HfS Blueprint Report. Procurement As-a-Service Excerpt for Accenture. June Charles Sutherland EVP, Research

Transcription

1 Thriving In The As-a-Service Economy HfS Blueprint Report Procurement As-a-Service Excerpt for Accenture June 2015 Charles Sutherland EVP, Research Hema Santosh Principal Analyst

2 Table of Contents TOPIC PAGE Executive Summary 3 Research Methodology 8 Key Market Dynamics 16 Service Provider Grid 40 Service Provider Profile 44 Market Wrap-Up & Recommendations 46 About the Authors HfS Research Ltd. Accenture Excerpt Proprietary Page 2

3 Executive Summary

4 Introduction to the HfS Blueprint Report: Procurement As-a-Service The Procurement As-a-Service HfS Blueprint Report a unique view of this dynamic market. Unlike other quadrants and matrices, the HfS Blueprint identifies relevant differentials between service providers across a number of facets under two main categories: innovation and execution. HfS is emphasizing the focus on Procurement As-a-Service, with 47% of the Blueprint scoring being tied to proven innovation capability and performance is changing this market offering. HfS Blueprint Report ratings are dependent on a broad range of stakeholders with specific weightings based on 1,109 stakeholder interviews from the 2014 State of Outsourcing Survey that covered: Procurement Outsourcing Enterprise Service Buyers Procurement Outsourcing Service Providers Procurement Outsourcing Industry Influencers (sourcing advisors and management consultants) HfS Sourcing Executive Council Members with Procurement engagements HfS Research Analysts with hands-on Procurement knowledge and experience 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 4

5 Key Highlights State of the Procurement Outsourcing Market Moving To As-a-Service. We are certainly not there yet, but procurement outsourcing service providers have made extensive efforts over the last several years to further transform their offerings from lift and shift transactional procurement together with consulting led sourcing to more modular, integrated, technology based as-a-service solutions. Slowing Growth. Procurement outsourcing while still much smaller than F&A or HR is becoming a substantial multi-billion market and with that we have seen a slowdown in overall market growth from 10%+ a few years ago to something more in the 6% range and so the competition for new clients and renewing deals is greater than ever. Procurian Acquisition Didn t Change The Landscape. When we saw Accenture s acquisition of Procurian in 2013, HfS expected to see follow-on acquisitions of sourcing/category service providers by the likes of Capgemini and Genpact in particular. That hasn t happened and instead service providers have entered into many more partnerships for technology platforms and for sourcing and category management expertise. The Nature Of Transactional Procurement Is Changing. Transactional Procurement for the last decade has often looked like a lift and shift model supplemented by post transition process excellence projects by service providers. In the last 18 months, we have seen a rapid evaluation of the potential first for robotic process automation and of late cognitive computing as well to this process in order to move away from the labor arbitrage heavy model of the past and to improve overall delivery speed and quality HfS Research Ltd. Accenture Excerpt Proprietary Page 5

6 Key Highlights State of the Procurement Outsourcing Market (Continued) Sourcing And Category Management Still In Demand. Client value creation and service provider differentiation often depend on the breadth and depth of the available sourcing staff in the service provider. The battle to hire and retain sourcing expertise is significant especially as clients in both North America and Europe are looking for the on-site availability of consultants from their outsourcing service providers. Many of the strategic actions undertaken over the last several years by the service providers including acquisitions and partnerships have been made in order to address gaps in organic indirect sourcing category coverage. Procurement Technology And Technology Management Has Never Been More Important. Service provider technology has always played a role in procurement delivery but in the present market with the increased availability of SaaS solutions it has increased again in importance. We have increased the attention and weighting given to technology in this iteration of the Blueprint and spent even more time reviewing service provider capabilities and strategies for technology as well as what it feels like to be an enterprise client today that is increasingly reliant on technology they no longer control to deliver procurement results. The Winner s Circle Is Still Largely The Same. Through all of these changes in the market, the competitive environment remains similar today to what it was over the last few years. Some of the specialized service providers have come to the fore but overall, this is a market still dominated in size by Accenture, Capgemini, GEP, IBM, Infosys and Xchanging with other service providers either operating in specific niches or trying to move up to larger deals going forward HfS Research Ltd. Accenture Excerpt Proprietary Page 6

7 What Has Changed Since the 2013 Blueprint on Procurement Outsourcing Post Procurian World. Accenture s acquisition of Procurian in late 2013 certainly changed the Winner s Circle creating one larger market leader and also forcing several service providers to seek new partners for their sourcing and category management capabilities. It did not lead to the further M&A activity in this market that we anticipated back at the beginning of 2014 however. As-a-Service. Over the last two years we have seen previous solution models of end-to-end procurement lift and shift and sourcing consultancy become impacted by the arrival of more modular technology supported service delivery models. While still not the broad norm, this As-a-Service approach is setting roots in many service providers and we expect this to increasingly be the norm in the years to come. Partnerships. Clearly partnerships between service providers born out of the transactional procurement market (e.g. TCS, Genpact, WNS) and those out of the technology (e.g. GEP) or strategic sourcing (e.g. Proxima, AT Kearney) are more prevalent in 2015 than they were back in 2013 as service providers construct end-to-end offerings to better compete with the largest players in the market. Acquisition Integration. Over the last few years, past procurement acquisitions (e.g. MarketMaker4, Portland Group, Procurian) have all been well integrated into their new homes and have begun to significantly impact the strategies and capabilities of their acquirers. Gradual Movement. Perhaps the biggest change since 2013 though is actually the lack of overall change. The market leaders of 2013 are generally still the market leaders of 2015 with some specialists providers becoming more noticeable but otherwise less revolution than we would have expected back in HfS Research Ltd. Accenture Excerpt Proprietary Page 7

8 Research Methodology

9 Research Methodology Data Summary More than 25,000 data points were collected from more than 900 live Procurement Outsourcing and Technology contracts, covering 18 major service providers. Data was collected in Q1 2015, covering buyers, providers, and advisors/influencers of Procurement Outsourcing. Participating Service Providers This Report is Based On: Tales from the Trenches: Interviews were conducted with buyers who have evaluated service providers and experienced their services. Some were supplied by service providers, but many interviews were conducted by HfS Executive Council members and participants in our extensive market research. Sell-Side Executive Briefings: Structured discussions with service providers were intended to collect data necessary to evaluate their innovation, execution and market share, and deal counts. HfS State of Outsourcing Survey: The industry s largest quantitative survey, conducted with the support of KPMG, covering the views, intentions, and dynamics of 1,100+ buyers, providers, and influencers of outsourcing. Publicly Available Information: Financial data, website information, presentations given by senior executives, and other marketing collateral were evaluated HfS Research Ltd. Accenture Excerpt Proprietary Page 9

10 Procurement As-a-Service Process Value Chain STRATEGIC SOURCING TRANSITIONAL PROCUREMENT SUPPLIER MANAGEMENT CONTRACT MANAGEMENT TECHNOLOGY MANAGEMENT Spend Data Management Demand Management External Marketplace Analysis Sourcing Strategy Sourcing Event Management Procurement Help Desk Accounts Payable Invoice/Receipt Match Reconciliation Asset Management Supplier Enablement Supplier Help Desk Supplier Accreditation SLA Monitoring Vendor Relationship Management Contract Repository Contract Administration Contract Template Management Ongoing Contractual Negotiation Support Initial technology solutions Ongoing technology innovation Platform implementation Platform management Proposal Evaluation 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 10

11 Key Factors Driving the HfS Blueprint Two major factors: EVALUATION CRITERIA Execution represents service providers ability to deliver services. It includes: Solutions in the Real World Quality of Customer Relationships Market Share Innovation represents service providers ability to improve services. It includes: Vision for End-to-End Process Lifecycle Integration of BPO and ITO Vision to Tailor Solution for Specific Industries Leveraging External Drivers CRITERIA WEIGHTING Criteria are weighed by crowdsourcing weightings from the four groups that matter most: Enterprise Buyers [$5B+] (20%) Buyers (20%) Service Providers (30%) HfS Research Analysts Team (20%) Advisors, Consultants, and Industry Stakeholders (10%) Weightings from this report come from HfS s January 2013 State of Outsourcing Study 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 11

12 How the HfS Blueprint Scores Are Compiled Provider A Provider B Provider G vs. vs. vs. Provider B Provider G Provider J After service providers respond to HfS s Blueprint RFI and client references and fact checking have been completed, HfS analysts conduct a paired comparisons survey of service providers in each category of evaluation. This can be as many as 1,100+ unique service provider comparisons. The data/rankings are compiled and compared across all provider comparisons to identify inconsistencies within the scores. After a further data refinement, the criteria weightings are used to give each service provider a score in each evaluation criteria component. Once aggregation and scoring are complete, the service providers scores are plotted, producing the HfS Blueprint HfS Research Ltd. Accenture Excerpt Proprietary Page 12

13 HfS Blueprint Scoring Percentage Breakdown EXECUTION 52.69% Quality of Customer Relationships 22.70% Quality of Account Management Team 11.30% How Service Providers Engage Customers and Develop Communities 4.67% How Service Providers Incorporate Customer Feedback 6.73% Real-World Delivery Solutions 21.45% Actual Delivery of Services for Each Sub-Process 10.78% Strategic Sourcing 4.00% Transaction Procurement 4.00% Supplier Management 1.00% Contract Management 1.00% Technology Management 0.78% Geographic Footprint and Scale 3.18% Usefulness of Services to Specific Client Needs of All Sizes 7.49% Flexibility to Deliver End-to-End Solutions and Point Solutions 4.20% Experience Delivering Industry Specific Solutions Including Direct Sourcing 3.29% Flexible Pricing Models Including Gain Sharing To Meet Customer Needs 8.54% INNOVATION 47.31% Vision for End-to-End Process Lifecycle 15.10% Concrete Plans to Deliver Value Beyond Cost and Investment in Future Capabilities 5.06% Integration of As A Service Capabilities Into Procurement Outsourcing 5.93% Continuous Improvement Methodology and Capability 4.11% Vision for The Evolution of Procurement As A Service 16.86% Ability to Leverage External Value Drivers 15.35% Integration of New Technologies into Procurement Process 8.58% Incorporate Regulatory Requirements Quickly and Proactively 6.77% TOTAL % 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 13

