How Not to Manage Services Spend in a Recession

There is one large global organization that I recently heard about which has taken a not-so-novel track to managing services spend in the downturn. Their strategy, you ask? Simple -- force the CFO to personally sign-off on any services agreement over a magic number (say $15,000 for the sake of argument). Now this is a company with many thousands of nearly permanent contractors, consultants and even re-billable temporary employees that should be at their own site (or their client's sites) daily. You'd think that given this policy that many of these temporary workers have already packed their bags and caught the last flight home on Thursday night. Guess again. Their bosses and account reps have smartened up to this company's new services spend management strategy, working closely with their clients to craft back-to-back agreements for a few pennies under the artificial spending threshold (or in some cases hundreds of dollars under the limit so as not to raise any red flags if the office of the CFO ever runs reports looking for serial abusers of the policy.)

So in reality, the artificial ban has had the opposite effect than originally intended. Rather than cut services spend, this organization has lost all control of it. They do not have a clue about how they are spending their money. As someone I know put it: "Of course that has increased administrative overhead and delay and completely eliminated any management visibility into what the money is being spent for. Because, if those contracts were linked, they'd require the CFO's signature! You'd think they'd have learned from U.S. efforts to circumvent money-laundering." Or not. After all, recessions present an opportunity to either break out in front of competitors or climb in Dilbert's filing drawer. And all too often, it's the latter choice companies make.

Jason Busch

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