Category Archives: Market Intelligence

The Big X are Pushing Operate Services … But Can They Really Offer Them? And Are They Real?

And if they are real, can anyone?

Backing up, in the beginning, there was traditional Business Process Outsourcing (BPO), which became very common in the 1980s and 1990s as the result of constant claims by the big consultancies and their ilk that the only way businesses could enhance their flexibility and agility and maximize their competitive advantage was to outsource processes they weren’t good at to the Big X Outsourcing offices. (In some cases they weren’t wrong. When the business had no competence in a function, grossly overpaying someone with reasonable competence, even if that someone was not the expert the Big X claimed, generated a good return for the business. The function was done efficiently and effectively, negating the loss the business used to suffer, and it allowed the business to focus on the functions they did well, which increased their profit even as they (often unnecessarily) forked out seven (7) and eight (8) figures to the Big X every year. (And we say unnecessarily because most of the time they could have outsourced to a smaller, niche consultancy at one third to one half of the cost and achieved the same result.)

Then, as Big X tried to steal business from their competitors and niche firms tried to break in, they upgraded to “Managed Services” which was supposed to be more than just performing the service for you cost efficiently (by supposedly reducing your costs by doing it better, and thus, cheaper) and adding value. The idea was that it didn’t just take over a point-based function, but instead provided a dedicated team that basically took over an entire department for you, just offsite, and worked exclusively on your projects. They learned your business, and improved the service offering over time to not only maximize efficiency, but maximize value. If they took over your IT department, they learned the systems you used, optimized those, learned to provide quick and effective problem resolution on the help desk, and, when you needed a new solution, helped you identify the one that would work best with the systems you had. If they took over your AP, they learned your suppliers, your payment rules, your PO formats, and implemented systems that allowed them to match POs to invoices for high-value invoices to reduce overspend. They also helped you build catalogs from suppliers that could meet your MRO / internal needs at the lowest possible cost. And so on. Over time, they not only met SLAs, but improved on all key metrics.

But now a few of the Big X are saying that Managed Services is not enough to maximize value and you need premium “Operate Services” (which come at a premium price, of course). So what’s the difference? Hard to tell. The best definition we can find is it’s a “holistic approach that is focused on delivering outcomes and spurring innovation in a model that leverages automation and data insight to generate substantial business value”. the doctor thought that was what managed services was supposed to do for you? Other definitions indicate that “operate services” differentiate by providing “on demand access to expert talent”. Isn’t that why you use a managed service, so they can identify when the team needs a new expert and add that expert? Other definitions also indicate that “operate services” are more “collaborative”. Are they saying that the managed services they provided to you in the past, where they often acted as an entire department, weren’t collaborative? WTF?

In other words, while they are presenting it as a more advanced premium service model, for which they want to charge you a premium, it really isn’t, or shouldn’t be, because if it is, they are admitting they have been ripping you off for decades!

In some consultancies, it is just a specialization of managed services for IT/IT Security, Analytics-Heavy Functions like Strategic Procurement or Network Analysis, or highly technical functions like supplier identification in direct manufacturing. And it costs more because those people, who are much rarer than experts in traditional business functions and processes, are more expensive, as are the tools that they need to secure your enterprise, analyze your global spend, analyze your supply network, or analyze potential suppliers for your electronic components. And we can see how that could be fair, as long as they aren’t using “operate services” to increase costs across the board where there is absolutely no justification for it.  (And only using it to differing a subclass of specialized services they offer, and admitting its nothing more than managed services, just applied to a new set of business functions.)

But if the consultancy is trying to pitch these “Operate Services” across the board with claims that these new services are better and more specialized for your business than any other kind of service, then they are admitting they are currently ripping you off in your managed services and you should just fire them. Because there should be no difference with the exception that the subclass of operate services we defined in the last paragraph generally require more advanced systems and more resources with a high TQ, which usually cost more. But that’s it.

So don’t blindly fall for this brand new business pitch if they try to pull it on you — simply compare what they are offering to any other firm that says they can fully meet your needs with a traditional managed services model and give the business to the firm that is the most honest among those that can meet your needs.  Now, it might be new and more in depth and more valuable, but that’s not guaranteed.

PostScript: We do believe Big X can offer a lot of value.  See this post on When You Should Use a Big X!

Amazon: Resistance May Be Futile — But It’s Growing in the Masses!

Note: This content was originally posted on LinkedIn on November 15, 2023.

On November 15, 2023, Jason “the prophet” Busch of Spend Matters noted on LinkedIn that

Resistance is Futile.

[because] Amazon Business Reshape (in Chicago) is “the new Ariba Live” according to multiple people I’ve spoken to this week.

