Statement of W
ork (SOW), The Next Business Frontier
In an era of business that’s fueled by fierce competition and a push to innovate, organizations need to contain costs, streamline processes, develop fluid and elastic operations, and still find highly skilled workers who are capable of delivering results. It’s not an easy task. During the Great Recession, waning profits and the demand to curb overhead gave rise to an increase in contingent labor. Today, however, the continued growth of the non-employee talent force has less to do with slashing spending and more to do with the nature of work — and workers themselves. Jobs in current business models are transitioning away from ongoing duties; they’re becoming a series of networked tasks and projects. Likewise, modern professionals are embracing this project-based mindset. They seek more control over the fulcrum that balances their working and private lives. They want to pilot their own courses.
These attributes strengthen the appeal and importance of contingent talent in the contemporary marketplace. They’re also driving the growth of Statement of Work (SOW) arrangements across enterprises. SOW is truly the next frontier for the staffing industry. It’s not just a fancy term to justify more contract labor, it’s aligned with the goals of in-demand talent who value their independence. Not only that, SOW presents a lucrative relationship for clients and project-based workers. Companies that turn to SOW engagements realize higher returns on their investment. They also gain access to specialized talent who produce vital assets and intellectual property. SOW workers typically command higher compensation than agency temps. It’s a win-win situation.
Yet despite the profit potential and obvious rewards, managing SOW engagements isn’t for the uninitiated or unprepared. Integrating SOW contractors into the rest of the blended workforce can lead to out-of-control expenses, compliance risks and performance issues. And businesses that attempt to run SOW programs themselves may not have the specialized supplier networks they need. That’s why it’s essential to engage an MSP/VMS leader. Otherwise, your Statement of Work could end up a Statement of Woe.
SOW is Changing the Labor and Business Landscape
According to research by Ardent Partners, “95 percent of organizations today perceive their contingent workforce as important and vital not only to day-to-day operations, but also to ultimate enterprise success and growth.” Yet as skills shortages linger and top talent seem scarce — or selective in their choices of work — recruiting exceptional contingent workers has become a challenge. Ardent Partners’ 2015 State of Contingent Workforce Management study found that more companies are committing to improve or enhance their contingent workforce programs, particularly because the need for talent with specialized skill sets has grown. More importantly, businesses are actively investing in non-employee professionals, placing quality ahead of cost. This is especially apparent in SOW engagements.
By Staffing Industry Analysts’ (SIA) estimate, the global SOW market represents nearly $1.1 trillion — that’s three times greater than the traditional temporary agency market. So why aren’t we talking more about SOW in the workforce solutions industry? For starters, SOW engagements are complex, intricate and sometimes daunting undertakings. SOW projects include multiple sub-categories and specific types of services.
Beyond that, many organizations wrestle with the notion of losing control. SOW relationships focus on deliverables and outcomes, rather than the intangibles of providing an ongoing service over the course of an assignment. Also, vendors identify and assign project resources independent of the client’s direction. So the big obstacles boil down to mitigating risk and assuring a comfortable level of control over performance.
What’s the Difference Between Temporary and SOW Talent?
Unlike the standard staff augmentation model we’re all familiar with, SOW firms assume a larger portion of responsibility for the business outcome. As SIA explains, “The firm is supplying talent, subject matter expertise and its own process methodology to solve a business problem for, and usually in collaboration with, the client.” SOW spend is also more difficult to place because it’s not isolated to a single department. These programs often span legal, finance, technology, implementation and people projects — with durations that don’t generally warrant a full-time or assignment-based worker.
Yet as SIA notes, this arrangement can create unintended problems. With some staffing suppliers, “SOW has provided a mechanism through which program restrictions can be circumnavigated, or the competitive dynamics of VMS more likely avoided.” And with clients, “Such workarounds have likewise been commonly embraced by client business line managers who may be looking for more expedient ways to add capacity, or to skirt the imposition of tenure limits on resources they consider not easily replaceable.”
The good news is that the solution for clients may already exist in their organizations: MSP/VMS programs.
