I think your insights regarding the budgetary considerations is clearly another factor that plays into the emotions. Part of my concerns however are, as I stated in the piece, that these executives with the big budgets need to be reminded of the point that, “it’s not their money”!!

I know the top company management needs to ensure that they balance giving the line management the resources needed to be successful, but resisting change because you’re afraid to lose funding and thus power is a formula for disaster. One only has to look at GM for a clear example of this.

If your can clearly demonstrate that the budgets are essential to deliver results and you can demonstrate that you, as a steward of the corporate funds, are being prudent in your buying/spending decisions, then there should be no resistance from either side. What concerns me is the executive who resists to hard…how come?

Call me cynical but I side with Shakespeare’s Hamlet… “The lady doth protest too much, methinks”. There is an ulterior motive to the resistance we often see.

First, my experiences are with companies where the business unit (and the BU leader) “own” their budget and fight every year (passionately) to get what they and their teams determine to be an appropriate level of funding. I have also noticed in many cases that the size of one’s budget is proportional to their “power” or influence within the Corporate structure. So the larger the budget, the bigger the voice at the Executive Committee.

Now, when Procurement comes in to use SCM Sourcing strategies, I think two things happen. If the SCM effort results in a better outcome (usually cost savings but may include better terms and conditions), they may have raised the perception in some or all of the Executive team’s minds that the category had somehow been miss-managed in the past thereby reflecting negatively on the Business Unit executive’s reputation. The second thing is that any savings disappear from subsequent annual department budgets, thereby reducing the BU executive’s influence or power (whether real or perceived).

So how to avoid the resistance to Procurement? One suggestion is to be a “silent partner” in the project, allowing the BU to spearhead the effort and report the savings as they see fit. In many cases, a cost reduction just will allow a BU to do more with the same budget so they will use up the “surplus” doing more projects. A good example is Consulting or Marketing where savings generated from one Sourcing project may allow the department to move forward on other projects (or campaigns) faster or more intensely that they had originally planned. The BU Executive looks good to their peers and you now have an ally who will work with you the next time you ask to get involved. It is a win/win for everyone involved.

Sorry for the delayed response.

I’m really appreciate the points you make here. It reminds me of a piece that we speak to our clients about all the time. What is your current business climate? The business climate will dictate the approach and exacerbate or diminish the resistance frequently. By business climates we refer to the strategic direction the company is taking; accelerated growth, sustainability, or survival.

When organizations are in the survival mode it doesn’t necessarily mean that they will make faster decisions in the face of adversity. See our blog titled, Are You Experiencing Paralysis with Indirect Services. In this piece we discuss how some organizations that are in a “fight or flight” are just as incapable of making critical business decision as all large companies can, however, those that do will be able to institute the change in a more mandated way. Is this the best way? In those situations I believe it is. It’s what the business has to do to survive. However, in a different busienss climate, that approach can become a formula for disater that can result in irreprable harm to the procurement organization…effecting long term ability to deliver any real results.

But, to your point, in a climate that is not under compression to perform quickly, you must take an investment approach. Procurement must seek to understand before it’s understood. Ironically, procurement is more like their nemesis (sales professionals) then they may think or believe they are. Without the ability to collaborate and demonstrate real value to the line, they will fail. Just like a sale professional who is unable to demonstrate an ability to understand the client’s needs and then demonstrate an ability to deliver a valuable solution will fail.

The point you make about taking a “value for money review” approach is essential when taking on the more emotional and tougher categories. Demonstrating how procurement/sourcing can deliver more for the same money is a great starting point to win credibility. Savings can come later…if the climate will allow.

I’m interested to see the categories that you cite in your blog posting as being the top “difficult categories to manage” – legal; advertising and marketing; strategic consulting services; IT contracting; call centres (please forgive British-English spelling).

One common feature of these categories is their risk profile, in that a failure in any one of them could be catastrophic to the client. The executive responsible for the function using these services has to have total confidence in the provider. Another common feature is that this stakeholder is likely to be a senior executive in the organisation, used to having control over such buying decisions.

If the executive believes that the intervention of Procurement is primarily motivated by the hunt for savings, then that executive is probably going to assume that the process will end by installing a new provider, of uncertain quality, just to get 10% off the price.
So, no benefit to the executive concerned, just a perceived greater risk of a disaster. The executive will in all probability “die in the ditch” rather than let Procurement take away his trusted provider.

How can this best be avoided? I hope your posting here stimulates debate – the experience of others is something I am eager to learn about. For my own part, I find the less threatening start to a procurement exercise on a key service area is to perform a “value for money review” before considering going out to the market; such review fully involving the stakeholder.

Such a review should also openly involve the provider. Any provider worth its salt should want to give good value and should be prepared to make the case for the quality of its service and the reasonableness of its fees. Professionals expect to be tested in the market; there is no sense in which the executive should feel that the trusted provider is being “slighted” by such a review.

Equally, your executives should always focus on whether they are getting good value for money from service providers. They cannot reasonably refuse to take part in such a review. They should also know what alternatives are available in the market. The value for money review should include a benchmarking exercise to assess whether fees paid are in line with the market, or significantly different.

If the executive concerned takes an objective view in this process, then he or she should be willing to take the next step. In the case where the service is found to be good, but the price high, then the next step might be a re-negotiation. If the provider is unwilling to move, then it is the provider, not Procurement, that has triggered the following step, which is to open a discussion with one or more alternative providers.

The executive should be comfortable with this – the narrative here is that the existing provider is expensive and has shown itself unwilling to move, so the executive has the responsibility of assessing whether another provider could provide better value for money. Where the executive concerned has some seniority in the organisation, the likelihood is that the executive will have control over the selection. Procurement is there just to help the executive do his or her job, getting the best value for money from the provider.

It generally helps if the review of the particular service area is part of a wider review that include other executives’ areas. It is also a ‘must’ to have the buy-in of the most senior management (CEO, CFO) to such processes.

My colleagues and I are routinely working on sourcing projects for clients for key services, such as banking, insurance and other professional services. We have learned how critical it is to get stakeholder buy-in. I would truly be interested to learn what experience others can share, when it comes to handling these “difficult” categories.

Ted, what of your own experience in these matters?

Thanks for weighing in. Your observations are appreciated and it’s interesting how, as you say, “normally sane” executives can become so passive aggressive.

Why is that? Why do managers lose sight of the fact that it’s not their money? It’s the shareholders money. We as executives are stewards of those funds and are empowered to manage them in the best interest of the company.

Isn’t that part of what we are paid to do? Why does that seem to get lost?

As for the reason — business unit executives are first and foremost concerned about delivering excellence from their area of responsibility and anything that introduces risk into that equation is not welcome and will be attacked. Procurement’s challenge must then be to figure out how to introduce change in a way that controls risk to the point where status quo becomes an unacceptable option.

that’s an interesting dilemma there! Reading the responses to your blog, there is a tendency for “equally important” to “domain expertise preferred”. Let me add something to the other side of the scale. Knowledge of the market, cost composition, etc. is of course valuable. Yet, normally, this knowledge should be readily available in the focal organization. I think that the greatest added value in the CM-role is identifying, organizing and applying this information by developing CM-strategies and action plans. To my opinion a good process-orientation, helicopter-view and sourcing/project management skills can make the difference for the content. ‘In the kingdom of the myopic, the one-eyed man is king”.