When working with transformation advisory clients, we often talk about the role of procurement and the need to change how they are perceived within the organization. Changing stakeholder perceptions is not an easy task, nor does it happen overnight.
So where do we begin? Stakeholder relationship management.
To effectively and efficiently run a business, you need two simple elements – someone to spend the money and something to spend the money on. In other words, your stakeholders and your suppliers. There are many other complexities to be ironed out, like where the money comes from (revenue) and who assigns the authority to spend it (governance). Procurement acts as the liaison in this process, serving as the key intermediary between stakeholders and the suppliers.
The relationship between procurement and our stakeholders should be a partnership based on mutually beneficial elements such as development and growth. Like any other type of relationship, this partnership requires trust.
For many stakeholders, Procurement’s involvement is often synonymous with cost cutting, and, in their eyes, quality cutting as well. Challenging this perception may seem like an uphill battle but doing so begins with procurement demonstrating empathy. This means, coming to the table with an understanding of the motivations and topics relevant to the business unit. This requires procurement to be well-enough versed in the business vertical that the conversation can begin naturally. It is important to demonstrate that procurement knows what is currently going on in the organization that might impact the stakeholder group, but also what is going on externally that might affect business operations. The key here is to avoid the topics of cost and budget at first.
As the relationship continues to build and category plans are developed, cost and budget become more relevant, but procurement should still primarily focus more on overall value drivers. When the conversation turns to value, the next challenge is to compare procurement’s priorities to those of the stakeholder. Procurement needs to demonstrate effectiveness and deliver cost savings - even if it is not the number one priority of the stakeholder’s.
Stakeholders are focused on running the business, and often the lowest cost option is not a good solution for the need at hand. If this is the case, the business should be able to justify investing in a higher cost solution. Stakeholders may be tempted to exclude Procurement from this process, worried that Procurement will force the business towards a low cost award. It is important to point out, however, that this is the optimal time for the two sides to pair up and collaborate on how to address competing priorities. Procurement can deliver other means of value through negotiation while the business provides the subject expertise to support the negotiation. When the two come together as a team they are ultimately more effective with the right alignment on all categories of results.
On the flip side, when the relationship between procurement and stakeholders lacks trust, results of any kind may be elusive. In some cases, stakeholders may decide that procurement is ‘the enemy’, and not to involve them in purchasing decisions. They may even indulge in shadow sourcing (rogue purchasing activity performed outside of the person whose role it pertains to). The implications of this range from minimal lost savings opportunities to significant risks for the organization if the right process is not followed. Unfortunately, some amount of shadow sourcing is common.
Besides the obvious risks, this rogue behavior also leads stakeholders to create additional work for themselves outside of their official realm of responsibility. For example, if the IT department decides to source its own software maintenance and the process takes 5% of their time, and the spend accounts for 2% of what should be managed by procurement, the loss of time adds up quickly. This creates a domino effect that impacts the organization in a big way.
In the end, the best solution is the simplest one – procurement does procurement, and the business runs the business. When the two can work together in a collaborative environment, each focusing in the area they know best, the results are guaranteed to be better.