h The world-class performance advantage: How …€¦ · The Hackett Group’s annual analysis of...

World-Class Procurement I The Hackett Group I 1© 2015 The Hackett Group, Inc.; All Rights Reserved. | CR_6000162

Improving the stakeholder experience is becoming essential for procurement organizations. This is especially true for world-class organizations, where further cost savings and efficiency gains are increasingly hard to come by and new sources of value have to be unearthed. Raising stakeholder satisfaction levels will build trust and help procurement gain the organizational permission to take on higher-value work. A structured approach to improving the stakeholder experience is most effective. Ultimately, procurement has to rebrand itself as a customer-centric organization. This will require rebalancing the service portfolio to focus on the areas with not only highest demand but the most potential to contribute to company revenue. Success will also hinge on procurement’s ability to market itself in new ways to build awareness.

By Christopher S. Sawchuck and Patrick Connaughton

Despite ongoing economic and business environment challenges, world-class procurement organizations continue to outperform the peer group by a wide margin, up to $5 million in cost savings for the typical company.1 They deliver services at 17 percent lower cost (Figure 1) with greater effectiveness and require 26 percent fewer full-time equivalents (FTEs) per $1 billion in spend (Figure 2). For many, efficiency gains have reached their practical limits.

To raise procurement’s value contribution to the next level, world-class organizations have adopted a new approach, breaking down traditional geographic, information and process boundaries. This includes optimizing the service placement model globally, embracing analytics to gain new insights, and extending process transformation beyond the enterprise to include suppliers. Achieving world-class procurement performance can take five years or more. However, a company is likely to see marked improvements within two. These early wins are pivotal, establishing a foundation for more sweeping successes down the line. Key takeaways• Eighty-three percent of world-class organizations (versus 44 percent of peers) report high utilization of dedicated

resources who act as liaisons between procurement and the business.• World-class organizations that spend more time aligning with internal stakeholders generate 41 percent higher

savings than organizations that spend little time.• Most procurement teams segment suppliers, but grouping key stakeholders can be just as important to ensure the

best alignment of resources.

Procurement Executive InsightManagement Issue

June, 2015

Complim

entary Research

How procurement organizations are reinventing the stakeholder experience

The world-class performance advantage:

FIG.1 Cost of procurementas a percent of spend

Source: The Hackett Group, 2015

Peer group World class

17%

FIG. 2 Number of FTEs perUS$ billion of spend



26%

1 The cost savings calculation is based on a company with $10 billion in revenue.


Getting started on your road to world classAnalysis of data from thousands of our benchmarks and hundreds of our performance studies revealed that the capabilities most strongly correlated to procurement success are also the drivers of organizational high performance.

Rise to trusted advisor status. The Hackett Group’s annual analysis of its procurement database confirms that world-class procurement organizations continue to invest in activities that elevate their role to that of a trusted advisor. Their situation stands in stark contrast to the peer group, which is still struggling to get beyond perceptions that it is merely a gatekeeper.

Action step: Assess the broader organization’s view of procurement through interviews or tools like a stakeholder survey.

Deliver greater value across the board. Procurement organizations that are viewed as valued business partners report 68 percent higher savings than those viewed as a gatekeeper (Figure 3). Companies in the world-class group have realigned their service portfolios to deliver more value to the business and increase demand for their services, emphasizing capabilities such as on-demand analytics and market intelligence. This in turn has increased the scope of their spend influence, the savings they are able to capture, and value delivered beyond just hard-dollar savings.

Action step: Identify key stakeholders for each high-value activity and ensure a procurement team member is assigned to each one. Determine the best cadence for interaction with each stakeholder. Consider utilizing a stakeholder assessment tool to measure the level of support, and level of influence, to assign action steps to improve acceptance.

Turn procurement inside out. In essence, while in the peer group procurement is still considered mostly a back-office function, world-class organizations have turned procurement inside out to become client-facing service providers that are deeply embedded in their stakeholders’ teams.

Action step: Define a customer-centric mission for the procurement organization that focuses on high-value, high-return activities. Gain team buy-in to this mission statement and associated activities.

FIG. 3 Procurement organizations that are viewed as a valued business partner reporthigher savings


0

1

2

3

4

5

Gatekeeper Valued business partner

COST AVOIDANCE

COST REDUCTION

2.8%

4.7%

2.1%

3.5%

1.2%

0.7%

68%

FIG.1 Cost of procurementas a percent of spend



17%

FIG. 2 Number of FTEs perUS$ billion of spend



26%


Increase responsiveness and agility. To achieve agility, companies streamline the buying experience and create an organizational model where procurement is closely aligned to its primary stakeholders so that it can react quickly to changing requirements. For example, as category managers and buyers relocate to places like China to be closer to suppliers, procurement is following suit. These efforts are paying dividends: procurement organizations that spend more time on designing this level of stakeholder alignment and this type of organizational model report 28 percent higher savings (Figure 4).

