Nothing makes a CFO grumpier in reviewing the P&L than to stumble across an enormous “Other” expense line. Over the past few years, CIOs and CPOs have been disproportionately on the receiving end of the grumpiness, given the repeated appearance of abnormally large contract labor and services “Other” spend.
So how can it be, then, in an environment where over 80% of CFOs are searching for cost savings to free up capital for investment (Gartner Group), that companies haven’t figured out how to tap into this—last remaining—”dark pool” of expense?
Well, there are four reasons:
1. No Visibility into the Work: Knowledge of the work being done has been hard to access, historically trapped inside (natural language) job descriptions and statements of work (SOWs), both of which are disconnected to the spending and supply chain data spread out across Finance, HR, and Procurement tech systems. With no visibility into the work, neither Procurement nor Finance have any real comprehension of enterprise stance vs benchmarks.
2. No Control over Buying Decisions: By outsourcing management of Extended Workforce program governance and sourcing to Managed Services Providers (MSPs), enterprises are placing decision-making authority in the hands of suppliers with misaligned incentives. Whereas business units and Procurement teams hope only to spend what is necessary to procure labor, traditional, third-party sourcing organizations are paid according to volumes transacted – the more they spend on labor, the more they get paid.
3. No Intelligence for Front-Line Buyers: Finance alerting the buyers that they’re overspending isn’t helpful for services or contingent work already in motion, as project owners have logical concerns about disrupting project deliverables or getting “traded down” on quality of resources. Instead, Finance needs to provide decision-support at the time of purchase to ensure the front line is buying what it needs at the right price.
4. No Scale in Operations: Given that the services business model has few barriers to entry and enterprises have only growing needs for labor, even well-run organizations often have hundreds of suppliers. They also have an equally large number of front-line requisitioners, making it difficult to change buying habits or influence supplier outcomes through strictly human intervention.
The bad news is these challenges are intensely difficult to resolve and have mission-critical implications for CFO and enterprise objectives. The good news is technological solutions exist. Companies can indeed flip the script on all four of these barriers to progress, and in the process drive better alignment between the Procurement and IT teams to optimize their Extended Workforce spend.
And, here's what you should do:
1. Create central spend visibility with federated access: Benchmarking unit prices for the true-market value of work has proven to be a terrific application for artificial intelligence. Thus, enabling the normalization of job and service definitions within and across companies and making a market out of services. And, rather than keep this intelligence locked in central admin teams, the best companies empower their teams and business partners to better manage their cost base by distributing the intelligence and decision support.
2. Insource governance and control of Extended Workforce management: Too often, companies with fully outsourced programs abdicate accountability on the metrics and tools to govern and manage their workforce programs, choosing to live or die on the performance of their MSP. Given fast-changing market conditions, some amount of foundation for workforce program ownership and autonomy is requirement for success, regardless of whether they have an MSP for administrative and execution support.
3. Provide decision-support to the front-line: Artificial intelligence has made it possible to provide guidance to the front-line at the time of requisitioning, helping business buyers design jobs that are fit for purpose and optimize skill, location, and level/seniority tradeoffs to meet speed, quality, and cost objectives.
4. Automate supplier management and negotiations: With the market data now available to know what buyers should pay for what work, Finance can now empower Procurement and IT with the digital decision support and buying guidance to negotiate with suppliers in a systemic, fact-based way, based on target business outcomes and relax historically tight controls from the corporate center on negotiating rates and terms.
Despite how they may read, these opportunities are not science fiction but are instead practical reality, enabled by intelligence platforms like that offered by Brightfield. For those interested in learning more about how to unlock the potential of their extended workforce, please reach out to us directly, and learn more about how other companies have driven breakthrough business improvement outcomes with Brightfield’s AI-powered extended workforce intelligence platform.