Buying Complex Services: Not Just Any Old Widget

(Here is Spend Matters founder, Jason Busch, looking at "Buying Complex Services" our hot topic for October, from a strategic and technology perspective).

If we were to take a microscope to procurement’s efforts over the past two decades to move from a largely administrative and “clerk” type function to one that has material impact on the business, we would observe through the lens that the vast majority of efforts leading to better outcomes has been centered on buying goods – rather than services – better. There’s a reason for this – purchasing has historically been more about “keeping the production line running” rather than handling extended HR headaches for contract labor or complex IT consulting for the CIO.

Yet forget about everything you’ve learned – or the specimen we just examined. The burden (and opportunity) of buying both straightforward – I won’t use the word “simple” because services never are – and complex services is increasingly falling squarely on procurement. There are many reasons for this change:

  • Companies are spending more on services than ever before and doing less with internal resources. Spending on contract labor, IT consulting, management consulting, facilities maintenance, outsourcing and many other services categories has accelerated faster than internal spending on headcount to deliver equivalent outcomes. We are replacing internal resource with external.
  • This maps to a broader trend of corporate virtualization which we would urge you to explore the numbers on. Simply put: companies are spending more externally than they are internally to deliver the same outcomes than ever before. This holds true for goods as well.
  • Organizations have discovered that external services suppliers can introduce new forms of supply risk to the business – and individual hiring managers and functions have little interest in evaluating and managing risk related to the buying of services capabilities.

This list is just a start. More important is the curious belief that services buying is the same as buying goods. Services could not be more different. From analyzing spending and supplier cost break downs to the transactional buying and performance management of services suppliers, there are tremendous numbers of nuances involved that make both the process and the technology to support it very different from buying goods.

Consider the needs to support the following:

  • Deciding whether to source individual talent of purchase outcomes (e.g., SOW/projects) – and the technology to support each area
  • Managing the lifecycle (on-boarding) of individuals with access to equipment and facilities
  • Evaluating performance and tying milestones to actual payments and disbursements
  • The metering and management of “complex” categories like telecom, legal and marketing
  • Developing customized sets of analytics for each categories to gain a better understanding cost, value and overall vendor performance
  • Managing risk associated with the buying of “virtual goods” which are as critical to overall up-time of a given operation as the raw materials or parts that feed a factory floor

The buying of services is so different in fact that for years, procurement was not trusted with it. Moreover, some in the UK public sector think “commissioning"  services is a separate skill set entirely in which standard CIPS credentials will not be helpful.

But increasingly, procurement has inherited the challenge. And we hope we have cast some light on this topic during this month - but we will feature complex services procurement for as long as we continue to write, we suspect!

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