Spend Matters previews Everest Group’s contingent workforce management (CWM) best-practices study

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The management consultant and research firm Everest Group recently conducted a survey to get a clearer picture of how well organizations manage their contingent workforces, what practices they have adopted and to what extent.

Spend Matters assisted in the survey design, and Everest Group completed the survey and analyzed the data using its Pinnacle Model framework. The firm will soon be publishing its Pinnacle Model report, “How Best-in-Class Organizations Manage Their Contingent Workforce.”

Earlier this year, Spend Matters and Everest Group joined forces to produce three online sessions based on the findings (video recordings are available for Part 1, Part 2, Part 3).

In this Spend Matters PRO brief that has been unlocked for our readers, we preview a subset of the survey results. The brief begins with a short explanation of Everest Group’s data methodology. It then discusses the five areas that provide a representative picture of and key insights into the current environment. The brief concludes with some of our thoughts on where things stand today — not so much for high-performing organizations, but for low-performing ones.

Everest Group’s Pinnacle Approach

In processing the survey data, Everest Group identified 10 organizations — out of a sample of 66 organizations — as best-in-class organizations, or Pinnacle Enterprises, as Everest Group classifies them.

Everest Group identified those organizations based on its own set of business performance benchmarks and cutoffs. Everest Group surveyed all 66 organizations, asking them questions about how they were managing their contingent workforces and service providers.

The results of the contingent workforce survey for the 10 Pinnacle Enterprises could then be compared with the contingent workforce survey results of the 56 non-Pinnacle Enterprises to discern differences in how the respective groups of organizations managed their contingent workforces (e.g., programmatically, practices adopted, etc.).

Depicted in the below graphic, Pinnacle Enterprises’ CWM programs (compared to those of their counterparts) rated higher overall on two dimensions: (1) Capability Maturity (vision/strategy, breadth of program, program management, depth of program and technology adoption) on the horizontal axis and (2) Outcomes (cost, business and strategic impacts) on the vertical axis.

(Click image to enlarge; Source: Everest Group, 2020)

(Note: For brevity, henceforth in this brief, Spend Matters will refer to the 10 Pinnacle Enterprises as Pinnacles, and the other 56 organizations as non-Pinnacles.)

Everest Group’s survey results are presented as the percentages of the number of Pinnacles and non-Pinnacles adopting a given practice or process, etc.

For all responses, the Pinnacles’ CWM programs performed better than those of non-Pinnacle organizations (and usually by a wide margin). The CWM programmatic capabilities of Pinnacles were more mature than those of non-Pinnacles, and Pinnacles had more significant impact on their organizations’ performance as a business. Pinnacle’s superior capabilities and impacts were not just tactical, but also strategic.

Effectively, Pinnacles’ practice/capabilities maturity and business performance impacts could be interpreted as practice benchmarks/goals for other less-advanced organizations.

Our Five Top Insight Areas

There are many valuable insights from the Everest Group findings. Presented below are five key areas of insights we found interesting.

  1. Pinnacles’ CWM programs are more comprehensive than non-Pinnacles

As organizations come to understand that they must have visibility into and management control over their entire extended workforce and spend (not just temporary staffing), many CWM programs can do better and will need to expand their scope.

  • While 90% of Pinnacles covered all of the three main categories of contingent workers (temps, independent workers and SOW/service engagement workers), only 57% of non-Pinnacles did.
  • The percentages of the Pinnacles and the non-Pinnacles that had captured >90% of their contingent workforce/services spend are noted here by worker type.
    • Temporary staffing: 70% of Pinnacles vs 60% of non-Pinnacles
    • ICs/freelancers: 63% of Pinnacles vs 46% of non-Pinnacles
    • SOW/services: 36% of Pinnacles vs 30% of non-Pinnacles

Quick takeaways:

This is one of the few areas where Pinnacles and non-Pinnacles do not differ that much. But it does provide a sense of the spend capture rates by worker type across different organizations. With respect to SOW/services spend, it may show that all companies have some ways to go. On the other hand, it may show that the intractableness threshold for addressing SOW/services is just inherently low.

  1. Pinnacles’ CWM supplier management is far more robust than non-Pinnacles

Supplier management is fundamental to driving the performance of all CWM programs. But what it consists of and to what level it is taken, and there is much more that can be done by most organizations (ranging from table stakes to more advanced practices), as shown here.

  • 90% of Pinnacles had adopted and were using supplier scorecards, while only 34% of non-Pinnacles had.
  • 70% of Pinnacles had adopted supplier analytics / peer benchmarking among suppliers vs 29% of non-Pinnacles.
  • 70% of Pinnacles were providing formal supplier training, while only 26% of pinnacles were doing the same.

Quick takeaways:

The disparities between adoption rates for Pinnacles and non-Pinnacles is nothing short of stunning — especially for supplier scorecards! While 70% of Pinnacles had adopted supplier analytics, etc. is quite reassuring, clearly many companies are far behind. The same is the case with respect to supplier training. One tempting inference is that organizations that have not adopted the most fundamental practices are unlikely to adopt more advanced and complex ones.

  1. Pinnacles do much better at SOW/Services procurement than non-Pinnacles

Complex services spend represents the majority of non-goods, non-employee spend in most organizations (as much as 3 times or more in some organizations); however, it is not as completely and systematically managed as contingent workforce spend.

