Procurement Should Be a Money Manager (Rather Than a Stockbroker)

There is an old Morgan Stanley commercial (here) that shows a man and his wife on the beach at sunset when he remarks that by juggling a few things the portfolio she could get the house built she always wanted. She says “That would be great. Honey, what do you think?” At this point, another man then pops up who really is her husband says “sweet!” (i.e., the first guy talking was their Morgan Stanley advisor).

What I like about this commercial is that it not only demonstrates the close relationship that a professional services provider should have with the client, but also made me think about the difference between an investment advisor (or “money manager” if you will) and a stockbroker. A stockbroker makes money on the deal. No deal – no commission. Procurement is measured a lot this way, similar to how their sales counterparts get commissions on the deal.

A money manager, however, has a much broader purview. Now, just replace the term money manager with spend manager. The spend manager is an advisor that provides spend management services to help a client get more value from it spend. You see where I'm going with this. Even if procurement is not hanging out at the beach with its stakeholder clients (although some form of co-location is generally a good idea – especially since procurement seems to get the crappy office space compared to the “front office” groups like marketing), the metaphor of a money manager is much more apt. Just as in the commercial, the stakeholder client might also “move a few things around in the portfolio”: drop a Gartner subscription here, add a Spend Matters subscription for 80% less money, outsource a few nuisance processes, variabilize a large upcoming IT deal, reduce prices on a few things, etc.

Let's consider a mutual fund manager as a type of money manager and see how this model differs from the stock trader model:

  • Fund managers are not incentivized on the deal. In fact, their trading fees, and the cost of their processes get reflected in the service fees passed on to their clients. So, clients need to evaluate whether a higher service fee through “active management” is justified by the value that the fund manager provides. Procurement organizations are acutely aware of this in terms of their own services, but it also applies to commodity risk management and to what extent a company wants to actively manage a volatile commodity and spend money on the “options” to smooth the market and/or beat the market.
  • Funds have different objectives in terms of risk and reward – and the strategies needed to accomplish the objectives. Procurement organizations are the same and must be clear about their objectives (and fees as mentioned before), strategies, and prior performance.
  • Funds can be benchmarked not just in terms of risk and reward (e.g., plotting economic return vs. fund price volatility), but also compared to their peers (e.g., the Lipper Rating in mutual funds). For procurement organizations, or any service provider, benchmarking is always a useful activity for those who haven't done it.

So, if you are a procurement organization, are you viewed as someone merely looking for the next deal and ‘commission’, or are you truly viewed as a trusted business partner? If you are a provider to procurement organizations, are you also viewed as a collaborative partner versus just looking to sell more seats and services? Doing some type of customer stakeholder satisfaction survey can be a useful exercise here to gauge client perceptions of you, because, “perception is reality.”

We’ll write more about this topic in the future, but for now, why not head to a beach if you can and think about how you can help your clients with their portfolios. Have a great weekend!

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First Voice

  1. Mark:

    Pierre, you’ve picked a great analogy to use. It is all about the relationships and collaboration and the way you have put it makes this essential reading for those who bracket Procurement in the stockbroker image.

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