Managing the Costly Disconnect Between Professional Services Spend and Staff Augmentation
As the adoption of a Managed Service Provider (MSP) for traditional contingent workers (of staff augmentation) has enabled companies to gain greater control of the associated cost and risk, it begs the question of, “Why stop there?” Companies are spending increasing amounts on all forms of contingent workforce – including freelancers as well as services and solutions engaged via statement of work (SOW). Industry experts estimate that nearly 50% of companies’ workforces will be comprised of third party labor within the next few years. Though thought of more traditionally as “services”, as opposed to contingent workforce, it’s all talent-based in the end. So why not leverage many of the tools, processes and support structure to ensure that there is similar control, insight, and mitigation of what is often a much larger portion of a company’s spend portfolio than the traditional contingent worker or staff augmentation is?
Squeezing the Balloon
Many companies find they are spending increasing amounts on services engaged via SOW due to guidelines and procedures inherent in their MSP program. These include things like tenure policies and headcount restrictions. While in many cases SOWs are structured to account for project deliverables and the associated supplier risk, oftentimes “consultants” typically come with a higher rate than if the exact same worker was brought in through the staff augmentation model. Experience confirms the estimates that more than 20% of SOW-based work is in fact misclassified staff augmentation labor and the savings associated with this misclassification can easily exceed 20%.
When a company chooses to integrate the management of both their staff augmentation workforce, as well as their services spend, worker classification can be triaged appropriately at the point of request and extra cost can be avoided, without sacrificing worker or project quality. What’s more, by adopting an MSP to manage the intake, sourcing and engagement process for services, established category strategies and preferred suppliers can be leveraged while also providing much greater insight into the composition of the SOW details, as well as the associated labor component.
Although the capability of MSPs to take on increased accountability and much of the procurement and sourcing function has existed for years, the shift to move services spend management, along with staff augmentation, under one central management program has been gradual. This is largely because management of staff augmentation and MSP has its roots in HR and people strategy, while the services spend - which often includes Consulting, Marketing, Training, Finance, Legal, etc. - has largely sat within Procurement’s domain.
Collaboration is Key
This is indicative of the wider disconnect that exists between HR and Procurement regarding managing total talent as a whole. The evolution of contingent workforce management and total talent strategy is ever-changing and in many organizations quite immature, and as a result the functions are divided over who should take responsibility for it.
The collaboration between these two groups is extremely important. Both HR and Procurement have a role to play in this process and encouraging the functions to work together will allow companies to establish a total talent strategy, determine the best way to get the work done, and ultimately ensure cost savings and the best value for money regardless of whether it’s the acquisition of a person, or a service on an SOW.
A major contributing factor in the cost of SOW engagements is a lack of control. This occurs because an SOW project often gets underway when a manager begins talks with their chosen firm and Procurement becomes engaged often only after scope and terms have been agreed upon between the two parties. Such late involvement means the SOW project can be subject to less control than would be seen in staff augmentation, which can lead to an escalation of costs over time, through revisions and change orders.
While it can certainly be challenging, including both contingent workers and services within a single program can be challenging and complex, the opportunity to enable better business decisions, deliver savings and drive significant ROI makes the juice worth the squeeze. Proper change management and communication is key to ensuring success, as is the engagement of key stakeholders from across the business, beyond just Procurement and HR. This includes executives (think CIO, CLO, CRO) all the way to end users (those who are the end consumers of the services. All of these people need to understand the business drivers and the company’s overall goals and objectives, while seeing the real potential of efficiency, savings and value for money.
In the end, managing all services and labor-based spend through a single program, run by an MSP, ensures that internal procurement resources are best-utilized in strategic pursuits and relationship building and that the company’s objectives related to spend visibility, supplier management and savings recognition can be achieved through innovative and game-changing ways.