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Six steps to effective procurement (Part II)

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Optimising the organisation structure to support accountability

In this blog series on effective procurement, we discuss how some procurement functions have successfully become a value-adding business partner to the organisation – they help the organisation execute and capture value faster, drive innovation and deliver sustainable change.

In our previous blog, we explored the first two of six steps to drive procurement effectiveness:

we explored the first two of six steps to drive procurement effectiveness:

1.   Developing the right procurement strategy, including identifying the right input performance measures and value-based output measures.
2.   Converting the procurement strategy into simple and effective procedures and systems that people or machines can execute to deliver the strategy.

In this second blog, we explore Step 3 – developing the optimal organisation model to establish clear accountabilities to deliver against agreed targets.

 

3.  Accountability and Motivation

After the procurement strategy has been set and procedures and systems established to deliver it, leaders must ensure that the right organisational structure, job descriptions, cascaded KPIs, accountabilities and consequences are put in place to enable a consistent and transparent, high quality execution.

 

Keeping your team motivated and focused on value

Many procurement organisations are geared towards putting in place large numbers of short term contracts, driven by the ambition to satisfy their ‘% Contracted Spend’ KPI. However, the maintenance requirements of these often thousands of contracts create a vicious cycle as they choke the procurement teams and cause them to become extremely reactive and transactional. This reality often means that the organisation doesn’t work as intended.

The unfortunate consequence is that prized category managers often plateau after a relatively short time on the job. Even talented category managers lose their curiosity and bandwidth to test new hypotheses that could unlock significant value as they succumb to seemingly endless and reactive tasks.

Most organisations will structure their procurement teams blindly along the lines of their spend categories (as static category management teams), but the key here is that there are no ‘one-size-fits-all’ solutions. Resources must be intelligently wired into the organisational fabric so as to deliver sustainable and credible value, while satisfying internal service level requirements and proactively engaging with stakeholders. The unique culture and underlying processes of the business should therefore always inform a successful organisation and wiring design.

In other words, the optimal structure of the procurement organisation is an output, rather than an input. Only after processes are optimised (in the context of your business/culture), handover points are defined and RACIs (matrix of who is Responsible, Accountable, Consulted, Informed) and Job Descriptions are established, should you consider:

  • How teams should be structured/allocated (e.g. by category, by contract, by functional expertise)
  • Where resources should be physically located (e.g. on site, within BUs, regionally, centrally), and
  • What the reporting lines should be (e.g. how wide are the spans, how many layers, solid-/dashed lines)

     

Most CPOs will painfully attest: good talent is very hard to come by in procurement. We contend that rather than force fitting your precious few ‘high performers’ into a one-size-fits-all category management structure, and see if your star procurement talent can be better leveraged in an Agile fashion. This makes it possible to deploy your best and brightest across categories/RFPs that have high Value (TVO) impact and require sophisticated problem solving with advanced stakeholder management skills.

An alternative structure focused on VALUE management rather than category management .  For example, some leading organisations choose to structure their sourcing managers into teams which reflect their skill level and assign them to work on projects which fit their skills and ability to deliver value. When an A-team employee is done solving one super complex, high value RFP they move on to the next super complex, high value RFP (not necessarily tied to the same category). This keeps the star performers challenged, provides strong career progression prospects and allows procurement to bring the best minds to bear on the most critical items.

Finally, whatever the answer for the organisational structure of the business, it is critical to motivate individuals to deliver on the KPIs that they own, as well as instill clearly understood consequences when KPI owners fail to perform. Good performance should always be rewarded and celebrated, whereas underperformance must always trigger a set of actions to address the issues. Formal (bonuses and incentives) and informal recognition systems (e.g. employee of the month awards) are often helpful to encourage performance and to keep the team motivated.

In the next blog, we will outline how to instil the right disciplines and management operating systems to ensure full savings-life-cycle-management that delivers measurable value to the bottom line, and drives sustainable change within and outside of the organisation.

Read about how we have helped clients improve the effectiveness of their Procurement function here.


Click through to read other blogs in this series:

Part I - Establishing the strategy and supporting disciplines

Part II - Optimising the organisation structure to support accountability 

Part III - Instilling disciplines and management systems to capture benefits and drive sustainable change

Part IV - Driving continuous improvement to deliver sustainable change

Part V - Demonstrating visible leadership to deliver sustainable change 


 

Tom Sonnen


Tom Sonnen leads the global Procurement Practice and the Singapore business at Partners in Performance, having successfully led major operations improvement and business transformation efforts for global companies in a large variety of industries.

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