Stephen Wills [SW], Director of Group Procurement at AXA Insurance discusses how strategic business partnering allowed AXA to achieve more savings as a ROI year-on-year, while reducing absolute head count.
CG: Today we’re talking to Stephen Wills, Director of Group Procurement for AXA Insurance. Thanks for joining me today Stephen. Stephen can you tell me a bit more about your role at AXA?
SW: Sure, so I have multiple roles in AXA, and multiple reporting lines. So my reporting line in the UK is to the Chief Operating Officer, and also I have a reporting line into Paris, as we have a global procurement function there.
In summary I have local responsibility which is AXA UK and Ireland for all the procurement policy purchasing and spend that goes through the business as well as some global category management, people training and some other initiatives, so it’s very much a global and local responsibility.
CG: Great. Now, over the past two or three years we’ve had some radical macro economic movements with global markets becoming increasingly volatile resulting in commodity prices sky rocketing. Can you give me an overview of how these macro economic trends have impacted the insurance industry, and I guess what some of the key trends and issues you anticipate over the next 12 months?
SW: As far as the industry is concerned, insurance has been hit very hard, in terms of competing in a very tough market, so consequently our products and our services are under a lot of pressure at the moment. We’ve seen the recession, we’ve tried to come through it as a winner, we’ve certainly survived shall we say the last two years of the recession or the crisis as we refer to it.
In terms of procurement itself what that’s done is put a lot more focus on the cost base and procurements role in the business. Previously I worked on a strategy of cost-out / value-in and I was moving certainly a lot more towards the value of procurement. The pressure now is for procurement to focus on the cost part of that, so what I’m seeing is a lot more focus, a lot more detail, a lot more pressure around procurement negotiating for the business, to take sustainable costs out of the business.
CG: So is this a classic efficiency vs effectiveness argument?
SW: Absolutely and this argument has manifested itself within procurement, as everyone believed that procurement were making a contribution to the business, they could see that it was the right thing to do. What’s happened now is there’s a lot more focus on taking budgets away from people, but demonstrably showing procurement had delivered to the bottom line.
So you’ll be aware that procurement have savings and there’s probably quite a multiple description of what a saving might be to the business, so we can probably park managed savings and cost avoidance to one side. But even in terms of in-year P&L saving there’s quite a difference between what I refer to as recurrent spend and none recurrent (project based spend - a one off spend that’s done by the business). Certainly there’s a lot more focus on the recurrent savings, which are year-on-year, people are holding onto their marketing budget or their stationery or travel budget, there’s been a lot more focus on that and linking back to the expense base, and proving that procurement are really contributing in that particular line.
CG: OK great and what are your objectives and areas of focus for the next 12 months?
SW: Over the past six years, so even before the crisis, savings were very much part of my objectives and my teams objectives and I’m very, very comfortable with that, savings are absolutely part of what we do.
I have a set of category managers and business partners who don’t necessarily go into the business chasing savings targets but it’s absolutely imbedded in what they do, by partnering with the business and being involved in the demands management stage, they are very much sitting in the business engaging with their respective teams early in the process and consequently shape the definition of requirements. This internal interaction puts them in a very good position to run RFP’s, go to market and negotiate and deliver the savings target, and these savings targets year on year, have increased.
In fact they’ve increased as my absolute head count in my team has reduced. So what’s happened is that better qualified people, more strategic people, have been placed in my business, and they have delivered per head, more savings as a return on their investment year on year; and this year is no different, so savings and demonstrable savings to the bottom line, as well as the effectiveness of procurement are probably still my headline objectives.
Having said that, client relationship management, supplier relationship management, people development and effectiveness and tools and process, are also other key objectives.
CG: People development and getting the right people resources in place seem to drive your objectives and successes (you’re achieving higher targets with less people). What do you look for when bringing new people into your team?
SW: Whether it is someone new or someone currently working in a particular role, I need to make sure they are qualified, that they come with the right credentials and that they’ve got the experience.
I’m actually an ex board member of CIPS and I was responsible for education so I’m quite passionate that they’ve got a qualification that demonstrates they are professional in what they do. In terms of people development, I was fortunate to get recognised by Supplier Management Awards for people development in setting up the Procurement College, a couple of years ago, and that really focused not only on the procurement skills but also soft skills and business skills. It also segmented the foundation stage of the learner.
