When it comes to procurement, which is better: saving money, or contributing to corporate innovation and growth?
This question was blogged recently by Guy Strafford, chief client officer at consultant Proxima in London. While the answer seems obvious, at least for those in procurement, Strafford asserts that at most companies, procurement’s main function is to drive savings. Every metric developed to gauge its performance, moreover, is calibrated for savings, he says. Productive supplier relationships, efficient spend under management, enlightened contracts — all of these come second.
It’s time for new thinking, Strafford argues. He writes that procurement “needs to be viewed differently, in terms of what it is there to do” for the organization and how it is thus managed and measured. Most important, procurement should be “a function that aids growth” and “drives innovation.”
To promote this means that executive management will need a change in mindset — something that is not easy to achieve. As other experts note, such a change in attitude includes making a place for procurement in the boardroom and giving it an opportunity to participate in strategic planning.
What inspired Strafford’s comments was an article in the April issue of the Harvard Business Review, which looked at research by consultant Deloitte to identify what makes companies successful. The research tapped into Deloitte’s 44 years of experience with more than 25,000 companies. Strafford distills the findings this way:
- Better before cheaper — compete in areas other than price.
- Revenue before cost — prioritize revenue gains over cost reductions.
- Change anything necessary to achieve the above.
It seems obvious that no company can achieve full profitability if key operations like procurement are “stove-piped” — separated from other important operations and thereby prevented from playing a role in business growth by existing corporate culture.
Executive managers charged with planning and executing growth strategies need to consider all their assets, especially those departments and people best positioned to provide guidance and progressive thinking in areas directly connected to products and spending — i.e., procurement.
Now that companies are planning toward a new year and renewed profit challenges, maintaining the status quo could prove bad for revenue health.