Not Every SOW Belongs In Your Contingent Labor Program
“Should we run that $20MM restructuring SOW with McKinsey through the program?”
The temptation is real for contingent labor program leaders, stakeholders and service providers to capture as much statement of work (SOW) spend as possible. It is unfortunate that one of the leading indicators for success of a SOW program is measured by how much SOW spend it has under management; yet not surprising because that is also how program service provider fees are typically calculated, as a percent of total spend. (We are talking about vendor management systems and staffing managed service providers, or VMS and MSP, respectively.) Lots of rich and controversial material to unpack there, but SOW Program Pricing will receive a deep dive of its own in a later article. Instead, for this article we are focused on the SOW’s underlying service and the category sourcing plan or strategy as the primary determining factors for inclusion in program scope. Only secondarily does the dollar amount of individual SOWs come into play.
Category Segmentations Matter
Mature and maturing sourcing functions segment procurable services spend into relevant categories and sub-categories to ensure they are effectively and more strategically managing the money spent on common underlying services and the vendors that deliver those services. As a result, spend with software engineering firms would not typically be managed with the same strategy and operational requirements used to manage spend with strategy consulting firms. Organizations that have not segmented their services spend tend not to substantially differentiate their management efforts accordingly. Some professionals see segmentation as a leading distinction between managed and under- or unmanaged spend. We will post an article on First Generation SOW Programs later that will dig into this concept, so stay tuned.
Most programs are run by VMS technology and either an external staffing MSP or an internal program office in order to scale governance, operations and spend management practices in support of temporary staffing categories. The temporary staffing category has high transactional volumes and low transactional spend amounts, whereas properly segmented SOW categories (i.e. deliverables and project-based services, managed and outsourced services) have considerably fewer annual transactions and materially higher dollar amounts per transaction and in total. Our latest study indicates 10-15 times greater SOW spend than temporary staffing in companies with contingent labor programs. Additionally, the sourcing and contracting activities to support temporary staffing are highly standardized: standard job descriptions, standard rate cards, resumes as submissions, time entry to drive billing, early assignment termination as the extent of contractual remedy available to the buyer, etc. Conversely, SOW sourcing and contracting activities are inherently unique and complex, engagement elements not readily standardized or fully automated. These distinctions are driven by the underlying services being purchased and consumed by the buyer, factors at the heart of SOW category segmentation, management practices, and strategies.
This background is critical to lay the foundation that SOW categories cannot be effectively managed similarly to temporary staffing. This does not mean there is no correlation between temporary staffing and SOW-based services, though, there is: both are means to getting work done in the organization by external, non-employee resources. In practical terms this means the client organization is benefited by consideration of all of its available resources to get work done. However, and this is the key to proper utilization of the various contingent labor categories (i.e. staffing, SOW), once the path to getting work done has been selected in the mature or maturing organization, the category strategy, sourcing and operational plans should be the driving force by which supporting capabilities are configured. In the case of the program model, that means the category path should be fully supported by program capabilities, both technology and services, not the other way around. If the program components cannot adequately support defined category strategy, then that SOW category should remain outside program scope.
Expanding the Program Scope to Include SOW
There are three guiding tenets for deciding what types of services, those services that are sourced and purchased via statements of work, should be included in the contingent labor or SOW program scope:
1. Not all SOWs within a selected SOW category have to be included. A portion of the total may be the best solution to optimize program capabilities. For instance, the SFS team often is focused on managing the un- or under-managed SOW spend tail - a large number of lower dollar SOWs that tend to fall below Sourcing’s radar due to policy or bandwidth;
2. Not all SOW categories can be effectively managed within the program. There are some entire categories of SOW spend that should NOT be considered for SOW programs. These tend to be high-dollar and strategic in nature; and
3. Each individually defined SOW category, regardless of category maturity, should be assessed to determine whether or not the category strategy is supported and enhanced by the program model (i.e. governance, technology, service provider support). It is imperative that SOW program practitioners and the strategic sourcing professionals responsible for the category be consulted for these assessments.
As a point of important comparison, we are hard-pressed to find any categories along the temporary staffing spectrum that would not materially benefit from a VMS and staffing MSP supported contingent labor program.
The decision to bring an individual SOW or category of SOWs into program scope should be broken into two separate questions or decisions to be made:
First - Will the program technology / VMS adequately support and enhance the desired lifecycle support (i.e. sourcing, contracting, treasury management, etc.) of the SOW or SOW category being considered?
Second - Will the program service provider / staffing MSP adequately support and enhance the desired lifecycle support of the SOW or SOW category being considered? This is an especially important consideration for pre-award activities (i.e. sourcing and contracting).
SFS recommends that client organizations contractually enable these two separate decisions to be made independently. A large population of SOWs (not just the high-dollar, strategic ones) are kept out of the SOW program scope because of the close correlation between technology and services to be applied to any and all SOWs that come into the program. This one-size-fits-all approach to SOW program governance is a huge constraint to program growth and runs contrary to individual SOW outcomes and SOW category strategies.
All SOWs can benefit from the pre and or post-award support of a VMS, even the high-dollar, strategic engagement SOWs… assuming appropriate pricing has been obtained to fairly support “Big SOWs.” (Again, SOW Program Pricing article coming soon!)
High-dollar, strategic engagement SOWs typically do not benefit from staffing MSP support post-award and especially pre-award… at virtually any price. Here’s why:
Traditional staffing MSPs do not possess the appropriate functional expertise (i.e. sourcing, contracting, category management) to meaningfully support these SOWs pre-award. Rather, internal resources (the company’s Sourcing function) should be prioritized to handle these types of strategic SOW engagements - they should not be outsourced to the staffing MSP. Any staffing MSP that suggests otherwise should be examined closely and references checked. (There is a good argument to be made that this applies to all SOWs pre-award, as well.)
Most of the post-award activities for SOWs can effectively be embedded into most VMSs, leaving little value for the external staffing MSP to deliver. For instance, treasury management (invoicing and payments), budget compliance, cost allocations, spend data visibility, facilitation of SOW amendments, etc. The one caveat to this is if the organization has a large number of high-dollar, strategic engagement SOWs that they need to scale for operational efficiencies. But that is not the typical MO for these types of SOW categories. There is a bit more to this explanation, so happy to take your calls to discuss it further, and yes it is also the topic for a future article.
Configurability of the technology layer and the service layer to align with SOW lifecycle best practices and SOW category strategies should be among the heaviest weighted selection criteria when considering new or replacement VMS and MSP partners.
Sourcing For Services
As you can see from a quick scan of our website, SFS not only offers strategic sourcing, category management and procurement consulting services, we are also a managed services procurement provider (aka a “SOW MSP” not to be confused with a staffing managed service provider). It is from this program management experience and our team’s 20+ average years of experience supporting sourcing projects, program implementations, and VMS & MSP sourcing initiatives that we share this information with you, the reader. We of course know that there is much more to the overall SOW story, much more than we could possibly fit in a single article of this type. We will continue to tackle the real issues and opportunities confronting SOW spend management and program stakeholders in future postings. If you are a prospective client and want to have that conversation sooner rather than later or you are a potential MSP / VMS partner considering SFS support for your existing SOW clients, then just click below to get the conversation started today.