Andrew Bartels Principal Analyst, Forrester Companies who have been using vendor management services (VMS) software for their purchases of contractors and contingent workers are waking up to their opportunities for using similar software for their purchases of other categories of services. Those opportunities are large, with the potential for significant reductions in process costs for buying and managing these servicers, reductions in the cost of these services, and improvements in the performance of suppliers. But the challenges are equally great. Certainly, having the right software tools is critical – standard eProcurement tools won't do the job. Equally important, are the internal and external organizational barriers. Control over services spend is fragmented among many internal stakeholders, so adoption of services procurement needs to move department by department. And most services providers are ill-equipped to take advantage of the efficiencies that client use of service procurement tools could bring to them, so different tactics for supplier adoption and pricing models will be needed compared to what is used today with temporary help agencies. Those that can master these challenges will reap the benefits of cost savings and more capable service providersCompanies who have been using vendor management services (VMS) software for their purchases of contractors and contingent workers are waking up to their opportunities for using similar software for their purchases of other categories of services. Those opportunities are large, with the potential for significant reductions in process costs for buying and managing these servicers, reductions in the cost of these services, and improvements in the performance of suppliers. But the challenges are equally great. Certainly, having the right software tools is critical – standard eProcurement tools won't do the job. Equally important, are the internal and external organizational barriers. Control over services spend is fragmented among many internal stakeholders, so adoption of services procurement needs to move department by department. And most services providers are ill-equipped to take advantage of the efficiencies that client use of service procurement tools could bring to them, so different tactics for supplier adoption and pricing models will be needed compared to what is used today with temporary help agencies. Those that can master these challenges will reap the benefits of cost savings and more capable service providers.

1. 1 © 2011 Forrester Research, Inc. Reproduction Prohibited

2. Taking Services Procurement Beyond Contingent
Workers: Opportunities And Challenges
Andrew H. Bartels
Vice President and Principal Analyst
May 23, 2011
2 © 2011 Forrester Research, Inc. Reproduction Prohibited
2009

3. Companies can achieve big cost
savings through services
procurement …
But success requires the right
software tools, the right strategy for
internal adoption, and understanding
of the state of supplier readiness
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4. The opportunity for services procurement: Services
spending is big but unmanaged
Average distribution of corporate 1%
2%
Accounting & Finance
3%
spending on indirect goods and 3%
3%
Administrative
Legal
services, 2003 3%
3%
5% Printing/copying
5% Travel
7% Facilities management
Telecommunications
40% 9%
Indirect Project-based services
goods 9% Advertising
Real estate
9%
Logistics
Services 11% Marketing
60% IT
11% HR & temporary staffing
Construction/engineering
13% Professional services
Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003
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5. Temporary staffing is just a small part of services
purchases
Administrative, 2% Accounting & Finance,
1%
Printing/copying, Legal, 3%
3%
Travel, 3%
Facilities
management, 3% Professional
services, 13%
Telecommunications,
3%
Project-based
services, 5% Construction &
engineering, 11%
Advertising, 5%
HR & temporary
staffing, 11%
Real estate,
7%
Logistics,
IT, 9%
9%
Marketing,
9%
Source: CAPS Research, Benchmarking Report on Indirect Spend Management, December 2003
5 © 2011 Forrester Research, Inc. Reproduction Prohibited

6. Services procurement is part of ePurchasing market,
and products support all stages of cycle
New category:
2. Services Services supplier
supplier Risk and performance
assessment management
1. Services
spend 3. Services
analysis supplier
identification
8. Electronic
invoice 4. Services
processing and provider
presentment sourcing
7. Services
5. Services
engagement
contract
management
life-cycle
6. Services management
purchase
6 © 2011 Forrester Research, Inc. Reproduction Prohibited