14 Execution Definitions EXECUTION How well does the service provider execute on it's contractual agreement and how well does the provider manage the client/provider relationship? Quality of Customer Relationships Quality of Account Management Team How Service Providers Engage Customers and Develop Communities How Service Providers Incorporate Customer Feedback Real-World Delivery Solutions Actual Delivery of Services for Each Sub- Process Geographic Footprint and Scale Usefulness of Services to Specific Client Needs of All Sizes Flexibility to Deliver End-to-End Solutions and Point Solutions Experience Delivering Industry Specific Solutions Flexible Pricing Models to Meet Customer Needs How engaged are service providers in managing the client relationship based on the following metrics: quality of account management, service provider / client engagement, and incorporation of feedback? What is the quality level of professional skills in the account management team? How well does the service provider engage clients and develop client communities? How have service providers taken feedback and incorporated that feedback into their product/solution? Does the solution provided compare favorably to the service agreed upon when taking into account delivery of services for each sub-process and geographic footprint and scale? Taking into account each sub process and the entire macro process, does each sub-process sum to successful delivery of the service being provided For example in the Procurement Outsourcing macro process of Strategic Sourcing, are all sub-processes being delivered upon successfully? Specific to the category, to what degree do service providers have geographic locations that offer strategic value and do they have scale? How flexible and experienced are providers when tailoring solutions based on client size, location, and type of solution (end-to-end and single point)? How flexible are service providers with delivering multi-process end-to-end solutions vs. single point solutions? How experienced are service providers at delivering solutions to the specific needs of different industries? How flexible are service providers when determining pricing of contracts? Are they willing to make investments into the client s firm for long term growth? 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 14

15 Innovation Definitions INNOVATION Innovation is the combination of improving both services and business outcomes. Vision for End-to-End Process Lifecycle Concrete Plans to Deliver Value Beyond Cost and Investment in Future Capabilities Integration of Technology Into Business Process Continuous Improvement Methodology and Capability Vision for the Evolution of Procurement As-a- Service Ability to Leverage External Value Drivers The strategy for delivery services to each part of the processes "value chain". For example, in Finance and Accounting, the components of the value chain may include order to cash, record to report, and procure to pay. In Procurement Outsourcing, the components of the value chain include strategic sourcing, transactional procurement, supplier management, contract management and technology management. Clear understanding of what value levers exist and how the service provider will deliver that value. Examples of value may include labor arbitrage, technology, analytics, quality, revenue, global scale, and flexibility. How the service provider integrates applications with manual labor to improve value to clients. Service providers may provide cloud-enabled technology, SaaS, business platforms, BPaaS workflow, social, or mobility applications. Service provide may also develop in-house software and tools for providing point solutions for addressing specific procurement business challenges. How well does the service provider execute on improving business process and capabilities of their solutions? Does the service provider have a vision for how the mortgage market is developing and how they need to respond as a service provider to these changes both in terms of specific capabilities and in their commercial and operating approach? How well have service providers integrated external value drivers into their services? Integration of New Technologies Into Procurement Process Incorporate Regulatory Requirements Quickly and Proactively How well does the the service provider integrate emerging new technologies (proprietary and third party) into the delivery of the procurement process? How well does the service provider respond to the specific regulatory requirements by industry or cross-industry for Procurement related business processes? 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 15

16 Key Market Dynamics

17 Procurement As-a-Service is Based on Realizing the Eight Ideals of the As-a-Service Economy LEGACY OUTSOURCING Simplification AS-A-SERVICE ECONOMY Resolve problems by looking first at the process 1. Design Thinking Generate creative solutions by understanding the business context Complex, often painful technology and process transitions to reach steady state 2. Business Cloud Plug and Play business services Fragmented processes requiring manual interventions, multiple technologies Operations staff doing mostly transactional tasks Ad-hoc analysis on unstructured data with little business context Legacy technology investments drain budgets to remain functional Governance staff manage contracts and service levels Pricing and relationships based on cost, effort, and labor 3. Intelligent Automation 4. Proactive Intelligence 5. Intelligent Data 6. Write Off Legacy 7. Brokers of Capability 8. Intelligent Engagement Blending of automation, analytics, and talent Operations focused on interpreting data, seeding new ideas Real-time applied analytics models, techniques, and insights from big data Use of platform-based services makes many tech investments redundant Governance staff manage towards business-driven outcomes Pricing and relationships based on expertise, outcomes, and subscriptions 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 17

18 The Procurement Market is Increasingly Adopting the Ideals of the As-a-Service Economy Especially Since 2013 IDEAL Design Thinking Business Cloud AS-A-SERVICE IDEAL DEFINITION Generating creative solutions by understanding the business context NON EXISTENT INITIAL EXPANSIVE EXTENSIVE ALL PERVASIVE Plug and Play business services Intelligent Automation Blending of automation, analytics and talent Proactive Intelligence Intelligent Data Write Off Legacy Brokers of Capability Intelligent Engagement Operations focused on interpreting data, seeding new ideas Real-time applied analytics models, techniques, and insights from big data Use of platform-based services makes many tech investments redundant Governance staff manage towards business-driven outcomes Pricing and relationships based on expertise, outcomes and subscriptions HfS Research Ltd. Accenture Excerpt Proprietary Page 18

