The Services Spend Convergence: Ignore at Your Own Savings Peril

I'll be the first to admit -- unlike many folks at big name firms who can't afford to be seen as learning on their jobs -- that there are areas within Spend Management which I'm still coming up to speed on. After all, it can take years to fully learn a subject to the point at which you feel comfortable and capable of providing deep advice and recommendations. Until recently, services procurement was one such area where I felt woefully under prepared to discuss, aside from understanding a few of the nuances of different automation approaches in the market. However, I've not been alone, at least among procurement industry observers, especially the mainstream procurement analysts who have been spoon fed what to believe from providers (relative to the staffing- and HR-focused analysts who can actually opine a novel thing or two on the subject in certain areas).

But having conducted enough vendor, customer and services provider interviews and briefings at this point to feel that I've been able to triangulate on the right set of issues, opportunities and concerns, I'll be writing about the subject with far greater depth and frequency on Spend Matters, continuing on with the introductory series I've started that reviews a number of the players in the market (Fieldglass and IQNavigator are next up, starting tomorrow). Having done a significant amount of research, I've come away with five key reasons that I think its critical that we all explore the subject with more detail and frequency -- on these virtual pages and beyond.

First, I firmly believe that among all categories that procurement organizations are increasingly taking on responsibility for, services will represent one of the greatest hard dollar savings and compliance opportunities to pursue overall as we emerge from the downturn. But because services savings comes from not just greater visibility into spending and better negotiated rates but also compliance and overall process management it is critical to educate procurement organizations about how to get the most from technology and services providers throughout the services spend lifecycle versus simply in upstream areas. Moreover, the lessons that procurement can learn when it comes to managing services provider performance and information are ones they can also easily apply to other areas of the business.

Second, based on numerous discussions I've had recently with procurement organizations coming from different industries, it would seem that there are increasingly confused messages in the marketplace about who can provide what -- and where companies should turn. For example, more than a few organizations have asked me whether SAP SRM 7.0 lets companies manage the full services procurement lifecycle as a substitute for VMS platforms. And the Ariba vs. best-of-breed services spend vendor debate remains on some people's minds as well. All of these are critical issues to discuss to clear the air about how different providers and solutions elements can best fit together in specific customer environments (not to mention the MSP role).

Third, the gap between leaders and laggards when it comes to many KPIs in services spend areas can be quite significant. Yet is not overly difficult (or time consuming) to bridge with the right set of resources and partners. Unlike overall procurement and supply chain transformation activities, it's possible to pursue a targeted services procurement transformation to bridge this gap, achieving EPS-impacting returns in a matter of quarters (vs. years). Selecting the right partners is key to doing this, in large part because procurement organizations are often flying at least partially blind when it comes to category and services knowledge relative to other areas of spend they manage. This is why the ERP option alone (unless supported by a core MSP or selection of MSPs) will often prove the wrong strategy.

Fourth, procurement organizations lack good resources to go to when it comes to services procurement research. Procurement and supply chain publications don't cover it with enough frequency nor do the familiar analyst faces pursue the topic much beyond a hobby (except publications and firms that specialize in the area like Staffing Industry Analysts, albeit the audience for these organizations is more focused on HR than procurement or supply chain -- or services procurement outside of contingent labor). Moreover, the analysts and publications that specialize in the area tend to focus on contingent labor versus the broader challenge of other services spend categories in general. As a final note in this regard, very few blogs tackle the subject on a regular basis either.

Fifth, and last, the main reason that I'll be addressing services spend as a key topic is the massive returns that are possible if you time the market correctly from a sourcing perspective and segment your spend properly (which is easier said than done, I'll admit, especially when business stakeholders and spend owners are involved). Whether this involves more effectively slicing, dicing and sourcing legal or marketing spend -- including make/buy and off-shoring decisions -- or finding additional ways to negotiate rate cards down in IT, sourcing services spend categories can create significant savings opportunities in today's climate. Granted, while sourcing alone won't help you realize services savings, it's an essential step in the process. And given the buyer's market for services that we find ourselves in, it's never been a better time to get started.

Jason Busch

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