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AOP 2018 Annual Letter (Part 1): Procurement in Review

By December 27, 2018January 4th, 2019No Comments

I have never written an annual letter to the Art of Procurement community before, but there is no time like the present. I see you as investors in our community. You invest your time, your mind space, and your creativity in your own development and the development of others. That comes with an opportunity cost and it is my and my team’s responsibility to ensure that the investment returns an outsized ROI.

I have long been inspired by annual letters like the ones used in the financial community to communicate with the shareholders and stakeholders. The best of these – think of Warren Buffett and Jeff Bezos – take readers behind the curtains, offer transparency into their thinking, and share the lows as well as the highs.  

This insight is important. It allows us to stand on the shoulders of giants and avoid repeating the mistakes of the past.  

Unfortunately, we have a scarcity of visibility into procurement weaknesses and fears.  We’ve been programmed to think that sharing leads to a loss of negotiation leverage or risk. I believe the opposite. Every company has its challenges, and those that connect deeply are the ones that invest in and benefit from transparency. It is true that this comes with a certain level of vulnerability, but it is in this space that great work is performed.

In today’s post, I’m going to focus on procurement. Tomorrow, I’ll talk about the Art of Procurement.

Procurement in 2018: the more things change, the more things stay the same.

In my end of year podcast, I likened the state of procurement to the structure of the English professional football leagues:

League Two: Procurement groups stuck in a transactional role without a burning platform.  To move out of League Two requires a commitment to change and the follow-through of some early wins.  Required investment: mindset.

League One: Those organizations who have decided to invest in building a more strategic function, but that are early in their journey. Growth can be achieved through forward-thinking leadership and a small number of experts – you do not need a star in every position. Outsized results can be achieved from a relatively small investment. Required investment: equal parts financial investment and mindset change.

The Championship: Teams who generally support their organization in a strategic way.  They have pockets of excellence but struggle to scale best practices while minimizing tactical work.  Achieving scale is difficult because it requires an investment in advanced infrastructure and organization-wide people development.  Required investment: financial.

The Premier League:  The creme de la creme. Procurement organizations in the Premier League are firing on all cylinders.  They are in perfect sync with the rest of their organization – at scale. They are redefining the art of the possible for procurement. They represent a competitive advantage for their organization, partially because they understand that to stand still is to regress. Required investment: mindset.

Premier League teams are not afraid to change, to experiment, or to take controlled risks.  This can be applied to emerging technologies, but also new approaches to familiar challenges (how can we be faster, more agile, develop our people better?). Those who have the mindset to sustain continued evolution also attract the best people (often at a lower salary than required for a Championship team to lure the same person). Those that do not progress, stagnate. They lose some of their allure and fall back to The Championship.

Note: The gap between The Championship and the Premier League gets wider and wider every year.  Every now and then, an upstart creates some magic and they reach the Premier League on a League One budget. Most often however, making the leap requires a company-wide recognition – and accompanying financial commitment – that procurement can be a competitive advantage.

The names of the leagues have changed over the years, but the structure of English football has remained the same since 1892, when a second tier was introduced.  Every year, some teams get stronger while others get weaker. Some get new owners who invest in a new business plan. Others run out of money, fail to attract or sustain their investment, and operate on fumes.

Procurement in 2018 is like the English Football League system.  Some teams get better, some get worse, but there is little noticeable change in quality from one season to the next.

Every single procurement team – whether 1 person or 1,000 – should have the potential to reach the Premier League and stay there. What is preventing this (utopian?) vision from becoming reality?

Becoming a Premier League team does not happen overnight.

Those who aspire to become a Premier League team typically do so by some combination of the following:

  • An ongoing review of where they are and what they need to do to succeed.  Self-awareness is key. They understand their weaknesses and take steps to address them
  • They map their journey and have a multi-year plan.
  • They hold themselves accountable not only individually but to their entire organization.
  • They hire proven talent that can hit the ground running.
  • They take a risk on up and coming talent but provide them with the infrastructure and coaching that allows them to grow and thrive.
  • They try new methods and approaches to break through the status quo and provide productive momentum.
  • They invest in new technologies and apply science to their technical expertise.
  • They create a connection between their fans that runs deeper than the last result.

Self-awareness is critically important.  It is a difference maker and ensures that those on the journey continue to invest in moving forward rather than becoming comfortable with the status quo.

Will 2019 be the year that the bottom tier – or tiers – of procurement teams disappear?

To be honest, I don’t know.

However, with each passing year, the possibility grows that the lowest performing teams will disappear.  It will happen gradually at first. A team here, a team there. In fact, it will happen slowly enough to not be noticeable as a broader trend.  That’s the way structural change happens. The change itself is often so incremental that it isn’t noticed until it can’t be stopped. But before we know it, a new model will have been born, and the transactional and tactical activities will be gone – along with many of the teams who provided little more than transactional or tactical support.

Some of the warning signs I am looking for in 2019:

  • Data showing procurement leaders struggling to evolve and expand their value proposition, or sell an expanded value proposition to their stakeholders.
  • A majority of new talent hired into procurement leadership roles from outside of procurement, particularly those with a technology background.
  • Increased investment in procurement technology from the investor community.
  • New offerings from the service provider community that leverage RPA to automate procurement operations.
  • Increased adoption of guided buying / self-service approaches.
  • I’m also keeping my eyes open around the procurement start-up community for game-changing applications of technology vs. those that ‘just’ make us a bit faster or a tad more effective.

I believe we are on the path to a singular “Premier League” for procurement.  The question as we head into 2019 is this: how many will achieve that position before all the other tiers disappear for good?

Wherever you are on your journey, 2019 is the year to challenge your status quo.  What is your plan on how to reach – or stay – in the Procurement Premier League?

Tomorrow, I’ll be back with Part 2 of our 2018 Letter with a review of the year at the Art of Procurement. 

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