19 Procurement As-a-Service Process Value Chain STRATEGIC SOURCING TRANSITIONAL PROCUREMENT SUPPLIER MANAGEMENT CONTRACT MANAGEMENT TECHNOLOGY MANAGEMENT Spend Data Management Demand Management External Marketplace Analysis Sourcing Strategy Sourcing Event Management Procurement Help Desk Accounts Payable Invoice/Receipt Match Reconciliation Asset Management Supplier Enablement Supplier Help Desk Supplier Accreditation SLA Monitoring Vendor Relationship Management Contract Repository Contract Administration Contract Template Management Ongoing Contractual Negotiation Support Initial technology solutions Ongoing technology innovation Platform implementation Platform management Proposal Evaluation 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 19

20 The Current Maturity of Procurement As-a-Service Offerings STRATEGIC SOURCING TRANSACTIONAL PROCUREMENT SUPPLIER MANAGEMENT CONTRACT MANAGEMENT TECHNOLOGY MANAGEMENT Spend Data Management Procurement Help Desk Supplier Enablement Contract Repository Initial Technology Solutions Demand Management Accounts Payable Supplier Help Desk Contract Administration Ongoing Technology Innovation External Marketplace Analysis Invoice/Receipt March Reconciliation Supplier Accreditation Contract Template Management Platform Implementation Sourcing Strategy Asset Management SLA Monitoring Ongoing Contractual Negotiation Support Platform Management Sourcing Event Management Proposal Evaluation Mature Nascent Competitive market with examples of service offerings and customer case studies from large number of service providers Market in development with very few examples of service offerings and customer case studies 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 20

21 Strategic Issues for Procurement Service Providers When Is Transactional Procurement Part of Procurement or Part of F&A BPO. For many service providers, transactional procurement opportunities are as likely to be part of their F&A offerings as they are part of a Procurement BPO offering HfS recognizes that the boundaries are fluid around Transactional Procurement (especially on accounts payable) when it often comes down to where in the organization the key buyer(s) sit in terms of how they actually describe the solution that has been purchased from a service provider. Is It BPO or Consulting. One issue for Procurement BPO service providers with consulting strength in strategic sourcing is that many client requirements could be addressable with either BPO based or consulting based solutions. This creates internal confusion (and sometimes client confusion as well) in the sales and solutioning process and is one of the key reasons why those service providers need to invest in strong offering skills so that the boundaries of different possible client solutions can be shaped and well communicated to all. Durability of Partnerships. Many service providers have entered into significant partnerships over the last several years either for access to technology or access to sourcing and category management expertise in order to build end-to-end capabilities across the value chain. Some of these partnerships have delivered real results but others remain largely limited to being paper alliances without substance. Because many of these partnerships are with potential competitors there are questions in our mind about their long term durability and whether this is a sustainable model or if these partner dependent service providers will just need to step up and make more substantial investments in capabilities in order to compete with the end-to-end service providers who make up the Winner s Circle of Indirect or Direct Spend Focus. The dominant area of spend management for procurement outsourcing service providers is for indirect spend categories. While attempts have been made by many of the profiled service providers to develop direct category expertise in general this has not proven to be as successful for service providers or as compelling for the enterprise as would be believed. That said many clients especially in manufacturing, utilities and high tech verticals continue to ask for this support and service providers will continually need to evaluate how much attention they are going to put into this capability over time HfS Research Ltd. Accenture Excerpt Proprietary Page 21

22 More Strategic Issues for Procurement Service Providers The Role of Robotic Process Automation. Procurement delivery can be expensive and very manual with a reliance on specialized delivery resources. Many service providers are looking to robotic process automation as one way to increase delivery quality and reduced overall delivery costs for very rules based activities and transactions in procurement. It is still early days for RPA in Procurement but the initial pilots and case studies are coming in and they look promising so the question now for service providers is how far do they push automation in these processes and how willing are clients today to accept this greater automation. Addressing Tail Spend Management. Solving for costly (or rogue) spend in the long tail of spend categories is relatively high on the mind of many CPOs and business unit leaders in the enterprise and hence it is a trendy topic for service providers as well. Unfortunately, its not that easy to manage the long tail of spend and especially to do so in a way that the client is happy and the service provider is actually making a profit on the operations. This issue of tail spend management isn t going away and if anything it is becoming more prominent as more and more CPOs look for solutions, the strategic question for most service providers is whether they can use technology and automation in particular to solve this client issue in a profitable way going forward. Market Intelligence. The role and delivery forms for market intelligence are changing fast. Monthly newsletters or quarterly published data books are fast being replaced by mobility based services and on-demand insights. Many of the service providers in this report still rely on third parties to deliver this capability and its not clear that many of these third parties are keeping up with some of the proprietary capabilities and therefore with client expectations either. Service providers across the board need to be looking at what market intelligence they are creating which is truly of value and what investments in proprietary insight should they be developing in order to keep up with the innovative leaders today. How Hard to Go After As-a-Service. HfS believes that Procurement Outsourcing will increasingly move away from highly customized often initially lift and shift deals or pure sourcing consulting contracts towards a more modular set of technology (and automation) based services. The question is does this make sense as a strategy for all service providers to follow or should some just concentrate on owning more share of the transactional procurement market based on more traditional delivery solutions and let the market truly bifurcate based on client expectations and demands HfS Research Ltd. Accenture Excerpt Proprietary Page 22

