The Emerging Business Values of SOW: How a Spend Matters article has got me thinking…

“Just because you can, doesn’t mean you should”

The contingent labor industry has evolved its ability to operationally support statement of work processes and workflows, but we have only just begun our journey to fully appreciate the business reasons why it is important and beneficial to do so.

Change Happens

“Those who call for others to embrace change can themselves profit from embracing resistance to change.” 

Fred Nickols, Distance Consulting

Every organization has its own reasons for wanting – or not wanting – to change how they manage – or don’t manage – their SOW transactions. We are a large, multi-partied industry and it is inevitable that we have those who embrace the changes going on around them and those who resist the changes going on around them. I have worked for and consulted with several of both types and have seen the benefits and negative effects from both perspectives.

Original Business Purposes for SOW

The catalyst that brought SOW into the contingent labor industry is hard to pin down exactly because the birth of SOW wasn’t a single birth… it was multiples. (Couldn’t resist J) SOW came onto the scene in different and unique ways that, at the time, were only relevant to those few pioneering companies who embraced (or drove) the new VMS functionality. These companies had to build the case for change de novo. For them there was no body of evidence or program expansion case examples to draw upon.

So how was SOW justified in the beginning? Some common drivers:

  • To gain actionable visibility into SOW-based professional services spend (my personal experience)
  • To mitigate inefficient and costly manual invoicing and payment processes for consulting engagements
  • To gain control over third party transactions
  • To hide contractor headcount
  • To transparently process exceptions to the preferred temp labor process (i.e. to unhide contractor headcount)

Emerging Business Purposes for SOW

The above reasons were obviously reason enough for those early companies to expand into SOW management with their internal teams and their MSPs and VMS providers. But how have the business purposes for initiating an SOW program or expanding an existing program into SOW evolved since then? Is it still all about visibility and control?

For those who initially resisted the early changes to SOW going on around them, the answer is yes: because SOW is new to those companies and most likely they have not yet developed the visibility and control capabilities, the reasons above are still foundational for program expansion into SOW.

How about for those who embraced the SOW changes early on or have already matured their programs with respect to SOW? Essentially the same answer, but with a very important twist.

Maturity has its benefits

As with most things, it is a matter of maturity. Early in every new SOW program the focus should be on developing spend and vendor data visibility where it does not currently exist; and to control third party transactions that are currently uncontrolled. Understandably, it is difficult for procurement leaders to justify the program and change management investment simply to mature procurement capabilities.

There has to be some hard savings attached. There has to be something more “sexy” than boring old capabilities improvement to gain cross-enterprise buyin. As a result of this reality, a narrowly defined and safe segment of SOW-based spend is identified (usually from the professional services or consulting realm) and piloted in the program. Again, an understandable course of action from the new-to-SOW perspective.

But contrast that with the look-back perspective from those who have already successfully initiated and expanded their SOW programs beyond the first couple of waves:

SOW management itself has become the capability and the program objective shifted from developing the capability to leveraging the capability.

With the proven ability to manage SOWx (my new shorthand for any random, arbitrary category of spend governed by SOW, used much like the similarly cryptic acronym RFx) already obtained, these programs bring more spend under management at a much quicker pace and shorten their horizon for achieving true strategic category spend management (i.e. optimization).

We are starting to see the data set emerge (in spots!) for making SOWx capabilities the primary objective of the business case to expand, with only modest relative delays to specific savings and spend targets (which still have to be at least somewhere in the business case).

Therein lies the real value of SOWx management

There is a seemingly simple yet still elusive connection to be made between the success of the program’s SOWx capabilities and Services Procurement:

The more capable the program is at managing SOWx, the more Services spend it will be able to manage.

SOW is confusing and difficult to grasp and contain, but only when looking forward at your initial foray into it. The experienced SOW practitioner (with the frustratingly unfair advantage of hindsight) recognizes that once the capability is achieved it can be applied to an almost endless pool of Services or related spend (within reason, of course, at least until it can). However, an important condition of this SOWx management capability that has not been mentioned yet is the requisite flexibility of your VMS to custom configure the technological support and the flexibility and skill set of your MSP to uniquely support you at the SOWx category level. This would not be necessary if all SOWs were processed and supported in the same way. Having a no-one-size-fits-all understanding of SOW is what frees the mind to explore new and unexpected applications of the SOW capability.

For instance – Here’s one example of how the SOW capability can be applied to a type of spend you may not have thought of before; and it highlights just how fluid our understanding of the SOW capability is in our industry…

Spend Matters on SOW

Andrew Karpie wrote an interesting and insightful review in Spend Matters about the recent NLRB worker classification decision regarding the contractors supplied to Browning-Ferris by Leadpoint Business Services. Link. In the article Andrew and Jason Busch recommended, among other things, the following:

  • “Evaluating the plausibility of transitioning staffing/hourly staffing spend to statement of work (SOW) type models. An increasing number of organizations are creating services procurement shields against classification issues by pursuing this strategy.”

Read the article for full context – its good, and not just because of the SOW recommendation. I marvel at the irony in how this potential application of SOW would bring our industry full circle back to the very reasons we created the industry in the first place – to standardize and automate the market for buying and selling temporary staffing. I have often referred to the contingent labor program as a consensus solution for the temporary labor market, but maybe now my thinking needs to change.

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Michael MatherlyComment