Three Steps to Achieving 'Zen' Management of Uncontrolled Spending

One night, Tibetan Buddhist yogi Milarepa returned to his silent mountain cave and found it crowded with demons. He tried to drive them away, but they only grew stronger; he tried to teach them the Dharma, but to no avail—the demons simply settled deeper into his dwelling. He realized he might need to coexist with them for a while, so he invited the demons to teach him something. At that moment, all but the fiercest demon disappeared. Feeling powerless, Milarepa surrendered completely. He placed his head into the demon's mouth and said, "If you wish, eat me." The fierce demon bowed its head and vanished.

It would be wonderful if uncontrolled spend could be conquered in a similar way, but that's nearly impossible—as long as spending exists, uncontrolled spend will not disappear. In fact, uncontrolled spend—the indirect or tail spend that falls between invoice-based procurement and traditional travel and expense (T&E)—is becoming increasingly problematic.

It is generally believed that uncontrolled spend accounts for about 80% of a company's transactions and 20% of total spend. But I increasingly hear aviewpointthat tail spend is beginning to break the 80/20 rule, taking up a larger share of both total spend and transaction volume.

I believe two factors are driving this growth:

• The rise of Software as a Service (SaaS).Today, every company uses dozens or even hundreds of SaaS applications. Because many subscription vendors use low-touch, self-service sales channels, more employees are making transactions outside traditional accounts payable processes.
• The prevalence of remote work.Invoice and procurement processes have gone fully digital. You can't mail a paper invoice to a company without an office. Spending that was once centrally procured has now become decentralized.

The nature and scale of spending have evolved, so the strategies we use to reconcile it must evolve as well.

Traditionally, finance departments have viewed uncontrolled spend as a problem rooted in how to track procurement, enforce travel policies, and consolidate vendors. Even when we discuss the human factor, it's usually limited to how to guide employees toward better policy compliance.

But like Milarepa in the cave, we too have an opportunity. Learning from what frightens us can help us overcome it. To defeat uncontrolled spend, we must surrender to the fiercest "demon"—human behavior, and more specifically, the psychology behind employees' purchasing decisions.

Achieving Peace

Here are some of my thoughts on addressing the "human" element in tail spend.

1. Aiming for a Higher Spending Goal

Bringing more transactions under management through manual strategies can alleviate spend leakage—especially for purchases that occur frequently or at higher amounts and previously lacked pre-negotiated agreements. But these strategies cannot fully plug the holes.

For example, you can identify spending at non-preferred vendors by analyzing personal card data against invoices; you can also try to fold the most problematic external categories into new or existing vendor agreements; if you're especially dedicated, you can integrate these vendors into catalogs. However, inventory is constantly changing. Catalogs become outdated as soon as they're completed, making them unusable for anyone. If employees can't quickly find what they need, they resort to "wild buying," and everything comes full circle.

I believe finance departments should prioritize time on strategic work that creates more value for the business, rather than chasing down every scattered transaction. Truly "solving" the indirect spend problem requires us to empathize with the employee experience during the purchasing process.

2. Accepting Imperfect Employee Purchasing Behavior

The most successful companies in the world all start by identifying customer needs or desires, then finding unique ways to satisfy them. Finance professionals need to think more deeply: what do our "customers"—the everyday employees of the company—actually want?

In fact, most colleagues' needs are reasonable. They seek the fastest path to achieving their goals and want to obtain equipment and services with the least effort. They don't want to spend 15 minutes searching through catalogs, don't want to chase down finance staff because they can't remember their budget, don't want to confirm whether they're allowed to purchase from a certain vendor, and don't want to figure out the process for working with a new supplier. When we insist on forcing procurement, approvals, and reimbursements into cumbersome processes "in the name of oversight," we don't make uncontrolled spend easier to control—we just make it harder for employees to do their jobs.

Consider a marketing manager who wants to use a SaaS platform to support the company's digital advertising campaigns. He's not senior enough to have a corporate card, so he pays with his personal card and submits an expense report. If he leaves the company while the service is still linked to his personal card, he could inadvertently cut off the company's digital advertising operations. In this example, the employee has followed policy in good faith, yet still unintentionally created significant inefficiency in the uncontrolled spend category.

We might be angry at employees for putting us in such a mess. But whose responsibility is it to ensure employees spend correctly? It's certainly not the marketing manager's job.

Moreover, why maintain a financial process that fails even when employees are compliant?

You can spend years eliminating wild spending while potentially accumulating more. You can lecture employees about company processes quarter after quarter, knowing that policies will never be perfectly followed in practice. You can fight the demons, or you can surrender to them.

3. Achieving Peace Through Automation

Most CFOs (including myself) need to shift their perspective on "how to manage unmanageable spend." For me, expense and accounts payable automation has brought a tremendous sense of peace. I no longer obsess over manually controlling indirect spend; instead, I've unified all individual and departmental purchases onto corporate cards.

With the introduction of virtual cards, my employees can quickly access the resources they need, always within set parameters. When we onboard new team members, I no longer worry about them buying a monitor that's $50 over budget. Their manager simply issues a virtual card pre-approved for a specific budget, expiration date, and category of equipment. If an employee needs to manage several software subscriptions, they can issue a card for that specific recurring transaction. After the employee completes the purchase, the card automatically sends consolidated receipts and transaction data to the accounting department.

Automation gives me peace of mind because I know I've brought more transactions under management without sacrificing employee productivity. My employees appreciate that these "guardrails" help them purchase the right way, but most importantly, they enjoy a life without filling out expense reports and waiting through lengthy approval and reimbursement cycles.

Conclusion

To achieve strategic visions—whether building the best product or serving the most customers—companies must invest. To invest, they must spend. That's where finance comes in. Our job is to enable employees to spend effectively, allowing them to be the best engineers, marketers, or salespeople they can be. When we (intentionally or unintentionally) restrict employees' access to needed resources in the name of stronger control, we are fighting a demon we can never defeat.