Combining the Chocolate and Peanut Butter of your SOW Program – Part 2: The Elusiveness of Pre Award Sourcing Controls

178553462In the opening post of this series, I discussed how two independent groups of sourcing and procurement professionals, when queried about how they view controlling SOW-based services, responded quite differently about the concept of control. So different were their responses that we dubbed them chocolate (i.e. post-award and post-engagement controls) and peanut butter (i.e. pre-award and pre-sourcing controls). After all, that’s what good procurement professionals do, they segment stuff into logical and more manageable pieces. This segmentation aids our continued digestion of the control landscape of SOW-based services.

Why are pre-award sourcing controls so elusive?
Good question. Here’s peanut butter thick analysis for an answer. The premise that pre-award transactional and sourcing controls are indeed elusive to most organizations is intentional. And while it probably doesn’t cause too much heartburn in many of you, the position still warrants explanation as it helps us answer the ‘why’ question more thoughtfully. The reasoning goes like this:

  • Visibility begets control, or, to paraphrase HP co-founder Bill Hewlett, “you can’t control what you can’t see.”
  • SOW spend that is actually being managed is less than 10 percent, based on data from IQNavigator and Staffing Industry Analysts.
  • Therefore, we, as an industry, have limited-to-no management visibility on more than 90 percent of our industry’s SOW spend.

Anecdotally, we can say an organization’s spend management and control maturity correspond directly to the level and rate of management penetration into its SOW-based services spend. This yields another procurement truism — experience begets maturity.

PREMIUM CONTENT: What drives use of contingent labor?

Getting back to the why
Pre-award and pre-sourcing controls are elusive because of general enterprise blindness to SOW spend data, which goes hand-in-hand with the inability of procurement and other corporate functions to get in front of SOW-based spend BEFORE it is awarded to the vendor.

If these virtues of better sourcing practices are lost on the organization, then what does that say about the organization’s ability to control third-party risk, set realistic expectations for good SOW outcomes and realize return on investment targets? It says a lot, of course.

But don’t be alarmed: Every evolving, maturing organization comes to the realization that they cannot effectively control risk and ROI outcomes until they first figure out how to control the selection of third-party providers and the resulting engagements. But once controls are in place, more strategic spend, vendor and risk management can take root. In this way, the Control Landscape Map works from the inside (transactions) out (organizational).

Another reminder of the ‘different as peanut butter and chocolate’ analogy:
Pre-award sourcing control benefits differ materially from post-award control benefits not solely due to their location on the Control Landscape Map (see my first post in this series), but more precisely to the level of relevant data visibility available to each and the classification of risks on their respective sides of the executed contract:

  • Post-award controls are more concrete because they yield immediate benefits in the form of verifiable compliance with actual and known contract terms (i.e. accurate invoices and payment).
  • Pre-award sourcing control benefits are abstract and elusive because they are predicated on the preservation of often yet to be identified savings on uncommitted spend.


Figure 1. Control Effectiveness Model

Fortunately, this burden on pre-award transaction controls is an early maturity hurdle only. Figure 1 demonstrates the nuanced relationship between visibility and transactional control effectiveness and highlights how that relationship adversely treats pre award controls early on. How can the effectiveness of pre award sourcing controls be forecast, much less justified, in the absence of a minimum level of visibility needed to articulate the value of the sourcing strategies and procurement preferences which the controls are designed to protect? They cannot.

Similarly, note the more intense lag effect visibility has on organizational control effectiveness. This lag exists because of the need for much data over a period of time – not to mention the necessary analysis that must stem from it – to inform risk positions, drive relevant policies and impact service management activities. Outcomes and ROI are much harder to control as a result of this need for broader organizational collaboration. To be clear, better outcomes and preservation of ROI should always be the aspiration!

Visibility is the epicenter of procurement preferences
As the Control Effectiveness Model suggests, pre award transaction and overall organizational control effectiveness lags the development of visibility. This is true. But not because visibility directly enables controls, which of course it does. Rather, because visibility, once obtained by the organization, has to first serve a greater master: sourcing strategies and savings identification. Only when something of value has been identified will enterprise resources be summoned to protect that value. And only after immediate risks are controlled and opportunities seized (i.e the transaction related stuff) will the attention shift to longer-term objectives like outcomes and ROI. This is a critically important point to emphasize – and navigate carefully – during business case development and the setting of timing and success expectations.

What’s next on the menu?
In the next post of this series we will grab the spoon and jar of peanut butter one more time as we dip into the concept of sourcing leakage. We will explicitly define pre award value (i.e. procurement preferences) and make the case for certain controls designed to protect that value.

MORE: You reap what you SOW



Michael Matherly

Michael Matherly
Michael Matherly is global services procurement and SOW practice director with IQNavigator.

Michael Matherly

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