Q&A: ‘Unless procurement takes a different view to management of services spend, it will continue to be difficult to get it right’

A recent study suggested that most companies’ contingent workforce management (CWM) programs are not doing very well at managing the sourcing and consumption of services. That raises the question of whether some approaches to services spend may be better than others.

We talked with Jon Kesman, Head of Procurement Solutions at Allegis Global Solutions (AGS), to get his perspective on what are some of the problems with current approaches within CWM programs and what may be needed to overcome them.

“Unless procurement takes a different view to management of services spend,” Kesman told us, “it will continue to be difficult to get it right.”

In the following Q&A, Kesman further explains his viewpoint and elaborates on what may be more effective ways to manage the procurement of services.

Q&A

Spend Matters: Jon, thanks for joining us today. I know your background in contingent workforce and services procurement is deep, having worked in major companies on the buy side and also on the consulting and service provider side. You’ve been the Head of Procurement Solutions at Allegis Global Solutions (AGS) for a few years now. Can you tell us a little bit about what Procurement Solutions at AGS is about and what gets done there?

Jon Kesman: Our Procurement Solutions brand is AGS’ answer to solving the complexities of services procurement for our customers. Years ago we launched our first SOW or services procurement program to address the evolution that was taking place in the MSP world.

In the early days, the offering was focused on headcount tracking, visibility and risk mitigation. But as we have evolved, we recognized the opportunity to help customers with the procurement challenges associated with services — things like complexity in the process, a focus on ROI over cost, multitudes of suppliers, and a clear lack of visibility into what happens once the deal is struck. These are the areas where real value can be delivered to the organization. And through our managed services, our procurement stakeholders are enabled to truly become more strategic advisors to their business. We work to transform the procurement process associated with sourcing services, and help to ensure that what is agreed, is contracted, and what’s contracted is in fact delivered.

All of this is in line with our overall approach to a total talent view, or what we refer to as a Unified MSP, and it brings HR and procurement even closer together in the pursuit of talent management, spend management and delivering procurement value to the organization.

So we wanted to talk with you — from your unique vantage point — about how you see the state of “services procurement” today, meaning contracted/SOW services vs. contingent staffing. We recently supported Everest Group in a study that suggested that most companies’ contingent workforce programs are not doing very well at managing the sourcing and consumption of services. Is it that contingent workforce programs have a way to go in managing procurement of services? Or is it that organizations in general are just not very good at it?

At the risk of offending procurement purists, I believe that most organizations are not very good at it. But it’s not their fault, necessarily. I believe that they’re attempting to utilize procurement methodologies, tools and technologies that are not fit for purpose, and as a result they are ineffective at truly managing the spend. For years we’ve been hearing that more and more companies are pursuing SOW-based solutions within their contingent workforce program, but I think that while a lot of companies have done it well, there are still a majority of companies that have viewed technology as the savior, and they’ve ignored the user experience and ultimately what the end user needs — which is an easy-to-engage model that gets them what they need to get the job done.

It can’t be about cost savings exclusively, and maybe not at all.

Procurement’s biggest challenge has been that the perception is that they’re just there to force compliance and hammer savings, which the engagement manager is focused on innovation in the supply base, speed to results, and ultimately ROI.

Unless procurement takes a different view to management of services spend, it will continue to be difficult to get it right.

Not everything needs to be put through a competitive process, not everything needs to go to preferred suppliers and not everything is going to come in at the cheapest cost — nor should it! If you’re effectively tracking and managing to an ROI, then that is the value that matters and where the organization will realize the financial benefits.

What have you learned in helping organizations improve their procurement and management of services. Why is it difficult for organizations to get a handle on services spend? What are the specific barriers? What can organizations do to improve their performance in this area? Is there low-hanging fruit?

I alluded to it earlier, but I think many of the difficulties come in the way that companies approach the procurement process for services. Forcing compliance to RFP rules based on dollar thresholds, or pushing for utilization of preferred suppliers with the mindset of volume pricing or using technologies that aren’t fit for purpose will continue to alienate engagement managers and other executives in the business, and procurement will continue to fight an uphill battle to “manage” spend. Often procurement is chasing after-the-fact sourcing decisions, just to put a compliance stamp on them and call them managed. It’s a waste of resources and an ineffective use of energy.

If procurement’s value proposition is based largely on driving savings and managing risk, then there will continue to be a disconnect with the business that’s trying to find the best way to get work done.

In terms of low-hanging fruit, there are opportunities. It’s no secret that many organizations engage service providers on SOWs to get around other compliance protocols — like an MSP or other internal procurement processes and checks and balances. But data tells us that a significant portion of SOWs are really just for disguised staff augmentation. If there are no deliverables, no supplier accountability, no date commitments — then there’s a likelihood that it is better engaged under a more traditional staffing arrangement and most likely at a much cheaper cost.

“Services” isn’t a category. It’s labor — work done by people. And when you’re able to better delineate between what is a full-time employee, what’s a contractor and what is a true labor-based service, you can then start to formulate talent and sourcing strategies for the best route to market. And when it’s decided that a service provider is best, you can start with more robust and comprehensive SOW terms to ensure the engagement is structured to hold the supplier accountable for what they’ve committed to.