Action step: Market procurement’s new mission and value proposition through internal communication channels. Clearly articulate business value and how to access support.

Create liaisons between procurement and the business. Eighty-three percent of world-class organizations (versus 44 percent of peers) report a high utilization of dedicated resources who act as a liaison between procurement and the business.2 Beyond doing things as quickly and efficiently as possible for internal customers, the role requires well-honed interpersonal skills and the ability to recommend and sometimes even challenge proposed solutions when a better alternative is available.

Action step: Hone client-facing skills. Develop talent that is able to speak the language of the business. Schedule and plan check-in meetings with stakeholders for high-value categories. Integrate procurement into planning and budgeting processes, and involve procurement early on on in the requirements definition.

Align procurement’s scorecards to stakeholders’ success metrics. As requirements change, so does the definition of procurement’s success. For a company that is growing quickly and is highly profitable, innovation and agility may be the biggest priorities. For a more mature company, efficiency gains and cost savings may be more important.

Action step: Continually adjust the alignment between procurement’s goals and its stakeholders’ objectives. Our research shows that world-class organizations that spend more time aligning with internal stakeholders generate 41 percent higher savings, as shown in (Figure 5).

FIG. 4 Organizations that spend more time aligning with internal stakeholders generategreater value


0

1

2

3

4

5

More time spent Moderate/Extensive

Time spent on alignmentand organizational design

Extent to which procurementperformance measures are alignedto key internal stakeholders metrics

COST AVOIDANCE

COST REDUCTION

3.6%

4.8%

2.9%3.8%

1.0%

0.7%

Less time spent None/Low

2.8%

3.4%

2.3%2.8%

0.6%0.5%

41%

28%

2 Procurement benchmark data, The Hackett Group, 2015


A closer look: How your procurement organization can rise to the challengePerceptions about procurement will take time to change, a fact that is not made any easier by tight operating budgets. Compounding the challenge is the ever-present and growing variety of risk – regulatory, commodity volatility, and talent. To stay focused and increase the odds of success, procurement needs a structured approach to improving the customer experience. This requires:

1. Identifying different stakeholder groups and understanding how they interact with and think about the procurement organization.

2. Developing formal customer satisfaction surveys tailored to each stakeholder group.

3. Analyzing and sharing measurement results.

4. Taking a holistic approach to customer service. (Figure 6)

Value Proposition

Increase business valuederived from spend

Trusted business advisor and change agent

Spend/ budget consultant and relationship manager

Supply expert, team leader, project manager

Negotiator

Buyer/planner

Reduce demand activity,complexity and variability

Shift from lowestprice to TCO

Right goods and servicesat the right price

Right goods/services atthe right time and place

Role of Procurement

Price

Total cost of ownership

Demandmanagement

Valuemgmt.

Supply assurance

FIG. 05 Procurement’s evolving value proposition

Source: The Hackett Group

FIG. 6 A structured approach to improving the customer experience is required


Identifycustomers

Improvingthe customer

experience

Measuresuccess

Analyzeresults

Takeaction


1. Identify key stakeholders.Who are the customers? Which are most approachable? Who will be a good champion for procurement? Who are the greatest consumers of procurement’s services? These are the types of questions that must be asked in order to identify the key stakeholders. Most procurement teams have initiatives in place to segment suppliers, but grouping key stakeholders can be just as important to ensure the best alignment of resources.

Action step: Segment customer groups based on attributes like importance and level of influence within the organization, creating the foundation for an engagement plan customized to the needs of each stakeholder type (Figure 7). Documenting the mapping of stakeholders to procurement liaisons is recommended, not only taking seniority into account but also language, culture and even personality. This mapping will give procurement leaders confidence that customers have someone aligned to them who can meet their needs. It also provides a vehicle for uncovering potential issues with misalignment early enough to take remedial action.

2. Develop formal customer satisfaction surveys tailored to key stakeholder groups.Today, 44 percent of world-class and 25 percent of peers conduct formal customer satisfaction surveys. While adoption of these surveys is higher among world-class companies, there is still quite a bit of room to grow. The way these surveys are designed, administered, analyzed and acted on makes all the difference in their value. At some organizations, customer satisfaction surveys are conducted once annually and are the only source of feedback. But other organizations regularly poll different customer groups, both ad hoc and on a structured basis. Moreover, they supplement this data through follow-up conversations (group and one-on-one) to gain deeper insights into how well procurement is meeting the needs of customers and the quality of their experiences.

