By Stephen Catalina, CEO, Expense Management Solutions
Rebalance, as defined on merriam-webster.com, means “to restore balance to, or adjust the balance of (something); to balance (something) again.” For many, the aftermath of the 2008 financial crisis required a reassessment and perhaps, a rebalance of their investment strategy and approach. Although investors rode the profitable growth wave for an extended period prior to the collapse, many of them learned that a stagnant model, due to the lack of periodic rebalancing, ultimately set them back.
At a very young age, my cousin Joey (not Vinny… I digress, but do highly recommend the fan cult classic movie) introduced me to what he referred to as the “5 P” rule, which stands for proper preparation prevents poor performance. Although this did not resonate with me much in my younger years, as time passed, I began to understand how this rule could apply to life, more broadly. As a strategic sourcing and expense management professional, I have come to learn how this rule applies to (a) achieving internal efficiencies, and (b) optimizing external third party relationships. Ultimately, both parties’ (companies and vendors) desire to build strategic partnerships that align with their goals and objectives.
Although the focus of this article is the financial services space, in most industries, companies are using third party providers to support both core and non-core services. Examples include technology (i.e. hosted, cloud-based, SaaS), process automation (i.e. robotics, online auctions), artificial intelligence (AI), data analytics (DA), business process outsourcing (BPO) and the like. Ideally, key business stakeholders collaborate with their sourcing partners to execute some form of a competitive bid process to determine the best option for their requirements.
In some instances, however, those who are allergic to change (I say this tongue in cheek), simply maintain an auto-renewal state with their current provider(s) for a variety of reasons, all of which are likely valid. In either scenario, an underlying question we often hear is “How do we know if we have a good deal?” Although the criteria for how each company defines a “good deal” may vary, a consistent theme across the board is how do you find the optimal balance of cost, flexibility, risk and performance?
The 5P rule: Proper Preparation Prevents Poor Performance
Regardless of the sourcing approach (i.e. a competitive bid process v. a direct renegotiation), understanding procurement intelligence and how to best optimize your third party relationships is critical. Most companies (although some are not shy to admit they do not) have the internal intelligence, knowledge, skill sets, and subject matter expertise (SME) that enables them to negotiate a deal that meets their business requirements. Others, however, utilize their internal resources but also opt to partner with third parties to leverage “external industry knowledge and benchmarking expertise” in order to achieve the best outcome.
This type of strategic collaboration enables companies to reassess and rebalance their strategic sourcing strategies and approach periodically to ensure they achieve and maintain process efficiencies, optimize third party vendor relationships that are based on current conditions (thus improving service levels and contract terms), and achieve optimal cost structures as their business, and the competitive landscape, continue to evolve.
”...companies need to understand that as their business and the market change (be it a progression or regression), it is equally important that they periodically reassess and rebalance their strategic sourcing efforts and contracting principles.Catalina
With today’s economic uncertainty and a potential market correction looming in the future, I suspect investors are better positioned this time around due to rebalancing their previous stagnant investment strategy and approach. Similarly, companies need to understand that as their business and the market change (be it a progression or regression), it is equally important that they periodically reassess and rebalance their strategic sourcing efforts and contracting principles. In today’s environment, companies of all sizes are challenged to do more with less, and to do it faster and with more efficiency. Leveraging external industry knowledge and benchmarking expertise will help proactively identify sub-optimal third party relationships and ensure that you achieve the best outcome, thus definitively confirming “you do have a good deal.”
”In today’s environment, companies of all sizes are challenged to do more with less, and to do it faster and with more efficiency.Catalina