Spend Matters welcomes this guest post from David C. Wyld of Southeastern Louisiana University.
Whether it is in a corporate conference room on the floor with the nicest furniture, a white board-lined room at a major consulting firm, or the hallway outside an MBA classroom, you won’t go long without hearing the term “value chain” these days. As many of you will likely recall from your business school days, whether you were in a classroom at Harvard or Houston Baptist University, the firm’s value chain is:
A high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes and sell finished products to customers. Value-chain analysis looks at every step a business goes through, from raw materials to the eventual end-user. The goal is to deliver maximum value for the least possible total cost. (Thanks Investopedia.)
And so both the procurement function and the marketing area are crucial in that they occupy strategic placement at opposing ends of that chain. Yet all too often, despite all the focus on managing the value chain, opposing is the way things work in firms. Both the folks in charge and the many more “rank and file” employees it takes to make these crucial functions work for a company find themselves at best not cooperating with one another and at worst working in opposing fashions. In many companies, large and small alike, the gap between the “sales guys” and the “procurement staff” is often quite large. The net result is that the firm ends up not operating nearly as effectively or efficiently as it should. By not having everyone “on the same page” and working and communicating in the best possible manner, this ends-up adding unnecessary time, cost and complexity in the company’s value chain. In doing so, this can make for frustrating times not only for those in the marketing and acquisition areas, but especially for C-suite executives. As more companies see the necessity for better managing the whole value chain, the marketing and procurement functions are increasingly having to work together - albeit it in what the Forbes writer Avi Dan recently characterized as “a marriage arranged by their senior corporate executives.”
Companies are indeed spending a great amount of time - and money - to try to make the opposite ends of the value chain work better together. Many meetings, retreats, strategy sessions, happy hours, and yes, everyone’s favorite – team-building trust falls – have been devoted to this purpose. And yet, in today’s data-driven corporate environment, a vital element to working better together for the good of the company, its customers its shareholders, may be having those in marketing and procurement find agreement on what key common metrics they should both be focusing upon.
New Survey Provides Insights on Common Key Value Chain Performance Indicators
And so I read with interest a recent report from the Association of National Advertisers (ANA). Earlier this year, the research arm of the ANA surveyed 155 marketing and procurement professionals in advertising agencies across the US. The results of their research formed the basis of their 2014 ANA Procurement/Marketing Relationship Survey. The study looked at what areas of performance - and what measurement indicators of these - were important to each area. Not surprisingly, marketing and procurement were found to have divergent goals. As can be seen in the table below (see TABLE: THE METRICS THAT MATTER), while marketers were concerned with bettering marketing performance (in terms of actual sales and marketing metrics and the more illusory status of the corporate “brand”), those in acquisition did not share these aims. Conversely, while procurement people were focused on reducing costs and making internal processes less risky and more efficient, those on the marketing side were only concerned with marketing ROI, as opposed to overall efficiency and effectiveness measures.
The headline from the ANA study, however, from this analyst’s perspective, was in the areas where the two ends of the value chain could find agreement. The ANA survey found that marketing and procurement professionals both place a high value on not just overall corporate performance, but on improving the way their functions interact both with the rest of the company - and with each other - and with the wider marketplace. As the table shows, those sited in marketing and procurement both increasingly place a high degree of emphasis on being innovative, being able to deliver better service to internal stakeholders (including the other party) and being able to develop better market intelligence.
This study, of course, was conducted and focused on the advertising industry. And while it is a dangerous logical leap to generalize such single industry research to the wider world of business, I think the study holds an important message for those in the acquisition function, especially for those feeling like they are in such an “arranged marriage” - of necessity - in today’s competitive, informationalized marketplace. The point is really quite simple: just as in any relationship - finding common interests is the key. Try as one might, senior executives will become frustrated trying to create the perfectly aligned organization with everyone marching in lockstep to the same tune. It is only natural for there to be divergence not just between the “oil and water” mix that is sometimes found between the marketing and procurement functions, but between individuals, units, departments, offices, locations, etc., and areas such as accounting/finance, human resources and even with corporate overall. However, the more management concentrates on information sharing - especially when it fosters better communication between the different arms of the organization and throughout the company’s value chain, the better that value chain will perform. Finding common metrics and ensuring that they are properly measured, monitored and shared throughout the organization will help the company - and those working for it - work better together. And for those in the C-suite, less opposing and more synergizing is always a good thing!