Maverick Spend Has a Perception Problem — on Its Causes and Its Solutions

Many of the most effective ways to curb maverick spend — like using e-procurement tools with approved supplier catalogs or better contract management tools integrated into the buying process — still have not been implemented by more than half of most organizations, a survey by The Hackett Group found.

And it found that perceptions of the causes and solutions for maverick spend can vary depending on a worker’s role.

Procure-to-pay technology provider Basware used the research for its study, “Perception and Reality: A Report on Maverick Spend,” which examined the practice of making purchases outside the compliant procurement process.

Maverick spending can take many forms, including purchases made outside a preferred channel or supplier, or those that do not follow contract terms and miss out on negotiated savings. Some of the rogue purchases happen because employees or their managers consider the transaction to be too small to matter.

But maverick spending can lead to a host of internal issues, from quality complaints to a slower buying process, and it inevitably ends up hurting the bottom line. Some companies have improved their processes and technology to tackle the problem.

“Maverick spending can be hard to spot and even more difficult to control, but it’s not hard to see the damage it causes to the bottom line,” said Eric Wilson, senior vice president and general manager of North America for Basware, in a press release. “With the right technology and processes in place, companies can promote a better buying experience that achieves 100% user adoption — this is absolutely critical if companies stand to rein in maverick spend and save millions of dollars a year.”

The survey was conducted to gain insight into maverick spending and the buying experience while measuring the adoption and effectiveness of specific procurement practices. Responses at 50 U.S. companies were collected from two groups: “end-users and buyers (those making purchases on a regular basis) and source-to-pay decision-makers (individuals in sourcing, purchasing or purchase-to-pay [P2P]-related finance roles who don’t purchase regularly but make the decisions on process, policy and technology),” according to the press release.

In the study last year, high performers who significantly reduced maverick spending losses and had high end-user satisfaction and compliance ratings are labeled “Experience and Compliance” leaders. Those who performed at an average level are labeled the “peer group.”

How Does Maverick Spending Hurt Organizations?

E&C leaders saw compliance to their sourcing and purchasing strategy average 91%, while the peer group saw the same compliance at an average rate of just 74%. In real terms, this resulted in especially significant reductions in expected savings in purchases of IT and telecom equipment (12% savings), human resources services (19%), and general supplies and equipment (20%).

Both groups were asked about issues that can often lead to maverick spending behavior, and the results highlighted some key differences in organizational priorities between the two groups.

A little more than half of the peer group respondents (54%) felt a lack of procurement influence within their organization versus 33% of E&C leaders. A highly manual purchasing process was reported by 52% of peer group businesses compared with 33% of E&C leaders. Strikingly, just 11% of E&C leaders felt the reporting of their organizations spending was of poor quality; for the peer group, that sentiment was shared by 44% of organizations.

How Do the Best Organizations Address Maverick Spending?

All of E&C leaders’ purchasing professionals said they had received online training on organization buying processes and policies, versus only 33% of those in the peer group. Similarly, 78% of E&C leaders conducted in-person training on organizational buying practices and policies, while only 63% in the peer group did so.

E&C leaders were also more likely to view maverick spending as an issue compared to their peers, and 78% said that the leading cause of maverick spending was employee’s belief that purchases they were making were too small to matter.

The groups differed on the causes of maverick spend too. Peer group members said their top concerns were a lack of approved vendors (26%), ineffective contract management (33%) or non-standard procurement processes (28%) — but none of the E&C leaders attributed maverick spend to those issues.

How Do Different Business Functions Think About Maverick Spend?

While source-to-pay (S2P) professionals tend to be more focused on decreased savings from negotiated agreements and the various compliance risks posed by unauthorized suppliers, buyers and end users are far more attuned to quality issues that affect day-to-day work within the organization.

Just 27% of S2P respondents saw dissatisfied internal or end users as the most important consequence of maverick spending, whereas 56% of buyers thought end-user quality concerns were the biggest consequence of the practice. These two closely related functions are aligned in their thinking on topics related to maverick spending, like rewards and sanctions for compliant behavior and a set of identified suppliers, so quality considerations should be top of mind when S2P professionals are designing processes and best practices.

Many of the differences between these two groups revolve around what level of process control or guidance is given to the purchaser through changes in processes or technology tools. Buyers and end users generally want a list of high quality approved suppliers and some peripheral tools to navigate the finer points of contract compliance. But to otherwise maintain a degree of control over their activities, S2P employees often favor processes that closely monitor buyer activities and consolidate common or repeated purchases to generate savings for the business.

How Can Process Changes and Technology Impact Maverick Spending?

A key recommendation from the report targets self-service and guided buying tools — with 75% of end users saying these tools would help reduce maverick spending, but fewer than 40% of organizations currently have them in place. Those that do report 60% less lost savings from maverick spending, the survey reports.

Changes to existing training programs were not found to improve user experience or compliance, and training for non-procurement employees generated only very small changes in those two measures, the survey found.

Compliance monitoring, on the other hand, improved users experience by 15% and compliance 17%, and it resulted in a 58% reduction in lost savings from maverick spending.

Increasing the amount of spending influenced and managed by procurement teams also led to gains — a 26% increase in user experience, a 17% increase in compliance, and a 57% reduction in savings lost.

Finally, limiting purchasing access for non-procurement employees generated a 30% better user experience and 18% reduction in lost savings.

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