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Are You Experiencing Opportunity Paralysis with Indirect Services?

by Ted Weyn, Managing Partner

As we are hearing terms such as; slow recovery, jobless recovery, this recovery will take years not months, etc.  And in speaking to procurement professionals on a daily basis who state that they have no resources to implement change or no budget to bring onProcurement Opportunities resources, I am continuously befuddled by the lack of action taken by companies as they stare at immediate savings opportunities.  Why can’t companies seem to be able to pick up the “diamonds in their own backyard?”

First case in point. For the past 12 months we have been speaking to a financial services firm that has multiple rounds of TARP funding; has yet to pay back any of that funding and is in dire need of savings and process improvements.  Last summer (12 months) we were introduced to this company to present a strategy surrounding immediate savings opportunities within indirect services. The company indicated that they struggled with visibility and compliance into rate schedules and payment processing of indirect services.  When we presented a clear line of site into savings and efficiencies, along with a compelling business case on how the company could realize a Rapid ROI of several small service categories…the lack of action has been, let’s say, “paralyzing“.  The company cannot seem to move on what they admit is a huge opportunity that they desperately need.

We have seen this trend also recently within banking, manufacturing, services and health care.  This phenomena doesn’t seem to be industry specific nor have we found any common denominator in any of the companies who we see as paralyzed to move.

Logic would ask, “Why can’t a company enact a double digit hard dollar savings opportunity?” Sighted reasons are: constant state of re-org, no executive sponsorship (yet executives are demanding results), no available internal resources to implement the strategy, lack of funding to initiate anything new. Unfortunately, this is not the only case of paralysis we see in the market.

 

The other paralytic effect we see is in people.  Procurement Professionals who are resistant to bring new innovative methods to the business for fear of a misstep that might result in demotion or even termination.  In a recent employment economic survey conducted by a Washington DC think tank, most employees felt that given the current state of the economy, they were “two bad decisions away from unemployment”. Companies who need change the most are not empowering their employees to be aggressive to apply basic business principles to basic business problems and execute to return value.  Instead we have seasoned professionals who are hesitant to react if not fully insured by the “CYA (Cover Your A@#)” Insurance Company.

What are we missing here?  Don’t the basics of business school rules apply?  If you can use resources (cash and/or people) to get a double digit ROI within a reasonable (6 -12 month) time frame, why wouldn’t you move?

Can someone explain to me why companies who can see and need these opportunities so desperately, cannot find themselves able to act?

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Tags: indirect procurement, indirect services procurement, jobless recovery, manufacturing services, paralysis, payment processing, process improvements, procurement, savings opportunities, savings opportunity, service categories,

2 Comments »

  1. • Group: Procurement Executives
    • Subject: New comment (2) on “Are You Experiencing Opportunity Paralysis with Indirect Services? | HCMWorks « HCMWorks”
    Hello,

    In most cases the stop gap likely relates to internal buy-in at the decision level of your target company.

    In the article you mention an “ROI” with hard cost savings. Is this something that you would be willing to put in writing and guarantee? Would there be compensatory measures in place should the ROI not be achieved in spite of following the proposed plan to a tee?
    If not, then there will exist a healthy dose of skepticism in the proposal.

    Without some form of guarantee, all that will be heard during any internal discussions related to the proposal are the costs to execute the proposal. The suggested potential savings will be looked at as a possibility as opposed to an opportunity. A company in dire need of saving money will shirk at the idea of additional costs to save money.

    That said, if there are compensatory measures in place and the costs to implement have been melded into the ROI, then it could be that you are not talking to the right person(s).

    All the Best
    Thomas Browning

    Comment by Thomas Browning — July 8, 2010 @ 1:48 am

  2. Thomas,

    I couldn’t have asked for a better response to our post. Ironically, we do offer guarantees and/or gain sharing as a proposed support of our work. We historically find 10% hard dollar savings as a minimum. And, as you know, some of these categories are $100MM +. For our firm to guarantee 10% or even 5% on an average implementation cost of $500K – $1MM for a years work…it’s a “no brainer”.

    However, what we typically want for the guarantee are some reciprocal assurances that the client is going to give us access and support to the information we require to be successful. We find that we have to strike a careful balance between “free” and perceived value. Often organizations that have no costs to ensure success, will quickly abandon the project at the first signs of challenge. Typically challenges come in the form of adoption and change management resistances. Therefore, we have to strike the balance between risk and reward under a mutually beneficial arrangement.

    Lastly, we often try and drive gain share proposals with our opportunities but find the companies run into accounting issues with how to allocate the savings and then, in turn, who pays for the gain share payout to the provider.

    I appreciate your thoughts and hope we can continue the conversation. Also, these posts are being copied directly to our website, so, if you’d like to post directly to the site you can by going to http://www.hcmworks.com/blog

    Thanks!

    Comment by Ted Weyn — July 7, 2010 @ 10:10 pm

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