One of the first hurdles to engaging finance across their external spending decisions is simply getting a meeting that sets the right tone. CFOs, VPs of tax, treasurers, divisional controllers and general counsels can all be notoriously hard not only to pin down, but to actually convince that your organization is capable of helping them achieve savings without negative impact. ICG suggests that with these types of finance characters, the most important underlying principal of engagement is to establish credibility with subject matter expertise. Immediately in your first meeting, these folks must know that you know what you're talking about (e.g., accounting standards). It's also critical, as you've probably heard a thousand times already, to quickly suggest and backup with fact how your job is not to damage or stand in the way of existing relationships with current vendors.
For example, in the case of audit, the average tenure or relationship with a particular vendor in the Fortune 500 is over 25 years (yes, you read that correctly -- it is indeed a "partner" category, despite the fact that sourcing types know that leverage does exist within it). When talking about areas like audit, it is essential to show that if you're allowed to engage in a cost reduction effort, that you will not take some generic sourcing approach (e.g., a one-size 5 or 7 step strategic sourcing process does not necessarily fit all with finance). Often times, effecting material savings in audit comes down to more of a benchmarking exercise than anywhere else. After all, if an incumbent learns that they're outside a reasonable deviation with a directly comparable competitor, it would be poor form not to readjust their pricing in a relationship.
Legal spending presents a different set of unique challenges starting with the fact, as ICG suggests, that legal firms are selected based on expertise, not rates, as the desired outcome often far outweighs potential costs if things don't go as planned. Moreover, most legal organizations have little interest in rationalization-based approaches with their suppliers given the importance of specialization. This backdrop suggests, as with finance areas, that it can sometimes be important to achieve quick, material wins in lower risk/lower complexity sub-categories to prove relevance and build trust, where possible.
ICG suggests that specifically, proven, deep knowledge of legal processes in areas including intellectual property and litigation can go a long way to appeasing general counsels and legal/finance leadership that procurement organizations (and potentially third-party partners) are equipped to tackle the area. In addition, leveraging sets of legal category benchmarks to show relative costs -- that include rates -- can help earn trust as well. I would add to this the importance of taking a thin-slice approach on benchmarks. For example, NYC rates can often be different than even Philadelphia rates, even in highly specialized areas with similar skill sets (e.g., construction litigation). But more than just rate benchmarking, establishing knowledge with details on alternative fee structures, budgets and related cost savings initiatives can also go a long way to building credibility.
Stay tuned as we continue to discuss complex category savings and engagement tips in legal and other spend areas.
- Jason Busch