Action step: Develop a multifaceted approach to gain a well-rounded picture of customer satisfaction. For example, structured interviews can be an effective tool for gathering useful feedback from executive stakeholders. They can also be used to build better relationships with company leaders. Short online surveys are more appropriate for gathering data from large populations of individuals. Brief spot surveys are often conducted online after individual interactions with procurement staff or the self-service tool (Figure 8).

Questions to ask when taking an inventory of the current customer experience:Channel management: What’s the most effective path to access procurement’s customers?

Demand management: Does procurement understand current customer demand for its services?

Customer account management: Have account management roles been defined? Are they designed to optimize the customer experience?

Brand management: What is procurement’s “brand”? Does it even have one? Is the brand widely understood by stakeholders?

Customer support: How much and what kind of support does procurement provide?

FIG. 7 Understand the influence and importance of key stakeholders


Importance

Infl

uen

ce

Monitorand inform

occasionally

Minimaleffort

Key players

Engageactively and

keep satisfied

Keepinformed


3. Analyze and share the results.Once the results of customer satisfaction surveys and interviews are reviewed and consolidated, it is important to close the loop with stakeholders to let them know that their feedback is taken seriously and, where needed, an action plan is in place to address any issues. As with the approach for gathering the feedback, multiple channels may be used to share the results (Figure 9).

Action step: A simple scorecard can be effective for executives. For broader stakeholder groups, procurement can hold information sessions that showcase procurement’s plans. Newsletters can also be used to communicate across the entire company.

4. Take a holistic approach to customer service.It is simply not possible for procurement to provide a personal experience to every customer. Much of the interaction is going to be self-service and enabled by technology. Deployment models like software-as-a-service have broken down the barrier to entry so that virtually anyone can have access to procurement software. Further, customers’ expectations are rising as the smartphone apps they use in their personal lives support ever more actions, hiding complexity behind intuitive and easy-to-use interfaces.

Just as Uber has put customers in control, letting them make buying decisions based on their choice of parameters (cost, vehicle type and quality, location pickup) and real-time feedback about drivers, procurement must reinvent itself and its processes, making service available 24/7 and easy to use. Otherwise, as traditional taxicab companies have learned to their dismay, customers will leap at any chance to bypass its slow, expensive, legacy infrastructure.

Action step: Make self-service tools available to answer common inquiries and provide real-time visibility to order status. The tools must include enough intelligence to let customers make educated decisions about trade-offs like cost, quality and delivery speed. And finally, customers must be able to view feedback from other buyers of the same service. Ultimately, the most effective approach will be a holistic one that spans governance, service design, training and education (Figure 10).

FIG. 8 A differentiated approach to soliciting feedback by stakeholder is key

Executive-level Management-level Individuals (post-project surveys)

• Method: In-person, structured interview (open questions, predetermined format)

• Duration: 30 mins. or less

• Sample: 10

• Frequency: Annually

• Method: Online survey (closed questions and a few open questions)

• Duration: 5 mins. per level (max. 20 mins.)

• Sample: 100

• Frequency: Annually

• Method: Online survey (closed questions)

• Duration: 30 seconds per event

• Sample: 1,000

• Frequency: Monthly


Customer-centric procurementA customer-centric program should include a scorecard with metrics that reflect different facets of the customer experience and provide guidance for future strategies and actions. In addition to being relevant to customer experience, an effective metric must have several other characteristics:

• Credibility: How widely accepted is the measure? Is it based on a scientifically and academically rigorous methodology? Will management trust it?

• Reliability: Is the metric a consistent standard that can be applied throughout the customer life cycle and across multiple channels?

• Precision: Is it specific enough to provide insight? Does it use multiple related questions to deliver greater accuracy and insight?

• Accuracy: Is the measurement right? Is it representative of the entire customer base, or just an outspoken minority? Does it capture self-reported importance, or can its importance be derived based on what customers say? Is there an acceptable margin of error? Is the sample size realistic?

• Actionability: Does it provide any insight into what can actually be done to encourage customers to be loyal? Does it prioritize improvements according to the biggest impacts?

• Predictive capabilities: Can it project future behaviors of the customer based on their satisfaction level?

