Navigating Spend Management to Create Meaningful Savings: A Fireside Chat with Concertiv CEO, Priya Iyer
August 2, 2023
As capital costs rise, it is reshaping spending strategies for many firms. It has never been more important for firms to scrutinize and adapt their spending strategies. This interview explores these changes, highlighting how firms are refocusing their approach towards managing spend and some challenges and opportunities related to that.
The cost of capital has gone up significantly in the past year. What trends are you seeing in regards to spend across PE firms? Are firms changing the way they think about spend at a firm level?
Yes. The way PE Firms are thinking about spend has changed dramatically in the last year. In general, 2021 and 2022 saw tremendous growth and spend was not a concern. While travel spend went down due to Covid, vendor related spend went up significantly. I would say some of our clients experienced vendor sprawl in 2022.
With the cost of capital going up significantly, every dollar must be deployed at a higher threshold. We are seeing PE firms making fewer new investments and focusing on existing portfolio company performance. When it comes to spend management, the front office is focused onPortCo performance, and we are seeing CFOs and COOs focus a lot more on management company performance.
We are seeing 3 things that this is driving:
1. A cost savings agenda, both at the management company level and the Portfolio company level.
2. A lot more attention being paid to spend allocation. We are doing a lot of peer benchmarking and sharing best practices in this area.
3. More focus on budgeting and forecasting intelligence. CFOs used to do an across the board 10 to 20% increase on spend for the next year. That’s no longer the case. While there is a push for zero-based budgeting at the PortCo level, there is a lot more scrutiny from CFOs online-item forecasts for each vendor spend. CFOs are breaking out budget forecasts by practice areas or pods or geographies, however they think about their business.
"While there is a push for zero-based budgeting at the PortCo level, there is a lot more scrutiny from CFOs on line-item forecasts for each vendor spend."
What challenges do CFOs/COOs experience and how can they simplify cost savings?
In general, firms grew significantly between 2021-22 but did not grow headcount as fast as revenue. Much of their energy and attention was focused on delivering investment returns. Any growth in headcount was in the front office. The “great resignation” has left the back office more deplete.
In 2023, CFOs and COOs find themselves grappling with a host of issues from economic uncertainty, a looming recession, ongoing talent shortages, ever-changing regulations, cybersecurity concerns, and even the fallout of the recent bank collapses. It's a completely full plate with not enough resources to get it all done. This is a consistent theme and a real challenge among CFOs and COOs.
The challenge we frequently hear is when they to look at vendor spend, they are realizing they need to bring order to the back-office. Most firms cannot easily identify all the vendors they work with, the contracts they have with those vendors, renewal dates, or if there are duplicate products/vendors in their portfolio. Getting their arms around this has become extremely important.And finally - getting leverage. We hear from CFOs that operational leverage has become crucial in everything they do. PE firms tend to outsource a lot to keep their focus on driving investment returns (due diligence, accounting, legal, IT etc.). With spend management high on the agenda we are seeing a big trend in CFOs/COOs outsourcing procurement.
When done right, outsourced procurement can:
1. Bring order to the back office, giving them visibility into their full portfolio, and reducing risk in the process
2. Provide tremendous administrative lift in the purchasing process
3. Realize significant savings – which is the cherry on top.
What areas are firms looking at specifically for cost savings now?
After payroll and real estate, the largest spend categories in mid-market firms are typically (i) travel, (ii) insurance & benefit, and (iii) vendor spend in market data and technology.
Travel volume has not reached the levels of 2019, but travel spend is at or higher than 2019. This is because airlines and hotels have significantly increased prices. Most mid-market firms don’t have the volume to get the best discounts, and many are not aware of even the basic programs available to them.
Vendor management is another significant area – most firms use a large number of market data and technology vendors. We have seen some vendors increase pricing by 35 to 50% year-over-year in this category.
CorporateInsurance is another area of savings – especially Cyber Insurance costs are going up significantly and we help our clients save a lot in this area. Employee benefits is another area to look at.
"Vendor management is another significant area - most firms use a large number of market data and technology vendors. We have seen some vendors increase pricing by 35% to 50% year over year in this category."
How can firms mitigate risks in the procurement and cost-saving processes?
Oneway to mitigate risk is to consider outsourcing procurement to subject matter experts: One of our clients recently told me that in private equity we spend a lot of time doing diligence before making an investment and we rely on subject matter experts to do that. He thinks of managing his vendors the same way – they can be diligence, benchmarked, and assessed by subject matter experts who can inform them on what they are buying before they commit to do so.
Many firms look to outsource procurement for operational leverage, what are the risks and benefits?
Most of our clients come to us initially for savings but all of them tell us that they stay with us for the administrative lift and the operational leverage we bring, and the Concertiv Insight we provide.
1. The administrative lift comes by seamlessly integrating with your operational team, providing an improved user experience for front-office, and better reporting and insights for the CFO and COO.
2. The risk reduction comes from the structured management of portfolio, implementing our cost avoidance strategies that ensure you are never overpaying, and our vendor diligence processes to comply with SEC regulations and helping with your repoing needs.
3. Peace of Mind comes from the insights and decision making that ensures you have the best product at the best price, that your spend is in line with market through peer benchmarking and vendor landscaping, and you have accurate inputs for budgeting and forecasting.
4. And the cherry on top of it all is the hard cost savings.
Rising capital costs have prompted firms to revise their spending habits, focusing more on existing portfolio performance and driving a cost savings agenda. Attention is now focused on spend allocation, budgeting, and forecasting intelligence, leading to more precise and scrutinized budget forecasts.
CFOs and COOs are facing new challenges due to rapid firm growth without proportional headcount increases, compounded by issues such as economic uncertainty, talent shortages, regulatory changes, and cybersecurity threats. administrative pain points use up valuable resources, making operational leverage crucial and driving firms to look towards outsourcing procurement.
Key areas to address spend in the short term: travel, technology, market data, and insurance. Firms can find immediate efficiency and savings in these four spend categories with outsourced procurement.
Outsourced procurement for operational leverage provides risk reduction to the firm through better front-office reporting, insights structured management of the portfolio, cost avoidance, vendor due diligence, and peace of mind through peer benchmarking, budgeting, and forecasting.
Interested in learning more about procurement-as-a-service for your firm?
Learn how leading firms are partnering with Concertiv to reduce spend, minimize risk, and save time across key spend categories.