Science or Superstition: Will procurement teams ever really evolve to be taken seriously?

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1 Science or Superstition: Will procurement teams ever really evolve to be taken seriously? Evolution is still a hot issue in the Bible Belt, where it is known as evilution and generally viewed as the work of the Devil ( The Science of Discworld, Terry Pratchett). The recent recession and ongoing cost cutting over the last year has focused organisational leadership on improving the bottom line or delivering better value for money. In turn, many procurement teams have therefore managed to raise their profile within their organisations. However, has the industry really seized the opportunity effectively? Can procurement now maintain a sustainable position in future? Unfortunately, for the vast majority of organisations, the answer is probably No because procurement is not truly evolving within the wider organisational context. Certainly some teams have made good use of recent opportunities and tried to position themselves as a valued and essential function but this is often far from reflecting successful competition and a sustainable place in the organisation. Perhaps Pratchett is right; maybe procurement s evolution is too often perceived by stakeholders as evilution, generating a threat to others within the organisation and inadvertently creating a cultural resistance that limits procurement s long-term success? Procurement s evolution therefore relies on a range of factors, but a key one that is often not fully discussed in the industry is its ability to sell itself effectively and remove any perceived threat. The problem normally lies in the following: A lack of vision, strategy and leadership A homogenous approach to product/service offering Limited understanding of who the customers are and what their actual needs are Ineffective relationship building Strategy Few procurement teams have a defined mission statement and strategy. Even then, many of these only define a strategy that encompasses savings but fail to consider specific alignment with the organisation s wider corporate strategy. If procurement is to sell itself effectively, teams must have a clear sense of ownership, purpose and measurable goals. Without this, the team is unfocused, operates in organised chaos and remains unable to define its own identity to itself and its stakeholders.

2 One of the biggest challenges often touted is in clearly positioning the procurement team with senior management and the Board. It s important to remember that procurement doesn t compete in isolation and its success in an organisation may be affected by the results of other intra-organisational competitions. For example, sales, production or frontline services may have a higher operational or strategic priority than procurement. As Pratchett says, It s not like the Olympics, where the javelin throwers politely wait for the marathon runners to stream past. It s more like a version of the Olympics where the javelin throwers try to spear as many marathon runners as possible. By making its intentions explicit within a clearly defined strategy, procurement can start to raise awareness and expectations on the value it can deliver. Product/service offering All too often, procurement is either one dimensional (e.g. its role is nothing more than buyer) or it has a range of products and services (which may or may not be explicitly defined) aimed at the totality of the organisation. Such broad approaches to its stakeholders will serve only to distance the team and prevent them from delivering effectively to customers. One of the fundamental steps to making incremental improvement is to differentiate your products and services. Teams must think about what they offer and why; considering what their customers need rather than what they think they need. Adopting industry best practice, albeit with the right intent, propagates a service delivery aimed at the organisation s greater good where the organisation, as an entity, is the customer. However, to be successful, procurement must start to consider individual customers so that it can develop its value proposition. Customer segmentation and targeting To do this, procurement must identify and understand its own internal customers. An effective way of doing this is to segment the customer base this could be at an individual level (i.e. personalisation), grouped level (i.e. similar needs) or a hybrid approach developing a value proposition for each. First, agree and define who your customers are. There is no right or wrong answer to this, but it is important that at least the procurement team agrees what their understanding is. One approach is to see the customer as the person who holds the budget, has the decision making authority, and more often than not defines the requirement. By comparison, consumers are those people who will use the service or products. Once segmented, match each of the products and services you offer. To aid this, procurement teams should consider the concept of features, advantages and benefits with benefits being the main focus. It is the benefits that will sell a team s products and services - customers will want to know what s it in for them more than how nice the product is! Let s consider a couple of simple examples (Figure 1).

3 Figure 1 Product/Service Feature Advantage Benefit Tender Standard forms and process; wide market engagement; procurement lead activity Consistent approach to tenders; customer invests less resource in overall process; enhanced supplier participation and competition Customer able to focus on other work; greater chance of innovation and value for money bids; successful tender outcome will reflect well on them and their ability / value Risk management Governance process; compliance with legislation; supply chain management Professional and consistent approach through policy; reduced risk of legal action; security of supply Customer avoids disciplinary action for any failure to comply; cost savings (financial and reputational); stability of production and sales Once we understand what it is we have to sell, we need to next consider how best to sell it in other words, how do we let our customers know who we are and what we have to offer. Before embarking on direct customer engagement, procurement teams should consider a more generic view of how they wish to portray themselves and their products/services. To do this, it can be helpful to think about how different retailers engage with their customers (Figure 2). By identifying how a team currently behaves and where that team wishes to be will allow gap analysis and the subsequent evolution that will enable procurement to more effectively engage with its customers.