FIG. 9 A multi-faceted approach to stakeholder interaction

Listen to the customer

Engagethe customer

Sharethe results

• Global customer satisfaction surveys

• Support team and customer-care center surveys

• Project-based surveys

• Ad hoc feedback

• Relationship managers

• Customer forums

• Focus groups

• Advisory boards

• Think-tank sessions

• Executive scorecards

• Information-sharing sessions

• Customer/employee newsletters

• Action team reviews

• “Voice of the customer” spotlight sessions



Looking aheadThe next-generation procurement organization will feature a new type of talent, one that is comfortable with technology, able to speak the language of the business, and knowledgeable enough to navigate complex organizations in order to drive change. In some ways, procurement will become very much like a management consulting company. The best consultants know how to ensure that their clients are happy but can also challenge them when there are opportunities for better performance.

There are no quick fixes here, no single action that will elevate procurement’s brand and value proposition. Rather, ongoing self-reinvention is required for sustainable improvement. It may sound like a heavy-duty investment, but as you’ve seen from The Hackett Group’s results of world-class performance, the payoff is huge. Considering the challenges facing today’s procurement organization, it’s an investment worth making.

Related Hackett Research“Procurement’s Key Priorities in 2015: Harnessing Big Data and Renewing Training Programs to Promote Enterprise Agility,” January 2015

“The New CPO: A Roadmap for the First 100 Days,” December 2014

FIG. 10 Over time, build a more holistic approach

StrategyUnderstand stakeholder needs and translate to procurement’s strategic roadmap.

GovernanceCreate coordination mechanisms between procurement and stakeholders.

Communication Communicate the value of procurement.

Relationship management

Empower team leaders or dedicated relationship managers to address service delivery failures.

Service designDesign procurement’s services from a customer-first perspective.

Channel management

Design an effective multi-channel (voice, email, web, chat) interaction model.

Training & education

Train and educate employees on soft skills (negotiation and conflict handling, cultural awareness).

Knowledge management

Build knowledge repositories both for employees to enhance training and update of FAQs for end users.

Talent management

Manage retention to an appropriate level by service, to allow development of business acumen and relationships between procurement and customers.


Capabilities required to enable customer-centric procurement• Procurement reviews customers’

annual operational plans.

• An explicit customer-management role is designed and performed.

• Procurement and the business participate in each other’s strategic planning processes to improve alignment and maximize opportunities to add value.

• Procurement’s operating and service delivery model are continually refined to meet the changing needs of the business and ensure appropriate capabilities are in place.

• Feedback from external customers is analyzed and used by procurement to improve product and service delivery in real time through a formalized process.

• Procurement works with the business to find the best model for combining customer and commercial knowledge. This could involve hiring someone from the business to work in procurement in core spend areas or using outside experts for noncore, niche categories.

• Procurement acts as a service provider within a larger service delivery strategy.

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The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices

implementation firm to global companies. Services include business transformation, enterprise performance management, working capital

management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human

capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle EPM and SAP practices.

The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of

the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100. These studies drive its Best Practice Intelligence

Center™, which includes the firm’s benchmarking metrics, best practices repository, and best practice configuration guides and process flows. It is

this intellectual capital that enables The Hackett Group’s clients and partners to achieve world-class performance.

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About the Advisors

Christopher S. Sawchuk

Principal & Global Procurement Advisory Practice Leader

Mr. Sawchuk has nearly 20 years of experience in supply management, working directly with Fortune 500 and midsized firms around the globe and in a variety of industries to improve all aspects of procurement, including process redesign, technology enablement, operations strategy planning, organizational change and strategic sourcing. Mr. Sawchuk is a regular contributor to business publications, a frequent presenter at industry

events, and co-author of ePurchasingPlus. He has been recognized by Supply & Demand Chain Executive magazine as one of its “Pros to Know.” Mr. Sawchuk’s background includes engineering and operation roles with both United Technologies and IBM.

Patrick Connaughton

Senior Research Director

Mr. Connaughton leads the development of The Hackett Group’s intellectual property in the areas of strategic sourcing and procurement. He has over 15 years of experience in supply chain and procurement research and advisory roles. He has published groundbreaking research in areas like spend analysis, contract life cycle management, supplier risk assessments and services procurement. Prior to joining Hackett, he was

principal analyst at Forrester Research, where he focused primarily on helping executives mitigate risk through more effective supplier relationship management. Previously, Mr.Connaughton was a consulting manager at Manhattan Associates and Accenture.

For more papers, perspectives and research, please visit: www.thehackettgroup.com Or to learn more about The Hackett Group and how we can help your company sharply reduce costs while improving business effectiveness, please contact us at 1 866 614 6901 (U.S.) or +44 20 7398 9100 (U.K.).

This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.


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