Procurement capability in most organizations is hampered because purchasing decisions are beset by organizational challenges and ‘soft’ issues. In this extract from Sigi Osagie’s new book, Procurement Mojo, Sigi discusses why organizations must focus on procurement effectiveness if they want to build a credible Procurement brand and a capability to match.
When we start focusing on Procurement effectiveness things start to fall into place. Too many Procurement functions give overriding focus to the numbers, an understandable trait given that we operate in a numbers-driven commercial world. Even in organizations with leading purchasing practices, Procurement success still typically imbibes the amount of savings delivered. When we focus too much on the numbers we fail to leverage the power of our collective imagination and converged effort when channelled towards building sustainable capability. Think about the power of Bill Gates’s vision of a PC on every desk way back in the early 1980s, and how that vision (not merely the projected sales revenue!) propelled Microsoft to a position of dominance and long-term success in its sector. Or think about the Apple team that developed the iPhone and brought it to market, a product that revolutionised the mobile phone industry; do you think they were inspired by the number of handset sales predicted or the vision of their game-changer product?
Some Procurement functions get hung up on other things – processes; tools; contracts; strategy; how much spend they have under control; the department’s name; and so on. The name of the profession or the department, the functional strategy, the organizational structure, the enablers (processes, systems and tools), the cost savings we deliver… are all important to varying extents. And they require corresponding levels of our attention, along with other aspects of ‘the purchasing job’. Most of these issues come with the territory, so to speak. But we must recognise that they are all subsets of the Procurement mojo – that special spark, an amalgamation of these and other subsets that creates long-term sustainable success when pursued coherently.
All told, recent evidence does indicate that more and more organizations are starting to recognise the importance of effective purchasing and its potential strategic value. But only a small proportion is able to leverage that value. No doubt, the global recession forced many organizations to accelerate the pace at which they build a comprehensive understanding of how they can gain that leverage. It is a fantastic opportunity for Procurement – Procurement functions can find their mojo at the very time others want us to; we can exploit the focus Procurement is getting under the spotlight in these times. But to do that Procurement people must imbibe a different ethos to our own perspectives on our functional role and how we go about gaining success in that role.
For starters, we must put aside our conventional beliefs of what is important in the purchasing job. We can begin by learning from our own organizational existence as a function. The issues that prevent most Procurement functions from achieving long-term sustainable success are not the technical issues we traditionally focus on. Rather, they tend to be the ‘soft’ issues, the very issues most of us give inadequate time and attention to. For instance, the critical challenges I mentioned earlier – functional leadership skills, staff competency and stakeholder relationships – are significantly more vital to success than factors like sourcing strategies, purchase-to-pay (P2P) processes or e-auction platforms. The overriding consensus from relevant studies demonstrates that Procurement capability and success relates directly to the calibre of leadership and people capability in the function. My experience with various organizations and discussions with peers support this. These ‘human factors’, more than anything else, are the underlying attributes that drive performance.
Of course, ‘performance’ is multi-faceted. So delivering sustainable performance success requires a holistic approach, one that imbibes these critical human factors or soft issues as well as other more technical aspects like Procurement systems and tools. The key to this holistic approach is the overarching goal of enhancing Procurement effectiveness – giving prime focus to doing the right things to achieve the performance success we want. The conventional efficiency measures we focus on as indicators of performance are always reflections of the past; we have already made the input effort and witnessed the output. Focusing on effectiveness, instead, forces us to question the actions we are taking in the present, today, and how they relate to the end-goals we are pursuing.
Efficiency is the well-oiled machine that enables us to achieve more output with less input, the slickness that gives us a bigger bang for our buck. Being efficient is important for success. But it is only half the story; the second half at that. The first half, the more important bit, is to be effective.
As indicated in figure 1.2, efficiency without effectiveness leads to failure, it’s just a question of how fast or slowly failure comes.
Figure 1 – Effectiveness and Efficiency
One of the biggest challenges we sometimes face is that effectiveness is often difficult to measure. Here again, I find the approach of simplicity invaluable. To assess Procurement effectiveness you can simply question if what your Procurement function is focusing on – the key actions and initiatives you are expending effort and investment on – will deliver the outcomes you want. If developing sexy sourcing strategies, implementing a best-practice P2P process or delivering bucket-loads of savings do not yield improved functional capability or heightened recognition of Procurement’s value-add in the enterprise, then you must go back to the drawing board.
Countless research studies and industry surveys have been carried out which illustrate the vital link between effectiveness and achieving performance results consistently. Time and time again we hear many eminent people and prominent business leaders concur on this. As Abraham Lincoln is said to have put it, “Things may come to those who wait, but only the things left by those who hustle.” Waiting for your Procurement mojo to materialise without doing the right things to manifest it is like waiting for a ship at the airport. Success in personal and organizational life is always preceded by the hustle for that success.
The pursuit of Procurement effectiveness forces and enables us to create a functional context in which people can flourish and grow, providing benefits that far exceed the obvious and direct financial returns to the wider enterprise. Achieving those benefits is never a done deal though. The changing nature of business and the societies we live in today means that Procurement functions can never become effective and then rest on their laurels. Organizations restructure, recessions come and go, new political and societal issues arise constantly – it is the nature of our existence today. Few businesses worried about corporate social responsibility twenty years ago, yet it is a key topic in many company annual reports today. Few Procurement functions worried about child labour or slave wages in their extended supply pipelines in times gone-by, yet these are now important issues for many of us due to the impact on corporate image, aside from our personal ethics. These are all examples of the dynamic nature of our new world, a dynamism we must contend with continually. Keeping our focus on Procurement effectiveness enables us to do this.
For more information on Sigi Osagie or his book, Procurement Mojo, please visit www.procurementmojo.com.
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Tagged in: Chief Procurement Officer, CPO, Guest Contributor, People, Performance, Strategy
