The Spend-Labor Split Paradigm for Services

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Is management of spend the same as management of labor? No, spend is spend and labor is labor “…and never the twain shall meet.”* Right?

The truth is, it’s not that simple anymore…

Welcome to the new spend-labor split paradigm, where the traditional way of treating spend and labor the same is not wrong, but neither is it is always right. As all good quandaries go, it depends.

Let’s start by explaining that the premise of this spend-labor relationship question is based in the scope of Services, as in SOW-based Services (those services acquired with and governed by a statement of work contract). Given this is Part 2 of our series on SOW-driven changes in the contingent labor** industry, we offer the new paradigm that SOW is forcing us to confront and the accompanying analysis that supports the split scenario.

Paradigm is just a fancy word for model

spend labor split paradigmThe Spend-Labor Split Paradigm models the relationship between Spend and Labor when procuring and consuming Services. The model depicts how category characteristics and management activities associated with Labor and Spend can vary along the Services Continuum. Awareness of this relationship, relative to the underlying purpose of the Service being procured, helps position category strategies to optimize management of both Labor and Spend.

labor focus

Labor Focus

Strong correlation exists between Spend and Labor management activities. When the Labor resource is acquired or terminated, the Spend associated with that labor is likewise acquired or terminated. Procurement criteria are based on the skill and experience level of the resource, as well as engagement duration and number of resources.

transitional focus

Transitional Focus

Time and material statements of work can be labor and / or outcome focused, depending on the underlying objective of the Service being procured. There tends to be a gradual organizational shift from Labor to Outcome focus as category management strategies evolve for SOW-based services.

outcome focus

Outcome Focus

When the focus of the underlying Service is the Outcome, then Spend management is paramount to the buying organization and responsibility for Labor management shifts to the service provider. This full disaggregation of Spend and Labor has material impacts on sourcing, contracting and engagement management strategies.

* From Rudyard Kipling. “Oh, East is East, and West is West, and never the twain shall meet…” Read entire poem entitled The Ballad of East and West.

** A later post in this series will address terminology at which time we will confront the challenging and confusing industry nomenclature that is contingent labor – hint: it may be time for some more change!

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