contingent workforce complexity is growing
Organizations are increasingly turning to a more diverse pool of flexible talent to execute mission-critical tasks. As they do so, one class of workers has become especially important in the mix. Statement of work (SOW) contractors can account for a significant portion of a contingent workforce program’s spend, but many companies lack consistency of engagement and oversight, resulting in cost inefficiencies and inconsistent results.
To remedy this, buyers of managed services programs (MSPs) have begun incorporating more aspects of SOW spend into their MSPs. In doing so, they impose the same rigor and governance that have been applied to other parts of their flexible workforce, creating significant opportunities for savings and accountability.
According to Staffing Industry Analysts (SIA), MSPs reported 25% growth in SOW spend for 2014, the latest year for which data was available. While growth has slowed in North America, this portion of the market is still expanding more quickly than most.
SOW talent poses a different set of challenges for both contingent talent leaders and their MSP providers. In this article series, we’ll examine the unique requirements of managing SOW workers and how you can optimize results to support your workforce strategies. We’ll share insights to help you:
- better leverage SOW talent throughout your organization
- gain visibility into spend and manage it strategically
- build a business case for integrating SOW into an MSP
In this installment, we begin with an overview of how SOW arrangements differ from other types of contingent labor management, and how organizations engage with this talent class.
development of the SOW workforce.
SOW use is expanding across all industries as employers seek ways to become more agile. Technology and healthcare are among the sectors with the highest deployment rates. More recently, maintenance and manufacturing are increasingly turning to SOW workers.
There are industry differences in how to engage SOW talent. For example, in healthcare, manufacturing, assembly and repair, this class of talent is typically employed onsite. Meanwhile high-tech organizations and companies that rely heavily on knowledge work are much more likely to use SOW contractors or consultants who work remotely, including those based offshore.
Indeed, international sourcing of knowledge workers is becoming ubiquitous. Advancing technology, along with the increasingly global reach of MSPs, gives employers access to a rich global talent pool. Asia and the Indian subcontinent in particular are prime targets for companies in North America, Europe and Australia seeking to augment staff with critical skills at competitive rates.
If your company includes SOW providers in its contingent workforce mix, how do you procure and manage them? Who creates statements of work and according to what format or template? How do you ensure you are using the right blend of SOW contractors with other external and internal talent? Who monitors milestones?
If you struggle with answering these questions, you’re not alone. If you have an MSP in place, your company’s SOW spend may be even more hidden from view, because many programs don’t include SOW management. Hiring managers and suppliers often use this class of talent to keep their activities outside the reach of contingent workforce managers. Maintaining SOW procurement as an element of tail-spend is a common “unofficial” practice among larger organizations, but this approach negatively affects costs and the effectiveness of project management.
what is a SOW?
A statement of work is a document containing binding conditions for a worker’s contribution to a specific project. It is used as a control document by the employer, the contractor and a supplier, when one is present.
An SOW typically contains the following:
- the nature and purpose of the project
- the scope of work and precise details of the tasks to be performed
- the physical location from where the external worker will perform the tasks
- the project timeline, including the estimated number of working hours per week or per month
- a schedule of the external worker’s deliverables, including delivery dates
- a set of quality standards describing the hiring company’s expected standard of work
- general terms and conditions under which the project will be managed and the work performed
- acceptance criteria, providing descriptions to explain what constitutes a completed deliverable
- pricing and invoicing details for the arrangement between the hiring company and the service provider
The solution is to integrate SOW suppliers into your MSP. Service providers are now embracing SOW management under three primary delivery models:
service procurement administration
Your procurement team works with the hiring manager to develop the SOW and select a supplier. The MSP then takes over management, handling tasks such as:
- onboarding individual workers as supplied by the SOW vendor
- managing compliance with the SOW agreement
- progress monitoring
- milestone administration
extended service procurement
The MSP owns the following additional elements of SOW procurement:
- participation in buyer/supplier negotiations
- managing payments according to the terms of the SOW
- analysis of resource utilization and cost
- identification of potential cost savings/resource utilization improvements
service procurement full lifecycle
A suitably equipped MSP should be able to offer full management capabilities for the entire lifecycle of multiple SOWs. In addition to the services provided in the other two models, this also covers:
- developing SOW requirements with the end user/hiring manager
- drafting the statement of work
- managing the RFx process and evaluating vendor responses
- provision of strategic sourcing expertise and tools
- maintenance of a repository of active SOWs
- management of frameworks across markets
- leveraging best practices to optimize compliance and maximize value of SOWs
tangible benefits of integration.
Regardless of which model is implemented, there are substantial benefits from shifting SOW management away from hiring managers to the MSP. Visibility is a primary benefit, as is the ability to ensure SOW procurement is compliant. Meanwhile, worker classification, which is becoming a growing risk for many employers, can be safely managed by the MSP. This frees your team to focus on core tasks rather than hazard avoidance.
By centralizing contingent workforce spend, your company can also take a more strategic approach to sourcing and resource deployment. For example, your MSP should have analytics capabilities enabling informed decisions to be made.
Regardless of which model is implemented, there are substantial benefits from shifting SOW management away from hiring managers to the MSP. Visibility is a primary benefit, as is the ability to ensure SOW procurement does not remain a maverick element of expenditure.
total talent management: a business imperative.
The days of internal workforces supplemented by a relatively small pool of temporary staff are over. Several factors are behind the change, with more workers choosing a contingent career path that includes limited-term assignments. At the same time, the great recession taught employers that using flexible workers can help them become more agile and scale with business cycles.
These changes require renewed thinking about how your company sources, engages and retains talent. Procurement and HR must work even more closely to satisfy talent needs, dissolving the silos that separate employee and contingent staff management.
Total talent management looks beyond traditional questions such as “Should we hire an employee?”
or “Do we fill this skill gap with external labor?” Instead, organizations are looking toward a broader landscape and asking, “Do we have this skill within our available talent pool, and if not, how can our MSP help?”
In the next article of this series, you’ll find out more about total talent management as a business imperative and the value of integrating SOW into a centralized MSP.