A negotiator's perspective on services procurement
Structuring, preparing and delivering better successful services procurement programmes.
With Mike Lander, CEO, Piscari
00:00:00 - Intros and the myth of the win-win deal
00:07:30 - Where SoW fits in the tech landscape of strategic workforce planning
00:17:00 - Visibility, value for money, and better buying practices
00:26:00 - Buying complexities with digital transformation and agile development
00:34:00 - Joining tech systems to make better buying decisions
00:42:45 - Negotiation advice for performance-related models
Transcript
Auto-generated. Please excuse any minor errors.
Jonny: 0:00 [Inaudible 00:00]. Excellent. Well, I’m very pleased to have Mike Lander from Piscari joining me today. Thank you very much, Mike. I really appreciate you taking the time.
Mike: 0:09 Pleasure! Great to see Jonny. I enjoyed our conversation the other week, so this should be a really interesting. Yeah.
Jonny: 0:14 Excellent stuff. Now, I know, we’ve got a variety of things that we’ve kind of discussed previously that we want to cover in some detail. But from my point of view, I think it’s very interesting to have you involved in the conversation, in terms of getting a negotiators perspective on services procurement.
Mike: 0:32 Yeah.
Jonny: 0:33 So I’m really interested to dive into some of these subjects around the kind of wider issues. But before we actually get into it, would you just be able to give a bit of a precis of your background and history, and what you do now and how you got there?
Mike: 0:47 Yeah, sure. And so a look back deep back in time, I’m an engineer by training. So I like process. I like numbers. I’m restructured, [and] disciplined. And that kind of carries through in your life. I don’t think you can change who you are dramatically as a human being at the core in terms of those characteristics. And where that got me into whilst I’ve been in mainstream consulting. So I was at KPMG, for about four years, running large scale change programs. [I] thoroughly enjoyed that. And then I ended up buying a consulting company and scaling that up. [I] borrowed 7 million pound of debt in the capital markets when you could, back in the day just before the Great Recession. The last recent one. And I’ve built [Inaudible 01:28] from scratch and sold them. I’ve done all sorts of... If you ever looked at my LinkedIn profile, you’d go, “There’s no linear path here at all.”
Jonny: 1:37 I was looking at it earlier. I was like, “Wow, there’s some serious really interesting variation in what you’ve done.” But it’s kind of all got a bit of a central theme, though.
Mike: 1:46 It has. Exactly, right. And that central theme is, I’ve been involved in kind of consulting. So high end consulting at board level. A lot of work on procurement and negotiation throughout the last kind of 20-22 years. And what I do now, basically, is I’ve taken... Because I was a buyer at scale. So I’ve probably bought... [Inaudible 02:07] probably 450 million pounds worth of stuff, [and] hundreds of deals that I’ve done. In the past, I used to work with private equity backed firms, as the procurement director with a colleague of mine, and we’d negotiate contracts on behalf of the portfolio company and their investment, obviously. So a lot of buy-side experience. What I do now is I work with on the sell side to help suppliers, particularly marketing agencies, IT services companies, community staffing organizations, RPO’s, and MSP’s, that are selling into big brands. I help them think through as a sales team, what’s the negotiating plan. What’s your strategy? What’s your plan? What’s the sequence you’re going to go through? What are the negotiating variables that you’re going to consider? What are your upper limits [and] your lower limits? Where are the challenges going to come from? And get them to think through negotiation as a more strategic component of the wholesale cycle. And I deal with that in groups of like, 10, 20, [or] 30 salespeople. And it’s a training in kind of the coaching [and] mentoring program that I run.
Jonny: 3:15 Do you know what? I think a lot of people don’t really appreciate the structure that you can put around the negotiation. I was lucky enough to have some really good negotiation training way back in the day. And it’s always stood me in good stead, just in terms of understanding the structure of the process.
Mike: 3:34 Exactly.
Jonny: 3:34 Because it can go all over the place.
Mike: 3:36 Absolutely.
Jonny: 3:37 But if you can return to some sort of base structure, then it can be an extremely valuable thing, because there’s so many variables. And sometimes emotion can be introduced into conversations, or it can be felt where maybe it doesn’t necessarily need to be. And ultimately, it’s about doing the best possible business transaction, you can really. Isn’t it?
Mike: 3:57 But in terms of preparation, if you looked at how much value is created at the negotiation, well over half the value is in the preparation. So I absolutely know, when I was negotiating as a buyer, I’d have done all my analysis, I’d have pulled off the supplier data, the spend data, we’d look at the category data, I’d have formed a view of where the supply fits within my portfolio [or] within that category, I’d know what the market rates are, I’d know what the scope looks like, [and] I’d know how the KPI’s work. So just in that moment, imagine all the prep I’ve done. And let’s say you rock up - And you’ve been busy Jonny, because you’re a busy bloke - And you rock up and you’ve done no prep. And you turn up and you have a discussion with me. And we’re at the back end of the sales cycle [Inaudible 04:42]. So we’re now at the point whereby you think you’ve got a deal with the CMO or the CIO, you think you’ve got an outline commercial structure that will work and you come to me with, “I need to get the contract sorted out, and we need to get the final negotiations done.” And all of a sudden, it starts to unwind really badly for you. Because I’ve already prepped, I’ve got my process, I know what my variables are, I know what my limits are, I’ve done the research on your company, [and] I know where you fit. And it always used to surprise me that people would walk away from a negotiation going, “Oh, Blimey, that didn’t work out very well.” And I’m like, “Preparation.”
Jonny: 5:22 Yeah. [Inaudible 05:23] you can walk into a very one sided conversation otherwise. And I think one of the key things I learned from negotiation, which sometimes today can be seen as a bit of a corny thing, but it’s not about one side necessarily winning. It’s about getting a successful business relationship that’s put in place that works on both sides. But if people don’t do the preparation, then A) they’re probably not going to get as good a deal as they could do. But also, they might end up in a situation where it’s unfairly weighted, and therefore, that can cause friction in the deal later on.