CG: How does the procurement college differ from CIPS?
SW: CIPS focuses on the procurement aspects, what I call the procurement tool kit, and we certainly have that included in our Procurement College, but we have also included a lot of soft skills - so communication skills, influencing skills, building relationships as well as business skills. Financial Services is very much a specialised area in which people need to understand, particularly the business partners because they’re working with IT and Change Directors. We also include other skills such as project management, legal and so on - it really does focus it more on our business, what I call ‘AXAfying’ it, more than just a generic set of procurement skills.
CG: How do you communicate to the rest of the organisation these successes, and your objectives?
SW: If we just go back a step, I am responsible for the UK and Ireland, so I’ll give you a quick explanation on how I report those across the UK and Ireland, but those are consolidated, like any good results through to Paris, AXA being a French company. Part of the global results there’s also a global target and I’m please to say that my contribution has probably been one of the most significant for the last six years to that target and each year we globally deliver, as a group, about 300 million euros in savings back to the business (recurrent and non-recurrent expense items). There’s definitely a contribution from procurement that’s shared with the analysts and with the press.
Even before the crisis, the business was already engaging to a high degree with procurement; I had 98 percent coverage across AXA, nothing moves without coming through procurement. This was achieved through an extensive toolset, I have a self booking tool for travel, I have Ariba e-procurement, but also there’s no substitute for the business partners working closely with the budget holders. When the crisis was at its full, the business was under great pressure to take cost out of their budgets, and they looked to procurement to help them take costs out.
At a micro level, communication was done through reporting and budgets. There was a very good governance structure aligned with Finance and the expense controllers in the business, who really baselined the budgets. Procurement signed up to help the budget holders in deliver additional savings in light of their budgets which all savings were reported back to the budget holders and then rolled up as part of a bigger expense and Finance programme, where they reported at a higher level.
CG: Who came up with the idea to integrate procurement into the business - was it Finance led, or was it procurement?
SW: Neither actually, it was operations and it was driven by your word from earlier, ‘efficiency.’
So it was operations who led an efficiency programme and the Ops Director, who had run one previously, focused on integrating Finance and procurement and overall developing the relationship between Finance and procurement.
If I’m being honest there’s always been a little bit of tension between Finance and procurement – mainly due to the challenge from Finance as to whether the savings were real savings or mythical savings. Procurement has very different categories of contribution to the business, what you could class as benefits, it was a case of really aligning with Finance as to what they were going to measure as a true saving to the expense line.
Overall the transformation was led by operations who ensured Finance and procurement worked closely in setting the budget, setting the target, and then reconciling the savings. Every saving that is delivered, I approve it, the Finance expense controller approves it, and then the business signs it off. So you’ve got that three way approval process before it’s reported on the savings system.
CG: Was it simply a matter of operations saying ‘you guys need to prove the savings’ or was it Finance saying, ‘I don’t believe you’ and the procurement saying ‘we don’t care, we are delivering’? How did the integration come together and what was the journey to that stage of acceptance?
SW: Throughout the business there was a lot of focus on peoples budgets and what we had was a situation of push and a pull really. You’re right, there was a push down, as in most businesses, from the Finance community saying we can’t sustain the cost base that we have.
The business then reached out to given our experience and results in the past to say “we’re being severely hit in our budgets now, what ideas have you got, what are you already working on, what new ideas, how can we bring suppliers into it.”
So I held a supplier conference, and asked how they can help us with pricing. We started to form a total engagement programme in what I call the golden triangle between, buyers, suppliers and the business.
Overall this wasn’t anything new, it was a matter of imbedding these new processes and focusing on this ‘golden triangle’ approach to attain more for less in terms of budget.
Every year I start with a saving target, but behind all of this now is a very big governance piece which really ensures that all types of savings are reported, as I just explained that a clear methodology is there to approve them and that they really are shown as part of the expense base reduction.
CG: As a result does procurement have a more strategic voice within the company and more trust as a business partner?
SW: Yes, to use your word trust, I’d definitely say the business trust procurement and there’s just no debate about it.
