taking services procurement beyond contingent workers: opportunities and challenges

© 2011 Forrester Research, Inc. Reproduction Prohibited 2 © 2009 Forrester Research, Inc. Reproduction Prohibited

Taking Services Procurement Beyond Contingent Workers: Opportunities And Challenges Andrew H. Bartels

Vice President and Principal Analyst

May 23, 2011


Companies can achieve big cost savings through services

procurement … But success requires the right

software tools, the right strategy for internal adoption, and understanding

of the state of supplier readiness


The opportunity for services procurement: Services spending is big but unmanaged

60%

40% Indirect goods

Services

13%

11%

11%

9%

9%

9%

7% 5%

5% 3% 3% 3% 3% 3% 2% 1% Accounting & Finance

Administrative

Legal

Printing/copying

Travel

Facilities management

Telecommunications

Project-based services

Advertising

Real estate

Logistics

Marketing

IT

HR & temporary staffing

Construction/engineering

Professional services

Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003

Average distribution of corporate spending on indirect goods and

services, 2003

© 2011 Forrester Research, Inc. Reproduction Prohibited 5 © 2011 Forrester Research, Inc. Reproduction Prohibited

Temporary staffing is just a small part of services purchases

Professional services, 13%

Construction & engineering, 11%

HR & temporary staffing, 11%

IT, 9% Marketing,

9%

Logistics, 9%

Real estate, 7%

Advertising, 5%

Project-based services, 5%

Telecommunications, 3%

Facilities management, 3%

Travel, 3%

Printing/copying, 3%

Legal, 3%

Administrative, 2% Accounting & Finance, 1%

Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003


Services procurement is part of ePurchasing market, and products support all stages of cycle

1. Services spend analysis

4. Services provider sourcing

5. Services contract life-cycle management 6. Services

purchase

7. Services engagement management

8. Electronic invoice processing and presentment

2. Services supplier assessment

New category: Services supplier Risk and performance management

3. Services supplier identification


Fewer adopters of services procurement than goods eProcurement

Base: Data from more than 100 vendors (numbers are rounded)

*Forrester forecast

6.1

7.8 8.7

9.8 10.3

11.0

12.3

0.4 0.6 0.8 0.9 1.0 1.2 1.4

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011*

eProcurement

Services procurement

Number of clients (thousands)


But services procurement is one of the faster growing solutions in this market

32%

25%

20%

18%

17%

13%

12%

9%

6%

Supplier risk & performance

Services procurement

Supplier network

Spend analysis

Contract management

EIPP

Total (US$ billions)

eSourcing

eProcurement

Vendor revenues, compound annual growth rate, 2005 to 2010



Services procurement is starting to move beyond temporary workers

2002 2003 2004 2005 2006 2007 2008

IT outsourcing

Print and marketing services

2009 2010

T&E services

IT services

Temporary workers

Legal services

Line-clearing, nursing services, etc.


Where opportunities lie for process-efficiency savings in services purchase

§  Many savings opportunities in services purchasing –  Cut cost to enter data into financial system, create and move

req., PO, and invoice –  Lower rates that suppliers charge through more competitive

sourcing –  Get employees to use preferred suppliers with pre-negotiated

lower rates –  Eliminate of invoice errors and reduce cost of matching PO,

invoice, and receipt to validate payment –  Capture early payment discounts, avoid late penalty fees


Other sources of value

§  Improved supplier compliance with sourcing policies

§  Improved employee satisfaction and work performance through simplified purchasing of needed services

§  Improved regulatory compliance (e.g., Sarbanes-Oxley, co-employment laws, security policies)

§  Better services providers, with better quality service –  Better quality of services=better business


The challenge: Services procurement process differs from goods procurement process

§  Subjective factors matter in services buying –  Quality of services provider, relationship history, availability of

right individuals – all matter as much as price

§  Engagement management is key –  Services only deliver value in actual delivery

–  Tracking and recording of services as they are performed is critical

§  Spending control is de-centralized –  Each department buys different kinds of services (i.e., legal,

marketing, IT, etc.)


Our data shows IT departments are starting to use services procurement to buy consulting & outsourcing services, not just temps

423

558

754 860

1025

1197

1358

20 40 75 150

280 350

470

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008 2009 2010 2011*

Services procurement for contractors

Services procurement for IT consulting & outsourcing services

Number of clients


*Forrester forecast


However, there are two barriers to growth of services procurement

§  Services procurement will not achieve its full growth potential until two barriers are addressed

1.  Fragmented, decentralized management of services in most companies

2.  Lack of readiness of most service providers for interfacing with services procurement solutions

§  Those who want to see services procurement achieve its full potential in their organization need to address these challenges


Biggest barrier to services procurement: Spending controlled by departmental kingpins

CIO

In direct materials

Purchasing Dept.