In terms of program spend capture/savings:

  • 100% of Pinnacles included SOW/services within their CWM programs vs. 76% of non-Pinnacles.
  • 50% of Pinnacles captured >70% of SOW/services spend in their programs vs. 28% of non-Pinnacles.
  • 30% of Pinnacles achieved >16% savings of SOW/services spend vs. only 3% of non-Pinnacles. For a lower level of savings, 50% of Pinnacles achieved savings between 5-15% vs. 33% of non-Pinnacles.

In terms of their adoption and sound integration of best practices for management of SOW/services spend:

  • 80% of Pinnacles adopted category management practices, whereas only 36% of non-Pinnacles did.
  • 80% of Pinnacles adopted spend analysis/management but only 36% of non-Pinnacles did.
  • 80% of Pinnacles had supplier score cards but only 32% of non-Pinnacles did.
  • 70% of Pinnacles had adopted headcount tracking but only 16% of non-Pinnacles did.

Quick takeaways:

When it comes to SOW/Services, Pinnacles’ programs capture significantly higher levels of spend capture and savings and have adopted processes and techniques far exceeding (more than double) the adoption rate of non-Pinnacles. The disparity between the two groups of organizations is one of the largest in the study. Many organizations have an opportunity to harvest low-hanging fruit by intensifying focus/resources and adopting fairly basic techniques (e.g., headcount tracking, supplier scorecards, spend analysis).

  1. Pinnacles are more advanced in workforce planning and sourcing

As organizations tap into different types of workers through different sourcing channels/external relationships, their processes must also evolve beyond what was previously sufficient.

  • 80% of Pinnacles were engaging in strategic workforce planning vs only 17% of non-Pinnacles.
  • 60% of Pinnacles had adopted direct sourcing pathways/processes (e.g., alumni, referrals, and external marketplace platforms), while only 24% of non-Pinnacles did.
  • 50% of Pinnacles had adopted employee branding in their sourcing efforts, while only 16% of non-Pinnacles did.

Quick takeaways:

In today’s changing labor market, CWM programs need to consider future demand and supply scenarios and adopt new practices to engage highly-skilled, often specialized workers. 80% of Pinnacle organizations engaged in strategic contingent workforce planning, nearly four times the percentage of many non-Pinnacles. Pinnacles were also much further ahead on direct sourcing and, a relatively new practice, “employee branding,” demonstrating a range of two new sourcing practices to diversify supply channels and attract top workers.

  1. Pinnacles are aligning more to comprehensive, total workforce acquisition

As organizations move forward in a multichannel world and apply the best resources and in the best way to get done what is needed, contingent workforce and permanent workforce planning, sourcing and management strategies will align. The percentage of Pinnacle organizations vs. non-Pinnacles that have close alignment between contingent and permanent is as follows:

  • Planning: Pinnacles 80%, non-Pinnacles 29%
  • Sourcing: Pinnacles 80%, non-Pinnacles 19%
  • Demand management: Pinnacles 50%, non-Pinnacles 29%

Quick takeaways:

At this point, organizations are, at the very least, thinking about the benefits of a total talent acquisition (TTA) model. But permanent and contingent workforce planning and sourcing have rigid silos in the majority or organizations. Pinnacles have moved much further than non-Pinnacles in closely aligning their planning and sourcing practices with their organizations’ practices. Organizations that are able to make TTA work, we believe, will achieve significant competitive advantage in the future.

The Current State of CWM

The Everest Group report provides a broad range of data points about CWM programs at well-established organizations.

Assuming the sample is representative of the broader population of enterprises, the survey data give us a sense of the disparity among organizations’ CWM programs with respect to capability maturity and impacts on an organization’s performance. And it reveals that many organizations are behind on developing their CWM programs, even as there seems to be an increasing imperative to do so.

In the coming two years, the way organizations will source and manage contingent workforce and services will likely change a great deal. The use of contingent workforce will likely continue to increase (or even accelerate). And how organizations will configure the mix of their permanent and contingent workforces may shift significantly. Organizations that are unable to develop their CWM programs may not just have programs that are not world-class, but find themselves falling further behind their competitors.

While it does show a strong correlation between the performance of organizations overall and the strength of CWM programs, the Everest Group study does not explain specifically why some organizations do not perform well. In many cases, the cause is at least in part underinvestment (which makes sense, as organizations that are not performing well as a whole may underinvest in what  may be regarded as just a back-office, administrative function).

This can also become a vicious cycle. According to the Everest Group study, 70% of Pinnacles are clearly seen as important enough to non-CPO CXOs to actively take an interest in CWM strategy and to consider CWM inputs to decision making. But this is the case for only 22% of non-Pinnacles, of which 38% receive no such consideration.

The question for a large number of organizations' CWM program leaders is how to start digging themselves out of their holes and initiating a more virtuous circle.

For CWM programs without strong executive support, this is probably going to start with specific business cases with compelling arguments for adoption of practices with short payback and high, measurable ROI (perhaps capturing and managing more Services/SOW spend). But the real part of the solution may be a broader, more strategic business case that educates senior executives on how the future outcomes of the business will heavily depend on workforce agility and flexibility.

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