6 Considerations to Create A Culture of Procurement Disruption
As a procurement leader, I have first hand experience around the pain points of being in an ever evolving, dynamic and demanding business environment. It is sad to see so many stressed and almost frantic procurement leaders and teams try their best to make a difference but not succeeding. To be able to succeed in procurement, we cannot simply continue to do what we always have done. The procurement teams that do well, are the teams that are well integrated in business and are able to operate from a perspective of procurement intelligence. It certainly is time to change the procurement culture and develop a culture of procurement disruption.
My goal is to start a procurement disruption of my own by empowering more procurement managers to disrupt their world from within in order to unlock value for their organisation and their customers. Our procurement leadership packages focus on improving procurement leadership and building capability in procurement.
What is disruption?
I like Caroline Howard’s description:
“Disruption takes a left turn by literally uprooting and changing how we think, behave, do business, learn and go about our day-to-day. Harvard Business School professor and disruption guru Clayton Christensen says that a disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. It is at once destructive and creative.”
In a very simplistic way, in the overall supply chain there are two sets of customers – our external customers that buy our products and services and our internal customers that produce the actual product or service. Both are customers. External customers react to competitors who are external disruptors.
Procurement Disruption can happen externally or internally.
- External disruption is what your competitor does to disrupt your market and your customer base.
- Internal disruption is done from within an organisation.
Uber is a good example of an external disruptor. External disruption is affected by how well your competitors understand and services your customers’ needs. It works well when it is a new organisation such as Uber. Uber could do what they do not because they did not provide the same service but because Uber defied the general rules and traditions on how the taxi industry had been managed for decades. It provides the same service but in a different business model.
The people who started Uber, were probably users of the existing taxi service, hated it because they were not feeling as if their needs as customers were understood and met.
Why does it work?
Because Uber represents you and me not feeling the love, not getting the service. Therefore the revolution of Uber is working because we feel our needs are understood and met.
Internal disruption in an existing business is harder because you have to change so much before you can disrupt, especially when you have invested lots of capital in your business. It requires courage and commitment to commence and see through the process of internal disruption.
Procurement has a key role to play in internal disruption.
Procurement and procurement disruption
In procurement one cannot do too much to directly impact external disruption. However, procurement still has a significant impact on the supply chain and the ultimate value delivered to customers.
Procurement can therefore have a massive impact on internal disruption.
Internal procurement disruption will require destructing the same old procurement ways and practices we have always used and require creating something that is new, efficient and effective.
According to supply chain guru Lora Cecere,
“Traditional supply chain practices focus on improving the reliability of response. They are traditional. However, today’s supply chain cannot sense market changes. The focus has been on the enterprise, not the value chain.”
This certainly applies to procurement as part of the overall supply chain.
Procurement has a major role to play in:
- sensing market changes and
- therefore creating value.
To make it work, procurement has to makes sure that it really understands all of its customers – both the internal and the external customers.
It is often hard work in a business just to work on building good working relationships with your internal customers. With the constant focus on output (rather than outcome), there is little time to get to understand what the external customers needs are. It will complete the picture and will make it easier for procurement managers to focus on outcome rather than output if they can close the pieces of the puzzle.
Why bring about a culture of procurement disruption?
From a personal perspective, I prefer to lead rather than be lead.
“Disruption” is the new buzz word but disruption as a concept is not new.
It is change.
Change is constant and therefore disruption should be managed as ongoing part of the day-to-day way of working.
Procurement is an area that is slow to disrupt.
In my opinion there are more followers than disruptors in procurement. There is a bigger focus on the traditional, on transactions and output rather than results or outcomes.
Procurement disruption should focus on outcomes and direct results that will add value for both internal and external customers.
Unless we change the way we procure and contract, existing business will be slow to combat change. Ultimately, business become victims and losers to external disruptors. Business becomes followers and price takers.
How can one bring about a culture of procurement disruption?
What does it mean to disrupt and not to do the same old stuff the same old way?
It starts with leading with the right culture. A culture of questioning and creating a culture of disruption.
Internal disruption starts with the people not with the systems and processes.
A culture of procurement disruption requires:
#1. Fostering a culture of being part of an organisation and providing a service to the organisation
It is important that procurement teams understand that they are part of a larger supply chain and organisation. Procurement should stop waiting for the organisation to come to them; they must determine their customers’ needs and how it can be met in a due diligent manner. It does mean rules still apply and have to be followed but those rules to be fit for purpose within a due diligent process. It is a team effort and requires an understanding of the needs of procurement ‘s customers and what it means to deliver a service.
Procurement managers should make sure that they have the right team and I encourage procurement managers to go out of their way to find
Aptitude with Attitude.
