Recent surveys by Gartner and others suggest that 80% of CFOs are prioritizing cost savings and operational efficiency in order to free up capital to invest aggressively in digital transformation. This is a continuation of the trend that began in 2020, when all companies navigating the flash transition to a virtual operating environment got religion about upgrading their digital front- and back-office operations.
The business press further reports that CFOs are increasingly taking ownership for ensuring digital transformation success. It only makes sense that the most mission-critical projects in the business should receive the highest level of attention, support and rigor available within the organization. Less featured in the news but fodder for tense executive office conversations, many CFOs and Finance teams are struggling to secure the totality of investment necessary for their current array of digital transformation projects.
In business, as in life, sometimes the best answers are hiding in plain sight. Such is the case for CFOs as it relates to their digital transformation funding efforts. More often than not, they have in their direct control the solution to their financing problem: the extended workforce.
Contract labor and services—the extended workforce—is a top-three spend category for most large enterprises, and is growing by the day, with the IT services portion reporting double-digit growth over the past year. Inside of the category, on average, large enterprises are tallying up as much as $100M in wasted spend each year. So, as CFOs scour the enterprise for sources of efficiency to tap into to fund strategically vital digital investments, the extended workforce must be a top priority.
Three reasons why…
Reason #1: Organizational Domain
The two functions that are the largest consumers of extended workforce resources often report to the CFO. Interestingly, the most prominent administrators of extended workforce programs in large enterprises are not HR but Procurement and Technology. Why? Our work shows that when companies view their extended workforce through a single lens, they find that over 70% of the dollars spent are on IT or near-IT roles (i.e., the digital workforce). And, in over 80% of companies, Procurement reports up through Finance; in another 30% of companies, IT also reports up to Finance. So, ironically, the CFO typically has organizational accountability for the two functions with the direct levers of influence to fix the problem.
Reason #2: Incentive Controls
CFOs establish and adjudicate the rules of P&L performance management. All CFOs want to drive growth fueled by smart spending; yet, at the same time they create conflicts of interest between GMs and IT leaders, who are investing inefficiently due to use-it-or-lose-it capital reallocation policies. Coupled with Procurement teams, who are working to reduce run-rate budgeted spending year-on-year. Leading CFOs are figuring out how to break this compromise, incentivizing the line to drive savings to fuel re-investment within their budgets and Procurement to elevate its focus up from just re-engineering existing spend.
Reason #3: Subject Matter Expertise
CFOs and Finance teams are charged with providing decision-support to the business lines. The age of the aloof Finance team bean-counters is long over, replaced by a mandate to provide the economic intelligence necessary to enable better decision-making. Many would observe that, when it comes to the extended workforce, Finance organizations have fallen short on this responsibility. As just one example, investments over the last ten years in vendor management systems have over-focused on the contingent workforce of temporary and gig talent, motivating suppliers to misclassify their work under statements of work, yielding pricing premiums of 30-50%.
Best practitioner CFOs are embracing their roles as de-facto Chief Extended Workforce Officers and are putting in place the operating foundations to optimize spending and performance of this critical resource base. Four best practices we are seeing as we work with enterprise customers in this space:
• IT-Led Procurement: To eliminate the unproductive infighting between Procurement and IT, smart CFOs are creating specialized Procurement or Vendor Management teams within IT or specialized groups within Procurement whose incentives are expressly aligned with IT.
• SOW Visibility and Governance: Statements of work (SOWs)—the contracting addenda that specify the scope of work, deliverables, resources, and rates (among other things) for a project—are the essential source material for understanding whether the business is getting the right team for from the right source at the right price. Leading CFOs are deploying new technologies, like Artificial Intelligence, to improve the economics and risk profile of the business by shaping current and future SOWs.
• Market Benchmarking: Extended workforce unit costing has historically been seen as not possible due to the myriad work, job, and resource definitions. Innovative CFOs are tapping into shared data ecosystems, like Brightfield’s TDX platform, to normalize, compare, and benchmark roles, pricing, and spending efficiency within and across companies and at massive scale.
• Buyer/Supplier Decision Support: Ultimately, leading CFOs—and the Procurement teams that report in to them—must start adding real value to labor buyers as they requisition new extended workforce services, by moving upstream in the purchase process, using spending performance intelligence to shape behavior at the point of the transaction, rather than once the contract is almost done.
While these mandates may sound like bold best practice mixed together with science fiction, leading companies are adopting these practices, and fundamentally changing the way work gets done in support of the most pressing priorities of the business. For those interested in wanting insight into how to unlock the potential of their extended workforce, please contact us to learn more.