A one-time procurement consultant, Sebastian Hartmann is now an advisor to services firms and is global head of technology strategy at KPMG. Recently he returned to a topic close to his heart: procurement in the professional services industry. While the procurement of professional services is the angle we normally like to follow at Spend Matters (see the work of our Research Director, Services and Labour Procurement, Andrew Karpie), his observations about procurement’s changing role in professional services firms are very interesting; they give us a peak into how procurement looks at and organises its supply chains and direct versus indirect spend.
In his article ‘Procurement’s Awakening in Professional Services’ published on LinkedIn, Hartmann declares that: “An unlikely new key player within professional services firms is slowly crawling into the spotlight: Procurement. This often immature function and role, which until today has mostly dwelled in the back-office, administrative shadows of knowledge-based firms, is evolving as a cornerstone of strategy execution for law firms, consulting, accounting, or marketing service providers.”
Why an ‘unlikely’ new player? – because procurement in most professional services firms historically has not been seen as a value-adding function, especially by the highest-ranking members of the industry – the partners. But as professional services mature in their digital transformation agenda, as their demand for third-party technologies and services grow and become strategically important to the business, as external spend on suppliers, vendors and subcontractors becomes critical to the business, so the procurement function is becoming a key orchestrator of this operational client delivery work.
He sees three main reasons for a significant evolution of the function in the eyes of the PSF: a shift from indirect to direct spend, growing spend levels and impact, changes to the industry’s ecosystem and supply.
A change in the value chain of professional services will be seen both upstream and downstream as more tangible client-facing solutions are demanded. The quickly growing demand for technologies (like RPA, AI and ML capabilities) will need to be sourced and that spend will become essential to what will become direct client deliverables, as opposed to the majority of spend traditionally being more ‘indirect’ for a typical PSF. In this respect he sees the industry catching up with the ‘more sophisticated’ Procurement functions of manufacturing and automotive.
As higher levels of spend become more strategic and as externally sourced demand grows, there is a greater need for it to be more professionally managed. Procurement will move into the spotlight as expectations from it become more complex and valuable. The requirement for digital transformation, innovation, scalability and growth will entail changes to a firm‘s ecosystem, and it is this that must to a large extent be powered by the Procurement function.
So procurement in professional services is facing a radical shakeup – and a much needed one according to our analyst Andrew Karpie:
“Many professional services firms have been evolving over the years from simply being ‘brain trusts’ to being value-added organisers of resources and other services — as Hartmann notes: technology, content and data services, contingent workforce and other services. I think a good example of this is legal service firms, where advanced technology, information services, ALSP services and even temporary lawyers are increasingly integral to their own service outputs. Marketing services providers were driven to evolve much earlier. It therefore makes sense that large professional service firms may be seeing an expansion and elevation of procurement’s strategic role in the business. In fact, this strikes me as something of great urgency, since many types of professional service firms’ business models and cost structures are increasingly being challenged in the marketplace — by clients and by new digital-first competitors.”
To read more from Hartmann, including what Procurement‘s new playing fields and value levers are, read the full article here.