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Blog Pick: Procurement ROI vs Relevance and Influence
Back in April, Greg Anderson, President of Directworks, wrote a post for their blog that contained a classic good news / bad news scenario: Making the business case for sourcing automation is more about executive relevance than ROI.
First, the good news: because of the cost reductions associated with cloud delivery models, delivering an amazing ROI shortly after implementing a sourcing solution is pretty much a slam dunk. This is especially true if you put direct as well as indirect spend through the solution.
As Anderson wrote in the post:
The license fee for cloud-based sourcing and supplier management automation will generally cost a manufacturer somewhere between 0.004% and 0.040% of your annual direct materials spend. The actual cost will depend on the size of your company and the different solution modules licensed, but it will fall within this range.
But I know you’re still waiting for the other shoe to drop: what about the bad news?
The bad news is that an ROI that is that easily achieved will mean very little to your executive team. Especially if you are trying to make the case to them as a group. There is unlikely to be one pitch that allows procurement to win over the entire C-suite.
Anderson’s answer is to focus on demonstrating relevance – make the solution and or process automation clearly relevant to each executive through the specific gains or improvements they will realize. This approach is absolutely valid, and it opens the door to a related topic that procurement should be giving thought to as well: influence.
Unlike a seat at the executive table – another thing procurement gives a fair amount of thought to – influence isn’t bestowed in a formal ceremony. In fact, it isn’t given at all: it is built up over time. That puts procurement in control of our own influence growth.
Each time procurement makes a successfully convincing argument, our influence increases. Over time, the amount of influence we possess becomes enough to make us even more convincing. Successive instances of good advice or wise recommendations give us influence capital that we can exchange for something we want – including even more influence.
Anderson’s point about demonstrating relevance rather than ROI for an investment in eSourcing is right on the mark, but it’s not limited to that scenario. The more often procurement applies this approach, the better.