Have you read The Faculty’s Making it Stick report yet?
Our researchers undertook a literature review to understand the present state of play for CPOs worldwide. This is the second part of The Faculty’s article on the key findings from the literature review.
In the previous article, we discussed:
- How benefits realisation levels are poor and remain an enduring challenge for CPOs around the globe.
- The need for organisation-wide change management programs to address poor benefits realisation.
To wrap up the final three findings:
3. Business alignment and shared goals are integral to winning stakeholder support for identified benefits
As mentioned above, Procurement can’t drive savings all the way to the bottom line in isolation from the rest of the business. Shared goals across the organisation are absolutely essential for stamping out the culture of “somebody else’s problem” when it comes to poor benefits realisation.
Noah Costelloe (Ernst & Young) wrote in 2014: “The procurement team should not be the ‘sole owners’ of savings. Instead the focus of the team should be on facilitating and driving initiatives. They should also be accountable for the governance function through recording, measuring and reporting savings.”
So, what’s the first step to creating shared goals? The answer is to ensure Procurement’s targets are aligned to those of the wider business. A report from Proxima (2015) stated that “Success in the procurement field … is a nebulous concept [because] procurement’s objectives aren’t usually clearly defined. Or perhaps, more accurately, it’s because procurement’s objectives are defined quite differently by its practitioners and the business leaders they serve.”
The Managing successful programmes report already quoted above gives excellent guidance on alignment: “[Procurement must] provide alignment and clear links between the programme [benefit], its vision and desired outcomes, and the strategic objectives of the organisation involved.”
4. Procurement teams are expanding their strategic footprint beyond costs through the identification and realisation of additional value opportunities.
What do additional value opportunities have to do with benefits realisation? Everything. In the Making it Stick report, “costs” are identified as the base of the pyramid, or the essential piece that must be in place before the function can move beyond transactional benefits, through commercial to strategic benefits.
If you can’t make savings stick, you won’t have the base necessary to successfully expand the value you contribute to the organisation. In ProcureCon Europe’s 2014 survey of 2,000 procurement professionals, “Total Cost Savings” still retains its place as the most popular metric for measuring the value of procurement (85%).
KPMG’s The Power of Procurement (2012) reports: “Significant opportunities still remain to drive sustainable bottom line and top line value …. Procurement will need to stretch beyond savings to become a centre of value creation throughout the organisation. Executives will also need to play a part.”
5. Clear definitions and categorisation of savings and other benefit types drive cross-functional understanding, shared measurements and realisation.
Without rigorous benefits definitions in place, other parts of the business with dispute Procurement’s wins. Benefits should be:
- categorised by type
- agreed upon with Finance
- clear and concise
- in plain English (not “Procurement lingo”)
- aligned to business targets
- linked to a clear set of measurement and validation methodologies.
To illustrate the importance of a set of definitions, consider the term ‘savings’. If you were to tell a roomful of colleagues from various departments that Procurement is focused on savings as its primary benefit, it’s more than likely that there will be multiple interpretations of what a ‘saving’ actually involves. Andrew Bartolini wrote in 2014 that “Savings [is] an inherently complex metric [with] greater disparity among the definitions used by procurement teams today”.
A 2006 report from CAPS Research found that, “Crucial to [Procurement’s] mission is the proper categorisation of the various types of cost reduction and their application to the company’s operating budgets and profit and loss measures.”
The Making it Stick report contains sample definitions and measurements employed by participating organisations. Reproduced to give readers a broad set of examples to adapt for their own organisations. A concise set of definitions aids cross-functional understanding and should be developed in partnership with the wider business.
If you haven’t done so already, you can download the ‘Making It Stick’ research report here.
 Costelloe, Noah. Five things: getting the basics right in Procurement. Ernst & Young, 2014, p.4.
 Cooper-Bagnall, Jonathan, “Defining procurement success”, Proxima, June 2015
 Great Britain Office of Government Commerce, Managing successful programmes, Norwich, The Stationary Office, 2003, p.32.
 ProcureCon Europe 2014 Benchmarking Survey.
 KPMG. The Power of Procurement: A global survey of Procurement functions. KPMG, 2012, p.14.
 Ashenbaum, Bryan. “Defining cost reduction and cost avoidance”, CAPS Research Critical Issues Report 2006, p.2.