white paper Managing Complex Spend: Consulting Services
Table of Contents Table of Contents (continued) Executive Summary 3 Changing Landscape of Buyers of Business Consulting 3 Understanding the Complexities of Consulting Spend Management 4 What is Consulting Spend Management? 4 The Reality Today - Challenges Facing the Procurement Office 5 Visibility 5 Cost Control 5 Compliance 5 Seven Steps to Better Manage Your Management Consultants 8 1. Build a Business Case 8 2. Establish Stakeholder Support 8 3. Plan a Rollout Strategy 9 4. Prepare for Changes 9 5. Launch 9 6. Highlight Successes and Opportunities 9 7. Assess Progress and Expand 9 About IQNavigator 10 Finding a Better Way with Spend Management 6 Benefits of Using a VMS for Consulting Services Spend Management 6 Select the Best Vendors 6 Manage SOW Lifecycle & Budget 7 Mitigate Contract Leakage 7 Track SOW Worker Compliance 7 Hold Vendors Accountable to Terms / Outcomes / Results 7 Leverage SOW Data for Near Term Savings & Improvements 7 IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 2
Executive Summary Many (if not all) large, global corporations today find themselves faced with a recurring need for business and management consulting services. A recent report by Gartner estimates that businesses spend between 2% and 7% of their operating budget for business consulting. i Client organizations have been relatively immature in managing their portfolio of business consultants.* Given the continued expansive use and increasing dollars spent on consulting services by the Global 2000, it should not be a surprise that the buyers of these services the procurement officers and business unit executives are demanding more visibility and control into how services are sourced, managed, and ultimately -- delivered. This white paper provides procurement executives with an understanding of the current landscape procurement offices are facing, how to leverage spend management and a seven step approach for best practices pertaining to consulting services spend. Changing Landscape of Buyers of Business Consulting But a shift is occurring. Chief Procurement Officers (CPOs) on the demand side have become highly focused on budget centralization and supplier consolidation when buying business consulting services. Cost pressures resulting from the financial crises and continuing economic uncertainty is prompting leaders to look with much more scrutiny at their ecosystem of consulting providers and become much more cautious about costbenefits of assigning projects to external consultants. Sourcing, Bidding and Execution (stronger orientation toward measurable outcomes, a faster pace in executing consulting assignments, and consulting firms becoming more open in exchanging their IP with clients), are all drivers of buyer sophistication. 1 IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 3
Understanding the Complexities of Consulting Spend Management What is Consulting Spend Management? The category of business or management consulting covers a broad spectrum of professional services offered by firms ranging from the extremely large, known brands to many smaller, specialized and boutique firms. Below are the most commonly referred to types of consulting services providers: Big Four auditing firms Deloitte, Ernst & Young, KPMG, and Pricewaterhouse Coopers Large IT and business service providers such as Accenture and IBM Strategy consulting firms such as Bain & Co., The Boston Consulting Group, and McKinsey & Co. Midsize consulting firms such as A.T. Kearney, Booz & Co., PRTM, and Roland Berger Small but specialized boutique consulting firms such as LEK, Kurt Salmon, and Marakon Potential services contracted from these firms typically involve organizational change management, technology implementation, strategy development, or operational improvements. Commonly, these services are provided via a proposal which leads to a mutually-agreed upon legal contract and a Statement of Work (SOW). SOWs define the parameters of the project, the expected outcomes and deliverables, the timeframe for performance, applicable standards, and the criteria for acceptance. Trying to gain a broad view or comprehensive picture of the differing types of spend governed by a SOW can prove challenging, in the least. The very nature of the SOW demands specificity, exceptions, and non-conformity creating a problematic path for enterprise-wide visibility and management. Due in part to the inherently unique need, the procurement of SOW or project-based services has traditionally remained under the stronghold of the executives in charge of the business units in need (finance, IT, etc.). However, as businesses recognize the value of the procurement office and the distinctions between differing spend types, more large enterprises are expecting procurement to deliver the same benefits achieved with contingent labor spend management to the more complex sub categories of services procurement, project-based or consulting services spend management, often referred to as SOW. So how then is a procurement executive expected to acquire non contingent external services, manage or control related costs, and control associated risks (with both buyers and suppliers)? IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 4
The modern contingent workforce dictates a wide range of complexities, and with companies now focused on SOW-based projects and services as the premiere component of the contingent labor umbrella, it has become vital for organizations to gain true visibility and intelligence within this sub-category of temporary labor spending.. VMS solutions have evolved along with the greater contingent labor category, offering a single, robust platform for managing all facets of contingent labor, specifically SOW-based process and services. Chris Dwyer Aberdeen Group Contingent Labor Management, The Evolution of the Contemporary Contingent Workforce, May 2011 The Reality Today - Challenges Facing the Procurement Office In today s business environment, procurement executives are often faced with challenges when trying to identify and control key elements of project-based spend across the organization. Even those organizations who have successfully managed nearly all their contingent labor continue to grapple with the intricacies and differences of managing more complex areas of spend, such as consulting services. In a BEST case scenario, business units include procurement officers at the onset to participate in and help facilitate