CWS 3.0: October 1, 2014

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Natural tie: Why your program should include services spend

By Sarah Koshiol

Based on recent studies, the top priority going forward for 80 percent of companies currently with an established VMS/MSP contingent workforce program, is to expand their program to include services spend. A separate survey from Staffing Industry Analysts – the publisher of this newsletter — indicated 75 percent of those US participants include or are planning to include services spend in their programs. The results outside the US were a bit lower, at 48 percent.

What is even more clear is the most common expansion strategy within the services spend vertical is by spend category. Like the evolution of temporary or staff augmentation-based work, services spend too has evolved into more defined categories. Key categories including: process outsourcing to include application services, infrastructure management and BPO; consulting to include IT and management; professional services to include tax, audit and legal, as well as various specialized services projects. Within a contingent labor solution, the process outsourcing categories, followed by consulting is the most common of all SOW-based services spend under management, and also has the highest levels of supplier and buyer adoption.

As shown in the following graphic, process outsourcing to include application services and infrastructure management is typically the initial category of SOW-based work that is implemented within a contingent workforce solution, followed by consulting-based SOW services. (Note, this expansion strategy is under the assumption that staff augmentation spend under management is in a mature state.)

Click image to enlarge.

SOW Contract and Service Spend

Service spend, is typically governed by a statement-of-work (SOW) contract and is based on specific project deliverables to be supplied under the contract, or outsourcing services, as part of a project timeline. In the case of outsourced facilities support management, the timeline can be indefinite. SOW agreements are usually billed based on a fixed price deliverable or specific milestones. Like typical staff augmentation arrangements, they may also be billed based on time, including arrangements where there is time-based billing that is capped at some “not to exceed” level.

While differences in contractual form exist, the similarities between staff augmentation and services spend categories are far more significant. Companies are realizing the benefit of these similarities by including services spend in their contingent workforce programs.

An equally important driver of service spend adoption is the market evolution in funding models. Initially, services spend was included in programs almost entirely using a buyer-funded model (i.e. no cost to the supplier). More recently, suppliers have accepted the premise that they must pay to play, and some 60 percent of programs with services spend are now supplier-funded.

This growth and evolution of services spend categories brings the increased desire for organizations to focus on effective ways to categorize, classify and manage all contingent workforce spend. This allows for strategies to effectively manage the demands of the business, but also the value of managing all contingent workers in a consistent manner.

Why Manage Services Spend?
There are a number of reasons to manage services spend in an end-to-end contingent labor workforce solution. First and foremost, creating and leveraging visibility into an expanded scope of spend, which allows for additional analysis and leads to effective strategies and actions, all creating increased value output. Additional reasons include:

  • Better risk mitigation
  • Ability to make effective demand management decisions
  • Additional strategies across all contingent labor spend (cost savings, reporting, supplier management)
  • Additional controls, both fiscally at the budget level and operationally
  • Ability to comply with organizational policies and marketplace regulations
  • Ability to manage to supplier performance and leveraging top performing suppliers within specific categories
  • Ability to optimize entire supplier chain by category
  • Ability to increase quality work, from suppliers, resources and deliverables
  • Realize additional savings
  • Improved cycle times (on time within budget)
  • Enhanced reporting and analytics

Due to the nature of work being performed and the level of engagement of every project, the strategy and support model and the value add for both suppliers and buyers will vary by category. 

Approach to Capturing Services Spend Under Management
The recommended discovery, design and delivery steps to categorizing, classifying and capturing SOW services spend includes:

Click image to enlarge.

There are critical success factors that are key to successfully defining and categorizing SOW services spend. Key factors including:

  • Level of visibility into current spend
  • An effective and agreed upon project plan
  • Executive-level and steering committee support
  • Applicable stakeholder/buyer engagement
  • Effective communication and change management plan
  • Data conversion plan

Sarah Koshiol is an associate with Brightfield Strategies, a management consultancy specializing in contingent workforce strategies.