As CW programs become more mature and the low hanging fruit disappears, managing cost becomes more complicated and requires sophisticated mathematics.
I remember negotiating with a seasoned procurement manager for a three-year managed service contract when the client rejected a provision linking our support costs to a labor cost index, which could go up (or down) at the end of each year. In his mind, a smart company would use the three years of the contract to improve its service efficiency and reduce the cost to the client. While I disagreed with him at the time, that interaction shaped my thinking about continuous improvement and managing service costs.
Ben Noteboom, the former CEO of Randstad, had a similar message: “What is a good service today is average tomorrow and not good enough the day after.”
Subject to Interpretation
When working with clients to improve service quality and the cost of their contingent workforce programs, I often find that there is no single view on cost improvements or cost savings. Interpretations of cost vary, even among people within the same organization — and even more so with respect to cost savings. While all may agree that the program needs to improve over time, not everyone has the same definition of what “better” looks like.
Side effects. If everything else remains the same, one could demonstrate that the cost has come down. But in reality, there are usually multiple moving parts — if you change your cost structure, you have usually changed other things as well. So the big question is: “How can we account for side effects or unintended consequences?”
Benchmarks. And for some people, it is more important to know they are operating a lean program in comparison to a defined peer group. They would interpret a better-than-average price level as a cost saving. Here the big question is: “What benchmarks can you trust and how do I compare apples with apples”?
In both of those scenarios, you would need to apply detailed accounting and data analysis to calculate your cost savings. Typically, there are only a few people who understand the methodology and others need to trust the results.
Hard cash. Then there is a third group of people who don’t trust any “theoretical” cost savings calculation and demand a mechanism that generates real cash instead. I find these methods often are more straightforward, but not necessarily very accurate.
It’s obvious that improving service quality while managing costs requires the careful balancing of several factors. But varied interpretations aside, we have to agree on some of the “small” challenges:
- what cost savings are
- what good cost savings look like
- how to calculate them accurately
- who should do the calculations
- who should audit/review
- who in the organization should know how to interpret cost savings calculations
We can still make CW programs more cost efficient, but it is getting a little harder and correspondingly more interesting. Coming to an agreement on the above is a good step toward reaching that next stage in program evolution.