And stated that what struck him was:

how Amazon seemingly has one obsessive goal: drive usage, volume and value so customers keep coming back.

and that:

If it’s not already, I’m guessing Amazon Business will soon be a Fortune 500 P&L lurking inside a Fortune 5 company (and it’s going to be high on the list itself in the years to come).

among other things.

And while Usage, Volume, and Value will drive companies to try Amazon Business; without good SERVICE levels, when the contract ends, or even worse, if there’s no contract, when “Amazon” fails them spectacularly, will those customers actually return? (Remember that they see Amazon, not the vendor behind Amazon where the spectacular failure may actually occur.)

And, more importantly, if their service in their customer segment, where many of these business leaders will first experience Amazon is poor, will they trust Amazon Business for their business? (Is it not reasonable to expect service levels are the same across the board?)

I say this because I personally experienced Amazon customer service levels in Canada go from stellar (and the best of all the online merchants) to what I would consider the exact opposite of stellar in a very short amount of time in 2021/2022. I’m not the only person I know who cancelled Prime, which meant I went from buying, from a quick estimate, 600+ a month (for close to a decade after being a regular customer in North America for over 20 years) and a plan to move more business spend to Amazon to absolute ZERO (0) over a year ago (and my spend has stayed at that level since then).

This was also at roughly the same time complaints in the US skyrocketed to the point that the FTC stated that “Amazon has allegedly used dark patterns to trick millions of users into enrolling in its Prime program and trapping them“. (See this link.)

I know it’s different business units, different programs, different options for legal recourse, and different amounts of money at play, but my point is this.

1) the largest market for Amazon Business by far is the small business market — hundreds of thousands of companies that can’t afford a fancy (and expensive) Procurement solution (and would love a “free one” handed to them on an AWS platter)

2) the small business market is a market where ONE person usually makes the decision, not a team, and the decision is made as much on emotion as it is made on numbers; if that person had a less than stellar experience with Amazon personally, will they trust them for their small business if there is any other option available to them?

(Basically, while the doctor agrees that everything the prophet said might be true in the Mid-Size and Larger Enterprise market, we need to note that there are only thousands of large global enterprises [The Fortune 1000/Global 3000]; only tens of thousands of mid-size enterprises; but millions of small enterprises. Millions. That’s where the volume is!)

In other words, Amazon Business Reshape might have the excitement (after all, what else is new? the answer is, sadly, not much), but will it last? And will the excitement lead not just to an uptick, but sustained momentum and growth for Amazon Business?

Ardent Partners Steps Up Its Game — But Will the CPOs Rise Up?

Unless you’ve been under a rock for the past ten days you will have noticed that Ardent Partners — a research firm that has traditionally focussed on Contract Management, Accounts Payables/Invoice Management/e-Payables, Contingent Workforce, and CPO Advisory — stepped up their game when they hired Magnus Bergfors as VP of Research. Magnus, a former Gartner and Spend Matters analyst, possesses deep expertise on the Source-to-Contract side of the S2P equation, especially around Strategic Sourcing, Supplier Management, and the front-end of e-Procurement. With the addition of Magnus, Ardent Partners can now truly cover the Source-to-Pay spectrum.

Even though they only have three (3) senior analysts, at the very least, given the slew of departures over the past few years from the top firms, Ardent Partners can now attempt to go head-to-head with these firms in confidence and possibly be more valuable to their clients than those firms. While the doctor doesn’t expect that they will be able to introduce a new market map (or even want to try given the technology dominance of the Spend Matters map), as every up-and-coming market firm is want to do these days, he does expect that, given the vast network of CPOs they have built up, Magnus will be able to draw out some fairly interesting insights from that group. Likely deep insight into the typical technology landscape, average Procurement department proficiency, key concerns of today’s CPOs, and so on.

But the question is, how will Ardent Partners make use of that knowledge, how will their clients, and what will Magnus do to disrupt the space in his new role? the doctor will be watching.  In the mean time, the doctor suggests keeping an eye on Magnificent Magnus Mondays for some hints into what might be coming.

Recruiting Top Procurement Talent is More than Just Standard Best Practice Recruiting …

A recent article over on the Supply Chain Management Review proclaimed to offer 9 Ways to Recruit Top Procurement Talent in Today’s Competitive Market. So of course it caught our attention. However, the tips it offered were just standard Best Practice Executive Recruitment, and it was quite disappointing. According to the article, the best way to recruit top procurement talent, which is the rarest talent out there right now, is to:

  • Personalize the Recruitment Process
  • Optimize the Candidate Experience
  • Clarity and Transparency on the Role
  • Tangible Opportunities for Growth
  • Flexible Work Arrangements
  • Holistic Compensation Packages
  • Consistent Employer Branding
  • Empowered and Inclusive Workplace
  • Understand and Act on (Current) Employee Priorities

