Professional services

A lack of support, resourcing or adequate training can prevent buyers of professional services from doing their job. CPOs can help them deliver value by providing scope to develop greater expertise

 

Autumn 2010

 

By Paul Vincent

 

Economic and market conditions have forced most organisations to review their non-core spend. Many have been busily deploying a full armoury of procurement tools and techniques on their use of consultants and other professional service providers.

As revenues, margins and opportunities  have shrunk for the professional services industry, you could argue this has been a procurement job well done. But has this procurement armoury delivered a better understanding of what constitutes best value? Are organisations now realising better business outcomes from every pound they spend because of an improved focus on procurement? Or, in reality, is it just that organisations are merely getting the same as before, only for a lower price and from fewer sources?

Professional services buyers face an intricate challenge. Fiona Czerniawska and Peter Smith’s new book Buying Professional Services sums it up neatly: “It is not easy to buy professional services because of their intangibility and the lack of objective information to support purchasing decisions. It is also clear that although professional purchasing has a role to play, the involvement of internal stakeholders in the purchasing and supplier management process is crucial.”

CPOs should be aware of just how dependent their colleagues, senior executives and the organisation as a whole may be on professional services support. Perhaps having had to engage professional support services themselves, senior procurement managers should appreciate the underlying politics that surround this spend area. There is no other spend category that requires as much careful navigation around the corridors of power in an organisation and no other category is comparable when it comes to the challenge of justifying procurement’s involvement in a purchasing decision.

Staying close
Against such a background, CPOs should be staying as close as they can to activity in this category. Alternatively, they should be ensuring that the experience and capabilities of the category manager and the team is up to the task.

Yet if you compare the level of category management maturity for professional services with, for example, IT hardware, the standards of procurement involvement and influence fall far behind. In a survey of 31 global blue-chip organisations run by the Consultancy Sourcerers Group, the average level of procurement involvement in a consultancy purchase, at the point where buyers can really influence the decision, rarely exceeds 20 per cent.

This means that 80 per cent of the opportunity to make savings is missed. However, to break this pattern and address those missed savings requires not only practical senior level help and assistance but also skills and capabilities at category management level that are not usually covered by traditional procurement training programmes.

I have certainly grappled with the challenges of this category myself. As BT’s procurement director for recruitment, consultancy and professional services between 2007 and 2009, I was the architect of a category transformation initiative.

What did we achieve? We focused our attention on introducing an effective business process within the company for buying professional services. Records showed that since 2005, BT had used more than 550 consultancies ranging from strategic operations to one-man band
consultancy and contractors.

Historically, procurement had been peripheral to the consultancy engagement process and was typically only brought in at the purchase order stage. In July 2007, procurement was involved before supplier selection and negotiation was completed in under 10 per cent of engagements. Although a preferred supplier list was in place, more than 70 per cent of engagements were awarded to firms that were not on it.

Eighteen months later, BT’s approach to managing consultancy spend was transformed. The organisation now engages consultants within an automated, end-to-end decision framework that is centred on the benefits and outcomes of each engagement.
The procurement team oversees each element of this framework and are now involved from the point at which a consultancy need is identified, rather than being brought in at the eleventh hour to do the paperwork.

A strategic sourcing exercise that ran in parallel delivered a new preferred supplier list containing around 60 firms, mapped against 12 categories by capability and commercial value – with similar-sized firms clustered for benchmarking purposes. Average rate card savings of around 30 per cent were delivered within the sourcing exercise.

Compliance measured from when the new preferred supplier list was introduced in November 2008 up to now is over 94 per cent. In addition, the time taken to contract is dramatically shorter, teams using consultancy services can choose from a range of suppliers that all have validated capability, and the business can quickly identify where similar projects are being run, thus maximising the opportunity for shared learning from all engagements.

Some of the specific elements of the programme included:  

• reviewing the overall definition of “consultancy” – in particular, distinguishing it from “resource”.
• being more specific about the different types of “consultancy” required.
• executive leads in each BT line of business validating the “need” for consultancy projects in their teams so demand was much more rigorously managed;
• predicting the likely demand for consultancy support, based on known business challenges;
• introducing a requirement to specify project benefits more effectively;
• implementing supplier selection guidelines that made sense to the business;
• simplifying and automating the approval and purchase order process;
• introducing the concept of more rigorous performance evaluation.

