In this guest post, the first in a series on tackling complex spend, Procurement Leaders invites Vantage Partners’ Danny Ertel to look at where and why businesses are frequently unable to get a grip on these areas.
Global spend on complex professional services is now in excess of $1.5 trillion per year, yet the procurement of these services is still largely unaddressed by many procurement organisations.
In this series, we will consider why the ingrained resistance to managing this category is so difficult to overcome and how procurement can begin to ‘change the game’ and offer some strategies that are proven to add value in these categories.
Change is in the air, but it is never easy
Technological change, globalization, and the general belt-tightening of a prolonged economic downturn, have tilted the playing field, simultaneously reducing demand for some of these services while increasing the number and variety of qualified providers.
As the traditional buyers of complex services have found themselves enjoying greater leverage with providers (and faced some greater scrutiny from the CFO), they have also started to find that sophisticated procurement teams can help them make smart use of that newfound bargaining power.
Law departments have become more open to supplier consolidation, and a few are even looking at outsourcing and some different kinds of fee arrangements. Some Marketing Departments are showing more openness to having a procurement team help with contingent fee arrangements, managing a more complex content supply chain, or implementing the scorecards necessary to manage new kinds of agency relationships.
Looking across these services, we find some common obstacles:
Spend on complex services remains largely decentralised and fragmented. It is driven and managed directly by individuals in business units and functional groups, working iteratively and intimately with their chosen service providers, and with no oversight by, or accountability to, others in the organisation.
Buyers of marketing services, value the creativity their agencies bring and trust their own ability to drive competition among vendors based on the quality of their ideas rather than their rates. Giving up their role as arbiters of great strategy and visuals is decidedly unappealing.
Suppliers have often built relationships with fairly senior buyers (and the stakes are typically high), consequently these buyers can often ignore procurement’s assertions that a sourcing exercise would be worthwhile. The potential savings in the cost of the services are always outweighed by the risk of an unfavorable outcome from the work itself.
Lack of domain expertise
Given this history, most procurement teams lack expertise in the complex services categories, at least in comparison with other categories. But when procurement comes calling on relatively senior stakeholders who are protective of their turf (and their favourite professionals), and they do so without clear ideas of how they might add value and without a firm command of the specialized vocabulary and the ways in which these suppliers work, they arm their prospective internal clients with the very ammunition to resist.
Overcoming resistance is difficult, but not impossible. Next month, we’ll share some observations about ways procurement can begin to engage these reluctant shareholders. Hint: it’s about solving their problems, not logging savings.
Danny Ertel is a partner at Vantage Partners.