If I go back six years, I mentioned to you I’ve got 98 percent coverage, it was probably a third of that. People weren’t coming to procurement, people were striking their own deals, people were acting independently, people were putting their own terms and conditions in, I mean we’re very focused in our conversation today on savings and cost out, but there’s a huge risk mitigation piece that procurement bring when negotiating terms and conditions for AXA’s.
There was a huge risk being exposed to the business by people not coming through procurement and what has happened over time, to your point about trust, is that I now have the trust of the business and consequently that’s measured by having full engagement with the business and 98 percent coverage.
The two percent I don’t have is you know, bits like audit fees and so on but it really is right across the business now, through categories, online catalogues, through having people placed in the business (as business partners and category managers).
Procurement is now seen as a much more strategic function, as they’re all very senior people that are located in the business, and consequently as a procurement function is strategic.
Does Finance consider procurement to be strategic? Yes I think they do in part; I do think that the nature of Finance and the nature of financial services is quite a short term focus. So if you talk to people in Finance they’ll be very much focused on first quarter, second quarter, and this year, so I think that drives quite a tactical relationship with Finance Therefore I would say we could do more, to make that a longer term, strategic partnership with Finance but the first thing is to embed the trust in the business that we’re professional and we do add value to business and that what we deliver can be proved and reconciled and reported with credibility.
CG: You mentioned the shifting focus of your team towards a more strategic path. How do you get the tactical bits done if everyone is focused on the strategic elements?
SW: A lot of the tactical day-to-day is covered by the tools we use in which I have some people internally that run them but I’ve also outsourced some of it.
I do use additional supplementary resource, to come in and support me on the tactical front which leaves my team to do the strategic work, the strategic projects. Which in turn develops them more and keeps them motivated, making them work very effectively across various teams and with various stakeholders because I do have slightly different work-streams in my teams.
Overall, the tactical work is left to where I can get better value for it by aggregating it probably through an outsourced provider or mechanising it, going back to some of the tools that I’ve implemented, and actually because it’s a low value commodity, actually leaving it with the right contracts and with the right catalogues in place to the business to draw down on.
CG: A quick aside, we have talked strategically and tactically, but what does procurement mean? Why is there such a miscommunication Finance’ definition and procurement’s definition?
SW: On a number of levels procurement is a commercial (business) function, it’s really probably been mis-represented.
It’s one of the very few functions commercially that goes right across the business, touches all parts of the business, whether it’s risk, tax, legal, in the centre or operationally in the businesses, it really does, and that’s what attracts people into my function. If you’re a young graduate, you can really see how you can get to know the business from the inside, by joining the procurement function.
So for me, it covers really understanding business change and in financial services it’s constantly changing year-on-year in terms of new direction of the business, new platforms, new ideas to attract customers, new products, new services, so at the forefront, my procurement team need to be sharp business people, they need to understand the business from the market up.
They need to understand value, we don’t want to use the word ‘price’ to understand value, they need to understand the total cost of the projects that they’re working on, because they need to make sure that they’re delivering solutions for the business.
As I mentioned earlier what my team don’t do is turn up and say ‘I’m here to deliver business savings and negotiate cheaper’. What they’re there to do is find business solutions, and drive value.
What they also do is mitigate risk, and they protect the business, so that can be in a number of ways including the materiality of the contract, making sure that all the terms and conditions are suitable and are fit for purpose for AXA to enter into an agreement. Factors such as reputational risk and financial risk are also taken into account within my procurement team.
All of these areas are ones that we see day in, day out that are probably not covered by anyone in the business. There’s different priorities, there’s different objectives and expertise of people in the business, they all have their own focus; there’s only procurement that have this comprehensive and commercial view on protecting the business and driving value, and business solutions with our third parties - and no one else does that.
CG: If I asked your CFO the exact same question, would he come back with such as succinct answer as that?
SW: I think the CFO would probably say procurement is there to drive cost savings from the supply market and this is mainly the answer because this relates to their objectives - each of the business owners will have different priorities
If you take the issue of risk, risk is the responsibility of the CEO and risk directors. A CEO will understand entering into contracts where risk rests with them or whether risk is being mitigated through the vendors. The group CFO may not have such an oversight on the risk part of our contribution as the CEO will.