23 Strong Uptake of Procurement Continues Unabated in 2015 Q. How Will This Change in the Next Year? (Outsourcing) 40% 30% Decreasing Increasing 20% 10% 31% 29% 28% 26% 21% 18% 17% 16% 16% 0% -10% -13% -5% -5% -4% -3% -3% -5% -1% -1% -20% Application Development & Maintenance Finance and Accounting IT Infrastructure Industry-specific Operations Procurement Human Resources Customer Service Supply Chain and Logistics Marketing Support Q. How Will This Change in the Next Year? (Shared Services) 30% 20% 10% 18% 26% 19% 17% 20% 20% 16% 16% 14% 0% -10% -9% -7% -6% -2% -3% -3% -4% -1% -3% -20% Application Development & Maintenance Finance and Accounting IT Infrastructure Industry-specific Operations Procurement Human Resources Customer Service Supply Chain and Logistics Marketing Support Source: 2014 State of Industry Study, May HfS Research in Conjunction with KPMG (Sample 312 Enterprises) 2015 HfS Research Ltd. Proprietary Page 23

24 Providers and Third Party Advisors see Middle of the Pack Growth Rates for Procurement Aggregating the regions for which you are responsible, at what percentage rate do you expect the following services markets to grow (or shrink) over the next 12 months? Providers Advisers Analytics & Knowledge Process Outsourcing Industry-specific Processes (i.e. life sciences/banking) Application Development & Maintenance Outsourcing Finance & Accounting Outsourcing IT Infrastructure Outsourcing Procurement & Sourcing Outsourcing Human Resources Outsourcing Contact Center Outsourcing Marketing Operations Outsourcing Legal Process Outsourcing Document & Print Operations Outsourcing 3.1% 5.9% 6.9% 5.0% 6.6% 5.1% 6.4% 5.0% 6.1% 4.7% 5.9% 4.4% 5.7% 4.0% 5.0% 3.9% 4.9% 4.5% 3.7% 4.3% 3.7% 8.4% Source: HfS Research in Conjunction with KPMG. Note n=347 Advisers, n=420 Providers 2015 HfS Research Ltd. Proprietary Page 24 0% 2% 4% 6% 8% 10%

25 45% of Enterprises Plan to Start or Increase the Scope of Outsource Procurement Services so will Growth be Higher? Are you likely to increase or decrease your outsourcing activity across the following business operations areas in the next 12 months? Will look to start outsourcing for the first time Will increase scope/volume Will keep scope/volume at current level Will decrease scope/volume Do not outsource and have no plans Are looking to insource in next 12 months Finance & 11% 40% 27% 5% 17% Document & Print 7% 35% 31% 4% 24% Procurement & 12% 33% 20% 5% 28% 2% Analytics / Big Data 5% 32% 23% 2% 38% Human Resources 8% 28% 33% 3% 25% 2% Supply Chain 6% 24% 26% 44% Legal Process 7% 17% 30% 2% 43% 2% Industry-Specific 10% 16% 24% 6% 43% 2% Knowledge Process 6% 15% 24% 2% 52% 2% Customer 5% 15% 33% 2% 45% Marketing 7% 11% 31% 2% 48% 0% 25% 50% 75% 100% Source: HfS Research in Conjunction with KPMG. Note n= HfS Research Ltd. Proprietary Page 25

26 Procurement Remains One of the Least Offshored of Processes In your estimation, how much offshore/nearshore support do you currently use to service your business and IT operations, whether with an outsourcing provider on within your own shared services? No Offshore 1-24% 25%-49% 50%-74% 75%-99% 100% Marketing Support 70% 20% 3% 5% 2% Supply Chain and Logistics 68% 18% 6% 4% 2% Human Resources 62% 26% 4% 3% 3% Procurement 62% 24% 8% 4% 3% Customer Service 58% 23% 3% 10% 5% 1% Industry-specific Operations 52% 25% 11% 9% 3% Finance and Accounting 44% 30% 14% 9% 3% IT Infrastructure 40% 31% 10% 8% 8% 3% Application Development & 34% 22% 14% 22% 7% 2% 0% 25% 50% 75% 100% Source: HfS Research in Conjunction with KPMG. Note n= HfS Research Ltd. Proprietary Page 26

27 Although Procurement Offshoring is Increasing Over Time How will this change in the next year? (Outsourcing) Decreasing Staying as is Increasing Application Development & Maintenance 12% 56% 32% IT Infrastructure 6% 64% 29% Finance and Accounting 5% 68% 27% Industry-specific Operations 5% 71% 24% Procurement 3% 77% 21% Human Resources 4% 79% 17% Customer Service 5% 79% 17% Supply Chain and Logistics 1% 83% 16% Marketing Support 1% 83% 16% Source: HfS Research in Conjunction with KPMG. Note n=312 0% 25% 50% 75% 100% 2015 HfS Research Ltd. Proprietary Page 27

28 Cloud/BPaaS is Becoming More Important in Procurement In what areas are you considering cloud / as-a-service options to augment / replace traditional outsourcing? We have at least one cloud based service for this function Starting to evaluate / test solutions We are interested but yet to find anything suitable Nothing in place & see no value Human Resources 22% 8% 39% 31% Business-specific Operations 20% 8% 35% 37% Finance and Accounting 15% 17% 37% 31% Customer Service/Support 14% 12% 37% 37% Procurement 11% 19% 28% 42% Sales 9% 9% 24% 59% Supply Chain and Logistics 6% 6% 29% 58% Legal 4% 13% 23% 60% Marketing 2% 16% 37% 45% Source: HfS Research State of Industry Study 2014, conducted in conjunction with KPMG (Sample 312 Enterprises) 2015 HfS Research Ltd. Proprietary Page 28