Mike: 5:55 So the method; the win-win deal, I talk about this a lot. People say to me, “I’m a win-win negotiator.” I’m like, “Oh, really? Okay. [Inaudible 06:03]”. So [Inaudible 06:04] look like, normally. And then they talk me through the deal structures, and typically, the buyer has come off far better than the seller. Far better! Because they want the brand. It’s a big enterprise client, [and] they want the brand. And at the end of that kind of that briefing from them, I say, “Well, so what part of this was you winning?” You want the client? Yeah. But this is going back in time somewhat, there was in the northwest of England, which is where I’m from, a sort of program that we call bully’s star prize, which was a this Jim Bowen, [Crosstalk 06:38]. That’s it. And he used to say, “Look what you could have won.”
Jonny: 6:46 It was always like a caravan or something like that.
Mike: 6:48 You could have won the caravan but instead you win some steak knives. And it’s the same thing in the deal. [Inaudible 06:52] of the winner’s curse is, most of those deals are not win-win deals, because the brand knows the value of the brand. And they know that you can use that with other clients. And so you end up a very one sided deal. The great deals are these integrative deals where you actually make the pie bigger. And I’ve seen it done with tech companies and big brands, where you start to build a much bigger value proposition than you first started off with, which is beneficial to the supplier and to the client. And those are truly win-win.
Jonny: 7:25 And ultimately, they’re working together on getting to that point. So it’s already forming the base of the relationship. Just to come into an area that you previously have had a decent amount of exposure to which is this workforce landscape.
Mike: 7:39 Yep.
Jonny: 7:40 And I think, obviously, when we’re looking at services procurement, it’s a massively valuable resource to organizations. It’s part of their wider workforce picture. And it’s a huge category of spend. It’s very important. We’re very passionate about it, particularly from a tech point of view where we feel it’s under supported. And that’s [Inaudible 08:000] the problem we’re looking to solve.
Mike: 8:02 Yeah.
Jonny: 8:03 But when you look at that wider strategic workforce planning picture, there’s quite a lot of moving parts. And one of the things that we briefly touched on in our previous conversation was around the tech landscape and how it relates to strategic workforce planning. I know you’ve got some kind of viewpoints on this. How do you see that in terms of the way that’s laid out, and the way that companies can utilize it? Because there’s clearly an opportunity for companies to pull all of this information together.
Mike: 8:30 Yeah.
Jonny: 8:30 They need to do if they want to do proper strategic workforce planning. So I’m interested in your view on that wider picture, but also, where services procurement fits into that.
Mike: 8:38 So when we say services procurement just so we’re clear. So can we talk about statement of work?
Jonny: 8:45 Yeah, let’s talk about statement of work. So obviously, in a broader description, services procurement could include for example, contingent workforce.
Mike: 8:52 Exactly.
Jonny: 8:52 But in the context, I’m talking about any service procured under a statement of work.
Mike: 8:57 Exactly.
Jonny: 8:57 Solvency, professional services, [or] whatever. Yeah.
Mike: 9:01 Let’s take that, and then let’s come back to the tech piece in a second as well.
Jonny: 9:04 Okay.
Mike: 9:04 Statement of work, I think, given IR35 now, and what’s happened recently, which was always going to be the case, statement of work is now back in vogue. So all of a sudden, all the recruitment companies are talking about statement of work as well as contingent workforce. And the conversations I’ve had with quite a lot of recruiters is recruitment firms that are a decent scale, saying, “Well, I’ll just sell statement of work. It’s fine.” And I say, “Let’s just unpack that as a buyer.” So as a buyer, I am now buying... If you’re buying contingent work, you’re basically buying activity. It’s more sophisticated, but you’re buying a worker. You want someone to fill a role as a contractor for a period of time. And the client manages that contractor. And the job [Crosstalk 09:49]. Exactly, it’s [Inaudible 09:51]. And the job of the recruitment company or the MSP is to find high quality resources, and it works really well. But when I come to buy statement of work or services, I’m buying an output or an outcome. That’s completely different. Because I’m asking you now as an organization, whoever’s providing it to take on some risk. Because if you fail to deliver the output, well I’m going to claw back part of your fee. If you fail to hit the outcomes, I’ll claw back part of your fee. If anything goes wrong from a governance point of view, I’m going to claw back part of your fee, I want the ability to terminate you, if you fail to deliver against certain requirements. That’s very different than selling a contingent worker. I mean, agencies know this, [and] they understand the concept, but operationalizing that, and understanding the risk and how you manage statement of work is completely different. So if an agency came to me who’s a contingent workforce agency said, “Oh, we’ve now got a [Inaudible 10:57] capability.” I’d listen to them. But given that I’ve been in consulting for 25 years, I know a bit about buying outcomes and buying outputs. So they’re going to have a hell of a job convincing me that they’ve got program managers and program directors that can run a governance model, that can deliver for my internal stakeholders, that have got the systems in place that allow me to track what’s going on, rather than just being a recruiter, because it’s a completely different game.
Jonny: 11:26 Totally different game. Yeah, sorry to cut you off. I was just going to say, so when it comes to using systems obviously, that’s what we do. We’re a system for managing the full kind of statement of work life cycle for any that type of services procurement delivery. But when we talk to recruiters, we tend to see two different models with this. So we’ll see, well, actually three different models. One is where you’ve got a company that’s got x million spend, and they just want to outsource the problem to a neutral vendor to provide a fully managed service around that whole spend category, a bit like they do with contingent workforce.
Mike: 12:00 Yep.
Jonny: 12:00 The second scenario is where you’ve got a recruitment intermediary, that’s dealing with more, I wouldn’t say spot business, but maybe smaller clients or pockets of business. For example, in relation to IR35, where they say, “We weren’t getting his work done with contractors. They’re all inside IR35. Therefore, we need to outsource this work to a supplier and get it done under the statement of work.” And in those cases, it’s still the supplier that’s taking on the liability for the work. But in terms of what you’re describing, I would class that as... It’s almost like project services really [or] consulting services, where they’re taking the liability for the actual delivery. And [Inaudible 12:30] it’s a very different game. The whole, SOW piece is a very different game.
