Rethinking Services Spend

Welcome to The Procurist, everyone. I'm Max Henry, and today we're diving into some fascinating research findings about services spend management. Joining me is Diana Gavin, an expert in procurement analytics. Diana, welcome to the show.

Thanks for having me, Max. I'm really excited to discuss these findings, particularly because they highlight some, well, interesting gaps in how organizations are managing their services spend.

Let's start with something that really caught my attention. The research shows that 56% of companies include penalties for unachieved outcomes in their contracts. But, and here's the surprising part, many don't actually have formal KPIs in place to measure these outcomes. What's your take on this disconnect?

You know, that's actually one of the most concerning findings from this research. I mean, think about it. How can you enforce penalties when you don't have a formal way to measure performance? The numbers are pretty striking: 65% lack formal KPIs for routine services, 75% for ad hoc services, and 58% for activity-based services.

That's quite remarkable, and it gets even more interesting when we look at how organizations are measuring outcomes. Could you break down the different approaches they're taking?

Well, for routine services, only about 35% are tracking contracted KPIs and SLAs. Then you've got 24% relying on informal stakeholder feedback and another 21% using key stakeholder consensus. But here's what's really concerning: about 20% aren't measuring outcomes at all.

Let's talk about technology's role in all this. The research showed some interesting patterns when it comes to procurement platforms, didn't it?

Yes, and this is fascinating. When organizations use dedicated services procurement platforms, we see a significant jump in KPI tracking. For routine services, it goes from 35% to 61%. That's— that's a massive improvement in measurement capability.

Yet despite these benefits, many organizations are still using pretty basic tools, right? Something like 60% are just using ERP systems for purchase orders and invoices.

Exactly. And even more concerning is that about 25% are still relying on emails and phone calls. I mean, in 2023, that's really not optimal for managing complex services spend.

Let's shift gears a bit and talk about value reporting. The research revealed something quite striking about how procurement teams communicate their impact, didn't it?

Oh yes, this is actually quite concerning. About 46% of procurement teams don't report on any value beyond cost savings. And when asked why, 47% say they simply have no way to capture or measure non-savings value. It's a huge missed opportunity.

And yet, the research shows that impact on key corporate initiatives is considered the most important factor in determining how strategic a service is. There seems to be a disconnect there.

Absolutely. Nearly 49% of respondents said impact on key corporate initiatives was their top consideration. But if they're not measuring and reporting on that impact, Well, how can they demonstrate their strategic value to the organization?

What would you say are the key takeaways for procurement leaders listening to this?

First, there's an urgent need to align contract structures with performance measures. Second, invest in proper technology— the data shows it makes a real difference. And finally, develop robust frameworks for measuring and communicating non-savings value. Because ultimately, procurement's impact goes far beyond just cost reduction.

Those are excellent points, Diana. Before we wrap up, any final thoughts on where you see services spend management heading in the future?

I think we're at a turning point. Organizations that invest in proper tools, processes, and measurement frameworks will pull ahead. The opportunity is there; it's just a matter of taking a more structured, strategic approach to services spend management.