There’s often friction between Procurement and other functions. Stakeholders see an overemphasis on short-term savings as a threat, which destroys business value. Procurement should be more than an efficient tendering machine. And in many organisations Procurement started the journey towards a more strategic approach many years ago. Most teams, though, still have a long way to go and are not yet developing the strategic options that will inspire stakeholders. Operating at a strategic level takes business acumen, strategy development skills, creativity and excellent stakeholder engagement capabilities.
So, what does “taking a strategic approach” mean for a Procurement team? It means collaborating with key stakeholders to develop an approach that leverages supply markets in a way that supports departmental and corporate strategies.
Becoming a trusted partner
However, before you can approach stakeholders about this there is some homework to do in order to be perceived as a “trusted partner”. You need to demonstrate that you understand: (a) what your organisation is trying to achieve; (b) supplier spend and cost structures; as well as (c) relevant supply market dynamics. These are the essential analyses:
- Take an objective and critical look at the effectiveness of Procurement’s approach today and how well it supports corporate and departmental strategies. A SWOT analysis will give you some clues as to what needs to change as explained in the article, How to ensure your procurement approach supports corporate strategy.
- Complete spend and Total Cost of Ownership analyses to identify key stakeholders and possible value building opportunities as explained in the article, How spend data reveals opportunities to unlock hidden value.
- Analyse supply market dynamics and your organisation’s interactions with those markets. There are a number of tools you can use to do that, including Porter’s 5 Forces, Kraljic and PEST, as explained in the article, Here is a quicker way of getting better supply market insights.
It’s now time to put it all together. What does each of the analytical models you used suggest you should do in terms of strategy? Is there a pattern? Are there contradictions? Do you need to look at it from yet another angle?
The role of creativity
Though the process may at time seem pseudo-scientific, developing procurement strategy is a creative process. As the late Steve Jobs said,
“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things.”
So, what have you “seen” so far? What now seems “obvious”? What “connections” can you make? It may help if you do as Dee Hock, Founder and former CEO of Visa, advised,
“Make an empty space in any corner of your mind, and creativity will instantly fill it.”
Does the strategy “fit”?
Once you have articulated your strategy ideas and written them down, consider each of them in terms of:
- Organisational capabilities. It’s all well and good to have an excellent strategy, but if your organisation cannot execute on it you are no further ahead in terms of taking a more strategic approach. Could the organisational capabilities be changed to match?
- Management preferences. Even the most amazing strategy will remain in the drawer if the boss is dead against it. Good to know those preferences before you invest too much time in something that is never going to fly? “Never?” Could management be influenced?
- Resources available. If it takes a team of 20 to implement the “winning” strategy and you only have 1.7 FTEs, something has to give. Could you get more resource? Could the strategic option be made less resource intensive?
- Organisational strategy. Check that the strategy you are considering does indeed support the overall goals and priorities of your organisation.
Engaging stakeholders
Now you have something tangible to show your key stakeholders in terms of your DRAFT strategic options. But how will they react and how should they be managed? Stakeholders are not all equal – they are more or less powerful and more or less supportive of what you are trying to do. From your past interactions make your best guess as to where they fit in the stakeholder management model below. Don’t spend a lot of time on this! It’s just a first guess. Once you show them your strategic options you will get much more accurate insights into how they REALLY feel.
You are now ready to summarise your strategic options and key elements of the underlying analysis. Make it brief and punchy. Nobody has time for long PowerPoint presentations. At this stage, the objective is to ensure your stakeholders understand – not to convince them! In fact, invite criticism. Hear their points of views with an open mind and without defensiveness.
Your stakeholders will be criticising, agreeing with, tearing down, improving, dismissing, embracing the DRAFT options you have put in front of them. That’s exactly the intention and will give you a lot of insights about:
- Any blind spots you may have
- Management preferences
- Where to accurately place them in the Stakeholder Management Model and how to subsequently manage them
- Better or hybrid options you had not considered
Hopefully one stakeholder will be powerful and supportive enough to sponsor your initiative and help remove any “roadblocks” ahead.
Choosing between strategic options
Now that you know what your stakeholders feel, you are ready to choose a strategy. So how do you compare and contrast? You could simply score the various strategic options based on how well they meet organisational needs. But simply picking the one with the highest score could trip you up. Here is why.
Particularly if your organisation is large you will have many, sometimes conflicting, organisational/departmental needs. Conceivably, the highest scored strategic option could still fail to meet one particular critical need if sub-scores relating to other organisational needs are high. So, you could end up with a strategy that looks good in the aggregate but doesn’t work for one part of your organisation.
To avoid that situation simply reject any strategic option that does not at least meet ALL critical needs. Out of the strategic options that passed that test, you can then look at which one scored the highest.
Managing risks
But you are not quite done yet. Things can, and do, go wrong from time to time. So, you need to identify and manage the risks associated with the strategic option you want to select. What can you think of that could go wrong? What could happen which would make the strategy ineffective? Could it back-fire in any way? What risks did stakeholders flag when you spoke to them?
A simple risk assessment looks at these three core elements of risk:
- Probability that the risk will become reality
- Impact on your organisation if the event does happen
- Duration of the impact, i.e. the time it likely takes before your organisation is restored to the state it was in before the event happened
Once you have identified risks and determined probability, impact and duration, you need to think about how to manage those risks. Something that is very unlikely to happen, and if it does happen has minimal impact anyway, may not be worth managing at all. You could simply decide to accept the risk or monitor it.
By contrast, a low probability risk with dire consequences if the event does occur, must be managed in some way. How is the risk best mitigated or transferred? Is a detailed contingency plan needed? A well-developed Risk Assessment gives credibility to your proposed strategy, as it shows stakeholders you have carefully considered the implications of the proposed change. Acceptance and adoption are, therefore, more likely.
One thing to remember about risks is that they are events that may, or may not, happen in the future. Current undesirable situations or future events you deem 100% certain to happen are not “risks”. They are “issues” that need to be dealt with.
Another thing to be aware of is that opportunities are often identified during a risk assessment exercise. That’s great! Capture them and simply plan for how to increase the probability, impact and duration of those opportunities.
The Business Focused Procurement approach, described in this article, is much more likely to build stakeholder trust and buy-in than the traditional savings focused procurement approach.
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