Mike: 12:35 And I think when we get into that, buying services, [or] statement of work, if there’s an agency in the middle... And again, so from a risk point of view, as a buyer, I’d go and look at, I’d say, “Take even some relatively simple project work that needs to be done.” If there’s an agency sat there, and me as a brand pays the agency. And then agency is paying the statement of work or the consultancy provider. In that moment, if the agency fails, and I’ve paid the agency and the consultancy team haven’t been paid, now what happens? Because the consultants team will hold back deliverables until payment. But I’ve already paid because the agency’s failed. So I think the commercial model, that’s going to be adopted as well around... Well, if there’s a statement of work agency, that’s basically saying, “Yes, I can take this work on, or we have a team that can take it on, but it’s a third party.” You get into this kind of like, “Well, do we pay the agency margin only for securing the resource team. And then we have a contract relationship with the resource team and pay the agency, a margin only fee, which is a finder’s fee.” Because as a buyer, I’d feel much happier talking to the people doing the work and having a contract with them than I would an agency that I don’t know or can’t manage the risk of financially.
Jonny: 13:59 Yeah, it’s really an interesting point you make and I think it’s all tied up with the nuances of the contract process and the engagement structure.
Mike: 14:06 Exactly.
Jonny: 14:07 I mean, we’ve definitely seen some players within the market doing this at a really high quality level where they brought in specific expertise, people with a procurement background, [or] people with program management PMO background.
Mike: 14:18 Exactly.
Jonny: 14:18 So whether they’re offering project services or just kind of managing SOW, there’s some people that are doing a really, really good job of this. They’re very switched on. And it’s all about them, just taking the problem away from the customer. But I agree, there’s definitely some education in some areas of the market where people might look at it as an easy opportunity, they’ve still got to do it right. And it’s a large and important amount of spend that needs to be managed. But where the liability sits and where the contact sits, is quite nuanced.
Mike: 14:50 And how is it going to work with the big consulting firms? I know having been at KPMG, if you work in big brands, and you look at a movement from the contingent workforce into statement of work. I mean, contingent workforce is still there, and it’s still thriving.
Jonny: 15:03 Of course.
Mike: 15:03 It’s just that the tax regime now has changed. But companies will still use workers under a contingent workforce regime, where they’re moving chunks of their work to statement of work. Again, just kind of go back to this risk and brand, I would say. Some of the work, you’re never going to shift from McKinsey, PwC, Cooper, ENY, [or] [Inaudible 15:34], because certain projects you’re never going to give to an agency that’s got a statement to work capability, no matter how good it is. And so what I saw inside some of the big banks that I used to work with, when we looked at services procurement was there was a very definite differentiation between board level services that were bought from the big six, and other services that were done within functions like IT where that could be done under statement of work through a technology platform. And that differentiation is not going to go away.
Jonny: 16:09 Now, I mean, the way that they buy is very different in the sense that those top level consultancies, they’re just going straight into the C-suite. I mean, procurement might even have very little involvement in that whole process. It almost gets put upon them in some cases.
Mike: 16:20 Yeah.
Jonny: 16:21 And I do think there’s a large amount of room for improvement and kind of transformation in that area, where there can be increased visibility of what the big consultancies are doing. And that should be of benefit to the big consultancies, because they should be doing a really good job.
Mike: 16:37 Exactly.
Jonny: 16:38 But I think also, there’s opportunities for organizations where they’re using big firms, but there’s almost a bit of a blanket approach to it, where they could be using big firms in core areas. Whether its big firms or the right people and the best thing for the job, but it could just be natural spill over into other areas where they’re then missing out on really innovative, agile, maybe smaller suppliers do a fantastic job. But they almost kind of don’t get a fair crack of the whip, as it were.
Mike: 17:03 That’s right.
Jonny: 17:04 But I think also, it’s about visibility of the supply chain and visibility on the spend.
Mike: 17:08 Visibility the spend, now that’s a key area. Absolutely. And talking about tech platforms, the biggest problem that I saw within huge global organizations around what was then just [Inaudible 17:20] consultancy. Let’s park SOW as a term, but just consultancy work that wasn’t contingent work, is how the hell do you find out is it good value for money? Because you’ve got this complexity of, we’re delivering an output normally, and that’s got a scope attached to it, and it’s got a price. And then there’s some value component that the buyers got in their mind that will be created off the back of this piece of work. Well, if you’ve got thousands of these contracts inside an organization, how as a procurement person do I cross compare to see if we’re getting good value for money. Because all of the statement of work at the back in the schedule, they’re all different. It’s really hard to work out in a typical category where I can get down to some kind of unit price, whereas contingent workforce was great in many ways, because the unit price was worker rate. So I could work out what the worker pay rate was, I can go across the entire organization, I could pull that data, I could do comparisons by department, by worker type, by category, and I could try to work out where maybe there’s some more value to be created. [It’s] very difficult in consultancy based work to find out, “Am I over spending?” Really hard to tell.
Jonny: 18:39 And this is basically our kind of reason for existence in the sense, you have to capture the process. So unless you capture the full source to pay process at a granular level, you’re never going to have that data. Now, it’s still complex, because it’s not just a question of buying 50...
Mike: 18:58 You’re not buying widgets.
Jonny: 18:59 You’re not buying the fabled red widgets. You’re not buying an hourly rate. But you can still make comparisons if you get that data. But the other thing to consider is projects are different. Everything’s always different. I think companies make the mistake of trying to take a contingent workforce viewpoint, or staff, or viewpoint of consulting and...
Mike: 19:17 Absolutely.
Jonny: 19:18 Where they’ll go, “Oh, well, the day right with these guys is cheaper than those guys.” But consultancy A might take twice the amount of time and do a rubbish job.
