Procurement-As-A-Service: New Jargon for an Old Model, or a Game Changer?

SaaS. IaaS. PaaS. ITaaS. XaaS. BPaaS. The list goes on. It feels like we are surrounded by “something” as-a-service today. But is the “as-a-service” revolution as disruptive as is claimed, or it is just the latest in a line of buzzwords to describe an old business model?

Broadly speaking, “as-a-service” represents products or services that are available on-demand and without then need for an internal infrastructure, paid for on a subscription, pay on use or fixed fee basis . These products and services typically require lower up front investment, have a faster payback period than locally built and deployed solutions, and can quickly scale to meet volume fluctuations.

Technology based as-a service solutions – such as software-as-a-service (SaaS) – is a maturing market. Goldman Sachs estimates global SaaS revenue of $106B in 2016. People based as-a-service, however, is just getting started.

 

There are two facets that make up the people based as-a-service industry: outsourcing and the freelancer economy.

Outsourcing is not new. Companies have outsourced transaction and tactical activities for many years, with the offshore BPO industry well into its second decade. However, with many of the gains from labor arbitrage being realized, businesses are now seeking to outsource knowledge based activities. Fueled by the great recession and broad based shifts from a fixed cost to variable cost staffing models, knowledge based outsourcing can be a game changer. Executed correctly, it provides access to highly qualified talent that delivers an ROI significantly higher than if the activity was performed internally. On the flip side, if a company manages knowledge based outsourcing like traditional outsourcing – lift, shift and forget – then it quickly becomes an expensive mistake.

The freelancer economy – aka contingent labor – is also a tried and tested business model. However, it is growing rapidly, and has reached its tipping point. According toMBO Partners, the number of independent workers in the US has risen 10X the growth rate of the broader job market over the past 4 years. This is being fuelled by the rise in collaboration technology, online marketplaces that bring together buyers and sellers, and an increasing desire of professionals to seek independent and flexible careers. Finally – love it or hate it – the Affordable Care Act is allowing US workers access to healthcare that in many cases was only previously available through employer sponsored plans.

 

Procurement-as-a-service is the wrapper than combines the next generation of outsourcing and temporary labor delivery models.

While neither outsourcing nor temporary labor are new, their latest iterations present a huge opportunity, and a true paradigm shift in the way organizations lever procurement services.

Imagine having access to hyper-niche talent that brings experience and market intelligence that is directly related to a specific challenge you have. This talent is available on-demand, and for a fraction of the cost of hiring and employing that talent on a permanent basis or a long term contract. Performance is measured using KPI’s, with hybrid fixed fee and bonus/penalty pricing mechanisms that provide risk protection. This is what people based procurement-as-a-service brings.

There are many use cases for this model. It enables companies to completely outsource their strategic procurement activities, or supplement a smaller core team. For larger companies with a mature procurement group, procurement-as-a-service allows CPO’s to fill specific talent gaps, address one-time business challenges with specialized skills, and increases organization efficiency by enabling retained staff to focus on mission critical activities. For smaller and mid-sized firms, it will provide access to talent that was previously unreachable. Many companies will experience the benefits of strategic procurement for the first time.

Procurement-as-a-service is real, and will benefit a company wherever they are on the procurement maturity curve. Those that embrace it have the opportunity to create a delivery model that is agile, efficient, and with access to niche subject matter expertise, while elevating the procurement brand and delivering value far in excess of negotiated cost savings.

 

Do you agree? Is Procurement-as-a-service a game changer, or just another buzzword? Join the conversation in the comments section or on Twitter (@procurechangeHQ). #procurement

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