sourcing or bidding. Most OFTEN, however, procurement officers are brought into the process after the vendor selection process (if any) has been completed, but prior to on-boarding. In WORST cases, procurement officers have little to no visibility into all department consulting spend within the organization. Most procurement departments face the same core objectives provide visibility into what their corporation is spending money on, control the costs to ensure budgets are adhered to across the organization, and ensure compliance with appropriate mandates, guidelines and procurement best practices by buyers and suppliers. Ideally, procurement teams are also gearing for a more strategic, partnering role with the rest of the business. Below is a sampling of the questions Global 2000 executives are asking when they start to seriously think about the large amounts of consulting spend in their organization each year. Visibility How do I get visibility into my entire firm s SOW spend (such as consulting services) domestically and internationally on a single system? How do we perform effective Vendor Management to evaluate their performances against the others and ensure we are getting the best solutions? How can I easily view a report to understand the landscape of consulting services my firm is using? Cost Control Are suppliers submitting varying rates off negotiated contract? Are the SOWs rate card compliant? How much is being lost to contract leakage? How do we ensure suppliers bill to the agreed-upon amount defined in the SOW? How do I eliminate inefficient and error-prone manual processes required for payment approval by project managers? Compliance How can I ensure workers coming into the organization are properly on- and off-boarded? How do I track internal compliance with legal and procurement processes and policies? How can I ensure supplier compliance with agreed to legal and commercial terms in the master agreement and the SOW? How can I use compliance reporting to change behaviors internally? IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 5
Finding a Better Way with Spend Management Visibility and basic compliance are key objectives of any spend strategy, but are especially important for procurement organizations when dealing with the traditional cloudy spend categories of consulting and project-based services. While many procurement teams have successfully tackled these same challenges with contingent labor and worker tracking, the more complex SOW categories consulting and project-based services present unique challenges and opportunities that warrant separate treatment. Implementing processes and functionality built to manage the complexities of SOW and project-based spend will help companies gain visibility, optimize supplier relationships and track measureable results. While processes are fundamentally core to successfully managing the SOW life-cycle, choosing the right tools greatly impacts the feasibility, adoption, and success of a consulting services spend management initiative. For example, many of the benefits listed below can only truly be obtained by automating key process elements for example, under visibility and cost control. Because of the complexity of SOW, project-based and consulting services contracts and deliverables, traditional ERP and procurement systems are not equipped to support the nuances of this complex spend category. To revise a traditional management adage -- you can t manage what you can t visualize, visibility in a sourcing relationship is crucial to ensuring all elements of the buyer-supplier process are working fluently. Suppliers and vendors of catalogued goods have mastered this aspect of procurement, whereas the buyers of services are often left without a clear sense of what is being delivered by whom and for how much. A Vendor Management System (VMS) is an e-procurement system that is proving to help many of the world s best known brands better manage their services procurement, and in particular, their SOW and project-based complex spend. Benefits of Using a VMS for Consulting Services Spend Management By implementing a VMS to visualize, manage, and track all types of SOW and project-based spend (including consulting services), firms are able to significantly improve their ability to optimize procurement processes for more complex spend categories. With relatively low implementation costs and speedy deployment timeframes, VMS deployments often provide an ROI within the first 6 months of implementation. Although the list of benefits can vary to match an organization s particular business priorities, below are improvements and benefits Global 2000 companies gain when using a VMS to manage SOW and project-based spend. Select the Best Vendors Competitive bidding & comparative evaluations facilitated through automated workflows Internal SOW requirements collaboration through automated workflows Req-to-Check tracking of entire SOW life-cycle / process IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 6
Manage SOW Lifecycle & Budget On-line collaboration with vendors Commercial Terms & Conditions approval workflows are automated Amendment and Change Order approval workflow are automated Track and control SOW budget compliance via system alerts and controls Mitigate Contract Leakage SOW deal structure mirrored in PO (includes change orders) Tie SOW to existing vendor masters / rate cards automatically Keep SOW Amendments / Change Orders in sync with Order automatically Ensure SOW payments comply with SOW terms via system controls and workflows Track SOW Worker Compliance Worker visibility across categories & departments with one-click reporting On / off-boarding and security management are automated Closed-loop worker tracking across geographies and business units automatically Hold Vendors Accountable to Terms / Outcomes / Results Get what you contract / pay for: tie payments to deliverables / terms / SLAs via system controls and automated workflows Control Vendor Expenses automatically Keep SOW scope and deliverables (changes) in sync with project plan & budget via system controls and automated workflows Leverage SOW Data for Near Term Savings & Improvements Track vendor spend & leverage across categories, departments with drill-down analysis Identify and promote good vendor performance, avoid vendor weaknesses with automated supplier performance reporting IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 7
