A Discussion With Pierre Mitchell
I recently had the chance to catch up with my old friend and colleague, Pierre Mitchell, on a variety of topics. The main focus of our chat was to discuss Hackett's latest procurement capability maturity model. This model will certainly figure into the discussion at Hackett's Best Practice Conference taking place in April (which dozens of CPOs and CFOs are already signed up to attend). OK, enough of the prelude. Let's turn our attention to the discussion I had with Pierre.
Jason: Could you share some more specifics around what separates out Stage 4 or "Strategic" procurement organizations in Hackett's new model?
Pierre: I'll quote directly from the model itself. Rather than just reducing spend, Stage 4 companies harness the power of supply markets to maximize the value from that spend and to both enable and influence business strategy and tactics. At this level, procurement helps harness the power of global supply markets to create competitive advantage through customer/demand management and deep supply intelligence. It must have a deep focus on customer management (and customers' customers) in order to identify breakthrough possibilities identified through internal innovation and increasingly through open innovation models with various types of suppliers.
At Stage 4, procurement is not just aligned to business strategies, but influencing them (e.g., open innovation, CSR, core competency analysis & outsourcing, globalization, supply chain design, business continuity, etc.). Procurement "leads by example" at this level to aggressively automate, offshore, and/or outsource non-core processes, spend categories, and technologies. It is part of integrated service delivery model to customers (i.e., "customer-led", not just "center-led").
Jason: You also talk about the need for procurement to get more creative. What do you mean?
Pierre: Procurement must go out and think creatively rather than waiting for the business to come to it. True Stage 4 strategic organizations aren't just going to sit around and let the business dictate procurement’s role. At this level, procurement organizations will need to consider new bodies of knowledge to help them accomplish what they'll need to. They'll need to look at such areas as behavioral economic to guide their approach to influencing business activity. They will need to drive influence and change for the entire company, acting as the conduit to the outside world, the supply market (who is looked at this level as more than just offering up a good "deal" when it comes to what they're delivering).
Jason: How important is the role of negotiation in more advanced organizations?
Pierre: When a company looks at supply markets for innovation, negotiation becomes only one element of procurement's role. In fact, one of the reasons we developed this new model is to help companies move past negotiation as the primary internal value proposition for procurement. Of course negotiation never goes away -- it just become part of the equation and negotiations themselves must add up to more than just price or cost savings.
Jason: Could you share an example of what a Stage 4 organization looks like when it comes to category ownership and input into the business?
Pierre: Sure. Just consider the case of outsourcing (IT, manufacturing and other areas). Historically, companies have often relied on technology executives for guidance as well as outside third parties when it comes to making the best outsourcing decisions. But who will be the "chief sourcing" officer of a world in which outsourcing becomes more strategic? The CPO should, that's who. But many CFOs and CIOs I know would laugh at the thought of procurement being able to drive the more complicated outsourcing decisions and negotiations (not to mention leading the discussion on what should be open for outsourcing in the first place). Procurement must change this attitude if it is to achieve the types of goals we're talking about in Stage 4. Outsourcing is a perfect example of how procurement needs to step up and provide new types of value through becoming more customer-led in its approach.
Spend Matters would like to thank Pierre Mitchell for sharing his opinions and thoughts.
- Jason Busch