KPMG: Operating Models, Savings and Performance – On Centralization and Journeys vs. Destinations

This analysis is based on the KPMG and Procurement Leaders research study: High Impact Procurement Operating Models – A Survey of Global CPOs. Readers can download the full analysis (warning: it is dense!) by clicking the previous link.

What happens as procurement organizations transition from decentralized operating models to greater centralization? As KPMG observes in the above-linked analysis, “we have seen the evolution of most organizations follow the same course: one of increasing
 control by procurement through centralized operating structures. Centralization brings obvious benefits, but once centralization has occurred, the benefits are known to fall off quite rapidly, so what is next?”

It’s an important question to ask. The data suggests “that after a period of full centralization, there is often a correction applied to the organizational structure, manifesting itself as a shift to a center-led structure. We also found evidence that as organizations progress through these phases, the benefits of previous models are retained. The journey is not so much a cycle through alternative structures, but an accumulation of features and benefits.”

The “journey” aspect of procurement operating model evolutions is a key observation. One of the challenges that we’ve observed in companies that all too often, companies repeat procurement transformation programs every three to five years (usually when a departing procurement heads is let go and a new guard is brought in – or a new consulting firm to lead at least one element of a transformation charge).

Yet if we realize that the companies tend to follow the same path (for various reasons), we can begin to figure out which area to explore within each segment that lead to accumulated benefits (e.g., what types of performance and savings are measured and how). This is even more important because change is fluid. As KPMG observes in this regard:

For many in procurement, the function appears to be in permanent transition, with its identity and role changing frequently. For those believing that procurement is a function marked both by its relative youth and its perennial state of self-transformation, it would appear that the evidence supports their perception. Our data shows that most organizations have recently undergone a change in POMs. Four-fifths of surveyed organizations have experienced transition in the last five years. Just under half have changed in the last year. This is consistent for almost all legacy models.

Next up I’ll look at KPMG’s discussion on decentralization.

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