BlogConquering SOW Spend: The Unrealized Next Big Thing

by Steve Knapp, Vice President, Consulting

I’ve been hearing for years that the contingent workforce industry is at an inflection point, and that Statement of Work (SOW) spend is the next frontier of Contingent Workforce Management (CWM) programs.

While we have seen a slight uptick in SOW spend under management within more mature CWM programs, the SOW revolution just hasn’t come to fruition yet. Typically, SOW spend is more than twice that for temporary agency worker at most organizations, yet the SOW spend under management only accounts for about 30% of total VMS spend and about 13% of total MSP spend.

 

What’s Holding Up the Revolution?

The reasons why SOW management adoption has been slow are varied but straightforward. Chief amongst the challenges that organizations face are:

  • Lack of buy-in from internal stakeholders
  • Limited data required to build a solid business case
  • Reliance on the same people, processes and technologies that are used for temporary agency worker spend

The good news is that some organizations have had success incorporating SOW into their programs and there are a number of lessons learned from those initial successes.

 

The Four Things Successful Organizations do to Incorporate SOW

  1. Engage the Business in Governance: CWM programs often talk about governance. They focus on corporate functions and C-level executives. These consulting organizations are often positioned as mission critical and unique. Suppliers do a great job of convincing engagement managers that centrally managing all SOW spend is not in their best interest because it will negatively impact the business and each SOW is so unique. This is a tactic designed to allow consulting organizations to charge premium rates for services.When you start to bring key business leaders into the governance structure, you can directly address their concerns about negative impacts to the business while creating key advocates to help affect change. To convince the business leaders of the importance of such a program, focus on the benefits to the business rather than the more corporate benefits of cost savings and risk reduction. Walk a mile in their shoes if you expect them to join you.
  2. Make an Investment: The expression “you have to spend money to make money” is one of my favorite business axioms, and it holds true in the arena of managing SOW spend. Let’s say you have $100M in SOW spend. A typical savings on this is on average 10%, and can often be 20% or more. A little investment in the right people and right tools for managing SOW spend can have significant return on investment. If you spend $1M, your ROI can be 10-20x.So why are so many companies content to manage complex services using Excel spreadsheets and fractional headcount? With companies slow to invest in SOW management, VMS and MSP providers have followed suit.    Organizations with a contingent labor component need to invest in feature functionality around full-lifecycle SOW management. This investment should include providers with services procurement and consulting backgrounds.
  3. Hire the best: The CWM industry is filled with individuals that come from a staffing and recruiting background. That makes sense in an industry born out of a need to manage temporary staffing providers. Staffers and recruiters are great when it comes to working a standard temporary labor However, they often lack the experience and skills required to establish best practice processes, determine ROI drivers, and develop program policies for managing SOW spend. To  manage a new category of spend, you need people who understand how to bridge the gaps between stakeholders throughout an organization. It is incumbent upon providers to invest in these people, but it is also incumbent upon buyers to ask for these people.
  4. Consider a different solution: There are dozens of organizations that have taken a different approach to managing their SOW spend. Namely, that they have insourced the SOW spend while using an outsourced MSP for the traditional contingent spend. This is one possible solution, but there are many others.

Fundamentally, I believe that companies need to assess the processes, roles and responsibilities for SOW spend management. Laying down fresh approaches and strategies achieve breakthrough results.