It's All About People

U.S. businesses spend around $600 billion every year to procure temporary help and contract labor, yet, until recently, companies had few, if any, tools to manage their contingent labor spend. That was then. This is now: Say hello to e-procurement for temps and contractors.

[From iSource Business, February/March 2002] Darren Bagwell has some strong opinions on the current state of human capital management (HCM). It is nothing short of stunning, says Bagwell, a financial and strategy consultant to HCM companies, that in the knowledge economy - where talent doesn't support an organization's value proposition, but rather is the value proposition - all but a small group of companies have no formal basis for assessing the management of their talent base.

 

Delivering the keynote address at the August 2001 HR Partnership Summit, Bagwell went on to note that the free agent labor market continues to expand, with the distinction between full-time employees and contractors becoming increasingly hazy. This is especially true, he maintains, within the technology sector, where the average tenures of the two groups converge at about two years. This free agent labor market is partly the result of companies trimming their permanent staffs and turning to contingent employees on a project-by-project basis. It also reflects a perpetual skills shortage that results from ever-shrinking technology and product cycles, increasing mobility and declining corporate loyalty. Whatever the cause, the constant turnover in non-permanent employees creates enormous challenges for companies trying to manage their contingent workforce in any type of consistent, centralized manner.

 

People Problems

 

Lindsay Myers knows firsthand about the difficulties involved in tracking contingent labor. As corporate purchasing project manager for San Rafael, Calif.-based software company Autodesk, Myers can recount the challenges of getting contract services suppliers to participate in her company's onsite staffing program, of getting onsite managers to use preferred suppliers, and of processing invoices with no matching purchase orders because a manager did not file a requisition through purchasing. What all these challenges boil down to is a basic lack of information - just being able to make good decisions, Myers says. Knowing how many people are out there working and at what rate.

 

An example from high-tech manufacturer Texas Instruments (TI) illustrates the potential consequences of not having visibility into a company's temporary help and contract labor spend. TI, headquartered in Dallas, has about 42,000 employees, but it meets between 15 and 20 percent of its staffing needs through contract labor or consulting services, spending more than $200 million annually on contingent labor. Luther Harris, TI's procurement director of administration and services, says that a lack of tools for managing the contract workforce has hampered the company's ability to control this portion of its spend. Harris explains: You have a contractor that works for you for three months. That contractor leaves, and then comes back a month later doing basically the same job for a different department, but is able to get a 10 to 15 percent raise. Or, a contractor might have been terminated from one department only to be hired back by another. We didn't track our contractors, Harris says. There was no repository of information about contract personnel.

 

The problem for Autodesk, Hewlett-Packard and other companies trying to gain control of their temporary help and contract labor spend was that, until quite recently, the market offered no tools for managing the contingent workforce. The e-procurement solutions that have been on the market for a few years have been geared toward the purchase of indirect materials, typically through catalogs, and as such were not necessarily suited to the peculiarities of professional services procurement.

 

The broad area of services purchases that can include legal services, print services, facilities services and others is itself a complex arena. Services have multiple and highly variable attributes and require a high level of product and pricing configuration, as well as cross-functional and cross-enterprise collaboration, points out Christa Degnan, a research analyst who covers online services procurement for Boston-based technology consultancy Aberdeen Group, in an Aberdeen research note. Put simply, no two service purchases are exactly alike, which puts them way beyond the scope of traditional catalog-based indirect e-procurement systems. What's more, research from the Center for Advanced Purchasing Studies (CAPS) shows that while 54 percent of all corporate purchases are for services, only 41 percent of those are controlled by the purchasing department.

 

A Mixed Bag of Solutions

 

Given the hundreds of billions of dollars that U.S. companies spend each year to procure services, clearly the market opportunity for software companies is huge. Consultancy AMR Research, of Boston, has projected that the market for what it calls professional service automation could reach $1.8 billion by 2004. It's little wonder then that a host of solution providers - from big name e-procurement companies to start-up niche players have come forward recently with solutions targeting various aspects of services procurement. (See the sidebar The Players for a line-up of niche solution providers.) The offerings vary. ProSavvy, for example, combines online tools for identifying qualified information technology consultants with systematized performance data on consulting firms.

