In working with its BPO customers in the legal spend areas, ICG Commerce focuses both on category-driven cost reduction as well as ongoing vendor compliance, including maintaining a focus on minimizing the impact of rate price increases. For example, ICG recommends a formal process with specific dates for rate reviews no more than annually. They also encourage companies to create a formal rate management process and tracking system. From a stewardship and management standpoint, they suggest that a "standing committee...evaluate and approve all rate increases and discounts." In other words, as with all complex spend categories -- especially complex services -- a well-defined sourcing and supplier management model can improve upon legacy models where consensus was nonexistent because rate increase approvals and related vendor management reviews were accomplished only by single individuals rather than the broader team.
One of the other advantages of models where expert committees meet to determine strategy and review requests is the ability for the team to jointly identify new opportunities that better align internal and vendor interests in the category, often in creative ways. For example, in legal spend, ICG suggests that exploring alternative fee arrangements and multiple year rate arrangements are often the exception rather than the norm. Yet, when an organization embarks on a plan to improve the overall management of legal spend on a holistic basis, such structures are "routinely considered and multiple year rate arrangements are common." From an actual negotiation standpoint, post strategy, ICG suggests that a third party is often in a better position to arrive at the best outcomes, based on their knowledge of price benchmarks, category sourcing process expertise and related market knowledge.
Another hallmark of the ICG legal sourcing model, which has been proven across numerous companies in different verticals, is taking a phased approach to delivering results over a multiple year period. For example, in the first year of a program, they recommend focusing on such areas as billing guidelines, preferred vendor programs and other areas within disbursements and billing to drive savings. In addition, throughout the first year of a program, ICG also suggests pursuing e-billing programs that enable rate management and better invoice tracking along with formal rate management programs and related benchmarking, rate/value alignment, volume discounting, etc. In most cases, only in the out-years of a multiple year legal Spend Management program does it make sense to move to such areas as law firm selection, alternative fee arrangements, resource optimization and document discovery (leveraging both legal and technical assets).
Based on our discussions with ICG and others in the finance and legal sourcing areas, we'll sum up ten of our top recommendations for pursuing these categories below:
- Treat sourcing and broader Spend Management programs in these areas as a journey, rather than a one-time effort (out-year savings, in certain cases, can be significant)
- Don't under emphasize the importance of internal selling and relationship building with senior executives to getting a program off of the ground and driving to implemented savings
- Benchmark, benchmark, benchmark -- understand price/vendor benchmarks on a highly granular level wherever possible
- Create a data-driven culture and environment
- Work in teams rather than individually. Build consensus by engaging multiple stakeholders and creating a sourcing/vendor management committee rather than delegating decisions (e.g., rate increase reviews) to a single person
- Deploy the right processes and technology selectively -- don't assume a canned sourcing process or set of e-sourcing and supplier management tools is what you'll need to achieve results
- Consider alternative relationship types, fee arrangements, etc. as a core sourcing and vendor management model
- Evaluate the benefits of off-shoring potential sub-category areas
- Expert sourcing subject matter knowledge is key -- focus on developing (or leveraging) deep sub-category expertise (e.g., offshore tax accounting, transfer pricing, intellectual property, specific litigation types, etc.) to drive overall savings identification and results
- Work with third-party experts in the field, especially in the areas of benchmarking and negotiation
- Jason Busch