Spend Management

[Today’s guest contribution was written by Paul Vincent, Global Head of Services Procurement at Randstad Sourceright.]

The origins of modern commerce can be traced back to the eighth century in India, where early organizations, called shreni, first started to emerge. Shrenis were associations of crafts persons and merchants and the people who worked for them performed various functions. They provided services such as training, the purchasing of raw materials and the distribution of finished products.

In all the time that has followed since, the world of business has undergone tremendous amounts of change. But the one constant is that few, if any, commercial organizations are ever likely to be totally self-sufficient. They will always need to spend a proportion of their operating costs on some form of external services support.

With more than 1,200 years of practice under our belt, you would think that we’d have the procurement of external services down to a fine art. Requirements would always be well-considered and clearly articulated. Service providers would know exactly what they have to do and how their customers will be judging their performance. Price negotiations would always be fair and equitable. And all parties would be working seamlessly together to create bi-directional best value.

Unsurprisingly, this is not the reality of the business world we live in.

Buying services involves people, and people have different perceptions of value. People have different tolerances of quality. They have differing levels of budget, knowledge, patience, urgency, and ambition.

Every day we talk to organizations who would like to buy services better, who know they should be buying them better. Some are not sure what they need to do and how to do it. Some know what to do but they never quite get around to doing it. Some are ready and willing, but they are waiting for someone else to make the decision for them before getting on with it.

And this is precisely why services procurement should matter to your CEO. 

Firstly, because a CEO is ultimately responsible for maximizing shareholder value. And if they are to do that, then they need to be aware of what might be diluting it too.  It is highly likely that the assumed ROI of procured services is being negatively offset by the inefficiencies and procrastination embedded in your organization’s buying processes.  For example, according to the World Commerce and Contracting association (formerly IACCM), the most frequent source of claims, disputes and disrupted relationships is due to poorly drafted contracts, most notably around the scope and objectives of the work.

Here are five insights that your CEO should have ready access to:

1. How much is your company spending on external services in their entirety?
2. How much is your company spending on different types of services?
3. How has your company’s spend profile changed over time and what is driving that change?
4. Who are your company’s key suppliers and how strong are your relationships with them?
5. How do your company’s buying processes compare to recognized best practices?

If these insights are not readily available to your CEO, then it is implausible to claim that shareholder value is being maximized.

The second reason why services procurement should matter to your CEO is because they are the guardians of your organization’s reputation. There are increasing legal and compliance risks associated with the engagement of external service providers, such as disguised employment off-payroll, and so it is crucial that executive leadership are not only wise to these risks but that they implement appropriate and workable mitigation strategies, too.

The third and final reason is because CEOs need to ensure their organizations are continually scanning the market for competitive advantage. Organizations that purposefully adopt a win-win approach to their engagement of external service providers are much more likely to become a customer of choice. Customers of choice are much more likely to be given access to the most current, innovative, and progressive thinking from their service providers because the relationship is mutually beneficial.

Clearly a CEO should not be spending their time down in the weeds of spend analytics, contract negotiations, and supplier relationship management. However, at the macro level, if they can’t be certain your organizational approach to buying services is fit for purpose, it could have serious repercussions for the long-term health of your business.

Connect with Paul on LinkedIn, or visit Randstad Sourceright for more information on their solutions and offerings.