7. Fewer adopters of services procurement than goods
eProcurement
Number of clients
(thousands)
14
12 12.3
11.0
10 10.3
9.8
8.7
8 7.8 eProcurement
6 6.1
Services
4 procurement
2
1.2 1.4
0.8 0.9 1.0
0.4 0.6
0
2005 2006 2007 2008 2009 2010 2011*
*Forrester forecast Base: Data from more than 100 vendors
(numbers are rounded)
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8. But services procurement is one of the faster
growing solutions in this market
Vendor revenues, compound annual growth rate, 2005 to 2010
Supplier risk & performance 32%
Services procurement 25%
Supplier network 20%
Spend analysis 18%
Contract management 17%
EIPP 13%
Total (US$ billions) 12%
eSourcing 9%
eProcurement 6%
Base: Data from more than 100 vendors
(numbers are rounded)
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9. Services procurement is starting to move beyond
temporary workers
2002 2003 2004 2005 2006 2007 2008 2009 2010
Temporary workers
T&E services
Line-clearing, nursing services, etc.
Print and marketing services
IT services
IT outsourcing
Legal services
9 © 2011 Forrester Research, Inc. Reproduction Prohibited

10. Where opportunities lie for process-efficiency
savings in services purchase
§ Many savings opportunities in services purchasing
– Cut cost to enter data into financial system, create and move
req., PO, and invoice
– Lower rates that suppliers charge through more competitive
sourcing
– Get employees to use preferred suppliers with pre-negotiated
lower rates
– Eliminate of invoice errors and reduce cost of matching PO,
invoice, and receipt to validate payment
– Capture early payment discounts, avoid late penalty fees
10 © 2011 Forrester Research, Inc. Reproduction Prohibited

11. Other sources of value
§ Improved supplier compliance with sourcing policies
§ Improved employee satisfaction and work performance
through simplified purchasing of needed services
§ Improved regulatory compliance (e.g., Sarbanes-Oxley,
co-employment laws, security policies)
§ Better services providers, with better quality service
– Better quality of services=better business
11 © 2011 Forrester Research, Inc. Reproduction Prohibited

12. The challenge: Services procurement process
differs from goods procurement process
§ Subjective factors matter in services buying
– Quality of services provider, relationship history, availability of
right individuals – all matter as much as price
§ Engagement management is key
– Services only deliver value in actual delivery
– Tracking and recording of services as they are performed is
critical
§ Spending control is de-centralized
– Each department buys different kinds of services (i.e., legal,
marketing, IT, etc.)
12 © 2011 Forrester Research, Inc. Reproduction Prohibited

13. Our data shows IT departments are starting to use services
procurement to buy consulting & outsourcing services, not
just temps
Number of clients
1,600
1,400
1358
Services procurement for
1,200 1197 contractors
1,000 1025
860
800
754
600
558
470
400 423
350 Services procurement for IT
280 consulting & outsourcing
200 services
150
40 75
0 20
2005 2006 2007 2008 2009 2010 2011*
*Forrester forecast Base: Data from more than 100 vendors
(numbers are rounded)
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14. However, there are two barriers to growth of
services procurement
§ Services procurement will not achieve its full growth
potential until two barriers are addressed
1. Fragmented, decentralized management of
services in most companies
2. Lack of readiness of most service providers for
interfacing with services procurement solutions
§ Those who want to see services procurement achieve
its full potential in their organization need to address
these challenges
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15. Biggest barrier to services procurement:
Spending controlled by departmental kingpins
In direct In indirect materials But in services,
materials and MRO kingpins have control
CPO has direct CPO can get CPO can only
control control influence
Purchasing Dept. CIO CFO COO
GCO CMO
15 © 2011 Forrester Research, Inc. Reproduction Prohibited

16. To succeed organizationally, pick the kingpins to
go after first
Because services
spending is fragmented
under multiple kingpins,
you need a strategy for
which kingpin to go after
first
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17. Strategy #1: All services at once
Benefits Logistics Travel Real
manager manager manager estate
PROS:
• Maximum savings
CIO
fast HR GCO
CONS: CMO COO
• But very hard to get CFO
a “strike” by getting
your kingpins
moving together
• Requires strong
CEO leadership
• All or nothing
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18. Strategy #2: Temporary workers and benefits
Real Logistics Travel
estate manager manager
PROS:
• Temporary workers
CIO
a current pain point CFO GCO
• Benefits are big area CMO COO
of services spend
CONS:
• HR kingpin doesn’t
have much impact
• Temporary workers
have unique needs
(e.g., onboarding,
18
credential checking)
© 2011 Forrester Research, Inc. Reproduction Prohibited

