Michael Hammond – Redtree

A short case study highlighting how a review of the Categories, Contracts and Target Operating Model can add value and improve reputation -contact Mike Hammond to learn more and discuss how Redtree can help your company achieve similar outcomes.

THE SITUATION

Blue Chip Company Category and Procurement Team failing to deliver expected cost savings.

Poor internal reputation amongst key stakeholders and business partners due to poorly structured contracts and failure to drive improvements and deliver innovative solutions with 3rd Party Suppliers, resulting in risk of undermining company’s competitive advantage.

Low moral and motivation of staff within the teams leading to staff retention challenges.

THE TASK

Review the Target Operating Model and Sourcing Categories to:
a) Improve End to End alignment with internal and external business partners
b) Drive improvements in performance
c) Deliver the innovative solutions to restore competitive advantage

THE ACTION/APPROACH

Obtained Senior Leaders endorsement, sponsorship and commitment of Business Partner resources to support the review

Reviewed “as-is” situation with internal Business Partners – Contracts, Contract Performance, Organisation Design, Ways of Working, Transactional Processes

Reviewed updated Business Strategy and Plan and updated Business Needs
Completed a Supply Market Update – Updated Risk Analysis, Competitive

Positioning, Procurement Targeting, Strategic Supplier and Value Opportunity Identification

Updated Sourcing Strategy

Proposed organisational revision to ensure Procurement teams align with Business Partners organisation

Provided Sponsors with Roadmap and detailed plan to deliver improvements

THE RESULTS

Cost savings, improved contract performance. Mitigation of competitive advantage risk

Improved relationship and reputation with internal business partners

Increased perception as a partner of choice within supply market

Revitalised value proposition for staff, improved retention and build of category and business expertise

After many years working in Supply Chain and Procurement in the corporate world I stepped outside to start my own Supply Chain and Procurement Solutions consultancy business, to realise my passion to help organisations and individuals achieve Commercial and Operational Excellence in their Supply Chains and Procurement activities.

This afforded me the luxury of time to research and listen to many individuals and organisations working in this space. I was especially curious about Procurement Transformation and whether I could add value from my experience and leadership of the key changes to Procurement that I experienced in my corporate world including:

From transactional support to Value Adding Business Partner
From a job to a career path to the most senior leadership positions
From servants to leaders of innovation and business transformation
From technology laggards to Digitalisation, Data and e-Business leaders

What did I find – much to my surprise Procurement Transformation has simply not been replicated to the extent I expected.

Why a surprise? From what I knew before my move and as my research confirmed there are many consultants and organisations ready to help make this change happen. Plus, the apparent readiness of senior leaders for these changes and in most cases plans to effect the transformation (Hackett CPO Webcast February 2019, GEP April 2019)

Google Search – Procurement Transformation

So, I was a little confused.

In parallel I was starting to hear something else that might provide part of the answer and it was all related to People(Talent). The external market for Procurement Talent is short, Procurement is not seen as a great career compared to alternatives available to the best talent – Sales/Marketing, Consultancy, IT. Pulling on existing resources can be a challenge, the transformation of procurement requires new skills and better soft skills – data analytics, communication, engagement, stakeholder management (Hays/CIPS Salary Review 2019). Inside my corporate world I also encountered the same challenge, but in comparison there was ready pool of new and experienced talent we could divert into Procurement, good access to diverse talent pools across the globe, as well as the pull of the corporate brand. In the external world this is not the case, for the majority of companies. This creates a dilemma for companies eager to realise the business value of transforming procurement and achieve and sustain world-class Procurement ROI, but lack the talent to lead and sustain the transformation.

So now I was thinking more and more about the People element of Procurement Transformation and this led me into discussions with Leadership and Coaching professionals. And guess what, procurement was right at the top of their list of requests for Leadership development support. They were seeing the people issue albeit from a different perspective. Many reported internal staff being appointed to lead transformation projects without the skills or support to develop the skills required with negative consequences for the individuals as well as the company. Now despite being slightly hardened to the reality of the external world I was shocked that due to insufficient investment in human capital many companies are exposing themselves to a huge risk that transformations will only partially realise the benefits anticipated, see significant delays in benefits realisation or in a worst-case scenario fail completely.

Installation vs Implementation Adapted from IMAP

Reviewing materials on the key technology changes it is clear that the people risk is well recognised. Surveys show cultural and behavioural changes are clearly a significant factor and need to be addressed particularly where digitalisation, a key element in most transformations, is included(Mckinsey digital survey 2016)

The technology providers and IT functions will deliver the tools. But they do not have the capability to address the People element. This risk is well known and if not addressed results in the “installations vs implementation” failing of many changes.

It was now becoming clear to me that the root of the apparent lack of transformation I had initially observed is significantly impacted by the limited availability of staff with the right skills and a lack of planned support for developing the required skills to enable procurement leaders and teams to lead the change, leverage the new tools and complete the transformation of procurement. So, with limited talent available from the market and a lack of the right internal skills to allow the procurement transformation to happen and be sustained –what can be done?

Once again turning back to Leadership and Coaching professionals and examining my findings and their experiences in more detail, I concluded a new approach is needed to deliver on the huge opportunity that Procurement has that focuses on and supports: Procurement and People Transformation

Quite simply put – “procurement and systems and processes functions working in isolation will not deliver the transformation and value expected”. Cultural and behavioural changes are a significant factor and need to be addressed particularly where digitalisation, a key element in most transformations, is included (Mckinsey 2016 digital survey).

A simple equation shows that if you only make investment on one element sustainable value realisation is an unlikely outcome.

Transformation Value Realisation = Transforming Procurement x Transforming People

Optimising investment on both elements is in my experience a multiplier which significantly increases the probability of sustainable value realisation derived from the transformation as well as increasing the probability of achieving world class Returns on Investment (ROI) and Cost Savings. Under investing in the people element significant risks the desired outcome, as illustrated for two key metrics in the chart below.

In conclusion – Senior Leadership need to ensure they sufficiently invest in the people element of the transformation, developing and training internal resources and where necessary recruiting new talent to close gaps and future proof the organisation.

Understanding the extent of the change and equipping the organisation with the skillsets required to complete and sustain the transformation may require the use of specialist companies that can provide guidance and if necessary, directly support the holistic Procurement and People Transformation agenda.

If this investment in People is not agreed(time, resources and budget) ahead of the transformation journey then I strongly advocate delaying the investment in transformation until it can be made, the cost of failure can be catastrophic, impacting company culture and reputation, as well as incurring the resulting financial burden

For more information on Procurement and People Transformation and how this approach will ensure your Procurement Transformation can deliver the expected benefits please contact Redtree

Author: Michael Hammond

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Procurement Transformation – The People Risk