Mike: 19:25 It’s nonsense
Jonny: 19:27 If you capture the process, that’s problem solved, number one. And that is where the market is way behind, for example, contingent workforce.
Mike: 19:35 And when you say capture the process, so the source to pay process, which we both recognize, are you talking about the entire from when I’ve got a requirement in my hands right through to the off boarding at the end of the consulting project? Is it that whole end to end process?
Jonny: 19:53 It is. Yes. It’s the absolute end. And I actually go beyond that into this kind of supplier performance scenario. However, probably the most critical area is actually capturing the delivery phase.
Mike: 20:06 Yes, absolutely. Absolutely.
Jonny: 20:08 Because what will happen a lot of the time that we see all the time is a statement of work is agreed, and there’s a contract, which may or may not have milestones, which may or may not have changed, [and] which probably hasn’t been measured. But it just basically going to be stuck in a shared file somewhere.
Mike: 20:22 Exactly.
Jonny: 20:23 And if procurement ever want to go back and analyze it, they’re going to literally have to dig out all of these documents.
Mike: 20:28 I remember it well. Absolutely.
Jonny: 20:30 They can’t find the milestones [inaudible 20:32]
Mike: 20:31 We pulled out the scammed copies of the signed contract, it wasn’t even like... It hadn’t been turned into a readable document. We’d literally get the documents out and go, “I can barely read this. It’s been scammed.” And you’ll be searching through the deliverables going, “What the hell was this about? And did it get delivered?” Where’s the governance process that says, “This is what we agreed. Here are the milestone dates. Here’s the reports of the back of the milestones which came out of the project governance group saying, “What did they achieve at this milestone? What was left outstanding? What was the scope? What was the variation?”“ I mean, how did you do variation controlling this? Because projects always get varied.
Jonny: 20:36 Exactly. So ideally, you want to capture the whole process.
Mike: 20:55 Yeah.
Jonny: 20:58 And from our point of view, it might be that a PO starts in a central procurement system, [Inaudible 21:23] and the PO comes to us, but then the requirement is in [Inaudible 21:29]. And that follows through the whole process. So when you’re actually defining milestones within a system and capturing that, that feeds into the statement of work. So you already know what the milestones are. [It] feeds into the statement of work. [It] feeds into the contract process. But then most importantly, it feeds into the delivery process. You have your milestones systemized. You can see are they delivered on time to budget. And you can also see how many change requests. What’s the variation in scope?
Mike: 21:53 Exactly.
Jonny: 21:54 And when you get this information, and it flows through, and you combine it with the qualitative data, you’ve got all your quantitative signals and your quantitative data, did they go do a good job? What do we want to measure them on from a qualitative point of view? It might be sustainability, [or] innovation. Whatever it is, once an organization has defined that, they’ve got their qualitative and quantitative measures, which can give a combined overall understanding of how well that supplier did. And there’s so many useful things you can look at like, “Okay, across our supply base for this type of project, what’s the average cost overrun? How successful are suppliers in their bids?” How often do people just have massive scope changes where they quote quite cheaply and it ends up being really expensive, etc.? Or where milestones might look great, but the quality of score is terrible. So if you capture the process, then you have the data, [and] then you have the power to start making these strategic type decisions. And move away from trying to compare hourly rates and you can make meaningful supplier to supplier comparisons. Even if the types of projects they’ve worked on have been slightly different, because you’re comparing the same metrics.
Mike: 23:00 I mean, you know that I did quite a lot of work in the agency world, [in] marketing agencies. [Inaudible 23:05] marketing agencies, very similar problem, is that I’ll help a marketing agency, negotiate a contract with a supplier based off the back of an RFP. Every RFP that I see from procurement is, you’ve got to put in your hourly rates. So what are the grades of people? How many hours are you working on the project? What’s the hourly rate? And that again, all adds up to a number at the bottom. And you have to comply, or else you’re out of the game. But we normally would comply and not comply, because he’d say, you’re not buying hours. And don’t try and negotiate the price down by chipping away at the hours of the director, the manager, the creative person, the SEO person, and changing the hourly rate in line with your rate. It doesn’t work that way. You’re looking for business results. You can’t get a business result by buying activity. It’s a really important point. And again, a lot of marketing procurement people and consultants procurement people, your natural tendency is, how do I compare? I’ll go to rate card, because I understand rate cards, and how many days they’re going to do on it. And we all know it’s a bad way to buy, because that does not equate to value at all.
Jonny: 24:24 Yeah, and I think it depends on what you’re buying. And talking about a service, it’s what the best way to get that done is. So IR35 in some ways by kind of clarifying the picture, although some would say muddying the waters and it’s quite a gray area of legislation. But clarifying the picture around saying if you want to get a piece of work done, you can either use your perm employees or you can use contracts and attempts if that’s compliant. And you have to do the right process, or you can outsource it, and on a deliverables basis. And so if it makes sense to outsource it on a deliverables basis, which it won’t all of the time, but where it does, then that puts an onus of responsibility on the company to define what it is they need to get done. Then they’ve got security of knowing that they’re going to pay X to get Y. And they’re happy with that. And they’ve justified that. And I think it creates a very pragmatic approach within organizations, where they’re having to really think about what do I need to do, because if you’ve got people just sitting there, however, they’re working on a time materials basis, it’s much easier to just let it run.
Mike: 25:26 Absolutely.
Jonny: 25:26 If you’ve got a supplier, you’re taking holding them to account on a specific deliverable. It’s a totally more pragmatic way to do it. And it ties into what’s the business strategy, which comes back to this point about strategic workforce planning, which is crucial, because I think a lot of organizations, their problem stems from the fact they haven’t got their overall strategy clearly communicated, in terms of spreading that out to the business today, “This is the overall strategy. This is where we’re going. These are the things we need to do to get there. And this is how we’re going to do these things. And therefore, please add your value to that.”
