The Segmented Sourcing Strategy for Business Services
Modern trends in the procurement of business services
Long ago, I wrote a post about XaaS – Everything-as-a-Service. I tried to cover general tendencies in the outsourcing market and hailed the service-minded approach of modern business.This fantastic article, “From products to services and back again,” went miles beyond my observations and studied two important trends – servitization and objectification.
Let us see those complex terms and how they affect how we buy services.
Goods- and service-dominant procurement strategies
Many companies move from manufacturing goods to providing services or integrating products and services into solutions or functions.Buying goods as services
The name of this tendency is “servitization.”In simple terms, the service-dominant logic assumes the focus shift from exchanging goods to exchanging intangible resources.
We recognized this trend in procurement long ago and happily embraced it. We no longer want to buy pieces of equipment, their implementation, maintenance, and upgrades – all under separate contracts, possibly from different vendors, without value chain integrity and a single point of responsibility.
Instead, we require end-to-end solutions, which will be handed over to us plug-and-play to harvest revenues the next day upon the cutover.
Services are exchanged between buyers and sellers, who are tightly integrated with each other to co-create value. Such interaction implies close relations, trust, and shared objectives.
Buying services as goods
My XaaS post scratched the surface of servitization but did not investigate the concurrent tendency – the “objectification.”It means treating the services as simple modular objects, the bricks, the Lego parts, which one can use to assemble a custom solution.
Services become clearly defined offerings that can be marketed and delivered just like goods.
For example, we can buy FM services considering all different activities and calculating complex work estimates to select suppliers for each project.
Alternatively, we may negotiate one all-inclusive price unit – a square meter of office space. Such an approach requires detailed specifications, standardized offerings, and performance metrics. Pricing logic must be simple but very well prepared and verified.
Buying happens for unified tradeable objects instead of complex intangible services.
Unlike the service-dominant logic, these objects can disentangle from relationships, making them an ideal case for market exchange, just like goods.
Buying happens for unified tradeable objects instead of complex intangible services.
Unlike the service-dominant logic, these objects can disentangle from relationships, making them an ideal case for market exchange, just like goods.
A sourcing strategy based on the mix of goods- and service-dominant logic.
We recognized the existence of both goods- and service-dominant logic, representing nearly opposite approaches but still coexisting.Their choice may depend on the specific business service.
To devise the classification of services, we read the article “Purchasing Business Services.”
It provides an excellent overview of different types of classifications and suggests its own, which we’ll use further.
The focus of the business service - property, people, or process - will be the principal dimension of the proposed taxonomy.
Property services will aim at the company’s assets.
People services will create a working environment for the employees and develop their competencies.
We’ll approach low-importance services with a product-centric transactional mindset aiming at cost savings and standardization. We’ll establish rate cards, e-catalogs, or all-inclusive as-a-service fees to flexibly manage the highly competitive supply base and negotiate tirelessly.
High-importance services will be treated with the service-centric mindset elaborating on value delivery and long-term relations.
It represents the spot-on list of trends in procuring business services, from which we selected two.
1. From the sourcing of products to the sourcing of solutions.
2. From relational or transactional sourcing to segmented relational and transactional sourcing.
Despite the general tendency to prioritize solution buying, authors share the feedback of procurement managers varying from tackling tiny details to mitigate service delivery risks to concentrating on complex solutions.
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To devise the classification of services, we read the article “Purchasing Business Services.”
It provides an excellent overview of different types of classifications and suggests its own, which we’ll use further.
The focus of the business service - property, people, or process - will be the principal dimension of the proposed taxonomy.
Property services will aim at the company’s assets.
People services will create a working environment for the employees and develop their competencies.
Finally, process services will establish and run complete business processes.
We will consider their criticality or importance to the buying firm to further segment the services. It can be high or low depending on the impact of the service on the firm’s core business activity.
Now we’re ready to blend all the above into a sourcing strategy.
We will consider their criticality or importance to the buying firm to further segment the services. It can be high or low depending on the impact of the service on the firm’s core business activity.
Now we’re ready to blend all the above into a sourcing strategy.
High-importance services will be treated with the service-centric mindset elaborating on value delivery and long-term relations.
Sense check of our sourcing strategy
The article we suggest using to sense check the proposed sourcing strategy is “Trends in Service Sourcing Practices.”It represents the spot-on list of trends in procuring business services, from which we selected two.
1. From the sourcing of products to the sourcing of solutions.
2. From relational or transactional sourcing to segmented relational and transactional sourcing.
Despite the general tendency to prioritize solution buying, authors share the feedback of procurement managers varying from tackling tiny details to mitigate service delivery risks to concentrating on complex solutions.
That would depend on the industry, as construction or IT procurement is naturally inclined to manage complete solutions. At the same time, automotive buyers would instead look into individual SKUs and primitive services.
“Typically, as far as more complex services and services close to the core competence of the firm were concerned, respondents expressed preferences for long-term, relationship-oriented purchasing. For simpler services, services not directly impacting core business processes and services bought in bulk, transaction-oriented purchasing dominated as the preferred mode of purchasing.”
Both trends reconfirm our prior observations and support our segmented approach proposed in the sourcing strategy.
Importantly, it emphasizes the need for procurement experts to operate the diverse toolkit, which can accommodate general trends in our profession and specifics of individual industries, markets, or even companies.
“Typically, as far as more complex services and services close to the core competence of the firm were concerned, respondents expressed preferences for long-term, relationship-oriented purchasing. For simpler services, services not directly impacting core business processes and services bought in bulk, transaction-oriented purchasing dominated as the preferred mode of purchasing.”
Both trends reconfirm our prior observations and support our segmented approach proposed in the sourcing strategy.
Importantly, it emphasizes the need for procurement experts to operate the diverse toolkit, which can accommodate general trends in our profession and specifics of individual industries, markets, or even companies.
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