In this guest post, the third in a series on tackling complex spend, Procurement Leaders invites Vantage Partners’ Danny Ertel and Mark Gordon to reach into the procurement toolkit to look at ways of extracting value from complex services sourcing.
Last month we looked at engaging reluctant stakeholders to improve the value equation in complex professional services. The natural progression from there is to consider how a proven strategy in the procurement toolkit can add value without creating the same kind of resistance than accompanies questions about moving away from preferred providers.
Buyers of legal, consulting, and marketing services have traditionally allowed their preferred providers to bundle a set of related but different services and deliver them together at a fairly steep premium.
To be fair, "one-stop-shopping" does offer some convenience to the buyer, and better integration of the bundled services. But sometimes the bundling is also just complacency.
Advertising agencies used not only to advise on marketing strategy, but they designed the campaigns, prepared the creative elements, and made the media buys to carry out the campaign. Media buying and logistics have been successfully decoupled from strategy development and creative work; but there is still room to disaggregate other elements of the marketing and advertising supply chain. What becomes critical is having the process and the relationships to connect the dots.
Law firms have long bundled along with their legal advice document creation, management, processing, and filing. As modern communications created a tidal wave of documents to review in litigation, law firms staffed up to get the work done and made a tidy profit at doing so. But in recent years, new types of providers have entered the market, offering a range of technology-assisted, more "paralegal-like" services.
Just because some lower-value services have, through habit and convenience, become bundled with the more valuable services these suppliers deliver does not mean they must remain so.
The benefits available from unbundling and re-sourcing lower value tasks are significant. New entrants are applying technology, process expertise, and a global talent pool in a way that many traditional firms offering higher end complex services have failed to do. And the benefits go beyond cost savings; the use of technology and rigorous quality assurance process in many cases improves the quality of these lower-end (but voluminous) deliverables.
Assigning the right tasks to the right resources also tends to result in staff who are more engaged in the activities that comprise their main job, rather than resentful of the time they are spending on something they feel overqualified to do. Careful analysis of which tasks should be assigned to which resources – be they internal, at a traditional supplier, or another third-party – also often identifies opportunities to in-source some activities that have been externalized at fairly high costs because they were treated as “part of” a broader assignment.
Next month we’ll take a look at another potential go-to sourcing strategy – the consideration of alternative pricing models that may bring greater predictability, lower risk, and/or better alignment of incentives.
Danny Ertel & Mark Gordon are partnersat Vantage Partners.