Monthly Archives: November 2006

Magic & Logic II (Procurement and Marketing)

As defined in Part I, this summer the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) released a report entitled “Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This report “identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce ‘profitable ideas that make profit’. Knowing that profitable ideas result when all three parties recognize the ‘magic/logic’ distinction and vigorously pursue the improvement of both with an appropriate balance”, this report is designed to be a guide for marketing, agencies, and procurements to get more out of their relationship.”

The report also notes that “Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They [Procurement] can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They [Procurement] can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).” Furthermore, “Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.”

The report concludes with detailed recommendations for agencies, marketing, and procurement alike, and what I would like to point out are the recommendations for procurement which are:

  • make the effort to understand what you are buying when you buy agency services; understand that quality of outcome is highly correlated with cost and return on investment is a better measure of success,
  • be more open about your agenda … after all “a failure to communicate creates a vaccuum that will be filled by lies, poison, and drivel“,
  • look for ways to work with agencies to help them be more efficient, and
  • help marketing be more disciplined.

The reason I want to point these out are that these are best practices that hold true when working with any third party service provider, procurement outsourcing agencies included! The same maxim holds true for services and direct materials: cheaper is not always better. Quality and return on investment (with the ultimate goal of value) should be your metrics of choice.

Open and honest communications will in turn inspire open and honest communications from your potential provider. (And if it does not, find another provider.)

Finally, you are always in a position to assist third parties in improving their efficiency, just like you are always in a position to help your own organization become more efficient. With the possible exception of engineering/production, no other division needs to be anywhere near as efficient, value conscious, and metric focussed as procurement in order to get business done and look good. Marketing looks good if they boost brand recognition. Sales looks good if they boost sales. Finance looks good if they find ways to trim the buget. But unless procurement measures, manages, and shows value in everything it does, it tends to get overlooked because it will otherwise be looked upon as the division that spends money, not the division that saves it.

Magic & Logic I (Procurement and Marketing)

For readers on this side of the Atlantic, I’d like to point out an interesting report released over the summer by the Value Framework Initiative co-sponsored by CIPS (Chartered Institute of Purchasing and Supply), the IPA (Institute of Practitioners in Advertising), and the ISBA (Incorporated Society of British Advertisers) entitled “Magic and Logic: Re-defining sustainable business practices for agencies, marketing, and procurement”.

This insightful report, authored by Marilyn Baxter, who conducted in-depth interviews with 24 senior respondents with decades of relevant experience at large enterprises (with names like Coca Cola, Honda, Unilever, Fallon London, Lowe London, Proximity, and Willott Kingston Smith), identifies best practice methodologies that can be used jointly by agencies, marketing, and procurement to work together in their efforts to produce “profitable ideas that make profit“. The societies came together and commissioned this report because they found that there was a general lack of alignment between agencies, marketing, and procurement in all but the market leaders. Knowing that profitable ideas result when all three parties recognize the “magic/logic” distinction and vigorously pursue the improvement of both with an appropriate balance, they wanted to provide their members and the community at large insight on how to be more successful.

Magic is defined as the production of brilliant ideas that grow brands and businesses while Logics is defined as project management, financial management, and other non-magical processes that support the innovation effort and the “magic” it produces.

The agency controls the realm of magic, needed by marketing, and procurement controls the realm of logic. The fusing of the three is necessary to ensure that marketing receives maximum value from the agency relationship. Furthermore, the agency can itself benefit from the involvement of procurement.

The agency market is more crowded than ever and agencies are being pressured to be more competitive. However, despite historical indicators to the contrary, successful agencies are run just like any other successful business and the best agencies are those that offer a differentiated product, focus on results, maintain confidence, maintain a high degree of professionalism, and have disciplined business processes that enable them to get their top-line income right and achieve better bottom line profits.

Successful agencies also have strong leaders with clear goals, coherent values, and a strong business focus. They care about cost and efficient use of their resources (the logic) as well as innovation (the magic). They put the quality of their people at the heart of their business, forming a “service/value/profit” chain. The leaders know they are in business to create value, quality, and great ideas.

However, agencies are not alone in their need to improve. Marketing clients have to improve their ability to assist agencies in developing the best possible profitable ideas for them. This includes being professional, disciplined, and well-organized at all times, knowing what they want, committing to quality and expecting to pay for it, regarding agencies as partners, and engaging procurement in the development of efficient, valuable, constructive and productive relationships.

Procurement can help marketing deal more effectively by disciplining the process and aiding marketing in the identification of precisely what it is they are seeking. They can bring consistency to briefing, standard contracts, fee structures, and reporting, and insure that third party supplies are purchased effectively. They can help control the relationship, maintain consistency in their organization’s dealings, measure effectiveness and outcomes, and help quantify, as well as increase, the value of the relationship (which is not cost, but ROI).

Procurement can also help the agencies increase their value by working with the agencies to improve their management and processes, thereby increasing the value of the services offered by the agency. Procurement is also the entity that is best suited to identify the win/win during negotiations.

This extensive report concludes with a number of detailed recommendations for agencies looking to improve the value of their offerings, marketing organizations looking to get more value out of their agency relationships, and procurement organizations seeking to help both parties work together more effectively. It also includes some great appendices that define signature practices of the most profitable client/agency relationships from a financial, workflow, relationship, and value perspective and profitable performance characteristics. All in all, it’s a great read – and I’m not going to give away the ending here to encourage you to add it to your reading list (and maybe take a copy with you on your next flight).

