CWS 3.0: December 4, 2013

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Conquering SOW Spend: The unrealized next big thing

By Steve Knapp

I have been hearing for years how “we are at an inflection point” and that “SOW spend is the next frontier” in contingent workforce management (CWM) programs. Although we have seen a slight uptick in SOW spend under management within more mature CWM programs, the SOW revolution just hasn’t come to fruition yet. Typically, SOW spend is more than twice that for temporary agency workers at most organizations, yet SOW spend under management only accounts for about 30 percent of total VMS spend and about 13 percent of total MSP spend, according to Staffing Industry Analysts’ VMS and MSP Competitive Landscape report.

The reasons for the slow adoption of SOW management are varied but straightforward. Chief among the challenges that organizations face are:

  • lack of buy-in from internal stakeholders;
  • limited data required to build a solid business case; and
  • reliance on the same people, processes and technologies that are used for temporary agency worker spend.

The good news is that some organizations have had success incorporating SOW into their programs and there are a number of lessons learned from those initial successes.

Here are four tips to consider:

1. Engage the business in governance. We talk a lot about governance structure in CWM programs, and often focus on the corporate functions and C-level executives. The difficulty with gaining visibility of and controlling consulting spend is that the ownership of contracts and SOWs almost always lies within the business. These consulting organizations are often positioned as mission critical and unique. The suppliers do a great job of convincing engagement managers that centrally managing all SOW spend is not in their best interest because “it will negatively impact the business” and “each SOW is so unique.” This is clearly a tactic designed to allow consulting organizations to charge premium rates for services and avoid competition. When you start to bring key business leaders into the governance structure, you are able to allay their concerns about negative effects to the business while creating key advocates to help effect change. As it will be a challenge to convince the business leaders of the importance of such a program, you need to focus on the benefits to the business rather than the more corporate benefits of cost savings and risk reduction. Walk a mile in their shoes if you expect them to join you.

2. Make an investment. “You have to spend money to make money” is one of my favorite axioms in business, and this holds true in the arena of managing SOW spend. Let’s say you have $100 million in SOW spend. A typical savings on this will be 10 percent on average, and can often be 20 percent or more. A little investment in the right people and right tools required to manage SOW spend can have significant return on investment. Even if you just spend $1 million, your ROI can be 10 to 20 times that. That seems obvious in the abstract, but why are so many companies content with managing complex services using Excel spreadsheets and fractional headcount? With companies slow to invest in SOW management, VMS and MSP providers have followed suit. While there are targeted examples of early signs of success, I would love to see more proactive investment in feature functionality around full-lifecycle SOW management from the software companies, and investment in resources with services procurement and consulting backgrounds from the providers looking to manage the program.

3. Hire the best. The CWM industry is filled with individuals who come from a staffing and recruiting background. This is natural because the industry was born out of a need to manage temporary staffing providers. These people are great when it comes to working a standard temporary labor process, but can lack the experience and skills required to establish best practice processes, determine ROI drivers and develop program policies for managing SOW spend. Logically, if you want to manage a new category of spend, you need people who understand that category to develop the best practices and bridge the gaps between stakeholders throughout an organization. As mentioned in Tip No. 2, it is incumbent upon the providers to invest in these people, but it is also incumbent upon the buyers to be asking for these people.

4. Consider a different solution. You can tell from the difference in spend under management for VMS and MSP providers that there are already dozens of organizations that have taken a different approach to managing their SOW spend. Namely, that they have insourced the SOW spend while potentially still using an outsourced MSP for the traditional contingent spend. This is one possible solution, but there are many others. Fundamentally, I think companies need to reevaluate the processes and roles and responsibilities for SOW spend management and consider fresh approaches if they are going to achieve breakthrough results. 

Steve Knapp is senior associate with Brightfield Strategies, which helps Fortune 500 companies with contingent workforce strategies. He can be reached at sknapp@brightfieldstrategies.com.

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