Buying complex professional services – why is it so challenging?

Our Spend Matters Hot Topic for October is Complex Professional Services. And the first complexity is arguably how you define “Complex Professional Services”!

What we're talking about is the group of services where primarily we are buying people, or the intellectual property and skills provided by people to be more precise. So whilst other services, from facilities management to building repairs, certainly have their own aspects of complexity, we're interested here in categories such as Management Consultancy, Legal Services, Audit, and the range of services around contingent labour, including statement of works (SOW) activities.

These are categories that have been relatively recent targets for involvement of procurement functions and practitioners. That is both because they tend to be very much linked to individual budget holders and their often discretionary spend, and also because these are spend areas and indeed industries that have grown rapidly.

Fifty years ago, it would have been most unusual to find "consultancy" featuring in the top twenty spend categories for a major firm. Now, it is right up there amongst the largest areas for many firms, especially non-manufacturing or retail businesses.

In terms of procurement involvement, we have seen steady progress over recent years. In the 2010 AT Kearney Indirect Procurement Survey, 56% of firms claimed full procurement involvement in professional services. The Cap Gemini 2010 CPO report suggested influence over consulting services was running at 58%; but had legal much lower at just 38% and audit / tax services at 32%. In any case, we suspect that figure would be higher now, in large organisations at least. But go back 20 years, and the figure would have been much lower.

So what makes these services complex? There are a number of reasons, but let's just pick out three for now.

By their very nature, many of these service are intangible and therefore hard to measure. Take the classic consulting assignments– “advising the CEO on the firm’s acquisition strategy / global expansion plans / whether to fire the CFO” are not easy to shoehorn into the box that requires clear outputs, success and performance measures.

Secondly, the services are often delivered on a relatively personal basis. Few senior managers have a deep attachment to their organisation's suppliers of FM services, packaging or stationery. Yet senior people often have very strong feelings about which consulting, law or audit firm they want to use.

And thirdly, the services are non-commoditised and highly specific, which means it is hard for procurement to apply many of our standard professional tools, such as aggregation, leverage or benchmarking. A “consultant” can cost anything from £100 a day to £10,000 a day, and making direct comparisons in these categories is often very tricky.

Given these challenges, what can procurement do, first of all to ensure we are involved in the right way in this spend, and secondly to ensure we contribute positively and add value?

Again, there is a long list of potential answers to that. But here are three thoughts to be going on with; and we will return to these over the month as we continue with our “Hot Topic."

  • Procurement practitioners must develop a deep understanding of the markets involved – ignorance will be exposed quickly by providers and internal budget holders.
  • Focus on value not cost. Spending £5 million can bring more value than spending £5,000 and procurement must understand this. But tracking value is not easy.
  • Use appropriate technology to support these areas - ranging from administrative systems that focus on these service categories (rather than the traditional ERP manufacturing based approach), to management tools that look to assess supplier performance.

And more to follow of course on this topic through October.

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First Voice

  1. RJ:

    Great start to the series. I think the second of your three complexity issues is the one that most causes difficulties for the procurement mentality: the fact that these services are “personal” in nature. We buyers traditionally shy away from anything that appears subjective and depends mainly upon value judgements.

    Yet professional services are totally dependent upon the knowledge and skill of the individuals that deliver them. We may be rightfully suspicious of relationships built on golf courses but a service provider who develops a deep understanding of their clients’ organisation, culture and, yes, the personal drivers of the senior execs can often offer better quality solutions, faster than a fresh-faced grad who only sees the theoretical approach.

    I hope that one of the future features in this series will therefore try to tackle the tough issue of how to identify and differentiate these areas of cultural alignment and the value of relationships.

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