improvement. We see more BPO engagements being laid out in four- to five-year plans that include long-term transformation. The typical plan begins with spend management improvement in the first year and proceeds through category management and expansion of intelligent automation in the second and third years. Ongoing improvement (transformation) begins in the fourth year.
• Transformation becomes more consulting, less tech: As platforms and BPO providers absorb much of the leading-edge and disruptive technologies, transformation engagements now center much more around change management and associated business/organizational consulting. The power of procurement to shape how the enterprise does business becomes more of the consulting focus. The ability to efficiently impose and then manage changes in organizations, operations, responsibilities, reporting, relationships, organizational structure and culture becomes primary.
• Automation is everywhere; intelligent automation is emerging; autonomous operations are next: RPA has been an important capability in procurement operational improvement for years. The advancement we see emerging most rapidly is the implementation of “intelligent automation” using ML and other applications of AI. Client firms seek not only speed but also improved accuracy through error checking and data cleansing. These requirements can then lead to offloading more basic evaluation tasks and decision-making to automated systems. This simultaneously speeds and improves workflows – and removes costly errors at every stage. Service providers and platform vendors assessed in this study have declared intentions to automate as much as 95 percent of clients’ procurement operations within the next three years. Practically, they all cite autonomous processes within procurement operations as their goal.
What Makes a Leader?
We outline the qualities and capabilities that enable market leadership for procurement services providers in our 2023 Procurement BPO and Transformation Services study. In leading software platforms, look for the critical capabilities that are summarized below.
• Extension of procurement management into finance and SCM: We noted in previous studies that leading services providers and platform developers were integrating more finance and SCM integrations. We noted above how this has become a global trend as enterprises learn the business management efficiencies that result from this. Leaders in our studies, therefore, not only enable but also help advance this continuum of integration.
• More advanced analytics combined with increasingly autonomous decision support: Platform and services leaders both are working toward more autonomous procurement, finance, and SCM operations. These require advanced, cognitive analytics coupled with uniform master data management and ML-led RPA. Leaders enable and deliver all of these in their standard offerings. The goal is to focus human brains and activity on managing exceptions, innovating for business improvement and developing better strategy.
• Low-code/no-code advancement: Low-code/no-code capabilities have been an increasingly attractive feature of many enterprise-class software platforms for several years. For CPOs, the ability to configure procurement platform UX, reporting and functions with minimal or no vendor or service provider technical assistance has gone from an enhancement in offerings to an expectation. The strongest Leaders provide low/no-code capabilities with a roadmap for including more functionality.
Beyond technology, leaders demonstrate a strategic deployment and improvement roadmap that aligns with clients’ business improvement agenda and can be synchronized with achievable and quantifiable business improvements at specific time periods. Even Leaders are among the highest-rated in customer satisfaction, customer experience and customer support. Finally, Leaders must continually invest effectively in applications of technology that improve their and their clients’ abilities to innovate.
What is Next?
Given the above market conditions and trends, here are what ISG sees as the next most likely, major market developments affecting clients through at least 2025:
• Master data management becomes a critical portfolio need. Data analytics is so important to procurement operations, let alone transformation, that master data management (MDM) must be seen as a critical requirement from procurement services providers. In fact, much of the movement toward platform-centric BPO and transformation arises from client firms and service providers seeking to improve data cleanliness, uniformity and availability. Unfortunately for clients, providers and platform vendors differ on ways to enable and deliver MDM, and on levels of MDM to be achieved. In the longer term, Leaders will provide data cleansing and error checking at every step in every process.
• Seamless progression of procurement BPO into transformation. The core differences between BPO and transformation have been blurring for at least three years. We note above that BPO services portfolios, built on leading platforms, are absorbing more and more of what had been considered leading-edge technologies and services for digital transformation. As more procurement BPO engagements lead to longer-term digital transformation of procurement organizations, we expect transformationfocused consulting services that will blend into a majority of overall procurement improvement engagements. Standalone BPO will continue but as a declining percentage of engagements.
• Procurement integrates seamlessly into a finance-SCM continuum. As procurement BPO and transformation unify, we will see more extension of procurement systems, data and operations inward into enterprise finance, and outward into supply chain management (SCM). About half of the service providers assessed by ISG, and a majority of platform vendors in this study, already consider procurement integral with their larger SCM practices or platform offerings. As supply chains and trade networks become more like social fabrics, practical separation between SCM and procurement will further fade. Improved master data management and UX will further blur the boundaries between SCM, procurement, ERP and finance systems.
• Low code/no code becomes a disruptive standard. Finally, we note above that many procurement services providers are building or enhancing proprietary software platforms, putting them into potential but likely conflicts with their current software partners. As can be seen in our procurement Software Platforms study, Leaders in procurement platforms are moving more rapidly toward low code/no code versatility to improve their attractiveness to non-IT procurement, Finance, and SCM professionals. This should greatly empower clients and is likely to affect the value of some providers’ services and their proprietary procurement platforms.
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