5 Common Roadblocks to Leveraging Outside Expertise
Over the last few years, expense management solutions have become essential as corporations continue to lean out procurement departments and ask their buyers to do more with less. It is logical to assume that as this trend continues to affect more businesses, highly successful, cutting-edge expense category solutions would be an easier sell. And this is true—to an extent. The outsourced expense management space is on fire, with a host of firms finding success, increasingly engaging with the Fortune 1000.
However, despite this trend, many expense management departments still continue to erect the same barriers or excuses which prevent their companies from benefiting from these emerging and powerful solutions.
To be clear, there are understandable reasons for saying “no" to an outsourced expense management strategy. Not all firms in the space are fantastic businesses, and not all are a great fit for every company. But more often, there are barriers that at first glance may seem rational, but which ultimately hurt companies’ bottom lines and only help suppliers extract more and more profit from their accounts. In this piece, we will take a closer look at a handful of the most common reasons why prospective clients decide not to take advantage of these powerful expense management solutions, and why those reasons are often deeply flawed.
Excuse #1: Bias against consulting
One of the most common barriers to leveraging third-party expense management solutions is an overall company bias against consulting. In 2021, the landscape is vastly more favorable for expense management solutions, but believe it or not, even after two recessions and a steady leaning out of corporate procurement teams nationwide, there are still businesses with ingrained biases against augmenting their in-house resources with outside partners. If you work in an environment like this, I recommend familiarizing yourself with the present-day expense management landscape. A host of targeted solutions have emerged in recent years which can advance your interests in ways that could never be duplicated in-house.
Kearney, Procurement Foundry, and Fairmarkit have developed a great tool for depicting this landscape with their “Procurement Tech Innovation Map.” Spend some time getting to know this arena and the players within it, and introduce your coworkers and hierarchy to it, too. If you are going to be on the cutting edge of your field, this is need-to-know stuff. In 2021, any business that thinks strategic and targeted expense management partners cannot advance their interests beyond internal efforts is, quite frankly, a dinosaur.
Excuse #2: Fear of exposure
The most unproductive of all excuses—the fear that our advancements will reveal past shortcomings—is often an unspoken objection, but it is occasionally verbalized. “What’s my boss going to think if you come in and save us 40% in a category I’ve been managing?” We have heard this fear articulated many times in various forms through the years.
Of course, it is evidence of all kinds of problems, both with the category manager specifically and with the broader department environment. If you are not allowed—or do not feel empowered—to identify your past shortcomings and implement strategies to fix them, something is horribly broken.
For what it is worth, as a CEO, I LOVE it when I hear an employee say they think they have a new and better strategy than whatever they did in the past. This is the very essence of productive business behavior—continuous improvement.
To put it bluntly: if you find yourself concerned about a revelation that your past management of a particular expense has not been optimal, you are probably already skating on thin ice, and you need better strategies. If your identity on your team revolves around an indirect service contract you negotiated 3 years ago, you need a better identity—one that involves being a strategic and forward-thinking professional.
Excuse #3: New to category or role
Turnover in category management responsibilities is a perpetual reality in corporate procurement and expense management departments. People leave, people get promoted, and categories are reshuffled as departmental strategies change, or as new and urgent priorities supersede other plans.
As a result, most of the time, a particular category only resides in the hands of a category manager for two or three years at a time. As we discussed in our “Revolving Door” series, this reality tends to stand in the way of effective expense management efforts, as a stream of buyers are continuously learning about the expenses they “manage” but rarely driving lasting value.
It is understandable for a buyer to feel as though they need to familiarize themself with a category before embarking on an initiative within. What tends to get missed, however, is that there is no better way to gain a true understanding of an expense than aligning with a targeted expert—incentivized to advocate for you—and learning from them. When the engagement is done, you can make an informed decision about whether to bring the expense back in-house or keep the outside resource around to support with continued management.
Here is the unproductive cycle you want to avoid:
- New category manager is hired or reassigned, responsible for 12 categories representing $60MM/year.
- Category manager looks at high-level spend data and contractual obligations and is handed priority tasks in a couple of the larger categories.
- Across the rest of the portfolio, the category manager “learns” largely from anecdotal observations and interactions with suppliers (who “teach” the category manager what they want them to learn).
- Progress is made in priority areas, while efforts of predecessors are eroded in other areas.
- Category manager is promoted, reassigned, or leaves the company, and new category manager enters. New category manager makes progress in newly prioritized areas while past efforts are eroded elsewhere. Wash, rinse, repeat.
A buyer who “just needs a little time to get familiar with” their portfolio of expenses is perpetually losing in certain categories. And in many of these instances, two years later, the new buyer will be saying the same thing about the very same categories. The most productive procurement departments empower their people to act and encourage implementation of lasting strategies in lower-priority expenses.
Excuse #4: Desire to grab "low-hanging fruit"
If a buyer believes she has identified meaningful savings in one of her categories, it is understandable she would want to get the credit for any implemented initiative surrounding said savings. The problem here is with the fallacy that low hanging fruit abounds in lower-priority categories, and procurement wants ALL the credit for grabbing it.
This barrier tends to be shortsighted thinking by the buyer, though. For one, far too often, we see the buyer leave significant savings on the table by signing sub-optimal agreements in their determination to claim the “low hanging fruit.” Sure—that obvious 15% reduction in core unit rates may very well be a real opportunity—but what if you should be saving 38%? The “next-level” savings driven by better terms and conditions and overall category optimization usually dwarfs the more obvious “low hanging fruit” savings.
Furthermore, astute buyers know it is possible to get the best of both worlds in this context. Use the reality of “low hanging fruit” in your categories to negotiate more favorable terms with your consulting partners. In contingency-based agreements, perhaps you can get the consultant to accept a lesser share, or somehow give you credit for savings already identified in your “baseline.” Generally speaking, do not let an obsession over claiming credit for “low hanging fruit” stand in the way of implementing more strategic and lasting solutions.
Excuse #5: Not the right time / waiting until closer to contract expiration
“This is intriguing, but we’ve got 18 months left on our agreements in this category. Let’s talk in a year.” With myriad categories competing for a buyer’s time, it is an understandable rationale to punt tackling a category down the road based on remaining contract term.
This mindset, however, frequently results in missed opportunities—as many of the most impactful savings initiatives have nothing to do with contract negotiation and can be implemented at any time.
Even worse—this mindset occasionally invites massive costs, as getting too close to the end of a contract term can cost the buyer critical leverage in new contract negotiations. As we discussed in “When to Get to Work on an Expiring Contract,” if a supplier knows you do not have time to “get your ducks in a row” before agreement expiration, you lose all advantages associated with the threat of lost business, and that supplier no longer has to be competitive in order to keep your business. You have blown your chance at optimal savings by waiting too long.
Ultimately, being a strategic buyer requires further examination of the factors leading to these common barriers, and rather than falling captive to them, capitalizing on the opportunity to surmount them.
As a firm entering its 20th year in business, we have been told “no” many times through the years, and we often understand the reasons. However, the truth is that unproductive behaviors within procurement and expense management departments give rise to some of the most common barriers to not getting deals done…and these behaviors benefit only the suppliers in the long run.
It is worth asking yourself if your department makes a habit of saying “no” for some of these reasons, and whether those habits are truly promoting optimal bottom-line results.