'40/40/20' approach cuts Shell consultancy spend

26 April 2012

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26 April 2012 | Paul Snell

Shell has cut its spend on professional services by applying what it calls the ‘40/40/20’ approach.

This is based on the concept that 40 per cent of the value delivered to the business comes through demand management, 40 per cent from management of the specification and 20 per cent from the price.

“Our core procurement strategy is very simple. It is value in, cost out,” said Marcel van Berkel, enterprise category manager for consultancy and services at the business.

Speaking at the ProcureCon Indirect conference in London yesterday, he said although the approach is not exclusive to professional services it has delivered significant benefits. But, he added, it cannot be done without the support of stakeholders.

“The 40/40/20 concept, although it is a procurement-generated model, will only work effectively when you have business stakeholder buy-in,” he said.

“We have also distilled this concept for the mindset of our stakeholders which has generated a vehicle of alignment in order to deal with our external spend on consulting.”

Shell has more than 200 consultancy engagements each year, with 90 per cent of spend put through agreed frameworks. Each call-off contracts is now sent, via the procurement team, to an executive sponsor for approval or rejection to improve demand management.

The company has also developed standardised measures to determine rates. There is consolidated list of roles and a consistent list of ‘service lines’ – what the consultancy arrangement is for, such as strategy, advisory and implementation. Combining these two factors provides a rate for the engagement. “We are very specific that we will pay for what they do, but not for who they are,” van Berkel said.

He added that ensuring targets have been met is a key element of driving value. “In a professional services engagement you must make sure up front that you determine what the deliverables are, what the timelines are, what the milestones are and what the reference criteria are prior to the start,” he said. “We see it all the time that your business stakeholders are in a rush to get started. And the thing I always tell them is you are not in a hurry to start, you are in a hurry to finish. If you want to finish well, you have to start properly.”

Shell has employed a simple scorecard where the consultants’ performance is rated from one to five in areas such as impact, on budget and knowledge transfer to assess the success.

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