Part 2: Procurement: the real challenges to effective working with internal stakeholders (and how to overcome them)
In his previous blog on the challenges of securing stakeholder involvement and buy-in for procurement strategies initiatives, Professor Andrew Cox expands on how these could be overcome, citing IIAPS client cases.
Tactical Solutions to the Lack of Cross-Functional Involvement & Buy-in
Building on our previous analysis of the 12 Major Causes of Sub-Optimality, in a recent blog we outlined why a lack of effective Cross-Functional Involvement & Buy-In is one of the major reasons why effective organisation-wide category management and strategic sourcing cannot be implemented.
It is clear, therefore, that understanding how to achieve senior management buy-in, so that effective cross-functional early engagement occurs, is a prerequisite of successful category management and strategic sourcing.
Achieving buy-in means: having senior managers fully understand the improved value that an effective category management and strategic sourcing approach can bring to the business.
If this is achieved it is normally the case that senior managers will then authorise early involvement, and provide the scarce senior technical staff time and resources to work with Procurement functional staff. Achieving this is not, however, a simple task. One might argue that it is the single most difficult change management task for a CPO to achieve—and one which in our experience few are fully qualified to undertake or deliver effectively.
Despite this we have worked successfully with CPOs and senior category managers to overcome the lack of buy-in and early involvement problem. By focusing once again on 3 of the 4 indicative case studies discussed in our previous blog we will explain some of the techniques (summarised as key learning) that can be used to resolve this dilemma.
Overcoming Obstacles to Early Cross-Functional Involvement & Lack of Buy-In
It is obvious that life would be simple if a CPO had nothing more to do than to explain what category management is, so that senior managers and their technical middle management colleagues could change their current behaviour and adopt a more effective cross-functional approach to strategic sourcing.
Unfortunately, in our experience, life is not so simple and there is considerable evidence of a lack of cross-functional involvement and buy-in to what the Procurement/Purchasing/SCM function is trying to do, and across all of the organisations we have worked with.
This is because attempts at persuasion by Procurement staff are often ineffective at bringing about the necessary change management required. The primary reason for this failure to win buy-in is because the business often sees category management as nothing more than an attempt by the Procurement function to impose a new approach on the organisation, in order that it can achieve its own cost reduction targets.
This failure is normally self-inflicted by the Procurement function because of an attachment to a Tactical (Price/Cost Down) rather than Strategic (Value Driven) approach to category management, which alienates everyone outside the Procurement Function before any of the potential benefits can be identified.
Despite this we have found that, even if the Procurement Function is wedded only to a Tactical approach, it is still possible to win a measure of buy-in and early cross-functional involvement, so that significant price/cost down improvements can be achieved.
We explain our key learning about the change management techniques that may assist this type of Tactical (Price/Cost Down) success by reference to three of the cases discussed previously.
Shoot One to Encourage the Others to Open the Door
In this case, the refusal by the Head of a major Business Unit in a multi-Business Unit company to participate in the embryonic category management strategy being developed by the newly created CPO was overcome by an effective use of internal power & leverage analysis and management.
Essentially all senior stakeholders were identified, analysed and then a power and leverage transformation strategy was developed focused on building buy-in amongst like-minded senior ‘allies’ in the company, so that the power of recalcitrant BU Heads was isolated.
The upshot of this strategy was a decision between us and the COO that (given the strategic importance of cost reduction at that time to the company) the first recalcitrant BU Head who failed to agree to a consolidated category management approach would be their removal from their job. The thinking was based on the French General Staff’s strategy in the First World War, namely: “We shoot cowards for treason; to encourage the other troops to obey orders!”
The result of this strategy, which cost one senior BU Head his job, was a 40%+ reduction in the costs of ownership over a three-month period through the adoption of a company-wide consolidation approach to category management.
Kill the Snake with Sunlight
In our second case several Heads of the Business Units stymied the category management transformation initiative by agreeing to provide support in formal meetings, but then refusing to cooperate in practice.
This meant that the category management approach could not be developed uniformly across the business. Furthermore, the relative importance of cost reduction was not as transparent to the COO of this company, and there was no support for the same First World War strategy as discussed above.
Given this, having segmented the BUs using standard internal power & leverage analysis to identify ‘allies’ and ‘opponents’, we linked ‘allies’ with the relative business criticality of the categories of spend that they managed. This allowed us to identify the ‘allies’ managing the categories that provided us with the greatest scope to demonstrate the potential for significant cost reduction for the business as a whole.