29 The Xchanging, Accenture, IBM, Capgemini, Genpact, GEP & Infosys Dominate Two-Thirds of the Multi-Process PO Market Optimum 2% TCS 2% HCL 2% DSSI LLC 1% IGATE 1% TechM Denali 1% 1% Aegis 1% Service Provider Estimated 2014 % Total Share ACV Estimated 2014 ACV ($M) Accenture 26.1% 510 Xchanging 15.1% 250 Wipro 3% Proxima 3% WNS 4% Accenture 26% IBM 12.0% 235 Capgemini 10.0% 195 Infosys 6.1% 120 GEP 5.6% 110 Genpact 4.9% 95 Genpact 5% WNS 3.6% 70 Wipro 2.8% 55 Proxima 2.6% 50 GEP 6% TCS 2.5% 48 Optimum Procurement 1.8% 36 Infosys 6% Xchanging 15% HCL 1.6% 30 DSSI 1.3% 25 IGATE 1.2% 24 Tech Mahindra 1.1% 22 Capgemini 10% IBM 12% Denali 1.0% 20 Aegis 0.06% 12 Total 100% $1,952 Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 29

30 The Market Leaders Success is Based on Large Deals Percentage Share per Size of Deal Percent of Deal Count (Including Other) 35% 30% Enterprise-level engagements Mid-mkt-level engagements % Market Share >25M TCV % Market Share <25M TCV 25% 20% 15% 10% 5% 0% Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 30

31 What Types of Companies are Using PO? Large Companies ($5B+) Continue to Dominate the PO Outsourcing Market Client Organization s Revenue as % of Deals Percentage of Deals <$1bn 14% $1bn bn 7% NA 3% $20B+ 24% $2.5bn - $5bn 18% $10B - $20B 21% $5B - $10B 13% Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 31

32 Differences Of Client Revenue Show A Stronger Propensity For Some Providers To Cater Towards Larger Or Smaller Clients Procurement Outsourcing Deal Count based Client Organization s Revenue Percentage of Deal Count 60% 50% 40% 30% 20% 10% 0% Client Revenue < $5B 70% 60% 50% 40% 30% 20% 10% 0% Client Revenue > $5B Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 32

33 Manufacturing, Retail & CPG, and Telecom & High Tech Companies Continue to Dominate Deal Saturation in PAAS Average % of PO Work Being Serviced by Industry Percentage of Deal Count Behind the Numbers 20% Adoption mix outside of the top five industries shows generally low saturation levels. 12% 12% 11% 11% 8% 7% 4% 3% 3% 3% 2% 2% 1% Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 33

34 North America Continues to be the Regional Leader in PO Utilization, followed by India and Europe Average % Spread of PO Work Being Serviced Percentage of Deals 23% 21% Behind the Numbers The ANZ region continues to be a successful area of PO adoption, where a handful of service providers have specifically targeted these regions in terms of client development and delivery location. 18% 14% 12% 8% 4% 1% North America India Continental Europe Latin America ANZ/APAC UK China Japan Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 34

35 Procurement Outsourcing Deal Length Consistently Trends Towards 5 Years or Less Length of PO Contract Term Number of Contracts 35% Behind the Numbers Buyers prefer to remain flexible in their consistent choice for short-term deals. This is particularly true in non-multi-tower deals. 28% 17% 15% 3% 2% < 2 Years 2-3 Years 4-5 Years 6-7 Years 8-10 Years > 10 Years Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 35

36 Procurement As-a-Service Engagements Show a Mix of Both Transaction and Strategic PO Process Contract Management Still Lags Behind Strategic Sourcing Transactional Procurement Supplier Management Contract Management 61% 57% 33% 42% 49% 45% 36% 41% 33% 38% 29% 24% 46% 33% 28% 28% 22% 11% Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 36

37 FTE Models Remains Prevalent Choice, while Gainsharing is an Attractive Option, Particularly Based on Savings Outcomes Fee Structure Percentage of Contracts 56% 33% 36% 31% 14% FTE Based Transactional (Other than cost per PO or Invoice) Fixed Fee with Volume Subscription based (e.g. 1 cents per user) Gain-sharing/Outcome based Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 37

38 Technology Platforms and Tools Play an Important Role as the Buyers of Services Increasingly Move Towards the Use of Combination of Tools in as a Service Economy Core Technology Used Owned By Buyer/Supplier/Combination Percentage of Contracts 61% 35% 24% Buyer Owned Service Provider Owned Combination Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 38

39 Procurement As-a-Service Market Penetration Continues to be Dominated by the North American Market Region Contract Signed Number of Contracts 50% 16% 12% 10% 5% 3% 3% 1% 1% 0% North America Continental Europe UK ANZ India Latin America Other APAC China Japan Africa Source: HfS Research, 2015; n = 910 live multi-process PO Contracts; based on live PO contracts over $0.5M in TCV with a min. of two core PO processes bundled 2015 HfS Research Ltd. Proprietary Page 39

