Services represent a growing cost category for many organizations, yet they’re not always appropriately managed when it comes to their procurement.
They are a very vast and varied category ranging from Professional Services, to Business Travel and Fleet, including also Facilities (such as maintenance and cleaning), HR-related activities, Contact Centers costs and Marketing & Communication.
Despite that, services procurement finds very little space in most Procurement policies, procedures and best practices.
In these very particular times, many organizations are trying to reduce their cost base through renewed efforts of their procurement department. I hope that my perspective on the services procurement, stemming from long experience as both a Purchaser and a Provider of services, can be useful to help organizations getting back into shape.
Services are very different from other procurement categories
Services are complex: so many variables and combinations can be put together to achieve the desired objective. Each solution needs to be carefully constructed. As a consequence, it becomes challenging to evaluate the performance of a provider and to have a standard pricing
Services are used by many people: differently from many procurement categories, where the internal client (and user) is well known and identified, services may be used by many or sometimes all employees of an organization and in some situations also by its clients. They might easily impact one or more journeys of employees’ interactions with the organization as well as one or more customer journeys. This calls for extra-care in terms of contracts design, implementation and follow-up
Services are emotive: as said above, a lot of services that are purchased by a corporate organization, are then used directly by employees (think about Corporate Travel, Fleet, Cafeteria or Payroll services) or sometimes also clients and the risk of impacting on the personal life and well-being of people is very high
“Lowest price” approach doesn’t work: based on the variables above, it’s more important to achieve the right balance between cost and results in terms of business benefits and convenience. Lower price might mean a lesser service level or that you’re taking on some activities. Are you (and your employees) ready to do so?
Trust is paramount: given the personal and emotional relevance of the activities involved, establishing a strong bond between the provider of the service and the user of the service is critical to ensure the relationship rolls out in the right way
Given their unique characteristics, services procurement for the non-specialist manager can easily turn into a minefield.
Most common mistakes in services procurement
I’ve seen many mistakes made by organizations when services are not purchased by a specialist manager, with significant consequences on both the price and the satisfaction of the users.
Based on my experience the top 3 mistakes that an organization can make in services procurement are the following:
Mistake n 1 – Focusing on the solution and not on the problem
As highlighted above, services come in many colours and shapes. The supplier is the one with the most in-depth knowledge of the industry and all possible solutions. Usually, the final solution can be tailored to the needs of the organizations.
To make the best of the suppliers’ knowledge and expertise, at the beginning of any services procurementprocess it’s of essence to have clear what is the problem the organization wishes to solve with the purchase of that service. What is that you’re trying to achieve? What is the job to be done?
Procurement managers should approach their suppliers with a “Brief” and not with a “Technical specifications” document. In the Brief, the objectives they want to achieve should have a top position (laying out only the not avoidable constraints) and then leave the supplier to provide one (or more) possible technical solutions.
This gives the supplier the opportunity of proposing different configurations and alternatives at maybe different price points. And provides the client with the possibility of looking at different ways of solving their problem, and they might also find out opportunities that were not known to them and that are brought to them by the supplier.
Unfortunately, this is not how it works most of the times; I see many organizations going to the market with particular requirements asking the Suppliers to make a cost estimate for that and then being surprised for the price and the perceived lack of flexibility of the supplier about it! A heated price negotiation then follows, and the usual outcome is one where both parties are somehow not satisfied. The eventual implementation is usually quite complicated and cumbersome for both parties. This is not the result that anyone wants!
Mistake n 2 – Inappropriate management of the RFx process
The one aspect of most conventional procurement processes, definitely ill-suited when applied to services procurement, is relying only on an automated process.
No doubt, technology is a significant enabler of procurement processes: it’s crucial in simplifying and speeding the transactional activities, but how it can better support services procurement?
Technology is excellent for managing the communication flow to ensure that all the parties receive timely communications, and for ensuring that the purchasing organization has a unique repository of information and documents. It’s also good to achieve transparency in the process. But in services procurement, the automated flow needs to be paired with some human interaction. Let’s see how.
When it comes to services procurement, for me, the keyword is, in fact, co-creation: i.e. designing a solution together with the supplier to achieve the best outcome (even within an RFx process!!). Co-creating a solution entails working together, and this requires people to talk to each other to discuss and agree; thus procurement processes relying mostly or only on automated systems and processes do not necessarily lead to the “best offer” to win.
In practice, it means that the process needs to include at least a round of presentations, where the supplier can present their solution, and the purchasing organization can go in more details and ask questions.
These kinds of interactions help both parties to take the pulse about not only the proposal but also about future collaboration. They help to understand if between the two organizations (the supplier and the client) there’s a potential for a stronger relationship. It’s the first building block of a robust relationship which can result in powerful bonds. I’ve already talked about the invaluable asset represented by a relationship with suppliers based on trust (ins link), so I won’t go now into more details. Appropriately managing the RFx process is, for sure, a good starting point!
Mistake n 3 – Lack of stakeholders’ involvement
This is another area where I’ve seen more than one issue. If on the one hand, I firmly believe that services procurement should stay with a Procurement department, on the other hand given the complexity and the characteristics of services, this is not something that a Procurement manager (even a specialist) can do alone.
Services procurement is a team effort and starts with listening to the user!
Procurement and line departments need to cooperate closely to achieve the desired objectives. The collaboration should also be extended to those other functions that one way or the other are impacted by the service purchased. And when the service impacts the organization’s employees (think of Business Travel, Fleet, payroll etc…) or its clients (think of Contact Centres), even employees and clients should be included in the design of the service to be purchased.
What I’m talking about it’s more than sending a survey from time to time, but a real effort to understand what are the users’ needs and pain to design the best fitting solution. The available tools are different and belong to the domain of Design Thinking and Experience Design and are extremely powerful when it comes in fostering collaboration and involvement of all parties involved. And when people are included in the design, actual implementation and daily management of the relationship with the supplier are smoother. All the point of views and needs are factored in when selecting the solution and the provider. All the parties will be (hopefully) in agreement about the objectives and the solutions, drastically reducing issues and problems.
To close, the main takeaways about services procurement are then the following:
- Acknowledge services as a very different category than other procurement categories and be ready to set up a different procurement process
- Services might impact your employees and your clients, so be very clear about what are their pains and issues: you’ll be more effective
- Be focused on the outcome you want to achieve when dealing with a supplier more than the technical specs: this will help increase the range of available opportunities and also save time and money
- Services procurement is a team effort, and co-creation makes it better: actively collaborate with suppliers, internal stakeholders, employees, and clients. You’ll have a better solution and more satisfied employees and clients.
- Design Thinking and Experience Management can find a place in modern procurement and can add incredible value in services procurement. Have you ever tried them?
Is your experience with services procurement a dream or a nightmare? Tell me about it!
Want to know more on how to use human-centered design in the procurement area? Read my other blogs on the topic: