Procurement Transformation

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Spend Matters UK/Europe
Transforming Procurement
Transforming Procurement – Myth or Reality?
Peter Smith, Dubai, 9 September 2014

Agenda
1.Introduction
2.What is transformation?
3.How do we transform - a step by step guide
4.Taking the organization with you
5.Wrap up

Part 1 - Introduction
The Real World Sourcing Series 2013 is a series of 6 sessions covering hot topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by Tejari, and developed by Peter Smith (Spend Matters) and Guy Allen (Real World Sourcing Ltd.)
Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non-executive director and editor of the Spend Matters website. He was President of CIPS in 2002/3.

Part 2 – What is transformation?
Transform v & n; 1. make a thorough or dramatic change in the form, outward appearance, character etc. of ....

•Have you been involved in a “procurement transformation”?
•What did it involve?

•Transformation must be significant – like the change in Dubai over the last 50 years!
•It doesn’t mean just installing a bit of new IT ...

•Procurement transformation means delivering significant results and benefits to the organization.
•To call it transformation, it needs to be a step change in performance and benefits, which we suggest means both significant in scale AND achieved relatively quickly (otherwise it would be a slope, not a step…).
•It cannot be just the usual continuous improvement that we should all be aiming for constantly.

•And it is very unlikely to be effective if it merely looks at the procurement function, as opposed to the wider organization.
•Apart from anything else, it is unlikely to be perceived as transformational internally if no-one outside procurement notices!
•It will therefore generally address, and needs to address, how the whole organization interacts with and takes advantage of its supply markets.

Part 3 – How do we transform?
•Step 1* – Understand where we’re starting from (essential to the journey and provides the baseline for measurement)
•Step 2* – Define where we want to go
•Step 3 – Work out what needs to be done to make the journey
•Step 4 – Do it!
•Step 5 – Confirm that we’ve got there
(In practice, steps 1 and 2 tend to be somewhat iterative)

Strategic steps
Stakeholder steps

Step 1 – Understand where we’re starting from
•This takes us to “Assessing or benchmarking the function” – another RWS session
•We need to understand where we are starting from, our strengths and weaknesses
•How do we compare to others?
•Wherever possible, should quantify the assessment
•A real baseline we can measure progress against is invaluable

Step 1 – Understand where we’re starting from
In terms of doing the assessment, the key questions include:
•Do I need to assess / baseline the entire function – what do I want to transform?
•Can I carry out the assessment internally?
•Is all the data available internally (e.g. do I need external benchmarks)?
•If not, who can help me do that?
•What methods are we going to use for the assessment process?

Category / Sourcing Management
Transactional Management - Purchase to Pay
Contract & Supplier Management
RESULTS / OUTCOMES
• Value / savings
• Stakeholder satisfaction
• Efficiency
• Risk Management
TECHNOLOGY & TOOLS
PEOPLE
GOVERNANCE
STRATEGY & LEADERSHIP

Step 2 – Define where we want to go
•What is the vision for our end-state?
•What will procurement deliver?
•How will stakeholders perceive us?
•What will be the tangible results?
•How will we know we’ve go there?
•Be realistic – but if it isn’t ambitious it is not “transformation”
Every organization’s transformation should be specific to its needs and aspirations

•Worth developing an “elevator pitch” – the 30 second description of what you’re doing and why.
•Something that you could use with a Board level stakeholder...

•We want to be he best procurement operation in the UAE oil and gas sector in terms of results, capability and being a great place to work as judged by the XXX study
•We will put in place a controlled but easy to use “no PO no pay” P2P system, linked to spend analytics so we can see exactly where our 10B AED a year spend is going
•We’ll deliver 250M AED a year or more in measurable cost reduction AND contribute to the business top-line through our new supplier innovation programme
•We will improve our survey ratings from suppliers and internal users by 10 percentage points

SHOULD I EVEN THINK ABOUT IT?
•Take the Real World Sourcing assessment questionnaire and see if you and your organization are ready for transformation!
•We will come back to the results after the break

BREAK – back in 30 minutes please!

•Take the Real World Sourcing assessment questionnaire and see if you and your organisation are ready for transformation!
MARKING
Score yourself 5 points for each “a” answer, 3 points for each “b” and 0 points for a c or d.
Add up your points.

•Over 25 Transformation should hold no fears for you. Go for it!
•18 - 25 It’s not out of the question but proceed carefully – a little more preparation may be advisable before you kick off.
•10 – 17 You are probably not ready just yet – more fundamental work needed.
•Under 10 Don’t even think about it!

Step 3 – Work out what needs to be done to make the journey
•The steps get harder...!
•Need to convert those aims into a detailed programme plan
•Break it up into sensible workstreams
•Critical to identify as early as possible what resources will be needed
•A business plan / business case will probably be needed at the end of this stage

Step 3 – Potential elements of transformation
•Change in overall strategy / operating model / organizational model for procurement
•Fundamental change in how you interact with stakeholders – service, governance, business involvement ...
•A move to full Category Management / eSourcing
•Major P2P systems transformation
•Implementing contract and supplier management (SRM)
•Moving into whole new areas of spend coverage – capital projects, complex services, working on sales side...
•People and skills upgrade (almost always necessary)

Step 4 – Do it!
•A high proportion of transformation programmes fail in the execution phase
•Common reasons include:
•Lack of stakeholder buy-in
•Lack of resources or skills
•Poor project planning and management
•Changing focus, people or priorities
•Running out of energy, motivation, will power..

Step 4 – Do it!
•Run to a structured programme plan, with defined workstreams, timelines, deliverables...
•Managing resources – your own and stakeholders- is vital
• Put in place reporting and governance arrangements
•Manage it as a programme with (very) regular reporting, updates, communication...
•Keeping the energy and motivation going is a real challenge

Step 5 – Confirm we’ve got there
•Measurement of progress and achievement is key
•Shows stakeholders that the investment has been worthwhile
•Validates and celebrates the work, gives credibility and motivates people involved
•Also provides the baseline for the next transformation... maybe!

After Step 5 – What do I do next?
•The business environment is always changing.
•You may NEED to transform again!
•And if you haven't become the absolute best yet – why not aim higher?
•Remember it gets harder the better you get… a logarithmic curve

Improvement gets tougher as you get better....

Part 4 – Taking the organization with you
•It helps to have a “burning platform” – a pressing reason why we need to do this urgently
•That can be financial – “revenues / profits are declining...”
•It could be competitive – “we’re in the bottom quartile in out industry for procurement performance on this benchmark”
•It could be risk - “we cannot guarantee supply to the factory, that our brand won’t be tarnished by a CSR event, or that our managers aren’t committing fraud”

If a burning platform just isn’t feasible, there are some other approaches:
•The “Promised Land” scenario – I can give you an additional £50 million a year in savings...
•The “hard logic “ approach – here are the detailed survey results that show we’re not very good, plus the evidence that procurement excellence leads to higher profit....
•The “pride and emotion” strategy - this great firm should be the best at procurement, we owe it to ourselves, our staff and our shareholders...

Once you get into the programme:
•May be worth segmenting stakeholders to help develop the right management and Comms approaches – are they supportive, opponents etc.
•A programme board, steering group or similar is operationally useful and a good way of securing stakeholder involvement / buy-in
•Remember to think about the benefits from the stakeholder perspective – not just procurement's

Don’t forget your own procurement team!
•Some staff will be threatened by any change to “the way we do things around here”
•Communication and re-assurance can do a lot but ultimately... Tough decisions may be necessary
•Remember Machiavelli... those who support change don’t make a lot of noise, those who oppose it do

When NOT to go for transformation -
•If you don’t have the support from key stakeholders, particularly senior management
•If you don’t have the resources (assuming you need to invest in people, systems, etc – which you probably will)
•If you don’t have the time for transformation e.g. RBS have just bid for your firm
•If YOU don’t have energy, willpower, tenacity and skills
Continuous improvement should always be the aim – even if it is not ‘transformation’

“Setting a clearly defined course and then taking a step into the unknown is the leader’s challenge. The delivery of that challenge is predicated on having a robust process for navigating virgin territory and dealing with the unknowable consequences of each step.
Demonstrating this ability is what gives followers the confidence to stay close and keep faith. However, the balance is one of pushing the boundaries hard enough so that the organisation stresses into a new shape, but doesn’t break in the process. This will be a judgement made by those around you, so make sure you understand their appetite for change before stepping forward”.
(Dr Ian George, Agile Partners)

Summing up – three key take-aways
• Think carefully about whether you are ready and equipped for “transformation”. Continuous improvement may be more appropriate.
• Senior management and stakeholder commitment is critical – you are unlike to succeed without it – so the business case must be impressive.
• Treat it as a complex programme with all the disciplines that suggests .

Discussion
• Do you have experience of what has worked well in terms of transformation?
• Or any major barriers you have seen? How might they be overcome?

THANK YOU!
Please feel free to contact me on
psmith@spendmatters.com

Procurement Transformation

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