Procurement and Human Resource professionals live and die by trends and forecasts. Employment trends. Economic trends. Workplace trends.
Everybody wants to know what’s coming down the pike and everybody is looking for ways to gain an edge, cut costs, and improve performance. One trend that will have an enormous impact on Sourcing and HR professionals is the increase in the use Statement of Work (SOW) arrangements. More and more companies are integrating SOW arrangements into their contingent workforce programs.
What are the signs of growth in the use of SOW contractors?
- In 2012, SOW spend through VMS technology platforms reached $22.9 billion, which was about 26% of total VMS spend – and a 21% increase over the previous year.
- SOW expenditures are equal to or larger than temporary labor expenditures (with temporary labor spend forecast to reach $139.4 billion in 2014).
What’s behind the growth in the use of SOW contractors?One of the effects of the economy on budgets, hiring, and HR strategies has been an increase in Contingent Staffing. This has led to more and more organizations using project-based labor to complement their permanent workforce. In times of economic uncertainty organizations need more flexibility and agility. This is driving the need for a blended workforce comprised of permanent workers, temp workers, contractors, part-time workers, SOW or project-based workers, consultants, etc. SOW arrangements allow businesses to accommodate fluctuations that occur in their workloads. But, the increased use of SOW arrangements isn’t all due to employer preference. Talent and skill shortages play a part as well. SOW is aligned with the goals of many skilled and talented workers who seek to maintain their independence. Because these workers are highly valued and retaining workers with key skills is a challenge, Statement of Work arrangements are more prevalent. For example, companies are turning to SOW engagements for specialized talent, generating high-value intellectual property and IT assets. With many top professionals choosing to be consultants, companies are increasingly finding themselves using a much larger percentage of contractors than before.
There are big benefits to effectively managing SOW expenditures.As we already said using SOW contractors allows businesses to accommodate fluctuations that occur in their workloads. If used properly, adding SOW to your procurement mix can keep your organization competitive, especially when it comes to project-based labor. But expenditures can get out of control, especially if the business isn’t prepared to deal with the challenges of integrating SOW consultants into the CW program. Most HR systems are intended to mostly handle full-time employees, with a small percentage of contractors. SOW-based expenditures are complex and include multiple sub-categories and specific types of services. The opportunities for reducing costs and enhancing workforce performance in the SOW category are significant. For most companies, because this category is large and intricate, it’s easy to get overwhelmed. The big question is “Where do we begin”?
When considering SOW, where should I begin?Effectively managing your flexible workforce can be complex and difficult.But you can optimize productivity and ROI through flexible workforce solutions.
How can companies prepare to leverage SOW effectively?The first step is understanding how everything works. For example, in SOW relationships, the vendor identifies and assigns the contractor to the project independent of client guidance. In SOW relationships, the focus is on the deliverable or work product. Be careful not to misclassify your workers. It’s typical to see almost 20% misclassification of SOW consultants, i.e. workers on an SOW contract who are really being used as temps. Know how to avoid misclassification. Define the specific work activities, as well as the deliverables, timeline, contract terms and conditions, and the pricing that the vendor has agreed to perform for the client.
A simple way to mange SOW contractors that work for Fortune 500 firms.If you want to simplify Services Procurement and realize cost savings compared to what you would spend on temporary labor, consider leveraging a technology partner for the management of your CW. This will give you a strategic partner to help you implement your SOW program. They can help you roll out your SOW program in structured phases. That way you can get the maximum results and still focus on change management. You definitely don’t want to bite off more than you can chew because that can lead to overall program dissatisfaction and possible failure. Beeline provides this comprehensive, fully configurable solution designed to align with how you source, negotiate and engage Statement of Work (SOW) and project-based initiatives in accordance with client business rules.
Have you incorporated Statement of Work (SOW) arrangements into your CW program? Let us know about it in the comments.