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The financial landscape of a company often resembles a vast tapestry, where the broader strokes capture immediate attention, while tail spend in consulting—a segment of expenses that, although seemingly minor, can accumulate into a significant portion if left unchecked—often goes unnoticed.
Such is the case with Tail Spend—a segment of expenses that, although seemingly minor, can accumulate into a significant portion if left unchecked.
As the Danish proverb goes, “Many small streams make a big river.” This is especially evident in consulting, where a lack of oversight on spend can lead to missed opportunities and inefficiencies.
As we delve deeper into the digital age, however, we’re armed with tools and strategies designed to spotlight these overlooked expenses. Today’s digital solutions not only identify the tail but also offer actionable insights to harness its potential.
In this article, we’ll walk you through some proven strategies to effectively manage and optimize Tail Spend in consulting, ensuring that every detail, no matter how small, contributes to the larger financial picture.
The Consequences of Neglecting Tail Spend in Consulting
While many areas of business expenditure stand out, drawing the attention of management, tail spend often lurks in the background. It’s like the soft hum in a bustling office – you know it’s there, but it’s easy to overlook.
And it’s this very oversight that can have significant repercussions. Consulting is an arena that particularly magnifies these challenges. With its dynamic nature, rapidly changing project scopes, and a myriad of service providers, the tail in consulting can be both elusive and substantial.
Recognizing and addressing it isn’t just about tightening the purse strings; it’s about harnessing strategic potential and avoiding pitfalls. Let’s examine the consequences of letting this tail wag the business dog.
Hidden Weight of Smaller Expenses
Much like we sometimes underestimate the calories in those “small” treats we indulge in, businesses can miscalculate the true weight of smaller, unmanaged expenses. Take, for instance, the often overlooked realm of small consulting projects.
While they may seem inconsequential when viewed in isolation, their cumulative weight can be staggering. In fact, when consolidated at a company level, these diminutive costs can amount to a whopping 25% of the Consulting Spend.
And let’s not sideline the importance of the Consulting Spend. Depending on where a company sits on the spectrum, this expenditure can chew up anywhere from 0.5% to 3% of total revenue. To put it bluntly: pennies today could mean a thinned-out bottom line tomorrow.
How to Know That Something is Wrong?
Scattered supplier base: There’s no rhyme or reason; just a vast list that has a “the more, the merrier” approach. Multiple suppliers with overlapping capabilities, yet each handling minuscule projects.
Decentralized purchasing behaviors: It’s as if every department has its own shopping list, but nobody’s coordinating to see if we’re all heading to the same store for the same item.
Minimal supplier qualification: We’re sometimes putting more faith in a friendly smile or a shared hobby than in tried-and-true expertise. Critical checks? Sometimes they’re more of an afterthought than a priority.
Limited or no category management: It’s the corporate equivalent of shrugging when asked about your suppliers. No established relationships, no supplier lists, a lack of master service agreements, and a noticeable absence of strategic sourcing.
Sparse performance evaluation: We’ve become collectors of projects without pausing to assess the quality. It’s a rinse-and-repeat cycle without learning from past washes.
Strategies for Optimizing Tail Spend in Consulting
Just as we recognize the impact of our most significant investments, we must also be cognizant of the smaller, often overlooked expenses that accumulate over time.
Tail Spend, with its nuanced intricacies, requires a different set of strategies—ones that are especially tailored to manage and optimize.
Consulting, a realm where expenses can quickly burgeon if unchecked, serves as a perfect illustration of the need to strategically manage Tail Spend.
To address this often-elusive segment, we present a set of strategies that aim not just at containment, but optimization.
By leveraging these, businesses can ensure that even their smallest spendings are aligned with their broader financial goals, driving efficiency, and unlocking hidden value.
#1. Consolidate Your Supplier Base with Caution
One of the levers used to manage the spend is to consolidate the number of suppliers. Some companies have applied this methodology at the Category level. Suppliers have to be qualified for a given category, and the number of suppliers per category limited.
What starts well can end up with a sound failure if you don’t consider the specificity of the Consulting category, including Tail spend in consulting. If your sub-categories are not granular enough, you might end up with a handful of large one-stop shops.
Price increase mechanically, erasing the savings made by the cleaning-up of the Tail Spend. Moreover, in the quest for simplification, there’s the potential to overlook smaller, specialized suppliers that offer unique value – there might just be a hidden gem in your tail waiting to shine.
#2. Effectively Manage the Variety of Projects
Projects can vary immensely in terms of scope, duration, and purpose. As such, a strategic method for managing these initiatives is by segmenting them into distinct categories.
This approach not only brings clarity but also ensures that every project is managed efficiently based on its nature.
Here, we delineate five primary categories to help streamline your project management process:
One-time projects: One-time projects are the core of your Tail Spend. They are usually small projects with a clear scope and little likeliness of sequel. (Think diagnosis or workshop facilitation)
Recurring projects: Recurring projects are, most of the time, medium-sized projects designed with a repeat model. (Think pulse survey, voice of the customer, benchmarking, coaching)
Never-ending sequels: You have certainly already seen one of these large projects designed in small chunks to fly under the radar. (Think one diagnosis per plant, any project reaching phase 4 and more)
Duplicate projects: Several business units or departments can contract small or mid-sized projects with similar scopes and methodologies. They can be performed by the same or different consultancies.
