bringing SOW under proper spend control
The first two articles in this series explored the facts regarding SOW workers, suppliers and the opportunities afforded by bringing them into a managed services program (MSP). In this final installment, we’ll look at creating a business case to integrate SOW into your MSP.
To begin, let’s focus briefly on defining SOW and the role it plays within your organization. The obvious question to start with is, “How much do you know about the use of SOW workers within your company?”
In many larger companies, the acquisition and management of SOW workers is often decentralized and controlled by the business units or the functional departments that utilize them. In fact, the use of SOW workers is a classic ploy used to hide external staff headcounts and avoid approval workflows or tenure policies. Often, business leaders that use SOW contractors don’t consider these as talent but rather an external service and, therefore, fail to consider the compliance aspects of this type of labor.
So if you feel that you lack visibility into SOW spend, you probably do. Fortunately, that’s good news in terms of building the business case for bringing SOW under proper spend control.
SOW under the MSP model.
Before you can make a concerted effort to create your business case, you need an idea of how much uncontrolled tail spend is incurred through the unmanaged use of SOW workers. This is rarely an easy task, because tail spend flies under the radar of procurement and is seldom properly documented, let alone identified by data that can easily be reported on or visualized.
Therefore, understanding the potential value of shifting SOW workers to your MSP will require a deep-dive exercise involving all hiring managers in your organization. As an indication of where to look for value, it might be found in:
- eliminating over-the-top billing practices by suppliers
- reducing security threats caused by incomplete offboarding processes
- reducing risk of worker misclassification
- improving management of the overall talent pool
- reducing costs for administration and invoice processing
Once you have a picture of how, where and why SOW suppliers are being used in your organization, you can begin to quantify the savings and improvement opportunities that will cement your business case for change. The first challenge is gaining support from business units in providing this initial visibility.
address common misconceptions early.
While the picture of SOW usage might seem elusive, you can gain the support of hiring managers with the right approach to discovery.
The key objective should be to satisfy managers regarding their concerns about the MSP approach. Common misconceptions include:
- Incumbent talent will be retained only until projects are completed. In many cases, an MSP can continue to turn to the resource on future projects.
- Hiring managers’ business needs will no longer be served effectively. An MSP can provide both strategic and administrative services to ensure high user satisfaction.
- Managers will lose access to SOW talent in the future. An effective MSP program optimizes the supply chain to retain valuable talent, providing hiring managers consistent access.
By allaying these natural fears and clearly communicating the issues and details of what is at stake, you should have little problem getting hiring managers to provide the information you need.
In addition to gaining buy-in from line leaders, you will need to involve colleagues in HR, procurement category managers and perhaps a legal specialist to look at the potential worker classification issues and compliance exposure. You might also want to include a change manager at this early stage since an impact assessment will be worthwhile to underpin change management efforts as the project progresses.
gaining buy-in from SOWs.
SOW consultants and contractors might prove to be resistant to any change toward an MSP-managed model. Some will know that their rates will not be justifiable under this model. Furthermore, they may not like the idea of having to fund their place in the workforce ecosystem, which will be a necessity under a typical supplier-funded MSP model.
However, SOW cooperation is necessary only after your business case is approved and the change process begins. At that point, your MSP will be the most appropriate agent of change to attain buy-in from suppliers, contractors and other SOW workers.
Many organizations are also challenged by the capability and experience level of their current MSP partner. For example, your existing MSP may not be suitably equipped or experienced to integrate SOW effectively into its management model. Depending on the needs of your organization, you may need to consider the benefits of working with your MSP to switch providers, if feasible.
If your MSP has the necessary capability for SOW management, your initiative will have a good head start. The next question might be around its ability to manage a global supplier base. If your company uses a large number of knowledge workers, it’s possible that existing SOW vendors will be based offshore. Offshore resource management is a specific challenge MSPs increasingly are addressing. You may need to make a tough decision: do you cease working with a senior manager’s favorite offshore software developer, or do you address the capabilities of your MSP?
In addition to the competencies of the MSP, the technology tools at your disposal may also need review. Some VMS solutions, for example, do not yet have extensive 1099 or SOW management functionality. A number of companies implementing MSP-managed SOW have had to invest in customized VMS modules or software upgrades, so this is something you need to factor into your plans.
the role of your MSP.
The role of your MSP provider in building a business case will largely depend upon which management model you pursue. Three key models were explained in the first article of this series: service procurement administration, extended
service procurement and full life cycle service procurement.
At the very least, your MSP provider should be prepared to assist in the discovery phase of your project, as well as to evaluate its own capacity, capability and technological ability to incorporate SOW into the management model. At the other end of the spectrum, if your provider offers full life cycle management, its representatives will be involved from the outset, from project scoping to cost evaluation and strategy development. More than anything else, your company’s success in starting the journey to total talent management will depend upon your MSP provider’s ability to manage the complexities of SOW talent.
When it comes to MSP management of SOW workers and suppliers, what does success look like? The answer will differ according to your company’s objectives.
There are many scenarios for success, including:
- total visibility of all contingent worker spend
- confidence that misclassification liabilities are at a minimum
- reduced supplier rates for highly skilled and specialized talent
- top talent acquired for every project
- improved buyer/supplier relationships
- elimination of single-source contracts
- access to a continuous pipeline of talent
- more projects completed on-time and on-budget
These are but a few examples of how you might identify a successful total talent management program. None of them are very likely while your SOW workers are hidden from your sight. The best outcomes in talent management depend on visibility and well-managed, streamlined procurement processes.
This is why MSPs can be one of the most effective resources available to contingent workforce leaders. More than administrative, SOW services offered by leading service providers today are highly consultative, increasingly strategic and integrated with a client’s overall workforce strategy. Not only can they provide greater spend clarity, but MSPs can share best practices around SOW engagement and utilization, leading to significant cost savings and project outcomes. Most importantly, providers can minimize complexity while still offering a robust suite of services.
As organizations expand their use of contingent talent, including more SOW engagement, they need to embrace a more inclusive approach to talent. In the past, SOW talent was typically left out of contingent workforce programs, but companies now realize the benefits of encompassing all talent types under one management view. It’s the perfect opportunity to turn to their MSPs for guidance in SOW strategy, management and outcomes.