Mike: 25:59 Exactly. So another area, I don’t know if you covered it or not. But I’m starting to see in this digital transformation landscape, because we’ve accelerated 10 years of development into a year effectively, in the last 12 months, everyone’s going digital. So there are loads of digital transformation projects going on. Anyone that’s in that kind of digital transformation space is really busy. People that will build e-commerce engines, the backend, the front end, the UX, all of that kind of marketing assets behind it, etc. That’s a really busy landscape. But they’re often, as I see, contracted on an agile basis.
Jonny: 26:43 Yep.
Mike: 26:43 Now as a procurement person, I just cringe agile. Because you’ll say to me, like, “What we’re going to do Mike is, we’re going to run like heck for six weeks. It’s going to cost you this. When we get there, we’ll find out what we’re going to do next.” I’m like, “No! No! I’m about to write you an open checkbook. I can’t do that. I can’t.” It’s against all of everything in my nature, to say, “We don’t know what’s coming after the six weeks. But we know what six weeks looks like. When we get to six weeks, we’ll redo it.” And I say, “Well, if I don’t like your plan for the next six weeks, what happens?” “So you can stop.” And like, “Well, I can’t, can I? Because you’ve drawn me in. And it’s now so complex, I can’t switch.” And that’s a nightmare for a buyer. Do you have any experience of Agile?
Jonny: 27:33 Yeah, absolutely. I think it’s a compromise because there are certain situations where it’s absolutely the required method to deliver what it is. If it’s a particularly, if it’s an extremely complex, and maybe groundbreaking technical [Inaudible 27:46], for example. So we see sometimes people within the system, our milestones are quite flexible. So as approximate milestones, they might be using sprints within an agile methodology. Which requires an overall project scope, but then the specific deliverables or the specific spreads to be defined on an ongoing basis.
Mike: 28:05 And with the cap presumably on the spend, at some point, someone’s going to say, “It’s complex. It’s unknown. But we’re going to cap this spend at half a million. We can’t go over half a million.”
Jonny: 28:15 Yeah, I mean, typically, you’d have some overall parameters around it as to what the expectations are of the kind of overall cost of the entire project. But sometimes it’s just that the shape, and stages, and steps of that project...
Mike: 28:30 They have to flex.
Jonny: 28:30 They have to flex, because there are dependencies that come in at each different stage. So I think it’s a really interesting point. I think it’s not something that you can say, “Oh, we can’t do it like that.” It’s something that organizations need to find the best way to do it. But again, if you’re clearly tracking it, and you’re clearly monitoring it on a real time basis, then you have the best possible opportunity of getting the right result and not ending up in a sticky situation where you’ve been kind of getting led along, led along, [and] lead along. Because you can see what’s happening in real time, you can see where you are against projected outcomes, and what the overall kind of project parameters are looking like.
Mike: 29:10 I mean, [Inaudible 29:10] you can track that, as we used to do many years ago on projects is that you draw the expected spend profile, and then you track the actual, and if you start to see the actual just heading over the expected, and it keeps going, and it keeps going like that, you’re like, “Well hang on a minute. This isn’t going to get back inside the envelope unless we do something different.” So at least you can start to see, “Yeah. Okay, things have changed. Do we reset the target? Or do we need to bring something else back in line?” So I think systems would be really helpful, and dashboarding to allow executives who aren’t technical and who aren’t procurement people to understand, where’s this project going that’s on an agile basis. Where’s the spend going. And to your point, what’s being delivered, what have we found out [and] what have we discovered along the way.
Jonny: 29:11 Yeah, if you’re capturing all the information at a granular level than it just builds up from the bottom. So if you’re capturing everything at a milestone level or a sprint level, you can build it up into project level, you can build it up into program level, [and] you can get an overall idea of exactly what’s going on. But the only way you can do that effectively is to systemize it. But as I say, there needs to be that flexibility for organizations to work in that manner. You can’t guarantee that everyone’s going to have exactly the same process where there’s a one size fits all type of milestone.
Mike: 30:32 Because it goes against agile. The whole point of agile is, it has to be flexible.
Jonny: 30:37 Yeah. And I think the definition of a milestone could be... There are nuances within industry, and there are nuances within the type of project within that. But you need a flexible way of tracking.... Ultimately, with a statement of work, you’re saying, “I’ll pay you X to deliver Y. I need to define what Y is, and you need to track it along the way.” So as long as you’re doing that, then that provides that visibility. And as I say, when we’re talking about things like the big consultancies and small suppliers getting a fair crack of the whip, it should be something that benefits vendors as well.
Mike: 31:15 Yeah, [inaudible 31:16] push back now. I can imagine going back in time to my days at KPMG, or other big consultancies, with my partner going to me, “This doesn’t bode well for us. We don’t want to be on the system. It’s going to be a nightmare.” Because it goes against the grain. Because it’s [inaudible 31:34]. We’re going to get compared to all sorts of different consultancies. And we’re going to be in discussions with people about, is this value for money? And are you experts in this area? And I think it’s a good thing, Jonny that I can see the big consultancy firms resisting getting onto the platforms.
Jonny: 31:50 Yeah. And you know what? That’s a challenge for those organizations to deal with, appropriately. The actual end client organizations because they want their value. And COVID has really emphasize the point that companies need to know what they’re getting for their money. They can’t afford to just be spending money and not really know what they’re getting for it and just feel comfortable, because there’s a big name doing it. It’s all about value. So they need to measure value. They need to understand it. And ultimately, if these trusted, big name consultancy partners are doing a great job, they should be recognized for it and they should be rewarded for it.
Mike: 32:25 Exactly.
Jonny: 32:26 Whereas, half of the time, they might be getting a bad feedback from the company, when they’re actually doing a great job and there are issues within how the company is operating, or the company’s not implementing what they’re suggesting, for example,
Mike: 32:38 And internal political battles. I mean, as you get to that [inaudible 32:41] atmosphere of executive board level for a global fortune 500, all sorts of things happen. Where it’s not in the interest of a particular stakeholder to say that a consulting projects gone well, because it affects their turf. So all of that, I think having rich data that’s transparent, and unambiguous, is a help.
