When it comes to shipping a package, booking a flight or making dinner reservations for a big client, recent research shows that employees are taking matters into their own hands -- or fingertips, surfing the Web for "deals." Maverick spending is costing companies time and, in some cases, millions of dollars.
"A lot of employees don't realize that their companies have very specific contracts with suppliers, such as United or an American Airlines, that promise a certain amount of traffic or business per year for a discount," said Jeff Pulver, vice president of marketing at Rearden Commerce Inc. "This is what companies call the last mile of spend management."
A recent study commissioned by Rearden from independent research firm Lieberman Research Worldwide in Los Angeles shows that maverick spending is widespread. Researchers interviewed 500 U.S. workers at companies with annual revenue of $100 million or more. While 87% of employees know their company has preferred vendors for business services, only 38% use them all the time. More than half of the employees surveyed (57%) believe it is OK to make their own arrangements if they can get a better deal.
Formed in 2000, San Mateo, Calif.-based Rearden Commerce has spent the past four years building a Web-based platform that aims to solve this problem by becoming the Amazon of corporate services. Rearden's "global reservations systems," launched last year, offers a one-stop shop where employees can log in and easily purchase business services that comply with company policy. The on-demand service functions as a personal assistant for the employee and a gatekeeper for the company. "Most of our customers are finding they're saving 10% to 20% right off the bat," Pulver said.
Customers include Motorola Inc., Whirlpool Corp., Cingular Wireless LLC and software integrator Borland Software Corp. Subscription fees range from $100,000 a year to more than $1 million.
Most employees will do the right thing, Pulver said, when provided with right data. Employees shipping a package, for example, would be presented with a list of the preferred vendors and comparative rates for various shipping methods.
"There's this concept of visual guilt. Most employees don't know that if you ship a package from Chicago to San Francisco, it might cost you $47 to get there at 8:30 in the morning and $21 to get it there by 10:30 or later in the day," Pulver said.
Ken Eaton, a member of Rearden's advisory board, knows how to wring a deal from a vendor. The former executive vice president of procurement for Wal-Mart Stores Inc. in Bentonville, Ark., Eaton oversaw the retailer's network of global suppliers. He spent much of the past five years playing hardball in India and China. Getting a busy Wal-Mart employee to consistently use the company's list of preferred business service vendors was another matter.
"When procurement would come out with a new service provider for shipping services or car rentals, it was just more noise. What you found was everyone wanted to do the right thing, there just wasn't the migration you'd like to see when these changes were made," Eaton said in a phone interview.
His experience tracked the survey numbers closely. About 40% of the workforce would make the switch quickly, but it was a struggle to get compliance much above 70%, according to Eaton.
For example, employees traveling overseas did not utilize Wal-Mart's rigorously negotiated hotel rates because there was no easy way to access the information.
Analyst Mickey North Rizza, who covers sourcing and procurement at Boston-based AMR Research Inc., said travel "has traditionally been a huge area" of maverick spend.
"Employees will consider compliance, but they consider it secondary to comfort when traveling. A lot of that comes from the fact they travel on their time to get somewhere and feel they deserve a little creature comfort," Rizza said. Higher-level managers, CEOs, CFOS and others will "get their hands slapped. But the truth of it is you're losing a lot of dollars from these folks who travel a lot," she said.
For now, Rearden is focusing on business services, but the company plans to handle employees' personal services, too, from making a hair appointment to getting dry cleaning picked up at the office. Some of its customers are considering offering this as a perk, an idea Rizza thinks will prove popular. "Doesn't everyone want a personal assistant?"
Let us know what you think about the story; email Linda Tucci, Senior News Writer.