Buying Professional Services – A three-way relationship

In this extract from Buying Professional Services, published exactly two years ago by the Economist Books and written by Fiona Czerniawska and I, we take a look at why professional services buying usually involves three key players, and how that can cause tension. 

A three-way relationship

In most organisations, and for most goods and services purchased, there are three main participants in the purchasing process:

  • the supplier of the goods and services
  • the purchaser, who puts in place the contractual arrangement
  • the user of the goods and services within the purchasing organisation

The roles these participants play are interdependent.  Thus, users will buy goods or services from the supplier but may rely on someone in the procurement department (the purchaser) to negotiate the contract and price. Purchasers can help their internal customers (the users) to identify the most appropriate supplier but also work with suppliers to ensure their customers get good value for money.  Suppliers, of course, have to deal with both sides: the ultimate users of their goods or services and the people who manage the procurement process.

In smaller companies and in some parts of larger ones, purchasers and users may be one and the same, but in most large organisations with professional purchasing functions they are more likely to be separate.   That separation creates an inherent tension.  The purchasing team will almost always have drivers and objectives around value for money, reducing the number of suppliers, or cost savings.  They will look to mechanisms such as aggregation of demand, supplier reduction and tough negotiating stances as typical ways in which they can deliver their objectives.  However, the users are more likely to be focused on their business objectives and resent any attempt to restrict their choice of supplier.  They will see the rules and discipline advocated by the procurement team as a barrier that prevents them getting on with their jobs.

Budget-holding makes a potentially fraught situation even more complicated.  Where the budget, and therefore power, vests with users, they are more likely to see the procurement function as an obstacle; where the procurement department has control over expenditure, perhaps because there is an organisation-wide budget for a particular good or service, they may want to deter users from spending what the procurement department regards as its money.

Suppliers will understandably gravitate to whoever controls the budget, but, where the budget holder is not the consumer, they can find themselves torn between delivering a good service to the user while trying to satisfy a procurement manager’s desire to keep costs down.  Where the cost/quality debate between users and buyers has not been resolved, suppliers will be in the invidious position of trying – and failing – to keep both sides happy.

This three-way tension is nowhere more acute than in the procurement of professional services, so finding a way to resolve it is essential if an organisation is achieve the best overall results, allowing the user to buy the services they need and procurement people to drive up value for money.

 

Voices (6)

  1. Paul Vincent:

    Hi Peter – firstly I can’t believe it has already been two years since the book was published! Your point about the need for clients, firms and procurement professionals to work effectively together is as valid now (perhaps even more so) than it was then and of course is precisely why I set up the Consultancy Buyers Forum! If you don’t mind me piggy backing on your post for some shameless plugging then for anyone who doesn’t yet know about the Forum our vision is that over time it will become THE networking group to join for people with any form of involvement in how their organisation spends money on consulting services. To deliver this vision we want to create a ‘one stop shop’ for any/all information and guidance that can help to inform a consultancy buying decision. The Forum is completely FREE to join – you can apply here http://www.mca.org.uk/networks-events/consultancy-buyers-forum

    We have now set the timetable for the initial tranche of Forum events and we will be focussing on the theme of the ‘value of consulting’.

    Webinar 1 – 12th June : 9am to 9.30am
    MCA Research Recap – the MCA have undertaken and published various pieces of research on the value theme and they will be presenting a summary of their key findings to date and how they intend to take their research programme forward.

    Webinar 2 – 5th July : 9am to 10am
    The ‘Components of Value’ – how does this vary across different types of consulting engagement.

    Webinar 3 – 30th August : 9am to 10am
    ‘Delivering Value’ – how can clients/consulting firms ensure that maximum value is delivered from each engagement.

    Face to Face Event – 20th September : 3pm to 5pm (plus open networking afterwards)
    This will be the first opportunity to get the Forum membership and MCA firms together and we will be reviewing different aspects of the interactions between firms/clients and procurement professionals and considering how this working relationship can operate most effectively. We will have a number of keynote speakers and there will also be facilitated breakout sessions. We will be looking to create some tangible output from the information/views exchanged at the event to then act as ‘good practice’ guidance to all consultancy buyers. The event will be in a Central London location.