What sort of issues or objections get raised in discussions about introducing similar initiatives in their own organisations? You might get replies like these:

• “This would be great here but I will never get internal support to do it”;
• “I am only measured on negotiated savings. I am not measured on anything to do with the internal business effectiveness of my category.”
• “This is going to be too radical for my CPO.”

There are three key issues and problems of particular note that CPOs should be aware of:

1 | Lack of knowledge
The absence of obvious procurement understanding in what is being bought and consequently what represents value for money can be a barrier. Originally, I thought this complaint was a smokescreen that service providers and internal stakeholders used to avoid talking to the procurement function. However, it does in fact appear that many professional services buyers may be insufficiently capable of judging the quality of the services they are buying.

2 | Lack of desire to learn
An apparent lack of interest from professional services buyers in developing this capability. There is little questioning from buyers on the content or detail of a particular proposition – this is almost exclusively left to the internal stakeholder. Of course, it is crucial that stakeholders take the lead on this part of the discussion, but it has been quite striking how little involvement buyers seem to want to have themselves. This could, however, be more to do with the time they have available.

3 | Lack of resources
Let’s do some basic maths: even a small buying organisation, spending around £10 million a year, with an average purchase value of £100,000, will leave the category manager with 100 purchases a year to manage. That’s about two potentially complex buys to manage a week before undertaking any strategic activity such as developing a category strategy, or engaging multiple stakeholders and suppliers. The pressures will be higher for those many organisations that spend more than £10 million.  

In order to help professional services buyers to deliver genuine value, they need to be “liberated” and given the proper support. Here’s how CPOs may approach this:

• Apply the right success measures. The measures applied to professional services buyers should not be the same as category managers in more mature categories. For example, it would be unfair to compare the work of a professional services buyer with that of an equipment category manager, who has to manage a much smaller number of stakeholders and suppliers in a marketplace that typically collapses in price each year. The challenges of managing professional services spend are different and should be judged accordingly. As a consequence, there is a rapid turnover of category managers in this field, with professionals often seeking an easier procurement life elsewhere.
• Win backing. Encourage your buyers to focus on the end-to-end business process for engaging professional services support, not only the traditional procurement bits.  They need to ask questions such as: how well is spend evaluated? What benefits or outcomes are stipulated? How are professional services suppliers compared? How are needs identified and defined? How is overall demand managed?
• Resource adequately. Alternatively, help them to prioritise what they will need to say no to. Professional services buyers can be extremely pushed, especially during the transitionary period to a more inclusive way of managing the category. You could also be open to more innovative ways of managing the workload. For example, there are lessons to be learnt from the managed provision of temporary labour and supplier-funded models for professional services do already exist.
• Ask your buyers to create an ‘internal politics’ action plan. This should sit within their overall category strategy. Take a personal lead on influencing some of the senior stakeholders to adopt a more inclusive approach.
• Internal dynamics count. Encourage your buyers to learn as much as they can about the dynamics of your organisation and why/when professional services support is typically required. Share your own experience. Encourage short-term secondments and shadowing in key areas. Anticipating the requirements of the business is the first step to earlier engagement.
• Encourage your buyers to join peer networks. One example is the Consultancy Sourcerers Group. They could also get more actively involved in professional bodies such as the Institute of Business Consulting. Apart from the obvious benefits of keeping updated on industry developments and meeting people with similar responsibilities and challenges, this is a strong antidote to the internal stakeholder who questions the value of the input that could be provided by your buyers.
• Develop a challenge mentality. Encourage your buyers to assertively challenge internal stakeholders and to expect professional courtesy in return. In my experience, there is a latent belief that any involvement is good involvement – but eleventh hour international rescue efforts do not represent good practice.
• Instil a business focus. Encourage your buyers to think as businesspeople who are performing a procurement role. This will help them to develop a mindset of being appropriately focused on the quality of the services they are buying.
• Take the message to the market. Re-educate the supply market and personally lead on some of the messaging. Encourage your senior colleagues to do likewise. When I managed the exercise at BT, I sent senior stakeholders a likely Q&A/“gripe script” to help them respond effectively when the consultancy firms came complaining about what procurement was doing to them.
• Provide regular reports. Ask for regular spend and activity reports and disseminate them widely amongst the senior community. You can harness the natural competitiveness of C-level executives to be seen to be doing the right thing!

CPOs have a crucial role to play in ensuring procurement is adding value in the professional services category. This spend often supports company objectives of strategic importance, involves incredibly complex requirements and can be fraught with internal sensitivities. It can also make a big difference to the internal perception of procurement and how it adds value. Why would you not want to be closely involved?