Seven Steps to Better Manage Your Management Consultants Growing and emerging organizations often face similar workforce and spend management challenges, such as how to move up the workforce and services procurement management maturity curve. Though truly dependent on the state of the organization and what the organization is trying to accomplish, there are tried and true approaches: 1. Build a Business Case 2. Establish Stakeholder Support 3. Plan a Rollout Strategy 4. Prepare for Changes 5. Launch 6. Highlight Successes and Opportunities 7. Assess Progress and Expand 1. Build a Business Case A solid business case is crucial for the success of organizational change. Even with an established workflow automation, no matter how basic, and worker tracking capabilities, starting with a business case justification for expanding into more complex services sub categories, such as consulting or other professional services, is a critical element for future success. The Business Case should examine, clearly define and detail: Scope of changes- both initial and longer term objectives or benefits being targeted sub categories of spend (type of vendors) areas of the organization impacted departments/business units/geographies becomes blueprint for the procurement and extended workforce improvements Issues relative and well known to scope areas limited worker and spend visibility invoice and payment inaccuracies legal risks associated with undefined or inadequate contractual protections Strategically oriented, with meaningful short term relief longer-term objectives defined short-medium term goals of improved spend visibility, processes, etc., that clearly link to longer term goals 2. Establish Stakeholder Support Once the Business Case has been defined and scoped, obtaining support from impacted departments will help validate the analysis of the current business state and, more importantly actively engage stakeholders in the design and implementation of planned changes. Identify stakeholders or impacted areas as early as possible Tier stakeholders in order of impact and importance Ensure stakeholders are kept up to date on changes or delays IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 8
3. Plan a Rollout Strategy With stakeholder support in place, shift the focus to defining a rollout strategy. Limited rollouts of workforce and spend management initiatives are generally easier than more encompassing implementations. Factors to consider when planning a rollout that may suggest limited or more aggressive strategies: Existing technology or process in place- consider how long the two (new and old) May have to run in parallel Cost, level and duration of disruption- may suggest a more aggressive rollout Geographic or business unit boundaries 4. Prepare for Changes During rollout, revisit Procurement s structure and approach to providing support to the organization. Carefully address roles and responsibilities. Analyze new process design and identify anticipated or potential outcomes or consequences that may change current workloads and strain capacity or skillsets. When expanding into new SOW processes and functionality, consider new process steps that may impact procurement related workloads such as who in the organization will manage or coordinate the SOW development process with vendors. 5. Launch A successful launch is the result of careful planning and excellent communication. Planning done ahead of time should include means to track key launch tasks and activities, as well as readily available metrics or other outputs to quantify progress and status on regular intervals. 6. Highlight Successes and Opportunities Once new processes are in place, highlighting successes and opportunities is how near term process and technology changes are translated into longer term strategies and gains. Not only does this enable opportunities but helps shine light on how process participants (end users, vendors) are engaging the new system, particularly relative to compliance. Procurement should use reporting on process compliance to call out risks, missed opportunities or inefficiencies. Another area to focus reporting is change orders as they may be tracked to original SOW engagements. This may ensure SOW and budget compliance, but numerous change orders may reveal potentially poor performance of a vendor or poor project scope development. Leveraging better data visibility and deeper reporting drive more meaningful change- one of the cornerstones of initiating new procurement processes and SOW functionality. 7. Assess Progress and Expand Improved visibility to spend data will help procurement see and formulate new strategic approaches to managing spend at the sub-category level (ie legal, consulting, call center, etc). To further optimize the program review business case, measure successes and revise strategic objectives at a more refined category level. Often strategic sourcing or vendor optimization opportunities arise that can significantly drive cost savings. Leveraging what was learned at the implementation level is valuable for engaging new stakeholders and initiating improvements for future expansions. IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved 9
About IQNavigator IQNavigator is the proven leader in services procurement solutions, helping global enterprises better manage all types of procured services and their external workforces around the world. IQNavigator s cloud-based VMS software processes tens of billions of dollars in yearly services spend, enabling clients to intelligently manage and optimize the cost-effectiveness, compliance, visibility and efficiency of complex services procurement and contingent workforce programs. For more than a decade, IQNavigator has been the leader in providing innovative technology solutions for managing companies procured services including statement of work and project-based consultants, contractors, temporary workers and other contingent workers. For more information about IQNavigator and how its industry-leading offerings such as IQNtelligence are helping many of the world s most respected companies, visit www.iqnavigator.com. visit us at: IQNavigator.com follow us on: iqnavigator.com/blog facebook.com/iqnavigator twitter.com/iqnavigator linkedin.com/company/iqnavigator contact us: Corporate Headquarters 6465 Greenwood Plaza Blvd., Suite 800 Centennial, CO 80111, USA Phone: 877-267-0905 International: +1 303-563-1500 E-mail: info@iqnavigator.com IQNavigator.com Proprietary and Confidential to IQNavigator, Inc. Copyright 2013 IQNavigator, Inc. All Rights Reserved