How To Set A Procurement Strategy Part 1: What You’re Currently Doing Wrong
How do you set a strategy for your procurement function? Discover what not to do.
In 2020, we’re all au fait with the word ‘strategic.’ Procurement needs to be strategic, metaphorically yells every advice piece we read. What’s the strategy behind that, what’s your function’s strategy, what’s the strategy this year? Exclaim C-suite executives we run into; or perhaps a strategy consultant they’ve engaged.
But when it comes to procurement – what does a strategy even mean?
As an internal function, a procurement strategy is a complex idea. As procurement’s purpose is inherently to serve our stakeholders, should our strategy simply be to do just that? Or should we set a separate procurement strategy, based on best practice we observe in our particular function, elsewhere? Both approaches have their benefits, but also significant downsides. So which one is it, or is it neither? Here’s a detailed explanation of the two different ‘strategies’ that most procurement teams execute, and exactly why they may not be the best choice going forward:
Bad strategy #1 – The ‘Your Wish is My Command’ Strategy
What is the ‘Your Wish is My Command’ strategy?
Ken had not long been in his role as CPO at a utilities company when a meeting entitled ‘Procurement Strategy’ appeared in his diary. He hoped – and assumed – that the meeting would be about the business’s long-term strategy, which he would then translate into a roadmap for his team.
But he was wrong.
Alison, the company’s CEO, told him that he need not bother himself with strategy, because ‘that’s what I’m here for.’ She said, unapologetically, that the job of internal functions like procurement was to ‘keep all internal stakeholders happy’ and that she expected his team to ‘do whatever was required’ to do just that.
‘That was the problem with the last CPO,’ she told Ken, ominously. ‘She was always on a different wavelength, always chasing her own version of success. But while she did that, no one here was happy. Don’t repeat that same mistake.’
Why is the ‘Your Wish is My Command’ strategy so appealing?
The ‘Your Wish is My Command’ strategy, or the idea a procurement function exists to simply do whatever is required by stakeholders within the business, is frighteningly common. This is because the basic premise of this strategy – the idea that internal functions are created to serve the wider corporation – is in fact correct. Many CEOs believe that the business units that create products or support customers should be supported by internal functions. While this is true, it can also be deeply frustrating for functions that need – and deserve – to create their own strategy.
But the problem with the ‘Your Wish is My Command’ strategy runs much deeper than just frustration.
What’s the problem with the ‘Your Wish is My Command’ strategy?
The ‘Your Wish is My Command’ strategy works in theory only; as many CPOs will have now no doubt learnt. By granting ‘wishes’ – so to speak – to a multitude of different commanders, without any regard for what to prioritise or how to allocate resources, staff quickly become overworked, resources get spread too thin, and stakeholders are often underwhelmed. All decisions become reactive and nothing is done well, meaning that the all-important procurement influence is lost, with little room to show value added. Business units start ‘insourcing’ – either doing part of procurement’s job themselves, or looking for cheaper, external resources to do it for them.
Overworked staff, insourcing and little value perceived to be added leads the C-suite to fundamentally question whether procurement is ‘worth it,’ meaning ever-more pressure on cost savings, and eventually, redundancies.
The ‘My Wish is Your Command’ strategy is something that Dave Pastore, Senior Director, Sourcing Operations at Corcentric, has seen too many times – but, in his opinion, it never works:
‘Any strategy that reduces the procurement function to a shared service without providing it with the ability to challenge the organisation is a squandered opportunity at best, and a self-inflicted wound at worst.’
On the surface, the ‘Your Wish is My Command’ strategy seems to make sense. But dig deeper, and it’s a deeply fraught concept that deprives procurement as a function of fundamentally doing what they need to do – adding value.
Bad strategy #2 – ‘Market Leader’ Strategy
It’s clear that the ‘Your Wish is My Command’ strategy is no way forward. So is the opposite strategy, one whereby procurement makes clear choices that set the company apart vis-a-vis other procurement functions externally, the better choice then?
Not quite…
What is the ‘Market Leader’ strategy?
As a new CPO in one of the world’s fastest growing tech companies, Karen thought she’d secured her dream role. And in her first few months on the job, that seemed to be the truth.
As someone who was quite entrepreneurial and strategic herself, Karen knew that to become a ‘market leader’ in procurement, the company needed to invest heavily in tech. The CEO, himself a young entrepreneur, gave Karen the green light to do whatever she needed. ‘Just make sure we’re the best,’ he said, while signing off on a budget that made Karen’s eyes water.
But as time passed by, problems materialised for Karen. It turned out that being ‘the best’ wasn’t as easy as emulating best practice in the marketplace, for a number of reasons.
Why is the ‘Market Leader’ strategy so appealing?
For ambitious CPOs, the chance to implement the ‘Market Leader’ strategy can feel like a career-defining moment. Firstly, it treats procurement with the respect it deserves, and places it equally with the rest of the business in terms of power and importance. Secondly, it just seems like the right thing to do. If you’re trying to be ‘the best,’ why not look for an example of that and then try and do the same?
Creating a ‘market leading’ procurement function may well look good on your CV. It may be the case study that nets you media coverage; that amplifies your personal brand and that makes you an authority in the space. But at the same time, there’s every chance it will fail within your organisation.
Why?
What is the problem with the ‘Market Leader’ strategy?
The ‘Market Leader’ strategy seems perfect until you consider one thing: context. And given that procurement is not separate to an organisation, but an integral part of it, context is hugely important.
Take the example of Karen detailed above. What evidence did she have, beyond the fact that she was working for a tech company, that investing heavily in tech was what was needed for her function? Precisely none. Many procurement leaders have chased ‘best practice’ before, only to discover that what might be best in the marketplace may not suit their organisation for a number of reasons.
Jennifer Ulrich, Senior Directory, Advisory, at Corcentric, believes that the idea that you have to be a ‘market leader’ in all aspects of procurement is misguided:
‘You don’t have to be a market leader on every aspect of procurement in order to generate a competitive advantage to the organisation.
‘Doing what is right for the business will put you in a winning position more often.’
While market-leading strategies look externally focused, they actually function more like internal monopolies, where procurement serves themselves, rather than the needs of the business leaders around them. As a result, the function falls victim to the typical problems experienced by monopolies, including arrogance and overresoucring. Managers within the business complain that resources are being used for ‘show’ as opposed to invested in things that would actually give the company a competitive advantage.
As a result, backlash ensues. The ‘value’ added by procurement is again called into question, and the function is seen as the exact thing it is trying to rebel against: burdensome cost.
So how should you set a procurement strategy?
If a ‘Your Wish is My Command’ strategy doesn’t work, and neither does a ‘Market Leader’ strategy, then how should procurement create a meaningful, long-term and effective strategy?
Diego De la Garza, Senior Director, Global Services, at Corcentric, recommends you begin by doing the following:
‘Start with defining what success should look like for procurement in your organisation, finding those answers early is a relatively easy way to build a strategy that will drive healthy support across the organisation.’
Want more detail? Discover exactly what to do in our next article: How to Set a Procurement Strategy Part 2: What to do. Join Procurious now to be notified immediately when it’s published.
