Taming the Wild West of
External
Workforce
Spending
It’s easier to do
than
you think. Here’s why.
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In a postpandemic world, it’s
more important than ever to have
fast, flexible access to extra capacity and sought-after skill sets.
That’s why, according to Agile
Procurement Insights
Research by SAP in collaboration
with Oxford Economics,* external workers such as contingent workers (including consultants,
freelancers, and agencies) and service providers typically make up 42% of total workforce spend.
The external workforce operates
at the core of the expertise.
More than half of executives
(55%) say their company would
be unable to conduct business
as usual without an external
workforce.
42%
of workforce spend is on
external labor
Contingent
workers
24%
workers
24%
Service
providers
18%
providers
18%
Employees
58%
58%
Together, these on-demand resources
make up the
external workforce –
and play a vital role in business agility and resiliency.
and play a vital role in business agility and resiliency.
But traditional “Wild West” approaches to sourcing and managing external workers can lead to misinformed assumptions with unintended consequences.
When business functions are free to find
and contract
with external workers
using statements of work (SoWs) and POs – without the
structure and
rigor provided by a vendor management system – it can lead to unintended
business consequences. Perhaps you’ve heard statements like the following ones
before. But are you aware of how these ways of thinking can hurt your business?
Facilities management
Misinformed assumption
“We already know the skills we need when
hiring
maintenance and consulting firms. There’s no need
for a formal sourcing or management process.”
Unintended consequence
- High bill rates that increase project costs
- Increased security, compliance, and quality risks due to insufficient vendor vetting
- Undetected decline in service quality that reduces value from spend and hurts business performance
Customer support
Misinformed assumption
“We’ve invested tons of time training
people in this
outsourced contact center. I know service levels aren’t
great, but it’s too hard to change.”
Unintended consequence
- Poor customer experience ratings
- Low Net Promoter Score
- Declining customer retention
- Lost business value from spend
IT
Misinformed assumption
“The staff members from these IT
outsourcing companies
are worth whatever we’re paying them because it’s too
hard to find people with their skill sets. They make things
easy for me.”
Unintended consequence
- High bill rates that increase service expenses
- Limited agility and resiliency due to overreliance on resources with limited capacity
- Budget overruns due to an inability to closely monitor spend on services against budget and from paying senior-level prices for junior-level resources
Finance
Misinformed assumption
“We’ve spent so much time getting our
invoice receipt
and reconciliation processes in place – I can’t afford to
add another step to the process, even an automated one.”
Unintended consequence
- Invoice-matching errors
- Overpayments
- Higher invoice-handling costs due to duplicate invoices and manual, inefficient processes
Marketing
Misinformed assumption
“I simply can’t be effective without my
team of trusted
contractors and agencies. So there’s no need to waste
time putting projects out to bid.”
Unintended consequence
- Rising and over-market bill rates that increase project costs
- Limited agility and resiliency due to overreliance on resources with limited capacity
Manufacturing
Misinformed assumption
“Look, we know these service providers well, so I don’t need to vet their people closely during onboarding. And
frankly, there’s just not time to do it when we’re facing a
sudden demand spike.”
Unintended consequence
- Higher risk of safety incidents due to an inefficient and often unenforced onboarding process
- Delayed worker productivity due to long cycle times
Signed SoWs and POs are just documents – not intelligent tools that help managers find the best talent, get the most value, track spend against budget, and mitigate risk.
So it’s no surprise that business
functions
relying on
SoWs and POs
report significant challenges managing and extracting value from their
external workforce. These are signs of persistent undermanagement.
report significant challenges managing and extracting value from their
external workforce. These are signs of persistent undermanagement.
HR
challenges
- Difficulty filling talent requests promptly
- Long onboarding cycles that delay worker productivity
- Poor compliance with local labor laws, industry standards, and policies
- Improper worker classifications
- Limited insight into worker performance
- Difficulty enforcing tenure limits in different countries
- Limited insight into future skill and capacity needs
- Inability to ensure external workers feel valued and included
Finance
challenges
- Inaccurate budgeting for external workforce
- Poor budget planning due to limited access to departmental spend data
- Unexpected budget overruns
- Lost opportunities to redirect unused spend on discretionary projects
- Costly, inefficient invoice and PO matching and approvals
- Difficulty auditing external workforce spend
IT
challenges
- Budget overruns due to poor visibility into spend against budget
- Poor quality monitoring, leading to rehiring of subpar service providers
- Long onboarding cycles that delay worker productivity
- Overbilling and uncontrolled project costs
- Lost opportunities to redirect unused spend on discretionary projects
- Difficulty sourcing talent with new digital skills and IT expertise
- Inability to ensure external workers feel valued and included
Operations
challenges
- Missed project milestones
- Difficulty comparing invoices against contracts
- Delays in sourcing and onboarding extra capacity
- Inability to enforce “do not rehire” workers
- Weak compliance monitoring (for example, for certifications)
- Inability to measure work quality and progress against SoWs
- Operational inefficiencies due to poor
integration
(for example, manual time tracking and invoicing) - Inability to ensure external workers feel valued and included
The good news is that taming the Wild West of external workforce management is easier than you think. You just need the right point of view – and the right technology.
When you take an enterprise view
rather than
a
functional view of
external workforce management challenges, it’s easy
to see
common
needs and goals across them. Everyone is looking for a way to:
Build more-accurate budgets
for external worker spend
Accurately monitor actual
spend against budget
Assess service quality and timeliness
against project plans to make better
spend decisions
Reduce project costs
Get as much value as possible from
their external workers – right from
day one
Reduce compliance and
safety risks
Increase agility to meet evolving
business needs
Help ensure external workers
feel valued and included
Procurement can
address all these
needs and goals by
defining the right enterprise strategy
and operationalizing it
with a vendor management
system (VMS).
Regardless of whether your
department currently
focuses more on contingent labor
or
service providers, in the end, both categories are part of the broader external
workforce and need holistic, proactive management. With the right strategy and
VMS designed to support all types of external workers, procurement can add value
to every department – and play a key role in driving better business performance.
service providers, in the end, both categories are part of the broader external
workforce and need holistic, proactive management. With the right strategy and
VMS designed to support all types of external workers, procurement can add value
to every department – and play a key role in driving better business performance.
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Wild
West of External Workforce Spending”
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Ready for the next step?
Assess the current state of external workforce management in your
organization using our
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*Source: “Agility Isn’t Always on the Payroll: Gain Full Visibility of Your External Workforce to Help You Drive Better Business Outcomes,” Agile Procurement Insights Research by SAP in collaboration with Oxford Economics, 2021.