Friday Rant: The Dangers of a "Procurement Approach" to Services Spend
Yesterday, YOH's VP of Marketing Joel Caperella responded to my my earlier critique of YOH's new supplier partnership program that gives some staffing firms an advantage over others based on their paid membership into programs where YOH is serving as an MSP. Joel responded to my attack by noting that "The negative response on SpendMatters to such an approach is reflective of the legacy of treating contingent workforce management needs with a purely procurement approach (bold added). The status quo -- believing that the more broad and wide the requisition is cast, the more procurement is in a position to 'beat vendors down on price' -- will no longer do."
While I think that Joel and I would both agree that a price-only focus is myopic when it comes to contingent labor spend or just about any other services category, I think he has tried to deflect the damage caused by my original post by blaming past approaches to contingent spend on legacy purchasing missteps. This argument is not only dangerous -- it is managed services seppuku. Many of YOH's future clients will not just be IT, HR or finance executives making staffing decisions on how best to manage programs. They will be procurement executives that take a holistic view to managing services categories that balance cost, quality and performance, looking at a range of success metrics beyond how a rate card benchmark stacks up. To dismiss "procurement" as the problem is just about as self-defeating an argument as you can make and an insult to the very group that YOH needs to better engage with.
A colleague from a competitive firm (one that I have no commercial affiliation with, mind you) put it best in an email to me yesterday noting that it is a shaky argument "that staffing companies need to pay Yoh directly to be 'better aligned' and 'incentivized' to provide staff. This is patently ridiculous -- staffing suppliers are in the business of quickly providing staff, and they win business when they find the best talent at market prices. [Under this model] suppliers aren't selected by their effectiveness or efficiency, they're selected based on how much they pay to be in the "partner program" while clearing minimum performance hurdles. This is a simple pay-to-play/kickback scheme, lining a firm's pockets with fees from both sides, and ending up costing their customers more to pay for the extra fees and higher rates from an inefficient supplier marketplace."
I am all for hearing YOH's side of the argument. But in the meantime, here's an alternative suggestion to ponder in such a case (tossed out by another colleague in the industry): what if the suppliers were brought into the program but the funds or rebates went directly to the clients? Now that would align all incentives fairly and make a stronger case for the argument that Joel suggests in his post.
- Jason Busch
TweetBacks
"Most recently, we came across this post at SpendMatters.com that derides a partner program recently implemented at Yoh. The program in question seeks to better align talent providers against the objectives of Yoh managed services clients. Modeled after the successful partnerships that are typically found between service providers and technology companies, or engineering firms and their sub-contractors, the program allows smaller providers to capitalize on their geographic and subject matter expertise. The benefit to the client is a more ordered supply network, higher quality of talent, more accountability requirements imposed on suppliers servicing them, and precise control and protection over their employment brand. Equally as important, the program enables clients to trust that as more demand moves into the program (as a result of moving 1099 spend or minimizing the amount of project or statement of work bids), the resulting network of suppliers is incentivized to respond as quickly as possible.
We have taken this approach because we want to increase the level of competition among the supply network invited to serve our client base. Membership in the Yoh program inherently increases focused volume for the partner and mandates specific performance. The partner must maintain performance to remain in the program and is incentivized to fill requirements as quickly as possible within the program quality guidelines."
One line stands out to me in particular: "The benefit to the client is a more ordered supply network, higher quality of talent... "
Caparella seems to be stating that the best talent is found only at staffing companies that are willing to pay Yoh for inclusion in their "Partner Program" - a statement that is probably not true.
Another part I find disturbing is
"Membership in the Yoh program inherently increases focused volume for the partner and mandates specific performance. The partner must maintain performance to remain in the program and is incentivized to fill requirements as quickly as possible within the program quality guidelines."
If the only way that suppliers can be punished for poor performance is by removing them from a partner program,this means that companies that eventually see sub-par staffers show up for work will continue to contract with them time and time again.
What Yoh is doing could potentially make them more money, but if they try to defend this move as a benefit to their end-users, it is a blatant lie, and should be recognized as such by all of their customers and competitors.