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Human Capital Services Spend Management: An Opportunity

Human Capital Services Spend Management: An Opportunity. Sara Moss Chimes Annual Customer Focus Group Forum Scottsdale, Arizona October 4-6, 2006. Objectives Describe what is meant by services spend management

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Human Capital Services Spend Management: An Opportunity

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  1. Human Capital Services Spend Management: An Opportunity Sara Moss Chimes Annual Customer Focus Group Forum Scottsdale, Arizona October 4-6, 2006

  2. Objectives • Describe what is meant by services spend management • Get you thinking about how you might broaden your services spend management program • Broaden the vision of what can be managed through the technology that you already have • Talk about what the benefits of a broader vision might be • Highlight a few strategy, process, people and technology best practices to get you going • Introduction September 30, 2006

  3. Agenda • What is it & how big is the opportunity? • Is it catching? • Why? • What can you do? • Discussion September 30, 2006

  4. What is it? Human Capital Services Spend Management focuses on the management of labor-related spend categories Human Capital Services Spend Holistic approach of managing spend by category, spanning all direct and indirect goods and services Spend Management Sample labor-related service categories: • Temporary & contract labor • Business & professional services • IT consulting and maintenance • Accounting & financial services • Legal • Insurance brokerage services • Advertising & marketing • Training • Delivery and messenger services • Construction & engineering • Janitorial, catering, landscaping & facilities management Includes spend on all direct and indirect services (e.g. human capital, travel, telecom, printing, healthcare) Services Spend Management Spend on all direct and indirect labor-related services (e.g. temp, contract, consulting) Human Capital Services Spend Management Sources: ISM, CAPS Research September 30, 2006

  5. What is it? The spend on labor-based services is absolutely staggering and meaningful to the organization Human Capital Services Spend 39% of total revenues Example company: $5b in revenues $2b in purchases Spend Management 30% of total purchases ~11% of total revenues Example company: $600m in services spend Services Spend Management Human Capital Services Spend Management 8x 3x Sources: CAPS (2003) “Managing Your Services Spend in Today’s Services Economy” Benchmarking Study; CAPS (2006) “Outsourcing/Offshoring Your Services Spend” September 30, 2006

  6. What is it? The human capital services spend management process is unique and complex compared to other service categories Holistic Spend Management Process • Highly manual • Difficult to proactively identify talent shortages • Needs are ever-changing • Rampant off-contract spend • Limited detail available • Disparate data • Complex to assess quality • Market/baseline rates not always accessible Strategize & Plan Analyze Spend • Large number of national & niche suppliers • Supplier diversity goals • Establish agreements & complex rate cards Source • Supplier performance management • Contract compliance difficult Manage Procure • Decentralized buyers • Subjective review of resumes & proposals • Require reference checks, skill tests, personality assessments & background checks • Track additional paperwork • Negotiate engagement-specific rate • High-volume of invoices • Complex discounts & terms • Federal & state compliance obligations Pay Receive • Onboarding/offboarding process (e.g. IT and physical security, training) • Time & expense tracking & approval • Milestone management • Ongoing quality management Sources: Wikipedia, Aberdeen, APICS, The Code Works Inc. September 30, 2006

  7. What is it? Technology can enable full visibility across labor categories as well as new opportunities to manage spend Human Capital Types Sourcing Methods Contracting Methods • Temporary labor • Independent contractors • Professional/business services firms • Outsourced services • Offshored services • Permanent hires • Contract-to-hire • Direct sourcing • Purchase order • RFx (i.e. RFI, RFP, RFQ) • Master Services Agreement • Time and materials • Cost plus a specified mark-up • Fixed bid/ Milestone based / project based / one-time fee • Volume of service (per hour, per unit, etc.) • Level of service • Leverage existing technology • Better assess & manage supplier performance (quality, price, service) • Cross-category analysis & sourcing With complete visibility over their human capital services spend, hiring companies have the framework in place to strategically manage their talent September 30, 2006

  8. Is it catching? Companies vary in how aggressively they attempt to manage human capital services spend and in their use of technology; most are just getting started. Human Capital Spend Management Adoption Continuum Andrew Bartels, Forrester VP and research analyst, characterizes the momentum of adoption as “glacially slow.”Source: VMS: Subtle Changes in a Complex Market, SI Review (May 2006) Most Large Enterprise No VMS Managing temp labor over VMS Managing multiple labor categories over VMS Analyzing options across labor channels on a job req or project basis Adoption Level: Value Driver: Cost Savings Cost Savings Strategic Advantage Sources: Andrew Bartels, Gartner; SI Review (May 2006): VMS Trends – Subtle Changes in a Complex Market; The Code Works Inc. September 30, 2006

  9. Is it catching? Most companies that have started a services spend management program have implemented in a very limited portion of their business Outsourcer Human Capital Spend Management Business Scope Consulting Firm Resource Type Independent Contractor Contingent Worker Business Unit Skill Set IT All 1 2 All Admin Professional US Europe Office Locations Asia Key: Scope of business most typically impacted by centralized services spend management All September 30, 2006

  10. Why? The benefits of implementing human capital services spend management programs are well proven. Benefits of Human Capital Spend Management • Reduce transaction costs through negotiated rates, supplier rationalization, process improvement, etc. (5-20% hard dollar savings) with low start-up cost and low risk • Spend visibility for cost control and proactive skill shortage identification • Increase fill rates through supplier management and tiered distribution • Improve candidate quality through measurement and supplier management • Increase compliance with contract rates, terms and conditions • Consistent business process and better financial controls • Leverage existing technology for increased ROI The benefits are scalable by increasing spend under centralized management. September 30, 2006

  11. Why? The reasons for the slow momentum behind spend management are people related and are not due to a weak business case or project complexity Challenges of Human Capital Spend Management • Politics and complexities of getting HR, Procurement, IT and the business on the same page and working in concert • Change managementissues • Not the way it’s done • Impacts personal relationships • Employee and supplier adoption of the system and policies • Poor training, too few training options • Difficulty finding a strategic sponsor • Competing corporate priorities September 30, 2006

  12. What can you do? A broader services spend management program improves an organizations ability to strategize, plan, negotiate and source across service categories A few Human Capital Spend Management Best Practices • Maximize centralized (human capital) spend under management for complete visibility • Understand the unique characteristics of human capital services spend • Integrate the human capital spend management strategy into your broader services and overall spend management strategy • Use tools to analyze spend data to prioritize categories for management • Streamline the end-to-end human capital spend management process and consider as many service categories as possible when designing the process • Identify the most effective resource to fill the need, considering all available human capital service categories September 30, 2006

  13. What can you do? • Establish and enforce policies and processes that enable spend visibility • Leverage technology across multiple categories • Reduce manual entry by integrating applications or automating data exchange between systems • ATS • HRIS/ERP • On/off-boarding systems • Time tracking system • Accounts payable • Contract management system • Portfolio/project management system • Leverage data to proactively detect market fluctuations and skill shortages September 30, 2006

  14. In Summary Human Capital Services Spend Management: An Opportunity • Human capital spend accounts for a large portion of total spend • Cost savings and strategic advantages are meaningful and can be achieved through increased management • The biggest challenge to achieving the benefits is finding a sponsor that will facilitate or override the organizational politics September 30, 2006

  15. Thank you! sara@thecodeworksinc.com 650.208.2055 www.thecodeworksinc.com Open Discussion September 30, 2006

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