 

Other providers, such as eLance and Noosh, also are offering tools for procuring a variety of professional services, while IQNavigator, itiliti, Covendis and Fieldglass provide applications covering the full spectrum of contingent workforce procurement for large enterprises. Meanwhile, e-procurement pioneer Ariba has tapped CascadeWorks' technology to offer Ariba Workforce, while enterprise software giant PeopleSoft recently launched a tool for automating services procurement called, appropriately enough, Enterprise Service Automation.

 

Such a broad array of possible solutions in such a nascent field - plus the consolidation that has taken place among the providers over the past year - obviously makes for a confusing set of choices for those who would venture into the world of services e-procurement. Costs vary, too, with the entry price for a full-blown enterprise solution starting around $200,000 and ranging up to several million dollars. It should go without saying that companies considering delving into this field have a good deal of due diligence in front to them to ensure that the solution provider they choose is suited to their precise needs, affordable and viable. For example, when Texas Instruments first surveyed this space beginning in late 1999, they looked at SkillsVillage (since purchased by PeopleSoft), Nitorum (assets since acquired by eLance), Chimes, White Amber and itiliti. Another candidate, Icarian, was not a fit but referred TI to CascadeWorks, which wound up winning the project.

 

Hard and Soft Savings

 

The return on investment (ROI) in professional services e-procurement is likely to come in both hard- and soft-dollar savings. Addressing hard savings, Degnan says: If you have better information on where you're spending your services dollars and who you're spending them with, you should immediately turn around and negotiate better prices. That is where the bulk of the savings will come in professional services procurement, because it has been so widely unregulated in the past.

 

The process cost savings will be harder to track, the analyst argues. Services, by their nature, will be ongoing projects, so it will be less about cutting out time in the purchase order process, Degnan says. She does note that companies could see time savings by taking advantage of workflow improvements to get projects moving ahead more efficiently than they had in the past. In general, Aberdeen research has demonstrated that e-procurement applied to indirect materials can produce price reductions of 5 to 10 percent through better contract enforcement, as well as process cost savings of up to 73 percent. But even if services e-procurement can reduce contingent labor costs by a few percentage points, the savings could add up to millions of dollars for companies that rely heavily on non-permanent staff.

 

Again, taking Texas Instruments as an example, Harris says that TI expects to recover the cost of its investment in CascadeWorks' Clarity solution just by shifting its contract labor spend off of its purchasing card: suppliers will no longer have to pay a fee to the p-card company, and they will return a portion of the savings to TI. At the same time, Harris sees the real savings to TI coming from the company's ability to negotiate better contracts with its suppliers, since he anticipates that the software will consolidate professional services spend in the same way that e-procurement consolidated indirect materials spending. Overall, Harris is estimating savings of 8 percent on an annual spend of greater than $200 million for contract labor and consulting services.

 

Autodesk, which is integrating its CascadeWorks system with its Ariba implementation, also has seen some immediate benefits from moving to professional services e-procurement. By having contract labor suppliers bill through the Clarity system rather than through the onsite staffing agency, Autodesk was able to save the 1 percent billing consolidation fee that the agencies charged on top of their markup, a hard savings that has essentially allowed the system to pay for itself, according to Myers.

 

In addition, Autodesk is realizing process cost savings. For example, at a manufacturing facility in Fremont, Calif., where the company ran a pilot, having all the facility's staffing suppliers bill though the new system has eliminated a good deal of administrative time in Autodesk's accounts payable department. Those suppliers were all invoicing individually, many of them had several invoices per week, and a lot of them were missing purchase order information, Myers explains.

 

As a result, the company had to coach those suppliers on how to file the proper documentation. We had been having discussions with these suppliers ongoing for a year-and-a-half, Myers says. Billing through Clarity, you can't invoice until you actually have a purchase order and an approved timesheet. So it eliminated a lot of those discussions, freeing up an hour per week in our AP department. Plus you don't have to key in all the individual invoices - it's just a single upload into SAP.

 

As Autodesk continues to roll out the system to its U.S. operations, Myers says the company expects to realize additional savings by channeling more of its contingent labor spend through preferred suppliers.