MSPs Can Turn a Statement of Work Engagement into a Statement of Success
Here are just a few of the benefits MSPs bring to SOW engagements.
They create unique sets of SLAs at the onset of the program, defining specific SOW performance metrics and KPIs for milestones, deliverables, timelines, and targeted payment and penalty processes.
Automation technologies play an important role in services spend. Leading VMS providers have already incorporated SOW functionality into their systems, or they’ve developed modules to facilitate the communication and tracking of project milestones, including changes in time and materials. These SOW tools help MSPs maintain a clear and consistent understanding of project deliverables, budgets, and timelines. They also support consolidated invoicing and assist in keeping projects on schedule, while eliminating extraneous expenses.
SOW suppliers require greater attention, care and communication. Supplier migration, for example, is as much about executive sponsorship and political management as contract management. The best MSPs develop enhanced communication strategies that exhibit the necessary sensitivity around support and timing. Engaging SOW suppliers often requires the presence of a clearly defined value proposition and escalation process.
SOW projects require more collaboration among business units. Stakeholders from legal, procurement and the supply base may require the opportunity to give feedback before the finalization of an engagement. That can create a logistical challenge. Supported by VMS tools, MSPs facilitate better collaboration among those departments on contracts and SOW terms. From a compliance perspective, MSPs help standardize language that can be included in SOW contracts for better consistency and risk management.
A fully functioning SOW program presents different challenges to implement and manage than a traditional contingent workforce solution. For instance, the communication and negotiation process takes place at multiple levels of the engagement. MSPs are more experienced and adept than standalone suppliers in executing enterprise-wide implementations, change management planning, and configuring the VMS to centralize communications.
Through their watchful eyes and involvement in the RFP process, MSPs create competitive pressures among bidding staffing providers. As a result, those suppliers are less likely to pad the scope of their solutions or estimates with extraneous items. Through the MSP, clients are more likely to see all the bids and scores. Having other prices as benchmarks for comparison helps provide objective backing to price negotiation tactics.
Traditionally, classification concerns have focused solely on independent contractors. However, SOW consultant classification has also become an issue in light of potential risks and high costs. MSPs are well-versed in all forms of worker classification. SOW consultants are typically paid a substantially higher premium than temp mark-ups above pay rates. This is especially important if the SOW classification is being used to circumvent tenure limits imposed on temporary workers, because it means the excessive rate will remain in place that much longer. In an MSP program, SOW consultants who are really functioning as temporary talent (filling a role instead of delivering a tangible result) will be reclassified. Industry analysts estimate substantial savings from these efforts, between 30 and 60 percent.
When project managers source and onboard suppliers with their own methods and contracts, the company may be exposed to a greater degree of risk than expected. MSPs excel at strategic supplier sourcing — it’s core to their business foundation.
Some end-user departments source SOW engagements to the same supplier out of convenience or a “default operation” mindset. This can be dangerous for companies that rely on innovation for competitiveness. MSPs extend SOW opportunities to the best-qualified staffing curators, which exposes clients to multiple perspectives, solution approaches and increased price competition.
MSPs contain spend. It’s not uncommon in unmanaged SOW programs for spend to fall outside procurement guidelines, beyond the view of client decision makers. MSPs ensure a level of visibility that identifies and reins in maverick or misclassified spend. In some cases, a small percentage of SOW spend ends up distributed among a large supplier population. Experienced MSPs consolidate that spend under the smallest number of top suppliers.
Eliminate the Risk and Reap the Reward
SOW engagements are often described as “high risk, high reward.” And that’s because people are talking about them in a self-managed context. MSPs understand that SOW engagements differ from temporary work. MSPs provide a crucial level of visibility, program oversight, performance monitoring, reporting, worker classification, compliance and supplier selection. For clients, that translates into significant hard and soft cost savings, higher quality service, more effective rate and contract negotiations, competitive bidding processes, and greater control over project timelines. By leveraging the wisdom, experience, and resources of an MSP/VMS, clients can concentrate more on the rewards of SOW and worry less about the risks.