19. Strategy #3: Focus on CFO, CIO and HR
Real Logistics Travel
estate manager manager
PROS:
• CFO and CIO are
influential kingpins GCO COO
with peers CMO CFO
• Addresses services
that are current pain
points
• Benefits are big area
of services spend
CONS:
• Hard to maintain
19
momentum
© 2011 Forrester Research, Inc. Reproduction Prohibited

20. Getting the CIO on board is key
Breakdown of US enterprises’
2009 IT operating budget by category
§ IT departments buy lots of services
Telecom
services,
– Contractors and temporary 20% IT staff
costs, 26%
workers
– IT consulting and systems
Third-
integration services party IT
services,
– Hardware maintenance and 14%
support services Expensed
software,
– IT outsourcing services Expensed 20%
hardware,
– Telecom services 20%
§ CIOs can influence business units
to try and adopt new technologies Source: Forrester Business Data
Services, 2009 IT Budget and
Spending Survey of North
20 © 2011 Forrester Research, Inc. Reproduction Prohibited
American Enterprises

21. So, if you’re the CPO, how do you get the CIO
engaged?
§ Show the CIO the data on how the IT department spends
on IT services of various kinds
§ Talk about the challenges that a CIO faces in managing
and controlling services spending, especially in a
recession
§ Talk about the small but growing numbers of IT
departments that are using services procurement tools to
buy consulting and outsourcing services
§ Position IT as the pilot department for demonstrating the
value of services procurement tools to the enterprise
21 © 2011 Forrester Research, Inc. Reproduction Prohibited

22. Supplier lack of readiness is the other big barrier
1. Outside of temporary help agencies, most services
providers have poor or no readiness for working with
services procurement tools
2. Most service providers will resist the supplier-funded
model that has been common in contingent workforce
or vendor management system solutions
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23. Few services providers have created a listing of
their services offerings
§ For buyers to be able to buy services online efficiently, it
would help to have these services listed, with some specified
in a catalog and other to be defined through collaboration
§ While many services have to be defined through a negotiated
statement of work, some are standard enough to be described
and listed in a catalog – especially services that are governed
by a master consulting or outsourcing agreement
§ However, no major services vendor outside the temporary
labor market has done this
23 © 2011 Forrester Research, Inc. Reproduction Prohibited

24. Most services providers manually process POs
for consulting and outsourcing services
§ Most consulting and outsourcing services providers are
handling orders and RFXs by logging into a supplier portal to
pick up these documents and manually bringing into order
management/project management/engagement management
solutions
– No order process automation
– No linkage of internal project management systems to
services procurement systems
§ So, services providers are not seeing efficiency gains from
clients’ use of services procurement solutions
§ And they resist supplier-funded requirements
24 © 2011 Forrester Research, Inc. Reproduction Prohibited

25. Still, some IT services providers are using
services procurement tools on the buy-side, with
potential to use on the sell side
§ Leading IT services vendors have adopted services
procurement solutions for their purchases of contractors and
sub-contracted IT services vendors
§ These IT services vendors are exploring and piloting the use
of these solutions on the sell-side, for clients to use to place
services and work orders
§ There’s precedent! Staffing companies have been using
similar tools with their clients when they place requests for
contractors and temps with them
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26. Recommendations
§ Make services procurement a priority – benefits are
huge!
§ Effective services procurement requires changing
processes, new technologies, organization
§ Approach in phased fashion, starting with departments
who are ready to act
§ Focus on the CIO and IT department to help them get
their services spend under control, and to serve as an
example and pilot for other departments
§ Work with your services vendors to help get them
prepared for working with services procurement tools
§ Use services procurement vendors with proven
solutions, because they can help drive success, which
will fuel further success
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27. Thank you
Andrew Bartels
+1 516.869.0128
abartels@forrester.com
www.forrester.com
© 2009 Forrester Research, Inc. Reproduction Prohibited