Jonny: 33:07 Yeah, and it’s very much buyer driven. But ultimately, it should help strengthen relationships, where relationships are healthy. But also it gets away from this scenario of businesses just saying... They can’t do it anymore. They can’t just say, “What did we spend last year? 200 million. When is the budget? Great.” And therefore, the CFO says, “Hard times. We’ve got to chop 20% of that next year.” That just doesn’t stack up. Because A) just [inaudible 33:36] the budget isn’t good enough, because you might be wasting money, and B) cutting your budget might actually be a very detrimental thing to do because the consulting work or the supplier that’s delivering some services for you might be significantly contributing to the top line and bottom line. You need to recognize that. You need to understand it. But COVID has played a big part in pushing the Statement of Work agenda, not just in terms of overall cost control [and] people understanding what they’re getting for their money, but also just this kind of acceptance of more outsourcing. And even just with lots more people working remotely, there’s just a general workforce shift towards deliverable outcomes, whether you see that in gig economy or in the kind of larger transactions.
Mike: 34:17 Something else that’ll be kind of interested in your view on in that kind of technology environment is the joining together of data. So for example, let me give you a scenario. [A] Big organization, [and a] big corporate, they’ve got a lot of work that needs doing, and the value of that work’s a million pound. Whether it’s done through a statement of work, consulting project, or a contingent worker is up to the budget holder. And what I have seen in the past happen is, if it’s a headcount freeze on then it’s like “Well, okay, I’ll do it on contingent.” But if there’s a freeze around [Inaudible 34:51], then they’ll say, “Well, okay, then I’ll stick it on to consultancy.” And then you go, “Is it capitalized or is it OpEx? Is it CapEx or OpEx? It’s like, “Well, what’s best for us at the moment.” Bringing all that together so that the exec team have a view of, what are we spending our consultancy? What are we spending on contingent workforce? What are we spending on CapEx versus OpEx, within those categories? So joining together, what was the old BMS systems with these kind of statements of work systems, I think that’s going to be interesting about is there a common key? Can you look across between both systems? I don’t know.
Jonny: 35:30 Yeah, I mean, in terms of centralization of data and centralization of the process, buying something under a statement of work is very different to buying contingent work.
Mike: 35:39 Exactly.
Jonny: 35:39 The contingent workforce technical problem is very well solved by the big BMS providers.
Mike: 35:45 Yeah.
Jonny: 35:45 So that’s a solved problem. And with statement of work, it’s more of an emerging solution with people like ourselves, but it is separate. But you wouldn’t necessarily start a statement of work requirement in a vendor management system.
Mike: 35:57 No, I mean, you can. Some of them, I think, did have SOW modules. But to your point, Jonny, they came from a contingent workforce world, and bolted on SOW. And that’s very different.
Jonny: 36:11 Yeah, I mean, we see the two things as extremely different. And I think, we’re specialists. So if you’re very focused in one area, you can absolutely devote all of your product development and everything about the experience to make that work as best as possible. So we take very much the kind of best of breed approach to just purely services delivered under a statement of work. But with regards to kind of centralizing the process, we see some people kind of going a level above that, and saying initially... And this is where it ties into strategic workforce planning, and that overall kind of approach to what’s the best way to get the work done. Where it’s a question of saying, “Here’s the piece of work. This is what it looks like.” And the organization needs either some advice from a recruitment managed service provider, workforce solution provider, or internally to have systems set up or channels that say, “This is what I need to do. This is what it looks like. What’s the best way for me to get that done?”
Mike: 36:59 Exactly.
Jonny: 36:59 Looks like it’s best to be a permanent employee. Go and stick it into workday, or its contingent work, so stick it in the BMS, or it’s an SOW, punch it out the SOW way.
Mike: 37:08 In fact, what we wanted was - We used to have the concept. I don’t know if it’s happened - have some kind of machine learning assisted decision support tool, where a budget holder went through a decision support tool to go, “Is this best for statement of work? Or is it best for contingent? Or is it best for hiring?” And it asks you a series of questions, and you go through this kind of exercise, because it made it much more rational, [and] it made it much more criteria based. And I can see, what we talked earlier about the different systems that are around and what happens at the level up. I think, that kind of glue, [or] that decision support glue that says, “Well, which is the best route to go down?” I think, again, makes a lot of sense.
Jonny: 37:53 Yeah, it can be done pretty simply. And if you start from a simple point, you can always add layer [Inaudible 38:00]. But I think if you look at it, however that decision is made, whether that is made within internal procurement criteria that just spell out, “If it looks like this go over here. If it looks like that go over there.” Or whether it’s coming from a triage service that might be provided by the workforce solutions provider as part of that process. Where they might do other stuff as well, like help them write good SOW or if it’s contingent, then help then write a good job spec.
Mike: 38:25 Like a global NSP. If you’ve got a global MSP, then they will have that kind of like decision support office. Requests go in, it gets triaged, and it gets sent out through the right route. Absolutely.
Jonny: 38:35 Yeah, exactly. And then when you look at the other end of it in terms of the data, we integrate with systems like Power BI, Tableau, [Inaudible 38:43] and things like that, where people might just say, “Well, actually, we do most of our data crunching in a BI tool.” So for example, the VMS might have their own internal dashboards and then push the data out, we have our internal dashboards, just be able to see on real time and assess stuff, and then push the data out as well. So they could do the real data crunching in a centralized warehouse. I mean, it’s very interesting when you start talking about things like comparing the value of return on investment of outsourcing something versus getting permanent employees to do it. Because I personally think that the value thing is the ultimate. That is a little bit of a way off. People have got to capture the process, understand the data, get more of an idea of return from the suppliers that are using in comparative quality and what they’re actually getting for their money. Then the value conversation ties into all of that quantitative data plus the qualitative input onto are they doing a good job or not. And it kind of feeds back into the overall strategy of the business. But fundamentally measuring what a perm person is delivering against a consultancy is very difficult, but they’re working in different ways. I think where the organization is clearly made a decision that this is best to be done in this manner, you need to be able to have comparative value within that category as you do with all categories, and then that’s where some clever stuff needs to happen at the Strategic Workforce Planning level where, that if you’ve got data, then you can start to do this. I am not saying it’s easy. But if you’ve got data, [then] you can start really picking it apart.