Based on your experience building services management programs with organizations, what do you think the necessary foundation for a program should consist of? People/skills involved, category management, supplier management, technology and so on? What is a reasonable scope of a program?

This is a great question. And I could probably spend a lot of time on this one, because I think there are lots of layers.

Fundamentally, the most critical foundation for a successful services procurement program is executive support and a true comprehension of the value that it will deliver. In the early days of these types of programs, there was almost a laissez-faire attitude to them in that they were viewed as an extension of the staff aug program — and if they worked, great and if not, no big deal because they were following a supplier-funded model so nothing really lost.

HR sometimes drove them, or maybe it was a contingent workforce category lead, and it was an add-on because the technology allowed for it, and if there was an MSP in play, they had a capability to “manage SOW” in addition to staff aug.

But many of these programs failed because what is involved is much more — it is in fact a procurement transformation effort. And that shouldn’t sound scary or threatening, because the benefit is massive. If you apply the same kinds of principles of ROI that go into any project in an organization, successfully managing services spend — truly managing it, not just addressing it — can yield massive savings, not to mention the risk mitigation that is very difficult to quantify along with the total talent view that fuels HR strategy, which is critically important in these times of talent shortage and optimization.

Support aside, it’s critical to leverage technology and configure it to the extent of its capabilities for these purposes. Make sure that you’re setting up and tracking deliverables and milestones, because only by doing so will you be able to really understand what you’re buying, and what and how your suppliers are delivering.

And I also think it’s important to walk before you run. Many organizations are not managing services spend very well at all, so to think that you can implement a program and it will immediately return massive benefit is a mistake. Patience is required to first get your arms around the spend — which will take upward of 12 months, and then begin to better manage it, make better buying decisions and influence the business. Then you can move on to true category strategy, SRM and more advanced procurement practices.

From your standpoint, how would you define a best-in-class program. What are its defining characteristics? What kinds of metric targets need to be hit? Should the program be managed in a contingent workforce management program or as a separate category focus in the CPO organization?

A best-in-class program should of course be managed by AGS! In all seriousness, I think a best-in-class program should be broad and encompass as many components of services as possible — it’s only then that true insight can be gained. Oftentimes organizations just include elements of IT services or large outsourcing providers, because that’s where a lot of the spend is. But in many cases that spend is already being managed, and it’s in the stuff that falls in the “other” bucket that poses potential risk and the biggest opportunity for better management. So thinking broadly is important.

The focus should be on the user experience and ROI — not necessarily singularly focused on cost-savings. And to the question on metrics, there should be a mixture of things related to cost, efficiency, compliance and quality. From an efficiency perspective, responsiveness is important as is end-to-end timeframes. Compliance to SOW rate cards and reconciliation to milestones will keep you focused through a cost lens, and it’s also important to measure the voice of the customer.

Many people are averse to a procurement process for services because they view it as cumbersome and not fit for their needs. Establishing a baseline and making sure that there’s focus on the user experience is critical to proving success. Did they get what they wanted and was the process made easy for them — separating technical functionality and the service wrapper around it? That’s what is important.

And as to whether it should be managed under the concept of contingent workforce, or as something separate under the procurement umbrella, I would submit that it needs to be procurement.

The reason being, to one of my earlier points, we are talking about a procurement initiative here, and the benefit is to procurement and the overall business from a spend management perspective. There absolutely needs to be tight alignment between procurement and HR for the purposes of workforce visibility and total talent, but because a good services-procurement program is focused on making the appropriate route to market decisions, and enabling better buying decisions, it should be championed and supported by the CPO.

What are your thoughts on the in-house vs. outsourced program question? What kinds of organizations would benefit most by outsourcing? What would an outsourcing arrangement consist of for an organization that is thinking of pursuing one?

Having been on both sides of the fence — responsible for both in-house procurement teams and also as a service provider — (and while my bias plays into it somewhat) I would say that outsourcing of services procurement program management is the most optimal way to manage the spend.

But there needs to be a clear delineation from an understanding perspective about the mechanics here.

In making this suggestion, i’m not necessarily saying that a company should outsource the procurement function holistically. There is a lot of value in the in-house procurement team taking the lead on strategic supplier relationship development, business alignment and stakeholder relationship management. Additionally, large, complex sourcing deals, contract negotiations and other business-critical initiatives should be handled by an in-house procurement team.

I believe the optimal place for a managed service provider in this space is as a complement to the in-house team.

Once the deals are inked, the MSP can be used to leverage the VMS for management of the SOW over its life, because this is the place where most of the opportunity can be lost. Some of it is tactical, which gets it off the plate of the procurement team, but the value comes in the lifecycle management, the data analysis and the overall performance analytics that can be derived from each SOW engagement to feed the broader strategy and further enable the procurement team to deliver value to the organization.

They get to focus on the important, value-add stuff, and the transaction-related things are managed by the service provider as a complement. It might seem like redundancy, but if it’s done right, it’s not. It’s not about just cutting a PO, or putting a contract in place. It’s the management of the deal, in alignment with the engagement manager and then the continual loop of data and information back to procurement to inform strategy.

Those organizations that would benefit most would be the ones that have small procurement teams that need to focus on the true strategy. There’s an investment to be made — make no mistake about it — but the ROI on the investment can easily exceed 10x, which is an investment that any CFO should entertain.