4 Figure 2 What kind of shop should you be? Likely to succeed Personal shopper Long-term outcome focused. Strong product knowledge and understanding of customer and their need. Significant options generation with great trust and loyalty being developed. Travel agents Customer often more vague about need and relies on specialist knowledge of retailed. A lot of question funnelling and options generation by retailer to accurately define customer need. Perception of greater integrity by customer. Short term outcome focus. Unlikely to succeed Argos HMV Currys Customer has broad sense of what they want (e.g. TV) but relies on staff to provide technical guidance and advice. Language used may not be understood by inexperienced customer. Staff sell features and benefits of products through customer funnelling. Focus on outputs not outcomes. Customer may be wary and concerned with retailer s integrity (e.g. commission / warranties). Customer usually knows what they want. Stores categorised with greater granularity, providing clear signposting of where to find what customer wants. Customer able to browse in a hands-on way, even if they don t know what they want or just wish to browse. Customer knows what they want. Products categorised and marketed through a catalogue. No tangibility to product. Corner shop Customer knows what they want. No real order or commercial planning 2010 Martin Blake Selling cycle While familiar with the purchasing cycle procurement rarely considers the selling cycle (Figure 3). Understanding how its suppliers approach the organisation is one thing, but procurement could learn a lot by developing a similar approach with its own customers. Figure 3 Identify customer Benefits realisation Establish relationship (Mercedes Model / Johari Window) Features, Advantages, & Benefits Options generation and value proposition Identify customer need and buying behaviour Identify role of customer 2010 Martin Blake. All rights reserved.

5 Customer satisfaction and loyalty It can be challenging to balance customer service with managing customer expectations (the need versus want factor) particularly where procurement is the custodian for the overall organisation (i.e. managing strategic alignment and acting as a catalyst for corporate cohesion). This can create tension with customers, especially in cross-functional procurement approaches, as there will be a need to balance conflicting needs. In these instances, procurement has to decide on the prime customer and be adept at effective relationship management and influencing to still satisfy others. If procurement teams are going to adopt a customer-centric approach, it is imperative that customer engagement is monitored and managed. This means that procurement teams have to at least consider developing feedback mechanisms but, ideally, may also want to consider establishing customer charters. As ever, there is no right or wrong approach to this; it s more about what works for your organisation. Surveys are good for broad engagement but response rates are often very poor while feedback sheets enable more tailored and targeted feedback (e.g. after a key engagement such as a tender, negotiation or alternative dispute resolution) but are fewer in number making it difficult to identify trends. Equally, charters need to remain meaningful and measureable there is little point in stipulating answering a call in five rings or responding to s in two days, for example, if you have no way of measuring such activity or it offers no value to the customer. The best way to achieving such mechanisms then is to actually ask customers what is important to them and what their expectations are. Relationship building With a foot in the door, procurement needs to now demonstrate its value by delivering the value proposition it originally promised and start to encourage customer loyalty and advocacy. Having established the customer relationship, procurement teams must therefore remain mindful of maintaining and, ideally, developing that relationship. One common, useful methodology is that of the Johari Window (Luft & Ingham). The Johari Window (Figure 4) essentially considers what is known and unknown by yourself and others. So, in terms of more effective customer engagement, procurement must invest time and resource in developing such understanding themselves by increasing the open/free box and broadening their understanding of what their customers are like and how best to engage with them. This is also why customer feedback mechanisms should be introduced, helping inform a better understanding of how customers perceive procurement. Procurement teams should also remember that moments of truth exist in their service delivery and that customer experience occurs at every contact with the team, regardless of how trivial that contact may seem. It is therefore important that such experience is always positive.

6 Figure 4 New relationship Established relationship Johari Window (Luft & Ingham) Source: BusinessBalls.com Procurement teams should manage ongoing customer expectations and perception by developing new products and services that are relevant to each customer s need and, in doing so, establish themselves as the team to go to. Equally, it should remain mindful of shifts in the customer base (e.g. leavers and promotions) as well as being aware of any shifts in customer perception and behaviour. Summary So is procurement s evolution science or superstition? From procurement s perspective the answer can only be science but it is likely that many stakeholders continue to see procurement as superstition. All the time this perception exists, procurement s evolution will be slow or short-lived. It is therefore essential that procurement becomes proactive in understanding who its customers are, what they need and how they behave, and how to better sell to them. In doing so, procurement teams will be able to compete more effectively against other departments, paving the way to securing a permanent, sustainable role within the organisation. Top tips 1. Define a clear vision and strategy for the team which flows through all decision making and activity 2. Segment your customer base 3. Define your products and services and match them to specific customer segments 4. Define what type of shop you will be and encourage staff to use the selling cycle when engaging with customers 5. Understand your customers needs and sell your products and services to them by tailoring the benefits to each customer (the what s in it for them? approach) 6. Capture, measure and manage customer feedback to help you develop your value proposition and ongoing relationship