In this guide, you'll learn how technology plays a fundamental role in the effectiveness of an organisation's consultancy and SoW services spend management.
Hundreds of hours of market feedback have been distilled to show how reducing the cost of services procurement, optimising supplier performance and delivering the best outcomes all depend on technology – and how some organisations are missing a huge opportunity by relying on manual effort and spreadsheets.
Huge Services Spend – Facing real problems
Some estimates suggest statement of work governs over 1 trillion USD of business across the globe, covering everything from company shaping strategic advice from McKinsey right down to small website design projects delivered by SME’s.
According to Staffing Industry Analysts, businesses worldwide spent an estimated $523 billion on statement-of-work projects in 2019. Even if you just take the consulting market on its own, IDC and Statista place its value above $300billion.
Despite the large sums invested in services, it's surprising how badly even the largest organisations are managing consultancy and services spend. Manual processes, lack of data and no real control over outcomes create a raft of problems including rogue spend and hidden time + materials headcount. And in current market conditions, these are cost-saving opportunities than need to be grabbed by both hands.
Market Feedback: Visibility Issues
A common issue is that finance and procurement teams can see their total, overall services spend and how much they spent in the last year with a specific supplier but almost nothing else. No idea how many projects a particular supplier has carried out, no idea what those projects were and no idea whether they did a good job or not.
Goods and hours are relatively easy to track whereas actual outputs and ultimately outcomes are very nuanced and infinitely more complex. Without even the basic data it is simply impossible for procurement departments to control spend effectively and add meaningful input to the business’ strategic spending plans.
"Compared to the advances in technology and process used to manage the contingent workforce it feels like services have simply been left behind."
As far as misuse of SoW goes, this is also a huge concern for customers and in many cases, it is a key driver for change – particularly in the UK with the upcoming legislative reforms around IR35 and disguised employment.
First round IR35 audits from large organisations trying to address this often leads to outright panic as the level of potential risk around misclassification and rogue spend is exposed. This is something that is particularly exposed within the long tail of smaller spend, where a high volume of projects and significant aggregate spend may fall below key procurement thresholds.
Why services procurement needs the right technology
So why not use legacy procurement technology, that is generally designed to operate across goods and services or perhaps contingent workforce?
As mentioned earlier, managing goods procurement with technology is relatively simple because the transactions are binary. Order 5,000 widgets, receive 5,000 widgets, agree volume-based discounts. Most, if not all, of the established, legacy procurement systems are primarily geared toward goods.
However, managing services is more complex because of the nuance of delivering an outcome, which is not as easy to define or quantify as '5,000 widgets'. This complexity is at the root of why most organisations rely on 'low-tech or no-tech' solutions. In other words, the goods-focused procurement systems in the market make managing services so difficult, procurement teams have to rely on manual effort and spreadsheets.
In many cases, where organisations have taken the approach of trying to heavily customize or ‘hack’ existing P2P, S2P, VMS or even CRM software for this purpose they tend to get very low user uptake with people choosing to circumvent the systems. We see usability as an absolutely key factor in the success of a services procurement platform. If people don’t use it, you don’t get the data and the whole setup falls short.
Existing goods focused S2P systems seem to be commonly used primarily as a basic contract repository, rarely capturing the detail of the project or the specific milestone information. In these cases, procurement and finance teams rely more on anecdotal and retrospective analysis. E.g., procurement asking a business stakeholder how well Accenture have delivered over the last 12 months rather than being able to interrogate a system to see how they performed to time, budget, scope and quality across every project at a milestone level.
Another big challenge with 'low-tech, no-tech solutions' is not having real-time visibility and control over services spend. Gaining up-to-the-minute granularity of performance and spend data is key for enabling strategic decisions.
Speed and agility are another consideration – our customer feedback suggests that by using technology to automate matching, evaluations and work order creation projects get started up to 10x faster on average.
Without the data giving clear visibility on performance, procurement can get stuck in a rut of ineffective and time-consuming retrospective assessments of supplier performance which can lead to the very common scenario when the C-suite come calling of 'we use x supplier for y service because we always have'.
Why the change needs to happen now
Services spend is huge, so how can the uncontrolled and badly managed use of this business investment be justified when companies are under more cost pressures than ever before?
Add in a global pandemic and forecasts of one of the worst global recessions in history and it’s pretty clear what businesses need to be doing is working with their best suppliers at the best prices to deliver the best outcomes – with clear data-based evidence to justify their decisions and their spend in this area.
Even prior to COVID-19, there was a trend of procurement teams generally getting leaner and with an increase in supplier numbers and diversity in most services supply chains with new categories popping up all the time.
It is simply not possible to operate at scale with manual processes relying on spreadsheets and not much scrutiny at all. Manually managing professional services and consultancy spend through statements of work is basically not a scalable solution for today's lean procurement teams. For a business to truly realise the benefits of outcome-based work delivery, especially when working with a large network of service providers, it must ensure the day-to-day management of statements of work are automated with smart software.
Market Feedback: The pressure to adapt to change now
The situation around COVID-19 and the upcoming recession is still obviously unclear, but general expectations are that services spend is rapidly coming under intense scrutiny. In some cases, procurement teams are finding they suddenly have much more of a seat at the table when it comes to C-suite decision making.
When looking into the use of spreadsheets, even in organisations with huge services spend, many compensate for the lack of technology with large teams of supplier managers to run the manual process. In the face of mounting cost pressures, this is clearly not going to be a viable strategy going forwards with increasing pressure to reduce headcount.
Supplier diversity is another important factor – Being able to work with a broad range of suppliers, regardless of size, with a unified approach where all projects and suppliers are managed centrally within the platform. The system should also facilitate and support dynamic supplier engagement and purchasing, where there is a requirement to engage specialist suppliers quickly and efficiently to support innovation.
The future of consultancy and SoW services procurement
In summary, there will be a clear trend towards the use of dedicated services spend management technology as part of an enterprise's procurement and finance technology provision.
The one system to do everything mentality of 10 years ago is being rapidly replaced by the use of intelligent specialist ‘best of breed’ technology to carry out a specific purpose, integrated with the core business management stack.
This is something being adopted rapidly in other areas over the last few years – contingent workforce is a great example where VMS providers have partnered with specific direct sourcing technology vendors and gig marketplaces. The use of specific tools is becoming more and more standard in the way we live and work.
Client user adoption will become easier and system self-service will be more common as intelligent systems will provide the governance Procurement needs without getting in the way of people’s day-to-day tasks.
The future of services procurement will mean using real, granular data and insights to drive real performance and value. This could change the face of the consulting and services industry, not just by pushing higher levels of transparency and governance but also by enabling organisations to work more effectively at scale and increase engagement with the long tail of smaller suppliers to help drive innovation which is currently, in many cases, a missed opportunity
Ultimately organisations need scalability and evidence-based decision-making and that is where technology holds the key for services procurement to drive value and deliver real performance.