40 Service Provider Grid

41 Winner s Circle and High Performers Methodology To distinguish providers that have gone above and beyond within a particular line of delivery, HfS awards these providers a Winner s Circle or High Performer designation. The below provides a brief description of the general characteristics of each designation: WINNER'S CIRCLE: Organizations that demonstrate excellence in both execution and innovation. From an execution perspective, providers have developed strong relationships with clients, execute services beyond the scope of hitting green lights, and are highly flexible when meeting clients needs. From an innovation perspective, providers have a strong vision, concrete plans to invest in future capabilities, a healthy cross-section of vertical capabilities, and have illustrated a strong ability to leverage external drivers to increase value for their clients. HIGH PERFORMERS: Organizations that demonstrate strong capabilities in both execution and innovation but are lacking in an innovative vision or execution against their vision. From an execution perspective, providers execute some of the following areas with excellence, but not all areas: high performers have developed worthwhile relationships with clients, execute their services and hit all of the green lights, and are very flexible when meeting clients needs. From an innovation perspective, providers typically execute some of the following areas with excellence, but not all areas: have a vision and demonstrated plans to invest in future capabilities, have experience delivering services over multiple vertical capabilities, and have illustrated a good ability to leverage external drivers to increase value for their clients HfS Research Ltd. Proprietary Page 41

42 INNOVATION HfS Blueprint 2015: Procurement As-a-Service Winner s Circle OneSource Virtual KPMG High Performers HCL WNS Xchanging TCS Wipro Infosys GEP IBM Capgemini Proxima DSSI Denali Genpact Optimum Procurement Tech Mahindra IGATE Accenture Aegis EXECUTION 2015 HfS Research Ltd. Proprietary Page 42

43 Major Service Provider Dynamics Highlights EXECUTION Geographic Footprint And Scale. All of the Winner s Circle service providers (Accenture, Capgemini, GEP, IBM, Infosys and Xchanging) have built up a global presence in procurement delivery with a particular concentration on bringing sourcing expertise direct to the client site. Integration of Acquisitions. Since the last Procurement Blueprint in 2013 a significant effort has been completed by Accenture, Infosys and Xchanging to integrate key procurement acquisitions and bring their leaders to the head of the offerings. Strategic Sourcing and Category Management. Across the board we saw an increased investment in sourcing and category management within procurement outsourcing operations since In the past this was often more of a consulting delivery model with limited integration with transactional procurement but that older model is giving way to a more integrated and iterative capability. Process Automation in Procurement. Service providers are actively trialing process automation within procurement both in transactional procurement and in support of the other processes as well. HfS saw particular emphasis on this from IBM, Infosys and Genpact but many other service providers are close behind. Contract Management. We were especially impressed by the approach that Accenture is taking to enhancing their Contract Management offering with greater involvement of and access to included legal support for procurement clients. We expect this to be a areas of continued innovation and investment in INNOVATION Integration of Procurement Specific Technology. All of the Winner s Circle (and High Performer) service providers have made significant efforts since 2013 in expanding their technology deployment and management skills for procurement. With the much greater adoption of SaaS platforms for Procurement, leading service providers have realized that they need to have much greater in-house technology skills than in the past when procurement platforms were generally run on-premise by clients themselves. Creating a Vision for Procurement As-a-Service. HfS noted through our research, briefings and client discussions that a great many of the service providers have refreshed their offering strategies and solution models for procurement so that they include many more on-demand and As-a-Service components. Introducing Cognitive Computing Into Procurement. IBM Watson is being introduced in support of procurement process delivery and while its still early days and we are looking for more detailed use cases and client case studies, HfS believes that cognitive computing could be an important innovation for the support of procurement HfS Research Ltd. Proprietary Page 43

