Spend Matters welcomes this guest article by Mark Dell’Olio, a manager in the KPMG Operations Advisory Practice.
The role procurement plays in the broader business context has changed significantly in the past decade as cost-effectiveness, supply assurance and social responsibility place a greater emphasis on strategic spending. As a result, today’s chief purchasing officer is far more likely to be taking an elevator to the C-suite, rather than be roaming the halls of the back office. The 2014 CAPS study entitled “Chief Purchasing Officers' Mobility and Compensation: A 2014 Study of Fortune 500 Firms” reported that 82% of CPOs have direct access to their CEO, this is compared to 60% in 1999. These statistics confirm procurement’s increasing importance to delivering sustainable stakeholder value.
In response to the demand for delivering greater value, many CPOs are looking to establish or improve their category management capabilities. Studies from KPMG, Hackett and Future Purchasing anticipate a 57% to 113% increase in value from well-executed category management transformations. Dramatic results such as these are accomplished with procurement organization designs that build in-depth knowledge of key spend categories, work in concert with existing procurement functions and deliver holistic strategies that maximize sustained value.
Figure 1: Elements of category management and working in concert with other procurement functions.
Procurement leaders recognize that the ability of legacy procurement organizations to create truly strategic value is limited. This makes category management transformation an appealing opportunity to rebrand the procurement function – featuring a newly designed organization and methodologies that are built around business partnership. In essence, it’s a way to walk away from a tactical past and usher in a new strategic generation.
While this vision may be considered idealistic by some, such transformations are becoming far more commonplace. Achieving leading-class category management focuses on implementing a new approach and identifying resources that can achieve the vision. At the same time, it is critical to avoid the all too often mistake of overlooking existing personnel during transformation design.
We’ve all heard sayings such as “tilling a field with a teaspoon.” While a teaspoon is an appropriate tool stirring your morning coffee – using one to till a field is doomed for failure. The same is true of placing personnel from traditional procurement organizations into strategically focused teams. It is simply not realistic to expect that they will be able to realize strategic vision without the tools they need – formal training and supervisor mentoring. Wholesale change-outs of existing procurement personnel is neither realistic nor wise, so be prepared for training investment. Identifying gaps in resource capabilities is a challenge, however, if you adopt the following guiding principles to solve them, you are far more likely to succeed in realizing your category management goals.
Define Expected Competencies
New organizational goals and objectives should bring new expectations. Without a reset of expectations staff will continue to revert to historical levels of performance. Defining competencies is one of the most fundamental ways to define expectations. If properly defined, competencies serve as an anchor point for the organization, and allow legacy staff to observe what skills and abilities are going to be expected moving forward.
This is not to imply that competency overlap between the current and future state organizations will not or should not exist. To the contrary, as the ability to efficiently process requisitions, draft RFP’s and pen contract language will stand the test of time. However, depending upon the maturity of the organization, an enhanced focus on competencies – such as market intelligence, spend analytics, stakeholder management and cost modeling – will need to be clearly articulated.
Assess What You Have
Before you can begin to develop the competencies of existing staff, it is important to understand where they are starting from. This element of level setting establishes a foundational understanding of expectations early in the transformation journey and enables the competency growth of staff. It helps prioritize resources for career development, identifies who requires what training and provides transparency to the transformation process. Inevitably, an investment in time and money will be required to up-skill the team. Therefore, it only makes sense to invest that money where you have the greatest needs.
Develop When Possible
As you begin to communicate your vision for category management, legacy staff will look for opportunities to expand their duties. In some cases this may not be reasonable. However, when feasible you should look to develop talent within.
It is easy to fall into the trap of wanting to hire new high-end talent; the proverbial “new car.” The issue with pulling this lever too often is the impact it can have on the morale of existing staff. By continually passing over legacy staff for prominent roles in the new organization, you run the risk of a disgruntled workforce. This poses a significant risk given the likely vast legacy knowledge of your team, which needs to be leveraged if you expect to be successful.
Embrace New Talent
Lastly, as you continue to bridge the competency gaps of your team, do not be afraid to introduce new talent. New talent infuses energy into the process by challenging norms, introducing alternative perspectives and firmly communicating that change has arrived. While it would be nice to think that every legacy staff member has a role in the new organization that is rarely the case. Simply put, not many people have the capability to perform at the highest level of a strategic procurement organization and to place them in that position is unreasonable.