I hope your 2014 has got off to a positive start – it seems there is an air of positivity covering global economies – with green shoots well and truly growing at pace in US and UK markets.
Last month we offered some thoughts around the changing demands of many senior executives - shifting their attention away from cash-defensiveness and toward growth oriented (sharing the findings of recent research from global business analyst and advisory firm HfS Research).
Following on from the HfS research, Deloitte released the latest results of their CPO survey which agrees with our own views that the shift from cost to value is at the front of many senior executive minds. The Deloitte study noted that “CPOs are proud of their achievements with 88% having delivered or exceeded their savings plans, but with almost two thirds feeling they have been only somewhat effective at delivering value to their stakeholders.”
The concept of value is one that has many procurement functions scrambling to try and decode as quickly as possible. In our experience, delivering value requires some fundamental pillars:
- A true understanding of value: Defining value, as seen through the eyes of your business leaders and stakeholders, requires asking objective questions about their challenges, pressures and needs (in context of the wider business objectives) while keeping an open mind. Dig deeper into how they engage with the suppliers they manage and how they contribute to overcoming their objectives. Bringing constant, up-to-date, in-depth market knowledge to your stakeholders proactively around these identified focal points will enable you to align closer - positioning you as a useful business partner, that adds meaningful value to solving their business challenges.
- Skills and talent: A major problem with making the move from savings to value is the incumbent skill set, versus the required skillset. Asking anyone, in any field, to stop doing what they know best and instead focus on something completely different will create discomfort. But the bigger challenge is in achieving deep expertise and capability across not only the broad range of skillsets needed for effective procurement, but also across the 350+ areas of non-core costs. Recruiting the necessary army of specialists and business partners is also financially unrealistic for many - which is perhaps why 36% of respondents to the CPO study advised a distinct lack of resources to be able to deliver value.
- Ability to look forward AND backward: According to the US Chamber of Commerce “90% of the world’s data has been created over the past two years” – that is amazing. The pace and speed at which information changes, updates and augments is so fast that what you knew two years ago, is already outdated. This provides somewhat of a conundrum for procurement teams looking to reposition themselves as true sources of value. Without the constant, up-to-date knowledge of all the supply markets surrounding your business – why would your stakeholders trust you to know more about their field of expertise? Deloitte advises that the need for CPOs to “move from hindsight to insight, and on to foresight” to become better business partners.
In summary, value is not a price tag. Value is what gives your business a competitive advantage. Value makes the lives of the people in your business simpler and better. Value influences stock prices and investor decisions. Creating and delivering value requires the right skills – that are completely different to what’s needed to create and deliver savings. Looking for new value-add opportunities often requires a mix of technology, systems and rigid governance. Above all value requires a completely different mind-set from anyone in charge of measuring value.