Posted 17th May
We’ve all seen it – the new broom CPO sweeps in to the organisation, listens carefully to the business objectives, the current plans and trajectory and the people and creates the new 3-5 year plan to ‘get the house in order’, and build on it towards (hopefully) some inspiring vision the team and the business can rally behind. But my experience is that many of these deliver reasonably well in the first 12 months but often fail to secure the step change necessary to actually achieve the vision. As a result the new broom loses its shine, they become discouraged and c. 3-4 years later the new CPO sweeps in, listens carefully to the business objectives, the current plans and…..the rest is history.
“Category Management over the past 20 years, has become the dominant procurement process and methodology for major businesses and public sector bodies in most geographies and is of great importance to procurement’s wider professional success and credibility”(Peter Smith, 2016-17 Category Management Leadership Survey). And yet it apparently goes in and out of fashion – usually based on the new CPOs own views of life – and perhaps if they’ve either never seen best practice procurement or have personally struggled with the complexity of delivering it or decided it’s simply too hard to enable (See figure 1 below for a typical assessment of an organisation’s category management performance over time). Put simply, a procurement transformation relying on category management, and associated supplier management to deliver value for the business requires a completely different operating model to a tactical sourcing function. If this is missed - and we use a 100 success factor framework so it is not insubstantial - then it is likely to fail.
Our experience, and the Future Purchasing research, shows that category management as a key process for delivering optimal returns is non debatable (see figure 2 below). With the 28% of Leaders globally delivering on average nearly 3 x times more than their Follower colleagues from a global survey, there is little to debate. What is significant, however, is the fact that even the Leaders believe they could nearly double their own returns IF ONLY they had enough investment to do so.
So what is this investment piece we are referring to? The returns are easy to establish as per Figure 2, and in our research we have been able to articulate that per sector to support people create their own business cases for change. Many CPOs will be used to articulating the additional permanent staff to make it happen, and if they’re very enlightened they may even make a case for some early training in the current and new staff…. and for the extremely enlightened they may even maintain a flexible pot for external interims and consultants to keep the ideas fresh. But with any scale of change comes the need to completely rethink the operating model – business alignment, metrics, reporting lines, authority structures, governance forums, digital enablers – as well as organisation design, all manner of processes and procedures update and lastly, but by no means least, the crucial areas of talent acquisition, talent development, team capability and culture.
The problem is that many CPOs are not used to making business cases, in the way other professions need to from fairly junior positions. As a result they often fail to articulate the scale of investment they need to truly support the promised returns. In fact, only 30% of organisations invest sufficiently to deliver expectations. The reason for this, I believe, is two-fold: firstly a lack of experience or confidence to truly articulate the investment required once the vision has been sold (due to the simple fact that procurement people often don’t get involved in making investment cases usually until they hit a senior Head of or Director position) and secondly, a lack of understanding of just how complex it is to deliver a transformed function that delivers beyond sourcing tactics and price initiatives, sustainably. For example, not all procurement professionals can even do this – and why take a brilliant price negotiator away from what they do well, when it’s appropriate, anyway? Leave them to be brilliant at what they’re brilliant at – and use alternative resources for truly creative strategies that start to impact a mix of bottom and top line growth, by facilitating strategies cross-functionally. Where you find that scarce talent will be the CPOs next challenge, and the case for internally creating it or buying it in needs to be thought through.
Building further on the second reason that the complexity is simply underestimated, just think through if you’ve ever heard your senior team, or someone at a networking event suggest that category management is somehow dead, it’s yesteryear and now SRM or Big Data is the latest thing. In fact if your CPO or other senior professional suggests that the organisation has ‘moved on’ from category management, you will know that they are likely demonstrating that their own understanding of category management is flawed (and in fact they’re simply thinking about a strategic sourcing process). In fact I have known many senior professionals say something similar internally – and externally – but have stated in confidence that they are simply rebadging a previously failed attempt to actually make category management work as it absolutely should e.g. closely integrated with the business and thinking through a whole range of value levers from Price, through Cost, through increased Revenue and reduced Risk. And vitally, that not all category strategies result in a sourcing exercise! Some are about internal changes or about creating more value through the supplier relationship.
My recommendation would be to use great benchmark data for selling the vision and opportunity for returns, and back it up with colourful facts about the internal maturity of the organisation along such lines as Business Alignment, Structure and Governance, Leadership and Team Strength, Category and Supplier Management and Processes and Systems amongst others to identify the current position and 'go to' point. This combined with an opportunity assessment – and it’s a good idea to get an external perspective on this to challenge for new ideas and gain credibility – pulled into a sensible wave plan that is realistically achievable will put you in good shape to consider the talent and process investment you will need to make. For sure it will not be enough to invest in it for 12 months only. Going on 1 workshop on category management discipline will not be enough to embed that new way of working for example. In short you will need ongoing headcount budget and external support to provide new methodologies, training and coaching.
If you would like to hear more about how you can be sure to join that 30% of procurement teams who have sufficient investment, get in touch with me and I will happily take you through the range of benchmarking software, survey reports by sector, maturity assessment and FP Category Management operating model ™ tools to help you articulate your business case with the right level of investment to help create a new, or accelerate your current, programme. Alternatively attend a Making Your Business Case 1 day masterclass workshop. See details for upcoming events next month.
Tagged by topic: Procurement Transformation