44 Service Provider Profile

45 Accenture Winner s Circle Strategic Sourcing Acquiring Procurian has put Accenture at the leading edge of procurement outsourcing delivery with a wide breadth of capabilities Strengths Challenges Transactional Procurement Supplier Management Contract Management Technology Management Blueprint Leading Highlights Execution Account Management Strategic Sourcing Transactional Procurement Contract Management Geographic Footprint and Scale Innovation Integration of As-a-Service Capabilities Delivering Value Beyond Cost Vision For The Evolution of Procurement Outsourcing Integration of Technology Successful Procurian Integration. Accenture has successfully integrated their legacy Procurement Outsourcing, Procurement Consulting, Ariba Services Acquisition and Procurian over the last several years and put key Procurian executives in charge to transform the business. Excellent Account Management. Clients were quick to highlight their delight with their account management leads (both Accenture and Procurian heritage) who made it easier to do business with what can at times seem like a giant firm. Strategic Sourcing And Category Management. Accenture leads the market in the breadth, depth and sophistication of its strategic sourcing and category management capabilities with innovative specializations in fields such as energy sourcing. Accenture has also brought on ex CMOs, CPOs and domain experts to lead categories across their global delivery network. Contract Management. Accenture is being quite innovative in the way that they have aligned legal and contract support resources to procurement outsourcing delivery teams. This approach is helping reduce sourcing cycle times for clients resulting in more rapid compliance to approved sourcing practices thereby reducing rogue spend. As-a-Service Capabilities. Accenture is advocating an As-a-Service approach to Procurement Outsourcing that allows clients to select the skills and technology needed to more effectively integrate into their retaining procurement functions than has traditionally been the case. Transformational Messaging Not For All. Accenture offers a wide set of Procurement offerings with a strong tilt towards transformational business outcomes. For some current clients and others who have chosen competitors, these transformational messages miss the mark and are perceived as being complicated to contract for and costly to implement. Even today, there are segments of buyers who just want simpler solutions in procurement outsourcing. Retaining Sourcing Staff. Accenture sourcing and category management staff are being targeted by other service providers who are looking to build up their capabilities in these high demand skills. Maintaining The Community. Several clients of a smaller size felt that while they heard about many programs to create communities of clients and share best practices, they weren t able to take advantage of them and felt that perhaps they were really targeted at Accenture s largest clients. We hope that the forthcoming release of spend trends, a collaborative site with premium content will be a significant development for clients of all sizes who are looking for greater community and collaboration. Client Industry Verticals Key Clients Global Operations Centers Technology Communications, Media, and Technology Financial Services Health and Public Sector Products Resources Public Services 120+ Procurement Outsourcing clients with US$ 95 billion in spend management including: Global Automotive Manufacturer Global Mining Operator Leading White Goods Manufacturer Major Cosmetics Retailer Global Automotive Parts Supplier Leading European Universal Bank Wireless Device Manufacturer Capital Markets Major Global Tire and Rubber Manufacturer Headcount: 3,300+ professionals USA: King of Prussia, PA, Pittsburgh, PA; San Antonio, TX Costa Rica: San Jose Brazil: Belo Hoizonte; Sao Paulo Argentina: Buenos Aires UK: London Czech: Prague Slovakia: Bratislava Romania: Bucharest India: Bangalore; Chennai; Delhi; Hyderabad China: Shanghai; Shenzhen; Dalian South Africa: Johannesburg Accenture Proprietary Solutions include: Radix SavingsLink The Buying Center Operations Suite (BCOS) MySupplier and Buyer Portals Accenture Insights Category-specific benchmarking, analysis, and cost modeling applications Accenture Operations Navigator Key Third Party Solutions include: SAP & Oracle Tableau Ariba 2015 HfS Research Ltd. Proprietary Page 45

46 Market-Wrap and Recommendations

47 Where Next For Procurement As-a-Service We see the following as the major trends that will foster the future evolution of Procurement As-a-Service over the next 2-3 years: All of the current service providers remaining in this market and further investing in procurement outsourcing capabilities and technologies Some of the recent partnerships especially for sourcing and category management not lasting the test of time and leading to increased efforts to grow organic capabilities A continued struggle to attract and retain sourcing and category management experts Direct category spend management will come back and forth in vogue largely depending on which verticals service providers target for new logos and how much success they have in retaining the experts necessary to deliver in these difficult categories The greater use of automation solutions to replace human agent involvement in procurement processing as well as in sourcing and category management activities Further commercial adoption of As-a-Service solution and delivery models 2015 HfS Research Ltd. Accenture Excerpt Proprietary Page 47

48 HfS Expects to See Even Greater Adoption of the Ideals of As-a-Service by Procurement Service Providers by 2017 IDEAL Design Thinking Business Cloud AS-A-SERVICE IDEAL DEFINITION Generating creative solutions by understanding the business context NON EXISTENT INITIAL EXPANSIVE EXTENSIVE ALL PERVASIVE Plug and Play business services Intelligent Automation Blending of automation, analytics and talent Proactive Intelligence Intelligent Data Write Off Legacy Brokers of Capability Intelligent Engagement Operations focused on interpreting data, seeding new ideas Real-time applied analytics models, techniques, and insights from big data Use of platform-based services makes many tech investments redundant Governance staff manage towards business-driven outcomes Pricing and relationships based on expertise, outcomes and subscriptions HfS Research Ltd. Accenture Excerpt Proprietary Page 48

49 Recommendations: Enterprise Buyers Move To As-a-Service Offering Design and Execution. At HfS we are strong believers in the rapid move of BPO away from legacy lift and shift models towards an As-a-Service solution design and delivery world. This is especially true for Procurement which has always had some embodiment of the 8 Ideals of As-a-Service in how service providers have sold and delivered the offering. So as an enterprise buyer you should be pushing your service provider(s) to move to this new model and offer you a broader set of choices for what solutions you adopt and how they interact with your own retained organization. Don t settle for a long term fixed model of solution delivery for procurement but push service providers to be modular and adaptable so that their future services better align to your future needs. Move Categories In And Out Of Scope. Category expertise remains a fluid capability in many areas so if your service provider increases their capabilities move quickly to exploit that new breadth and if they seem to be flailing then also move quickly to shift that category elsewhere or bring it back into your own organization. Procurement scope definitions shouldn t last 3 years anymore without change let alone 5 to 7 years. Increase The Trust. Push your service provider to be more collaborative, more visionary, more inclusive and sharing with you and in turn provide that same approach back to them. The achievement of desired business outcomes via procurement outsourcing is far from guaranteed and making that transition from identified to realized savings and benefits comes easier in a close partnership than in a closed-off zerosum mindset relationship so check that you are approaching your service provider in a manner that facilitates long term success as well and ask it always of them HfS Research Ltd. Accenture Excerpt Proprietary Page 49