Externalized workforce: The consultants can also be hired to bypass too stringent HR rules or compensate for lack of internal expertise punctually.
#3. Use the Right Levers to Tackle the Tail Spend
To efficiently clean-up your Tail Spend, you could use many levers, but the below selection should probably give you a good 80/20.
Gather Data on Previous Projects
The main challenge for most companies when facing the Tail Spend is to clearly identify the projects in the Tail and cluster them into manageable sub-categories.
If your organization is decentralized, you will need to get the support of the different parts of the organization to make sure that you have “clean data.”
If you haven’t performed a spend analysis, maybe now is an excellent time to launch it. Interview the project sponsors and leaders to identify high- and low-performers.
Regroup What You Can
Recurring and duplicate projects are good candidates for strategic management and should not be treated as the Tail.
How about a frame contract on coaching or a cross-business-unit RFP for excellence programs or digital transformation?
Develop Your Knowledge of the Local Consulting Market
An excellent way to keep control of the Tail without spending too much time on the management is to have at hand a list of additional providers.
By exploring the local Consulting market, you will be able to identify potential suppliers and develop relationships.
That will allow you to be reactive when one of your business lines wants to launch a one-time project on a given sub-category.
Fine-tune the Rules for the Tail Projects
To maintain your Tail Spend reasonable, and make sure you are not building up another false tail, you need to set up workflows with the right agile check and balance and chase the false Tail.
#4. Launch Your Tail Spend Project Right
Setting the foundation for a Tail Spend project is much like preparing for a significant expedition: one must assess the potential rewards, rally the team, and devise a meticulous plan of action.
The steps outlined below offer a proven roadmap to ensure that your Tail Spend initiative not only takes off but also delivers tangible value to your organization.
Evaluate the Size of the Prize
First compulsory stop on your journey: evaluate the potential savings and improvements to expect. We have stressed many times the importance of creating value. You need to make sure that there is more to gain with the project than what you are spending.
It is the right moment to start gathering data about the different projects to build a solid overview of your Consulting Spend.
Depending on your Procurement practices’ maturity, you can expect between 5% to 40% savings on your Tail Spend.
Get the buy-in of Key Managers
One thing is sure – if your managers don’t believe in your project, it will never happen. You need to develop a sense of urgency, or in other words, demonstrate why it is essential to launch and implement the project now.
Develop a compelling story to tell your key managers and convince them—leverage meetings gathering your top leaders to explain that small streams make big rivers.
The efforts from all of them may seem insignificant taken separately, but altogether they are worth the effort.
Design the Battleplan and Confirm the Stakes
Like any large project, you will need to define how you will proceed. It means having a project team, governance, and a clear work plan.
Then start analyzing in detail the consulting spend and the past performance of your providers. You can now refine the stakes lever by lever.
Some of the projects that you led in the previous years were not strategic or redundant. You can probably take most of that part of the spend out of the equation.
Grouping projects and negotiating on larger volumes can allow you to secure 10 to 30% of the costs.
Identify and Involve the Most Impacted Executives
Some of your Executives will be directly impacted by the project, particularly those who use Consulting regularly.
Through your Tail Spend analysis, you will identify the individuals or departments spending a lot on small projects.
When you have identified the most impacted Executives, take the time to listen to them to understand why they are buying Consulting Services in small bulks.
There could be many good reasons why they would work that way. Think broader than procurement itself. The roots can be in strict HR policies, local management decisions, regional culture, etc.
Formalize the Case for Change and the Communication Plan
Take a step back. You have created a sense of urgency in your top management team, defined your implementation plan, and worked with the most impacted Executives to design the right solutions.
You should now organize your findings in a well-built case for change to minimize resistance to change and make sure you capture the most value from your Tail Spend projects.
Harnessing the Potential of Tail Spend: The Road Ahead
Every colossal enterprise has humble beginnings. It’s crucial to remember that long-term sustainability and growth stem from a series of small, consistent efforts. In the realm of tail spend in consulting, this philosophy holds true.
Starting with those seemingly inconspicuous quick wins or the ‘low-hanging fruits’ can pave the way for larger, more systemic change.
These minor successes can also serve as potent tools to sway the skeptics and further cement the case for a more strategic approach to tail spend management.
In today’s digital era, we now have many advanced tools at our disposal. These aren’t just about adding speed or automation, but about reimagining the very nature of how we manage tail spend.
Accelerated or self-service onboarding, marketplace modes that empower internal stakeholders, and leveraging managed service providers are just some of the transformative strategies available.
When effectively harnessed, these digital solutions can aggregate your tail spend and ensure it’s in the hands of the most competent suppliers.
Managing tail spend isn’t just an operational task—it’s an opportunity. An opportunity to generate savings, drive efficiency, and fundamentally reshape the procurement landscape of your organization.
The journey might begin with modest steps, but with the right strategies and tools, it promises a future of sustainable financial growth and optimized operational efficiency.
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