The same old attitudes won’t prevail and will bring no disruption about. It will not assist to create a culture of disruption either. Team members with the attitude and aptitude will make the process easier.
#2. Emotional Intelligence
I think procurement managers will do well to work with their teams on fostering emotional intelligence. Emotionally intelligent people can focus, can defuse conflict, speak up when others won’t or can’t, notice what is broken and find solutions and will be accountable. They will be talented and will need to be recognised and developed as talent.
As a procurement manager it is important to be a leader so your team can follow you. Find a mentor outside your normal industry group, someone you can learn from and that you know will challenge you. Grow your own emotional intelligence and your team will grow with you.
With the right mindset and focus the procurement manager and his/her team will work to find solutions not obstacles and will be able to bring about internal disruption.
#3. Delivering Value for Money
In the ever-changing economic climate, it is more important than ever for procurement teams to make sure that they can show value for money through the services they provide.
Value for money takes into consideration both financial and non-financial criteria. It is too easy to focus on the financial component only. However, to ensure sustainable outcomes, it is critical that we give due consideration to the non-financial criteria.
In times where there are lower profit margins, increased focus on cost savings, procurement managers must stand strong and consider more than just the lowest cost.
Consideration must include total cost of ownership considerations as part of the process of procurement disruption, such as:
- flexibility & adaptability,
- whole of life costs,
- fit-for-purpose systems and processes
Procurement managers have to be scrupulous in removing some of the old “this is how we have always done it” practices. This improves productivity and focus on the right areas in order to disrupt.
#4. Collaboration is key
It is really important to find the right partners who will join you on the journey of disruption. Collaboration requires working together with the total supply chain; I think it is procurement’s duty to find those right partners in the area of procurement.
It will require review of your existing providers and suppliers to see who have been with you through thick and thin. Find those who have been proactive and got to understand your pain points as if it was their pain points.
Collaboration is never a one sided approach, it does require commitment from both sides. The days are gone where the swords are being held above the head of suppliers. It does not foster any trust or loyalty and will get you nowhere.
#5. Focus on result-based outcomes.
We cannot use the same old metrics we used previously. Traditional, transactions output will not disrupt. We have to focus on result-based outcomes.
In Australia significant disruption is happening in the health care industry; the business model is being changed to a customer directed service and individuals are being given more say in how and where they spend their health care benefits.
The changes open up a whole new potential playing field for disruptors who already have the experience, systems and know-how to deal with customers on an individual basis.
The changes in the industry are based upon the Results Based Accountability/Outcomes Based Accountability (RBA) principles. The RBA is a framework that provides step-by-step methods that turn data into action. It allows agencies to identify indicators, trends and best practices and develop resultant strategies, action plans, monitoring and measuring. It takes performance from
“talk to action”.
It uses 7 “performance talk to action” steps and is very useful in procurement as a whole:
#1: Who are our customers?
#2: How can we measure if our customers are better off?
#3: how do we measure if we are delivering our services well?
#4: How are we doing on the most important measures?
#5: Who are the partners that have a role to play in doing better?
#6: What works to do better, including no-cost and low-cost ideas?
#7: what do we propose to do?
It is such simple steps, yet it will take lots of work and disruption to succeed.
The steps do not only apply to the health care industry, but applies to all in procurement to determine:
- who their customers are,
- what they want and
- how they will get from talk to value add action.
It is useful for procurement managers to use results based outcomes as part of their planning process and ensure they create the right culture.
#6. Understand and practise risk – properly
I don’t think many procurement professionals truly understand what risk is and how to manage risk effectively.
Since disruption equals change, we manage change.
Management of change equals managing risk.
Effective risk management requires solutions and not a tick box in an approval form. Procurement managers should coach and mentor their teams in the art of risk assessment and really ask the deep questions. Look beyond what is here and now and examine the risks clearly.
A culture of procurement disruption: disrupt rather be disrupted
The world of business needs more procurement managers that will have the courage to step up, speak out and disrupt. You don’t need to be a perfect procurement manager but you can no longer sit in a comfortable office directing approvals and paperwork. You have to be a disruptive leader.
Don’t underestimate the power of sharing and finding like-minded procurement people. I encourage you to find others that are willing to be disrupters rather than wait for the disruption.
It is great to work with procurement managers to proactively disrupt rather than be disrupted, to destruct and create.
I am looking forward to creating a culture of disruption in procurement and producing something new, effective and more efficient and worthwhile.
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Celia Jordaan is a procurement and risk consultant at Ichiban Commercial Solutions, Perth Western Australia. With over 28 years experience, Celia has worked in different countries, locations and cultures. She worked in the areas of procurement, supply chain, contract management, law and risk.