Mike: 40:18 Yeah. And that’s the strategic workforce planning piece. And there are vendors out there that provide kind of those tools at a kind of macro-level. It is [what] you are looking for in this quarter [or] in this year. Given that this year is full of uncertainty for an awful lot of organizations, then you obviously want to reduce your commitments, [and] you want to make sure that you’ve got flexibility. So taking on a lot more headcount quickly, may not suit the organization. So I’m now going to have a blend of some contractors, I’m going to have a bit more headcount in certain positions. And I’m going to do more consultancy fixed price project based work. You can start to adapt it as the economic environment and your own environment changes. And that I think, is where... then you can start to work out where do I deploy my spend best? Given the environment within which I’m in. And the risk I’m about to take.
Jonny: 41:17 Yeah, I totally agree. And I think the thing I love about it, is it forces people to think about it. I forces the organization to think about how they’re deploying resources, [and] what they’re getting for it. It forces individual stakeholder department buying manager level to think about actually, what is it I need to get done? How well am I doing that? And are we actually achieving towards the goals we need to? But the other about it is exactly as you just said, if they’ve then got these channels set up effectively. So if you’ve got an effective perm channel and a hiring channel, and you’ve got an effective contingent workforce supply chain, and you’ve got an effective SOW delivery channel, then you have all the flexibility you need. If you’ve got the data, then you can start pointing things in different directions. We’re really struggling getting these sorts of projects done in this method, let’s push it over here and try that. What sort of value we’re getting out of this particular engagement model?
Mike: 42:10 Exactly.
Jonny: 42:11 Okay. Well, that’s looking really good. Absolutely. And as you said, about this increase in development, I remember speaking to one of the senior guys [Inaudible 42:20] industry analyst at the beginning of the whole COVID thing.
Mike: 42:23 [Inaudible 42:21]
Jonny: 42:23 Yeah. I had a realistic conversation, where they were saying, “The adoption of technology is going to massively accelerate in this process, Jonny. You just wait and see.” And they compared it to the Great Recession. [Inaudible 42:38] into the recession, with the adoption of vendor management systems, that that just accelerated that whole process. And I think, really, the thing that’s been accelerated out of this is probably statement of work and kind of outcome based remote working. That sort of stuff.
Mike: 42:53 Absolutely. And the accountability, transparency, data driven, that’s what all organizations now are looking for. And I see it again, in parallel worlds, [like] marketing agency world. Unsurprisingly, a lot of agencies are saying, “Wow, all my clients are suddenly asking for performance related commercial models.” And I’m like, “Well, why are you surprised?” What they’re looking for his accountability. You’ll do what you say you’ll do. If you outperform, we’re prepared to bonus you on that, but you have to outperform. So much more business results focused, rather than a blend of creativity, business results, and some of the unknown. So I think it’s a pattern across all buying aspects is more accountability. We need results. We have to demonstrate value for money. The corporate balance sheet has been depleted, because we’ve been using that to shore up our businesses. We’re going to recapitalize our balance sheet, but we’re going to do it in a way that we get value for money. I think it’s going to be a tough time, by the way, for sellers. I’ve just written an article in the drum, which I’m releasing in the next couple of weeks about... I’ve called it The Winner’s Curse, beware of the Winner’s Curse. Let’s not repeat what happened in 2007-2008-2009. 2009, we came out of the recession, although slowly, and a lot of the services sector, their rates got trashed. Their rates got absolutely destroyed by like 30%. And the market never really came back for quite a long time. And if we’re not careful, the same thing will happen again. And then in two or three years’ time, we’ll see a whole bunch of failures of services companies, because there was no margin.
Jonny: 44:41 Yeah, a precedent gets set, doesn’t it? It’s a little bit like the fact that the price of buying a dog from a breeder during COVID has gone up by a factor of three and it probably won’t come down for ages.
Mike: 44:51 It won’t come down for ages. That’s right.
Jonny: 44:52 No. It’s set a precedent. So just kind of looping this back now, I think you and I could definitely discuss these sorts of topics all the time.
Mike: 45:02 Yes, exactly.
Jonny: 45:03 Looping it back to the negotiation angle.
Mike: 45:06 Yes.
Jonny: 45:06 As we move to a world where deliverable outcomes are more common, more accepted, [and] more analyzed. They have their place. They’re not the [Inaudible 45:16]. But there are more kind of recognized part of the service delivery mix. What do you think the implications are, from a negotiation point of view, both on the buyer and the seller angle with that?
Mike: 45:29 So if I look at it from the seller angle, first of all, I think, my advice to sellers who are going through that, more accountability [and] much more focused on outputs and outcomes is, when you’re negotiating the contract... I just did a survey on LinkedIn, in fact. I asked a question, “What’s most important to you? Discounting? So in the negotiation, is it more important that you don’t discount too heavily? Is it more important, that you get payment turns better than 30 days? Is it more important to get long term contracts? Or is it more important that you can hit the KPI’s? A majority of people are saying the KPI’s are really important. Because if you set the bar too high, we’ll never going to perform the expected level, it’s going to cost us more money. I think, as a negotiator, if I’m looking at all my negotiation variables, and those are just four, what I’d be doing as a seller is going, “We’ve got to nail the scope down really tightly. We’ve got to agree what constitutes a variation to contract.” Because if you don’t define what the terms of variation are, the slow dripping tap of ‘could you just’ means that you’ll never make any money, and you’ll fail to deliver against expectations. And then thirdly, when you’re defining the SLA’s, what goes into that SLA? I’ve seen them where there’s been 30 KPI’s, it’s impossible to manage. Impossible! Five good strong KPI’s, with reasonable targets that you’ve got to hit. And then what’s the outperform and the underperform thresholds, thinking those through carefully. And when you do that, any supplier, no matter what sector you’re in, bring in the Delivery Manager at the time you’re negotiating those KPI’s. Because they’re going to have to hold them and deliver to them. Too often I see as a seller, a salesperson negotiates the KPI’s, it then gets signed off and handed to delivery. And delivery will go, “Well, I can’t achieve this.” And sales go, “Well, but that’s what I could get over the line. That’s what they wanted.” So I think as a negotiation preparation sit down, think it through, think through the variables, think through those aspects of the contract I just talked about, and propose something to your buyer. So in anchoring terms, I’d go in strong with an anchor, first of all, and I’d set the level against all those negotiating variables, and then I’d move them around like you would a mixing desk. So if the buyer wants a bit more off the price, well, then we got to change the scope, or change the KPI’s, or change the payment terms. And that’s a negotiation where it’s a more evolved [and] much more considered negotiation.