CPO has direct control

In indirect materials and MRO

CPO can get control

But in services, kingpins have control

CPO can only influence

CFO COO

GCO CMO


To succeed organizationally, pick the kingpins to go after first

Because services spending is fragmented under multiple kingpins, you need a strategy for which kingpin to go after first


Strategy #1: All services at once

HR CMO COO

GCO CIO

Real estate

Travel manager

Logistics manager

Benefits manager

PROS: •  Maximum savings

fast CONS:

•  But very hard to get a “strike” by getting your kingpins moving together

•  Requires strong CEO leadership

•  All or nothing

CFO


Strategy #2: Temporary workers and benefits

CFO CMO COO

GCO CIO

Real estate

PROS: •  Temporary workers

a current pain point •  Benefits are big area

of services spend CONS:

•  HR kingpin doesn’t have much impact

•  Temporary workers have unique needs (e.g., onboarding, credential checking)

Travel manager

Logistics manager


Strategy #3: Focus on CFO, CIO and HR

GCO CMO

COO

CFO

Real estate

PROS: •  CFO and CIO are

influential kingpins with peers

•  Addresses services that are current pain points

•  Benefits are big area of services spend

CONS: •  Hard to maintain

momentum

Travel manager

Logistics manager


Getting the CIO on board is key

§  IT departments buy lots of services –  Contractors and temporary

workers

–  IT consulting and systems integration services

–  Hardware maintenance and support services

–  IT outsourcing services

–  Telecom services

§  CIOs can influence business units to try and adopt new technologies

IT staff costs, 26%

Expensed software,

20%Expensed hardware,

20%

Third-party IT

services, 14%

Telecom services,

20%

Breakdown of US enterprises’ 2009 IT operating budget by category

Source: Forrester Business Data Services, 2009 IT Budget and Spending Survey of North American Enterprises


So, if you’re the CPO, how do you get the CIO engaged?

§  Show the CIO the data on how the IT department spends on IT services of various kinds

§  Talk about the challenges that a CIO faces in managing and controlling services spending, especially in a recession

§  Talk about the small but growing numbers of IT departments that are using services procurement tools to buy consulting and outsourcing services

§  Position IT as the pilot department for demonstrating the value of services procurement tools to the enterprise


Supplier lack of readiness is the other big barrier

1.  Outside of temporary help agencies, most services providers have poor or no readiness for working with services procurement tools

2.  Most service providers will resist the supplier-funded model that has been common in contingent workforce or vendor management system solutions


Few services providers have created a listing of their services offerings

§  For buyers to be able to buy services online efficiently, it would help to have these services listed, with some specified in a catalog and other to be defined through collaboration

§  While many services have to be defined through a negotiated statement of work, some are standard enough to be described and listed in a catalog – especially services that are governed by a master consulting or outsourcing agreement

§  However, no major services vendor outside the temporary labor market has done this


Most services providers manually process POs for consulting and outsourcing services

§  Most consulting and outsourcing services providers are handling orders and RFXs by logging into a supplier portal to pick up these documents and manually bringing into order management/project management/engagement management solutions

–  No order process automation

–  No linkage of internal project management systems to services procurement systems

§  So, services providers are not seeing efficiency gains from clients’ use of services procurement solutions

§  And they resist supplier-funded requirements


Still, some IT services providers are using services procurement tools on the buy-side, with potential to use on the sell side

§  Leading IT services vendors have adopted services procurement solutions for their purchases of contractors and sub-contracted IT services vendors

§  These IT services vendors are exploring and piloting the use of these solutions on the sell-side, for clients to use to place services and work orders

§  There’s precedent! Staffing companies have been using similar tools with their clients when they place requests for contractors and temps with them


Recommendations §  Make services procurement a priority – benefits are

huge! §  Effective services procurement requires changing

processes, new technologies, organization §  Approach in phased fashion, starting with departments

who are ready to act §  Focus on the CIO and IT department to help them get

their services spend under control, and to serve as an example and pilot for other departments

§  Work with your services vendors to help get them prepared for working with services procurement tools

§  Use services procurement vendors with proven solutions, because they can help drive success, which will fuel further success

© 2009 Forrester Research, Inc. Reproduction Prohibited

Thank you

Andrew Bartels

+1 516.869.0128

[email protected]

www.forrester.com

taking services procurement beyond contingent workers: opportunities and challenges

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