What? No Targets?
Since the financial crises hit us all in 2008, we’ve seen stretching cost reduction demands on most procurement organisations and in every sector. The gung-ho optimists say this is a time when procurement can make its mark, while the sceptics raise their eyebrows and sigh “here it comes again”.
Indeed, some cost reduction targets have come uncomfortably close to parody. Among our clients, we’ve seen targets placed on procurement in the past couple of years that are patently “top-down” – on one occasion doubling within three months of being agreed. No-one believes them and staff certainly aren’t committed to them.
On 11 June, SM reported that food services company Aramark is asking suppliers for a 12 per cent price cut. Having been there in my corporate career, I’m as guilty as the next man, but with one company we’ve begun working with this year, things are very different.
Imagine this: procurement professionals of high quality, operating in hi-tech and committed to providing tangible contributions to their business, but – here’s the catch – no targets. Rather than limiting procurement to hitting the short-term numbers, the business instead expects compliance to a series of collaborative and leadership behaviours that incorporate continuous working-practice improvement.
The assumption made by the CEO is that he trusts that people come to work wanting to do a good job and that they are intrinsically motivated towards personal and professional growth. In this business, there are plenty of opportunities for team members to work cross-functionally and to lead their own projects. It is simply expected that they will do so, with a genuine desire to work on behalf of the whole system, rather than their functional silo. This behaviour is very definitely rewarded, but woe betide mavericks that don’t fit into the culture – they are soon on their way to pastures new.
This is no nirvana though. There are many challenges and the procurement team has developed its strategy map and is implementing it. It is doing this with a vision and a focus that those in other firms, who have targets dumped on them, often lack.
Food for thought.
![[Bloglines]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/bloglines.png)
![[del.icio.us]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/delicious.png)
![[Digg]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/digg.png)
![[Facebook]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/facebook.png)
![[Google]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/google.png)
![[LinkedIn]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/linkedin.png)
![[Twitter]](http://blog.supplymanagement.com/wp-content/plugins/bookmarkify/twitter.png)
It is sacarstic. If suppliers can acede to buyers’ demand on continuous price-cuts, it implies that buyers did not achieve the “best-buy” at the start. Buyers will, inevitably, be held accountable. It is not fair, isn’t it?
How do you measure progress? How do you decide who the mavericks are, and how do you decide when they should seek pastures new?
Thanks Felix, Ian..
One has to be careful about using terms like ‘paradigm shift’ but there is something about this case that should interest procurement leaders.
Progress tends to be ‘measured’ in terms of ‘outcomes’; i.e. those that are desired by Procurement’s stakeholders, not Procurement itself. These may be speed to market, supply continuity, innovation capture from superior supplier engagement, better-value products for customers, etc.
What’s not of interest to these stakeholders is a boast from Procurement about how much money it keeps saving the business.
The norm is for procurement to measure its success based on inputs – savings being the primary (but not only) KPI. What this company is doing is getting the whole system (including Procurement) to focus on outputs to customers. To be successful it requires a shared organisational purpose that’s supported/governed by teamwork (don’t tell me that’s a given, because it usually isn’t).
If a staff member can’t play by the rules of specified values and behaviour, but would rather keep score, then they tend not to last long.
It’s a refreshing change David and by the sounds of it because it’s ensuring alignment of values and behaviours with the business is obtaining stakeholder engagement.
I might be making a huge leap from what you’ve said but it sounds like they’re focussing on ‘how’ they behave and assume if they get that right the outcome will be the right one too.
I wrote a blog here about other types of KPI’s (http://blog.supplymanagement.com/2011/02/measure-your-savings-against-lost-lunches/) we might want to use some time ago but realise from what you’ve shared here perhaps it’s more about what’s on an individual’s To-Be list (http://blog.supplymanagement.com/2011/01/whats-on-your-to-be-list/)
Nice blog David. This is a fascinating idea and one that can be applied to many functions including sales and marketing. Moreover, it is not as alien as many may think. The Manufacturing/Ops function has for a long time accepted Deming’s ideas that getting targets right is less important than getting the process right. As Alison says above, focusing on the “how” is the key. Once you have the process under control, the achievement of good outputs (beyond arbitary politicized targets) will follow. You can then even focus on improvements to the process and use the ‘rate of improvement’ as a measure of your progress i.e focus on the delta rather than the deal.
Thank you Alison, Ed. Useful comments both.
To paraphrase a respected business commentator (see @nikluac, Twitter fans); cost is a consequence of other stuff. It’s what you do in respect of that ‘other stuff’ that determines what us procurement types are going to pay.
Another way of putting it is that cost is designed IN to a product or service. Focusing on that cost number alone is more often than not missing the point. The real effort needs to be in working out how how you’re going to re-design the product or service so that it does what its customer wants. Actually not you, the manager, but the people who actually design the product or operate the processes that provide the service. You know, the ones that have the knowledge. Ask the question ‘how can we do this better?’
A world away from top-down arbitrary savings targets.
I come from the world of sales where there is often an unhealthy obsession with output targets. I say unhealthy because it can mean the best prepared negotiation of any year is not with a customer but with the FD or CEO when setting internal targets. Something that doesn’t maximise value for any party.
Dropping targets altogether can feel very uncomfortable but I’ve seen it happen and it can deliver incredible results. If you want further insight ud suggest reading the chapter on ‘Giving an A’ in the excellent book the Art of Possibility by Benjamin Zander and Rosamund Stone Zander. You can get a précis of the approach in this blog http://www.linezine.com/3.3/themes/bgstapbr.htm