How to make stakeholders hate you: Number 5 – Focus purely on savings

We’re pleased to bring you a short series (this is the last for now at least!) on that perennial topic – managing stakeholders, users, budget holders, colleagues – whatever we want to call them. But we thought we’d approach it from a slightly different angle. So let’s look at how to make sure we can instil real hatred of the procurement function and the people within it amongst that population!

5. Focus purely on savings

We know how important savings are to our organisations. For many procurement people it is the only way we are measured. So of course it must mean just as much to our stakeholders – how could they possibly be interested in anything else?

So that should be the whole focus of our work with suppliers, and we should talk constantly about savings when we interact with stakeholders. And it doesn’t matter what spend areas we’re talking about – they’re bound to be interested. Quote how the unit cost of whatever they’re buying has gone down by 3%, 5% or whatever – they’re bound to be impressed!

OK, we’ve gone on about this one before. Many times. But it needs saying - not all stakeholders care about ‘savings’ and to many, it is a meaningless concept. A manager who has a budget in many cases will spend that budget, whatever unit prices happen to be, and whatever ‘savings’ procurement generates. Their interest in most cases is about getting the maximum value from that budget, not the unit cost, the volume of stuff that is bought, and the apparent ‘savings’ that are reported.

So finding a cheaper consultant, marketing services provider or air fare is meaningless to a user if the consultant writes a useless report, the marketing provider comes up with a campaign that fails to grab the customer’s attention, or the flight we have chosen routes them through Algiers and they miss their key client meeting.

Value. That’s the word we should use on 99% of occasions we talk to stakeholders, not savings. Now of course that value will, in some cases, come from a straightforward, no messing around, cost reduction. But it is still the value that is the key, not the savings.

Voices (4)

  1. Gerard Chick:

    I agree with you that value is the word that we should use on 99% of occasions we talk to stakeholders; but what do you mean by value?

    The customer never buys a product. By definition the customer buys the satisfaction of a want. He buys value.

    So, value is in essence, utility, i.e. the total satisfaction derived from a good or service.

    The utility one derives from a good or service is difficult to measure; but we can determine it indirectly with customer behavior theories, which assume that consumers will strive to maximise their utility. 

    Again, as value is difficult to define precisely moreover and as it is used frequently, loosely and in a number of contexts how do we define it in supply management? to us I guess that value has the following connotations:
     
    Value is relative to an alternative – value cannot be judged in isolation.

    Value is composite and decomposable – value can be analysed into a set of value drivers – for example – time, cost, quality and service

    Value can be used in several contexts – in B2B relationships it tends to be economic in nature, but other aspects such as the emotional, environmental and social value may also be considered.

    Value is measureable/quantifiable – economic value might be see as revenue, or cost savings; but other aspects have their own forms of measures such as Intellectual Property Right (IPR).

    Category managers can map the way in which the customer gets value to the way in which the seller charges for value.

    For example, in the building industry the value of a surface coating may derive from the area covered, while the price is far more likely to be quoted in volume.

    Value management relies on multiple streams of information from inside and outside the organisation – both internal and external perspectives are necessary.

    Information about customers, competitors, demand, offers, costs and production constraints are all used in value management and Procurement is well placed to make this their own.

    So what do YOU mean by value?

    1. RJ:

      Totally agree with you Gerard but I think the challenge we face is two-fold:
      (i) “Value is measurable/quantifiable” – I would personally say “should be”: it is often very hard to really define in quantifiable terms the value of, say, a consultant’s advice on a strategic reorganisation or the assurance offered by financial audit services.
      (ii) Procurement’s stakeholders can also be their own worst enemies in going for the easy measure. E.g. I was recently advising on a major financial outsourcing deal where Procurement and the supplier both proposed measures of the business value derived from the services such as speed and accuracy of payments made, debt outstanding, accuracy of financial reporting etc. all backed up with a service credit/bonus regime. What did the stakeholder want to measure? How many FTE the supplier employed and how quickly did they datacapture invoices.
      On both these fronts we have to keep up the fight and I’d welcome concrete examples of great value definition, especially in the provision of services.

  2. Mark Lainchbury:

    Even worse in the Public sector.
    Savings will be removed from the stakeholders budget permanently.
    So don’t expect a welcome, next time you knock on their door, with another savings proposal.

  3. b+t:

    Crow about savings but never own up to costly mistakes

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