A Spend Management Fireside Chat (Part 1) …

I'm excited to post the first installment of what promises to be an ongoing and fun series of discussions with Pierre Mitchell. Pierre, an old industry friend and colleague, has been on nearly all sides of the Spend Management market over the years. He's currently co-leading Hackett Group's procurement advisory practice.

Jason: Back when I knew you as an analyst at AMR, it was clear that you were having more than enough fun time harassing vendors. Tony and Bruce paid you well for that (I have the scars to prove it). But what did you really learn in the job, and what can Spend Matters readers take away from your experience?

Pierre: Most industry analysts really have two jobs. One job is being a commodity manager for their respective market (in my case, Spend Management). The other job is being a business advisor for business executives who are responsible for Spend Management. For me, playing in the middle of both worlds has always been a bit of a weird idea. But it does give you the ability to see the different viewpoints and translate both sides for each other. But many times the conversation is one-sided. On the user side, there's almost a universal disdain for software vendors and consultancies. This is wrong. In my view, procurement executives really need to change their mindset and, god forbid, learn from consultants and vendors.

One thing many consultants do every well is knowledge management and this is a place most companies struggle. In large consulting companies, they're often standard processes firm wide, and usually a strong re-use of information, mostly driven by the fact that it's tied to compensation -- you get what you measure. I think procurement organizations can learn from this, and even model their approach to sourcing and Spend Management on the structure of consultancies. For example, have a client responsible "partner" who is also part of an "industry practice" (i.e., category team) and then draws from horizontal resource pools (e.g., P2P group, "price discovery group", etc.).

On the software side, when Procurement rolls out a solution, it should be cascaded (like a supply policy) and versioned, from the software to the process design to the organization design. A sourcing "wave" is not a single version solution -- kind of implied in the definition of the word! Only the best companies can truly manage this level of rigor and it's usually those who are strong in Lean and Six Sigma. That said, being strong in supply chain is no guarantee of success in indirect. Most of our manufacturing clients are strong in manufacturing, but look for our help in indirect. The difference is that on the direct materials side, the supply chain physically unifies everyone inside a company.

Jason: Yes, everyone is in it together when it comes to direct materials. A commodity manager can't toss a 20% piece price savings over the wall by sourcing from China and expect his plant and logistics managers to go implement it on a total cost basis. It truly requires a team.

Pierre: But the services analogy gets interesting on the indirect side. This is where many organizations need to change and could learn far more from analysts than they are. I believe that if you don't view yourself as a professional services organization and your customers and vendors as constituents, it will always be challenging to see how your customers view you. For me, it's always interesting to look at how procurement views the job it is doing versus how others in the organization look at it. Now that I benchmark user companies instead of vendors, I find some interesting insights. When you look at self-reported data in a typical benchmark, things look pretty good. But when you do senior stakeholder interviews and automated end-user stakeholder surveys to capture the "voice of the customer", you get a very different story about how they are performing as a professional services organization. Few have models in place in which they rigorously manage customer expectations and performance.

These areas are often basic. Things like, can people find you if they are trying to buy something? Do you make it easy for them to find you? Do you have a good internal web presence? Do you tailor your messages to them? There are a lot of easy things that companies can do about communicating the value proposition. And this is where procurement organizations can learn a lot of lessons from the professional services world.

Jason: You've got some big ideas here, Pierre. So how does Hackett fit into all of this? Is this the reason you made the switch?

Pierre: I believe that there's a lot of learning that both camps (practitioners and advisors) can get from each other. At AMR, I was spending too much time on the vendor side (harassing guys like you), and not enough time on senior executive advisory. I wanted to spend more time doing this. Part of this is that it was hard being in an IT industry analyst firm. The bias -- as it is in all analyst shops -- was on writing "provocative" research and of course, technology. I was dissatisfied with this, as I felt the emphasis of the model was missing one of the more important structural factors. I like looking at procurement holistically. And I also felt that this was missing.

For me, the biggest issues in Spend Management are organizational ones, not technology. At Hackett, we spend more time on organizational issues, and then process and technology. Hackett offered me the opportunity to make the full-time jump back to business advisory, which is what I wanted. This role affords me a chance to really help organizations elevate the role of procurement inside their companies. At the end of the day, this is what drew me in. Before joining, when I thought of Hackett, I knew of their benchmarking capabilities within Purchase-to-Pay, but when I came over, I was really impressed around how they organized themselves around best practice process flows, best practice metrics, and the whole empirical data concept -- across all processes. This is what I did not see in the IT industry side and any other company. At Hackett, I now have access to a huge set of validated benchmarking data, from output performance metrics to the best practice metrics which are statistically correlated to those metrics -- that comes straight from the mouths of the world's largest companies. Interestingly, the choice of ERP vendor has zero statistical correlation to output performance metrics – which of course pisses off SAP and Oracle! Oh well, the data is the data. Now compare this with the analyst world, where everyone scrambles to get data in ad-hoc surveys and that you go mining for the data which shows that vendor type X improves process type Y.

Jason: How has it gone? Is it what you expected?

Pierre: I've been at Hackett about 15 months, and it's been a wild ride and very challenging in a good way. Being a "super help desk" to Fortune 500 executives is tough because we need to extract generalized best practices without sharing competitive secrets. The business advisory component is helping companies choose among the litany of best practices and tools. This is Hackett's differentiation -- working as senior business advisors while using the highest quality benchmarking data to deliver advice in context to executives. Consider the other options our clients might have: IT industry analyst model, ISM's CSSL, corporate executive board, etc.

These models are like joining a country club. Now, there's nothing wrong with joining a country club and seeing your buddies hit the latest clubs, but the problem is that going to the club, reading golf magazines and getting overwhelmed with swing thoughts while swinging a club that works well for John Daly (but not you) is not going to lower your score! In fact, there’s nothing worse than shanking the ball with your $600 driver (or being the fat guy on the titanium road b
ike) -- that's why I shop at www.pinemeadow.com and www.flyte1.com (I don’t shop at Wal-Mart, but this is my little LCCS secret). The better model is the Dave Peltz Golf School which uses specialized diagnostics and research studies, but, ultimately is about using coaching to lower your score. Everyone needs a coach -- even Tiger Woods. This is where it is really fun, serving as a true coach to executives. But it's also a challenge in that we're not on-site consultants living with them five days a week. Given this, it can be challenging to help them elevate the role of Spend Management in their organization in the actual playing field. But we can give them all the best coaching, benchmark data, and tools such as best practices to make it happen.

Jason Busch

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