Not Every SOW Belongs In Your Contingent Labor 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 MPS, 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 as the primary determining factor 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. We will post an article on First Generation SOW Programs later, so stay tuned.
Most programs are run by technology and service providers, often external to the organization, 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 if for no other reason than to lay the foundation that SOW categories cannot and should not be 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 allof its available resources to get work done. However, and this is the key to proper utilization of the various contingent labor categories, once the path to getting work done has been selected in the mature or maturing organization, the category strategy, sourcing and operational plans should take over. In the case of the program model, that means the category path should be fully supported by program capabilities, both technology and services.
Expanding the Program Scope to Include SOW
There are three guiding tenets for deciding what types of services, those 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 fully leverage program capabilities;
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; 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).
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 program benefits of using a technology or VMS to support pre and post-award SOW activities often does not correlate with the support capabilities of a program service provider or staffing MSP. These two program support providers should be considered exclusive of each other and not combined into a common business case or decision. We recommend making the decision about internal vs external SOW service provider, and then selecting the provider if external is the decision, prior to selecting the VMS. Yes, that is a topic in and of itself and one that will be fully explained in a later article.
· All SOWs canbenefit from the pre and or post-award support of a VMS, even the high-dollar, strategic engagement SOWs… assuming appropriate pricing has been obtained.
· High-dollar, strategic engagement SOWs typicallydo notbenefit 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 sourcing and contracting skills to actually support SOWs pre-award and most of the high value post-award support from staffing MSPs can actually be embedded into most VMSs, leaving little value for the external staffing MSP to deliver. 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.
Sourcing For Services Consulting & Advisory
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 procurementprovider (aka a “SOW MSP”). It is from this program management experience and our team’s 20+ years (average experience) of supporting projects, functional transformations, program development, 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 this type article that people would actually read. We will continue to tackle the real issues and opportunities for SOW spend management and their stakeholders in future postings. If you want to have that conversation sooner rather than later or want to engagement our SOW MSP, technology evaluation or strategic consulting services, then just email me or call.