By working closely with ‘allies’ who were willing to provide the necessary time and resources we were able to make cost savings of between 30% – 80%. As a result senior managers at the C-Level in the company began to take notice. Gradually enlightenment dawns, and especially if there is a serious cost challenge in the business. In these circumstances, over time waves of categories normally start to be offered for treatment independently by BUs as senior managers recognise the benefits of buy-in and early involvement.
Break the Log–Jam
In our third case, despite some success with some category strategies in a company, and apparent buy-in from senior managers, middle managers on the technical side became the effective barriers to effective implementation. Some of these managers, when forced to attend meetings, simply refused to provide the data to allow early engagement so that demand and supply optimisation options/alternatives could not be fully understood.
This often arises because middle managers have already decided what they think is the best option (whatever the cost), and they do not want to see alternatives put on the table for consideration.
Although persuasion about the benefits of potential alternatives is always the preferred starting point, sometimes this strategy is simply not feasible, and especially when middle managers jealously guard their status and position against Procurement staff.
If persuasion does not work then the only other recourse is to ‘break the log jam’ by resorting to an internal conflict over roles and responsibilities. This has two potential targets:
First, an attempt to replace the recalcitrant technical staff in the existing process to find more congenial technical partners.
Second, the mandating of early disclosure of all relevant data as part of a new cross-functional process.
Obviously any such strategy is replete with potential danger, and success will much depend on the current and future balance of power between senior ‘allies’ and ‘opponents’.
In this particular case, the failure to persuade middle managers of the benefits of sharing led to serious internal conflict, with appeals by the CPO and Line Managers to C-Level supporters. The upshot eventually was success for the lower specification / lower risk / lower cost faction led by the Procurement function.
This outcome only occurred because of the support for the alternative strategy proposed by the MD of the company, who over-ruled his technical middle managers after we had worked with other, and more supportive, technical staff to provide the alternative options that persuaded him of the inferiority of the current sourcing strategy. Once again, building an alliance internally of like-minded individuals technically and commercially was key to success.
Key Learning from the Three Cases
The three cases above show that achieving buy-in and early involvement did not occur just because it is a ‘good’ idea; or that people will easily accept change by persuasion alone.
On the contrary, category management must be seen as a potential ‘wrecking ball’ that is directed at the current internal power structures in an organisation. Given this, there are likely to be ‘winners’ and ‘losers’ from any such new category management strategies in the future.
Given this, category management and strategic sourcing implementations based on Tactical (Price/Cost Down) thinking are inherently unstable. This is because they impose Procurement Functional targets on to the rest of the business, at the same time as also threatening existing internal power structures.
To be successful, it is self-evident that the Procurement Function must be blessed with significant senior management buy-in before the event, and/or a sophisticated understanding of how to build alliances in situations of internal conflict after implementation commences.
We summarise below some of our key learning about how to develop effective category management and strategic sourcing strategies in situations of Tactical (Price/Cost Down) implementations, with inevitable internal conflict:
- Category management implementations are always a ‘wrecking ball’ directed at the current internal power structures of an organisation.
- Internal conflict is inevitable requiring a sophisticated understanding of how to devise and deliver complex change management initiatives.
- If drastic action is required, then you must have the necessary internal analytical power & leverage tools to identify allies and opponents effectively.
- You must also have the ability to develop successful internal alliances with those whose own goals and KPIs are not yours.
- You must also have the ability to develop practical strategies to deliver valued outcomes.
- If you have senior management support, you must not be frightened to use it (and sometimes brutally) if you must.
- If you lack senior internal support for such radical strategies you must replace these with persuasion.
- To persuade others demonstration categories must be identified that link potential corporate impact with existing senior management support to enlighten recalcitrant senior managers, who currently do not wish to participate, about the benefits of involvement.
- Do not select categories that will not support the demonstration programme with stellar results—you only get one stab at this strategy and if you cannot deliver the business will not give you a second chance.
- When faced with middle managers who have closed minds build internal alliances with other technical staff, and ‘break the log jam’ by demonstrating to senior managers the technical and commercial strengths of alternatives.
While this list summarises some of our key learning about how to successfully implement Tactical (Price/Cost Down) approaches to category management there is another way, but it is not one much understood by Procurement professionals in our experience.
This approach engages with cross-functional partners, so that they buy-in to category management and strategic sourcing through persuasion and synergy, while avoiding rancour and internal conflict as much as possible.
To achieve this, you must possess a methodology to understand Value For Money Trade-Offs (i.e. the relative criticality of cost reduction in relation to other sources of corporate value improvement), as well as competence in Value Flow Management.
This explains how we transformed the three cases briefly outlined here to deliver considerable value for money improvements for the organisations concerned.
By Andrew Cox