Procurement Strategy – Don’t Ignore Organisational Culture

Stand up in front of any procurement audience and say “it is really important that your procurement strategy must be aligned with the organisation’s overall strategy”. I can guarantee there will be a mixture of nods of agreement, and a few hostile stares, as if to say, “why is this man stating the blindingly obvious”?

The message is generally understood – procurement must be sensitive to what the organisation is trying to achieve strategically. In an organisation struggling to survive and focused on ruthless cost cutting, for example, there is little chance of procurement succeeding in introducing a long-term supplier relationship management strategy. Equally, an organisation whose strategy is all about new product leadership and innovation won’t accept a procurement strategy focused on control and cost reduction.

CPOs must also be sensitive to changes in strategy - there are many cases of procurement leaders losing their jobs because they didn’t respond to changes in strategic direction quickly enough. I saw one example just after the dotcom boom, when a very highly rated CPO at a technology firm continued with his previously successful strategy (based heavily around supplier partnerships) as his firm got more and more focused on cost reduction and value for money. He didn’t last long, and a professional cost-cutter was drafted in.

Yet whilst this seems an obvious point to consider, more subtlety lies behind the simple statement about the need for alignment. That is because we often don’t consider alignment to the more complex issues that we might term “cultural”, and which underpin the formal stated strategy of the organisation.

The simplest example is perhaps the old centralised / decentralised debate. It may not be part of a formal strategic statement, it may be historical with a basis long since lost in the organisation’s history and DNA. But in the case of large organisations, particularly those which are geographically dispersed, there is usually some tension between a geographic focus, and a product focus. Another axis of tension is the balance of power between the centre and the perimeter. The two are often but not always linked – a powerful centre will usually, but not always, mean that the product focus dominates over the geographic.

But “the centre” can be powerful through general and financial management, rather than via a focus on global brands. Or regions / countries can be dominant, holding the real power in the organisation. And that has profound implications for the procurement function, how it organises itself and how it develops and implements its own strategies.

Whatever the official line, procurement needs to understand where the cultural power and how the organisation really works. So unless you have cast-iron Board support, don’t try and impose top down global category management in a culturally decentralised organisation with powerful national “barons”; many CPOs have come unstuck through that sort of power-play.

But it is not just organisational structure that comes into play. Other cultural factors need considering, ranging from the attitude to risk in the organisation, to whether the culture is technophobe or technophile, formal in its behaviour and governance or informal and easy-going.

Many of these issues also should be considered by suppliers to the organisation, and certainly are relevant to solutions providers in the procurement space. Clearly, a risk-averse, conservative organisation is more likely to respond positively to a sales pitch for a risk management product.  A highly de-centralised, fast-moving firm that likes new ideas may be particularly open to the latest sexy SaaS product with rapid implementation potential and attractive user interfaces.

But for the CPO and other senior executives, it is essential to understand not just the formal strategy, but also the reality of what is important to the organisation, and how it works in practice. Procurement strategies and approaches can then be designed to fit with both the strategic goals, and the wider cultural parameters that underpin every organisation.

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