Jonny: 48:19 Yeah. And I think with the right preparation, sellers are going to be able to see when a deal is not going to be worth them doing.
Mike: 48:28 Correct.
Jonny: 48:29 And people have to be conscious of the fact that not all business is good business.
Mike: 48:34 And the confidence to walk away. The confidence to say, “This isn’t for us.” Because what I think sellers often... And I’ve been there as a salesperson, you get nervous of losing the deal.
Jonny: 48:45 Yeah.
Mike: 48:45 But the reality is, I mean, as a buyer’s going down that track, there is a bit of a power shift that goes on is that if I really do want you to do this piece of work, and we’ve spent some time on it, I don’t want the deal to fall apart.
Jonny: 48:58 No.
Mike: 48:59 So saying no is fine as long as you’ve got justification, and we’ll find a way around it. I’m not just going to walk away. So again, the suppliers got to notice like, “No, we’ve got red lines, and you’ve just crossed one. We can’t do that. It won’t work for us. And here’s why.” And if ultimately you get a very aggressive buyer, just have the strength to walk away and say, “It’s not for us. We’ve got other deals we want to do instead, that are better for us as an organization. We don’t think we’ll be able to deliver against your expectations. We’re going to walk away.”
Jonny: 49:31 And so effectively working to very clear outcomes, and including that, and making sure the scope is very clear. In theory that should allow for a better outcome on both sides.
Mike: 49:44 Definitely.
Jonny: 49:44 It has to be dealt with properly, with preparation and structure. And it can’t be [inaudible 49:51]. Of course, there’s always going to be certain unknowns but within reason. I think as a buyer, from my point of view.... Sorry as a buyer, if someone comes to me and they’ve really thought it through, and they’ve got reasons why something is going to impinge the delivery of what I want to get done, I’m going to take that very seriously. I’m going to have a lot of credibility. They’re going to have a lot of credibility in my mind. So when you’re looking at this shift towards more structured outcome based delivery. And if procurement got more visibility of services that they are procuring under a statement of work. How do you see that negotiation from that buyer angle?
Mike: 50:24 So from the buyer, I mean, the system is an enabler. So I think it’s going to empower me. But one of the things that often I think people don’t get, that they overlook in the negotiation is when the contract’s done, the negotiation is not over. Because what happens is, I should be doing QBR’s. So for the big contract, I’d expect to do a quarterly business review with the supplier, with the budget holder, and me, and going through what’s happened, and what happens next. Because I set the KPI’s with the supplier during the contracting stage, but the quarter into delivery, I need a system that tells me whether it’s on track or not. And if it fails on one of the KPI’s in one of the quarterly reviews, it’s visible to me, [and] I can see it coming. And then I can start to talk to the vendor about, “[inaudible 51:17], we’re going to have a separate conversation now. This is about contraction, that you’ve not done what you said you do. You can miss the one KPI for one quarter, but if you miss it again, the next quarter, there’ll be a service credit or there’ll be a change in the payment structure, or there’ll be a rebate.” So I think it really empowers me as a buyer to be much more structured. It makes me more efficient. And also, as long as the vendor knows that’s what’s going to happen, it makes the vendor much sharper. Because if it’s real time reporting, you should be able to see it coming. Whereas, I see a lot of QBR’s, [in which] you get there, the vendor turns up and goes, “TADA! Here’s what we did.” And I go, “That’s not what I’ve got. My report says this, and your says that.” Who do I who don’t believe now? Whereas if you got one view of the truth, a golden source, as I used to call it, you’re in much better shape.
Jonny: 52:18 Huge opportunities for companies here, I think. Like you say, digital transformation happening at a very rapid pace. The whole market has changed around us. And we’ll continue to do so over the next... On a global level, but also on this macro level, where you’ve got things like IR35 in the UK, [and] Brexit affecting the UK. Let’s face it, regulations around who’s an employee versus self-employed, it’s going to come in the US, in places like Germany and the Netherlands. We’re expecting that then to kind of follow suit. So I think that’s going to sharpen up this picture, globally. But I think it’s going to be a really interesting time. And the ability to track value and understand your extended workforce fully is just going to become a more and more important part of it. And also with the advances in technology, it’s a more possible scenario for people to get to rather than something that people just talk about and never actually really get anywhere near.
Mike: 53:15 Exactly right. Yep. Completely agree.
Jonny: 53:17 Excellent stuff. Listen, thank you so much for joining me. I really appreciate it.
Mike: 53:22 Pleasure.
Jonny: 53:23 Very interesting to go through these points of view. As I said before, there’s so many other questions I’ve got for you. Maybe we’ll have to do a round two at some point.
Mike: 53:31 Do a round two. Yep. See what the audience says, [and] see what questions they’ve got and we’ll do around two.
Jonny: 53:36 Excellent stuff. Well, listen, thank you very much for your time. Great to speak with you and I hope to catch up with you soon.
Mike: 53:40 Great. Thanks, Jonny. I really enjoyed it. Thanks a lot.
Jonny: 53:43 Cheers, Mike.