 

Both Harris and Myers say that suppliers have been willing to move to the new system in large part because they are able to get paid more quickly, in 30 days as opposed to 45 previously. Temporary workers can file and track the approval status of their timesheets in CascadeWorks' Clarity, and suppliers can do the same with their invoices. There's not a piece of paper floating around that may or may not be on someone's desk, or may or may not have been stuck in the fax machine, says Myers. There is just a lot less paper, a lot more tracking, a lot more reporting available.

 

Best Practices Make Perfect

 

Despite the relative novelty of professional services e-procurement, the solution providers and early adopters are already developing best practices to ensure the maximum ROI on these systems. Diana Jovin, co-founder and CEO of CascadeWorks, emphasizes that it's important for companies implementing such systems to carefully map out their requirements so they can properly configure the software to manage such enterprise-specific processes as time entry, invoicing, approvals and integration with back-office systems.

 

Harris seconds that view. He points out that, prior to implementing the CascadeWorks system, many processes were taken for granted, such as using legacy systems to request badges for consultants, or to request access to computing systems. There are all kinds of things that nobody ever really questioned, Harris says. In implementing the new system, TI is having to consider whether it should continue to use the legacy process or come up with a new and potentially improved process. A lot of it is configurable, and we have to figure out how to properly configure it so that it gets accepted by our internal users from the get-go, Harris concludes.

 

Aberdeen's Degnan believes that it is early yet to speak of best practices for the professional services procurement solutions, since only a few organizations have even begun implementations. However, she warns that companies adopting the new solutions should be aware of the security implications. Services procurement, by its nature, is going to involve tying your organization into other companies, whether it's a contracting agency or a consulting firm. So you'll want to make sure that the system is secure in terms of the information that you'll be swapping back and forth. This could apply in particular to human resources information that a company, or a contractor, might want to keep confidential.

 

For her part, Myers says that  end-user education has been crucial  at Autodesk. During the first three months of the pilot program, the company switched onsite staffing suppliers and experienced a high degree of turnover among supervisors at the pilot site due to restructuring. Each new user coming onboard must be trained on the system, although the process has been simplified through integration with the company's Ariba e-procurement platform. Moreover, Myers says the multi-step process involved in preparing and sending out requisitions for contract labor has necessitated ongoing education and support, even for users that have been introduced to the system but that use it infrequently.

 

Given the growing interest in temps and contractors e-procurement, the future of this field seems bright, particularly if the providers can incorporate additional features into their solutions. Bagwell, for instance, calls upon the providers to add enhanced analytical capabilities that would generate data for use in enterprise planning systems and that would permit performance benchmarking. Many of the solution providers themselves are looking to expand the reach of their offerings into new service categories. For example, Norcross, Ga.-based Covendis, which counts Cincinnati's Fifth Third Bank among its customers, is looking to go beyond IT, administrative, clerical and light industrial workers, possibly adding such categories as legal, healthcare or scientific workers, according to company CEO Raymond Tsao.

 

At Texas Instruments, meanwhile, Luther Harris is forging ahead with that company's implementation with a good deal of encouragement from his co-workers. The users are now asking me, 'What's taking you so long?' There is really a lot of excitement at TI about this deployment.

 

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The Players

 

Professional services e-procurement is nascent, but the field has already drawn a large number of niche players. Here is a rundown of solution providers and where they fit in the market.

 

·        CascadeWorks, Covendis, eLance, Fieldglass and Noosh: broad applications addressing professional services procurement in a number of areas.

 

·        Chimes, Covendis, Enthusiasm, Evolve, eWork, Fieldglass, Netengines, Icarian, IQNavigator, itiliti and White Amber: labor procurement automation.

 

·        Ajunto, eJigsaw, GlobalServe, IQ4Hire, iSource-IT, KnowledgeStorm, neoIT and ProSavvy: IT professional service procurement.

 

·        Zeborg: sourcing, procurement and management of certain services.

 

·        In addition, major enterprise software companies, such as Ariba and PeopleSoft, have been adding professional services e-procurement capabilities to their offerings.

 

Source: Aberdeen Group Executive Viewpoint, October 31, 2001; and Darren Bagwell, financial and strategy consultant.

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