The CFO thus will answer around cost as he is driven by cost-out, he’s driven by how he manages that cost base, year-on-year, and how he drives costs out of the business, so I think he probably would give you an answer that is aligned to his objectives and relate them to how procurement can help him drive cost out of the business.
Similarly if I went to other people in the business, marketing for example, marketing would talk to you a lot about wanting more for less. So they’re getting the value piece.
In Summary, budget holders would talk about value, the CFO would talk about cost and savings and the CEO would talk about risk mitigation.
CG: In terms of your reporting, do you split up your dashboard for the various stakeholders within the business – presenting them only the figures they are interested in?
SW: That’s right, the CEO will get the risk dashboard and they’ll be told where there’s been compliance and non-compliance, with their teams. I will highlight where we are from a risk point of view (the Financial Services Authority – FSA in the UK play a big part of that)
With the Finance community it is very much reporting through the expense controllers as to whether we’re on target, what we’re delivering, what’s in the pipeline, how that’s aligned to the baseline budget, has it been through the appropriate methodology - so they’ll clearly get a dashboard on the savings.
The one that is probably the most interesting but probably has slightly less metrics around it is the Value, which we share with marketing. Highlighting where we’ve delivered more campaigns, more door drops, more conversions to sales, using a third party supplier, so even there we can show, on the supplier dashboard, that value is being driven through the vendor, and the vendor management process.
I think this forms a virtual circle. I talked a lot about the golden triangle and the engagement with the business and we talked about trust in which I really think you can promise lots of words to the business, but actually in my opinion, the value is really where you get your credibility, you get the engagement with the business. With this engagement in place, they will keep coming back time and time, repeat business with procurement; and as I mentioned earlier, you can have a mandate but you should never be waving it at anybody. What you must do is build the credibility and integrity in the procurement function and then you’ll find that the business will come back time and time again.
CG: Finally, there’s a growing trend which sees organisations approaching the decision to outsource from a value and enabling view point rather than the traditional cost and labour arbitrage angle that we saw with F&A and HR – we are talking about expertise rather than cost efficiencies. What’s your experience with outsourcing to date and do you see any stand out trends in outsourcing over the next 12 months?
SW: Certainly, my view is three to four core things for procurement.
One is client relationship management so CRM. So let’s focus on the retained part of the organisation where I think at the moment, I’ve not seen an outsourced provider do this well. However in a fully effective procurement function I’ve seen it done very well as part of the retained bit. I think you’ve got to get the buy-in of the business and you should do that with the people that are part of the organisation, they understand the core values, they understand the business objectives, they’re very focused on that sector, on what the goals of the business are, they’re fully immersed integrated and engaged in the business.
I think that the client relationship and management piece which then leads to demands management, definition requirements, it maybe what the business wants but is it what we need?
Having that challenging conversation up front, making sure the business cases are done, and that our shareholder in Paris is informed if it’s significant are definitely core to a retained procurement function.
I think the other end of the scale, contracts and supplier relationship management, is still a huge area for procurement to make its mark in. I think outsourced providers are still very focused on the negotiation, sourcing, and savings piece and not a lot about the managed savings, ongoing effectiveness of the contract, where it’s stored, monitoring the risks of the supplier, driving innovation, driving additional value etc. All of those things are around Supplier Relationship Management (SRM).
In AXA I am seeing a lot more focus on SRM; and although my own function is quite advanced in that area, there’s a lot of functions that are not. I do see focus on total cost of ownership, of taking cost out and I do see very senior category managers retained in the business. In AXA we take more of a global approach to getting leverage and aggregation.
I would see that as very much part of the retained organisation, local commodities, low value, and we can probably list there some utilities, stationery, some parts of travel - not so much giving it to another procurement function but actually looking at more specialist functions who work in those areas and outsourcing it to them.
Overall I think this approach frees up your procurement function to focus on the big categories, the big sourcing initiatives, the big outsourcing opportunities, in your own business, that are being driven and having real focus on the business sourcing objectives, the supplier relationship management, the client relationship management as well as shaping the requirements early on in projects – leaving the tactical and support free to use outsource providers.
So I think it’s a blended approach, I don’t think it’s ever a one size fits all approach.