Services Procurement/SOW Tail Spend Management - when does the SOW Tail wag the dog?

This year, we have partnered with numerous clients who have asked us to help them get their SOW Services Procurement, Delivery and Management in order.

As we know, the world of work has changed and how organisations deliver that work, at speed, is now the number 1 topic in the board room.? The focus has now shifted from how an organisation brings in and manages “people” – to how organisations can bring in partners and teams who can deliver “services” to get their work done.

We see this most of the time in the technology space, especially since the explosion of digital change and transformation; as things like moving to Cloud, Cyber Security upgrades, Architecture modernisations, Data migrations and AI pilots are usually ‘project’ based.

As a result, most organisations have ventured into some kind of SOW Services (Statement of Work) model to procure these services.? And for some organisations, this is where things have gone a bit “off-piste” (a Procurement Directors word, not mine!).

With the volatility and speed of change in the market over the last 3 – 5 years, companies have had to make big changes to the way they operate, their business models, their products, their services, their propositions or their strategies.? This has meant that many have had to face the inconvenient truth that the key technical or business skills, don’t exist within their business.? HR departments and TA functions have had to wrestle with trying to find, attract and recruit these skills into the business quickly – but with a war for talent, the rise of home working and the gig economy, recruiting to fill permanent jobs has been extremely difficult.

Hiring Managers have then tried to recruit contingent/contract staff into the business to fill these gaps on projects. ?However, with ongoing IR35 legislation, confusion of determination and/or Opex headcount budget freezes, this has also resulted in delays.

As a result, this then led to business unit managers engaging with suppliers - sometimes multiple suppliers - under a so called ‘SOW agreement’ in order to get external workers into the business.?

Fast forward just 1 year and it’s at this point, some organisations have found themselves with a Pandora’s Box of issues when trying to get their arms around their Services Procurement/SOW activity and report on it.? Why? A number of reasons:

·???????? Services/SOW Procurement has not been centralised. Different Managers have procured different services, through different systems, from different suppliers, through different channels and different budgets – so things have got lost.

·???????? Individual business unit Capex budget has been used and signed off and not captured or authorised centrally.

·???????? Some procurement decisions have been made at C suite level, especially using the Big ‘X’ consultancies, who have a habit of ‘landing and expanding’ into other areas of the business without governance. ?

·???????? There has been no real triage of requests at source – where some SOW requests for ‘individuals’ could have easily been met using contingent/contractor workers through an already established MSP or PSL.

·???????? Some SOW contracts, holding the originally agreed deliverables, milestones, expectations and success criteria of a supplier, suddenly can’t be found.

·???????? There are multiple (sometimes 10, 20, 30) suppliers who are working with the business in various forms, but no one seems to own them – but they get extended and extended. ?

This is where a business has an ever growing ‘Tail spend’ of SOW/Services Procurement.?

What is Tail spend?

There is no one size fits all definition for tail spend across different businesses, or even across one business, simply because every organisation and business unit’s spending is unique. What is considered tail spend in one category, may not be the same in another. These purchases are sometimes too small to go through a proper Procurement channel and are not frequent enough to be included in cataloged systems.

Tail spend can have many definitions, and none of them are right or wrong. Tail spend can include anything from ‘maverick or rouge spend’ to misclassified procurement, so it’s important to identify what tail spend is and define what it means in your organisation. It’s also important to define the length of the tail in relation to your organisation’s core, strategic vendors.

As a ‘starter for 10’, we have helped our clients to get their arms around their SOW/Services Procurement Tail spend, through a simple practice by our Services Procurement/SOW team:

1)????? Identify the big, enterprise, strategic SOW/Services suppliers.? These are usually the usual suspects: the ‘Big X’ Management Consultancies who have courted key individuals and been brought in by the Board or SLT.

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2)????? Put all other SOW/Services suppliers in the Tail spend box. ?You may be surprised in how big that Tail spend box is!? You may also be surprised the amount of money going through that Tail spend box and how these suppliers have crept into delivering more and more strategic work unchecked.

This is when your Tail spend starts to wag the dog, i.e. your business is now reliant on a large number of SOW/Services suppliers and resources, but there is little, or in some cases, no real SOW/Services management programme, governance, oversight or reporting.

Impellam Project Services are experts in SOW Services Procurement, including the management of SOW Services and the delivery of SOW deliverables based projects by our own experts and teams.? We have helped numerous customers to build out their Services Procurement/SOW Programmes, which has resulted in:

·???????? An initial Audit.? Easy steps to find out what is going through the business right now; who owns the SOWs internally; what the SOWs say (i.e. any deliverables, milestones, success criteria? Or just a lot of blank spaces?); are the SOWs just contractor job specs; what service are you getting vs what was agreed?

·???????? A triage service.? Sitting with requesting Managers to understand and focus on the ‘work’ that needs doing, rather than the ‘worker’.? Then making an informed decision if the request is for a genuine SOW or if the work can be done by engaging contingent/contract staff through an MSP/PSL.

·???????? Reviewing, auditing and addressing misclassification of resources.? Compliance and risk has to be identified and mitigated.

·???????? Benchmarking costs of current SOWs, resources and cost agreements.

·???????? Reducing/streamlining your supplier list. Looking at Vendor performance, to make sure the right suppliers are being engaged for the right services and can actually deliver those services.

·???????? Bringing in, or internally configuring the right tech platform to manage all SOW activity, to give a single source of truth.

By doing all of the above we have provided our clients with visibility, full reporting and considerable cost savings around their SOW programmes. For example, a recent McKinsey report states “……by focussing on SOW Services Procurement & Delivery, an average of 15 – 20% cost savings can be achieved”.

As the economy continues to be challenging, CEO’s and CFO’s will continue to look for cost and efficiency savings, as well as managing cashflow very carefully - so controlling project services, cost and risk will be vitally important.?

Don’t let the tail wag the dog.

If any of the above is of interest and you want to find out more about how we have helped other clients, please reach out to me on [email protected] or drop me a message through Linked In.