    I hope this plug survives your editorial policy (!) I am also happy to be contacted directly paulvincent@consultancybuyersforum.co.uk

  2. TimBya:

    I had to review our organisation’s spend on consultancy a few years back as it seemed to be growing at an alarming rate. It started as a procurement exercise – are we paying them too much but it soon dawned on me that in this category of spend, whilst price (ie man day rate) is important, it is the quantity used that drives cost and in this we had no involvement in. It is here that Procurement needs to work well with the internal department who holds the budget and commissioned the work, as consultants are notoriously good at finding follow up activities.
    We found consultants who have been engaged for embarrassingly long periods of time and had produced numerous reports to prove it. When the commissioning department was challenged to demonstrate what value had been got from the reports (ie had anything changed, improvements been made, savings secured) it fell apart and the consultants were soon despatched. We introduced new controls and best practice guidance – short sharp assignments with clear deliverables, re-approval then needed for any continuation, commercial awareness training for ‘commissioners’ and then procurement working with finance as a safety net to review all spend booked against the appropriate account code. We also ensured the suppliers understood that this was are of spend that had been locked down.
    As always we emphasised that our role was not about policing but ensuring they, the budget holders, and the overall organisation, were getting best value for the money.

  3. James:

    I used to sell consulting services and frequently had to deal with Purchasing Agents. They usually had to fill in forms every month showing how much they had saved the company from some original quote. I found them to be little more than jokes in how they negotiated. I knew their bonuses depended on how many 10 per cents they allegedly saved. Truth is, if they did get an unreasonable price, we would simply alter either/or quality or scope. Certainly any creative solutions and ideas would soon be forgotten. Users would usually be much better off without Purchasing Depts. They know what they want, would focus on getting functionality, quickly, could commit to working with the supplier and the money saved on Purchasing Depts. would be substantial. I have yet to deal with a Purchasing Dept. that really saved any money, but I dealt with a lot of them that actually cost their companies substantial sums. They mostly exist to justify their existence.

  4. Andrew Moorhouse:

    Some organisations have put in place an excellent category management system for buying professional services. Look at Pfizer. It created a centralised division with Lawyers trained in procurement and rationalised its global legal supply base from 900 to just 9 suppliers. RBS also has an excellent structure, again with legal specialists as category managers.

    However for every Pfizer or RBS, there are 100+ organisations with tactical, back office generalists in charge of procuring professional (legal) services. From a sell-side perspective, the procurement profession has a long way to go.

  5. eSourcingSensei:

    An interesting dilema and one I have come across on more than one occasion

    Two thoughts:

    Firstly within most organisations (and I realise I am generalising) Procurement has a role within a company whereby it offers a service to “procure” goods and services on behalf of the organisation, but probably does not actually “hold” the final purse strings. Normally there is a business unit, a factory, a section or deperatment head, that needs the service or goods and so is relying on me, the Procurement Specialist (I use that as a title rather than a personal claim) to obtain the best price and service for the money they have within their budget. For me this means this type of dilema exists more regularly than may be apparant by just focusing on the porcurement of services

    Secondly: IF a Procurement team really want to win stakeholders onto their “side” and allow them to have faith in what we can do and what we are there to do, then we have to present a proven track record.
    If we leave a track record behind that obtains great costs but leaves our business with poor service provision no one is going to trust us or want to work with us. Therefore it is important that we don’t just talk the talk but that we prove that we can walk the walk.

    Taking time engaging with the end user (as you say often the final budget holder) is absolutely critical for the Procurement team and also for the supplier that is finally involved too. When we (Procurement) fully undertsand the Business Needs of our internal customer (The User/Budget Holder) then the sourcing decisions we make and the Supplier we select to recommend for the contract will be in alignment with what is required and should provide a much smoother establishment of the three way relationship.

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