… and absolutely, positively NOTHING here is specific to Procurement talent. It’s the basics you should be employing when recruiting for ANY role as you are seeking out the talent (which is NOT coming to you). If you want Procurement talent, you have to do more than this. For starters, we recommend

  • Parity Compensation with Sales … in an average company, if that company is lucky, 10 cents of every sales dollar goes to the bottom line but the sales person, on top of a nice baseline salary, will get a 10%, 20%, and even 30% of the sale; in comparison, every dollar of spend reduction achieved by a Procurement professional goes straight to the bottom line (i.e. 10X the ROI, or more) and their commission is a pat on the back and maybe a trip to ISM … they should be incentivized to go above and beyond baseline expectations if you truly want the best (of the best)
  • Adequate Technology Budget … as almost half of organizations don’t have any modern sourcing and/or procurement technology solutions/platforms and the majority that do have not yet digitized the full Source-to-Pay+ process to maximize Procurement productivity and profits
  • Adequately Sized Procurement Department … while technology will allow the team to do more with less, as per the Hackett Book of Numbers, there’s still a minimum number of personnel you are going to need to sufficiently analyze and monitor the spend, strategically analyze and source all the necessary categories, keep the tail spend under control, improve sustainability, support the brand, etc. etc. etc.

… but what we really recommend is not trying to lure away more than one high talented Procurement individual (to be your Director / CPO if you don’t have one) but instead lure away top talent with the potential to become Procurement Rock Stars because they have deep category expertise in multiple categories the organization needs to source; outstanding project management, technology/math, and management skills; and the right EQ to be both a team player, team leader, and supplier development professional.

In particular, you should consider looking for:

  • new age logistics leaders (who can model supply chains, complex landed / ownership costs, and understand lead times and extended supply chain risks);
  • astute supply chain modellers and designers from consultancies who have particular expertise in your domain
  • engineering leaders (who know their categories inside and out, do complex modelling on a daily basis, have been trained in project management and managed projects, and have leadership and people skills
  • corporate / supply chain insurance actuaries and professional economists who have the expertise to appropriately predict, cost, and manage risk and create proper risk-aware sourcing events and risk mitigation plans

… and then training them on your Procurement processes, which will be easy-peasy for them to learn compared to the complex logistics, supply chain modelling, science/technology/engineering/math knowledge, and actuarial science and econometrics they had to learn to do the job they’re doing now.

Moreover, depending on your domain, you may also be looking for chemists (chemical manufacturing), biologists (pharmaceuticals), lawyers (if you do a lot of contracting / contingent labour / outsourcing), etc. The reality is that the best of the best for your organization likely aren’t in Procurement yet (because, as we pointed out in our recent article on how If You Want Good Procurement People YOU NEED TO TRAIN THEM).

Procurement Performance is Relative …

… and, specifically, good Procurement performance is relative to how bad you’d be doing without a good Procurement department.

A recent article on the Supply Chain Management Review on how Procurement Costs Increase, But Top Performers See Increased Advantage which quoted a recent study from The Hackett Group, really drives the point home.

The recent Hackett study, which found that Procurement costs did increase in 2023 and now comprise 74% of total spend, as compared to 69% in 2022, for Digital World Class organizations, also found that these organizations did much better compared to peer organizations where costs increased from 89% of total spend in 2022 to 93% of total spend in 2023. In other words, Hackett found that world class organizations spend less overall while also operating at 21% lower cost than their peers and 32% less staff.

In other words, a good Procurement department staffed with educated and experienced buyers will save the organization more than it spends on the Procurement department, while keeping its overall costs below its peers. This means that any organization with a world class Procurement department can not only keep its prices below its peers in a cost conscious consumer environment, but also increase its organizational sales while its peers struggle to hold onto an existing customer base.

It may be hard to see the value of a leading Procurement department when you don’t have one, but these Hackett numbers should make it abundantly clear. 21% lower cost, and spend, on average than peers is substantial. This means that even though your spend will go up year over year in an inflationary environment, the rate of increase will be much less than your peers, giving you a significant advantage. Furthermore, if your organization acquires and installs the right affordable tools, as chronicled in our series on how much should you pay for Source-to-Pay, including our article where we explicitly said Yes Mid-Markets, 120K is More Than Enough for Source-to-Pay!, you can see multi-million ROIs in the 8X to 26X range, depending on your annual spend and Procurement maturity level (that determines how much spend you can push through the platforms).

In other words, while you can never put an absolute value on cost and Procurement value as that depends on constantly changing market conditions, you can put a relative value on best-in-class Procurement operations, and that value is 21% better than peers. Twenty One Percent. Think about that the next time Procurement asks for more senior buyers to put more spend under management or better platforms.