Is it the case that Spend Matters Most?

As per my Noteworthy last week, Iasta is about to release it’s new Spend Analysis platform SmartAnalytics, Emptoris, building on it’s acquisitions of Zeborg and diCarta, just released the new version of its enterprise suite with its new and improved Spend Analysis Solution, and earlier this year Procuri consumed TrueSource to offer TotalAnalytics – and Zycus is gaining ground everyday. It looks like the time has finally come for the big spend analysis vendors. And none too soon. After all, how can you identify your ripest targets for strategic sourcing without understanding your spend? And as Jason points out over on spend matters, spend visibility and analytics applications can become an invaluable solution for tactical everyday procurement activities as well as areas that are truly strategic on the board level. It’s definitely a growth area for the eSourcing vendors – especially the on-demand ones.

But is it ready for prime-time? Not only are some of these offerings new and relatively unproven in the field, but they also require a level of sophistication well beyond your simple RFXs and reverse auctions that are still the mainstay of many eSourcing users. And I know there are still many individuals that believe a centralized ERP will give you the spend visibility you need to do proper spend analysis – which is not the case, and you should check out Tim’s response in the comments to Jason’s post for a real world example as to why.

In most cases, I know the solutions are there. Zycus is one of the only remaining pure players and has a very attractive offering based on its success stories alone. Zycus has amassed numerous wins over its seven year history and Procuri has successfully integrated TotalAnalytics to amass some success stories of their own. As noted in Spend Matters, Consider the case of a pharmaceutical company — who will go unnamed — which has used TotalAnalytics to help quantify and accelerate procurement cost savings synergies in three multi-billion dollar acquisitions. This company has used the solution’s capabilities to define and track over 60 category management programs, enabling them to leverage spend and rationalize suppliers across acquired and existing divisions. This leaves us with Emptoris and Iasta.

Iasta‘s solution makes the cut since they based it on one of the most powerful on-demand spend analysis engines available, integrated it into their platform, and extended the out of the box reporting capabilities available. I’ll have more to say after the formal release, which is forthcoming in the very near future.

Emptoris has also had some big wins, and has had their eSourcing suite with their initial spend analysis solution ranked #1 by Forrester in Q4 of 2005. So they are definitely a real player, but I’m a little concerned if their new solution is ready for prime time from a usability perspective. It is probably the most aggressive spend analysis offering on the marketplace today, with a new Spend Data Classifier, a new Real Time Spend Classifier, new import / export facilities, and a slew of add-ons for government watch list, credit score, and diversity rating integration, among other features. Now I know that Emptoris knows their stuff, it’s a challenge to find a question on an Emptoris product or capability that Kevin (Potts) cannot answer and Avner (Schneur) is absolutely correct when he says that with accurate and granular spend visibility, companies can gain greater control over and impact on their bottom line through improved sourcing and supply and contract management – and they have already delivered significant results. But when your average eSourcing user is still daunted by basic spend classification and decision optimization (just look at the recent Purchasing Survey), I wonder if they are going to be able to digest Emptoris’ new offering, especially considering Emptoris is still a traditional installed behind-the-firewall application where you only get maximum value from maximum deployment? I know it looks great in a power point presentation, but it can be hard to hide that much underlying complexity. If you’ve seen it in action, used it, or have your own take, please feel free to leave a comment. If you want more on the release, here is what Purchasing and S&DC Executive had to say.

The Talent Series VIII: Talent Acquisition Strategies

Back in June, Aberdeen Group released The Talent Acquisition Strategies Benchmark Report: Sourcing and Assessing the Best of the Best that address the criticality of investing in a talent acquisition strategy as a way to identify, attract, and engage high performers given that today’s organizations are facing a market with not enough qualified employees to fill necessary job roles, i.e. The Talent Crunch.

According to Aberdeen, talent acquisition involves the planning, sourcing, assessing, hiring and on-boarding of top talent. Sourcing candidates is a way to identify and attract qualified individuals whether they are actively looking or not and assessment involves the skills tests and behavioral assessments necessary to evaluate the ability of the candidate in a given role.

As usual, Aberdeen found that there is a sharp distinction between best performing companies who are tackling the talent crunch and average players who have done little more than adopt a talent mindset. Best performing companies distinguish themselves by leveraging technology to manage the sourcing, assessment, and hiring process and creating long-term strategic plans for talent acquisition that:

  • improve their corporate brand
  • create a pool of qualified candidates
  • improve their strategic workforce planning
  • utilize technology

As proof that a talent acquisition strategy works, Aberdeen offers us the following statistic: 59% of high performing companies have increased their overall workforce performance after implementation of a talent acquisition strategy compared to 41% of industry average and 33% of laggard companies.

The report found that Job Boards and Employment Websites are number one – with companies spending over 80% of their talent acquisition budget on job boards and company employment websites (according to the Enterprise Talent Management study), which is probably due to the fact that job boards have an increase in the quality of hire (48%), a decrease in the cost per hire (38%), and time per hire (44%).

Furthermore, the report found that 90% of Best in Class companies have aligned talent acquisition to their company’s overall strategic plan. Furthermore, best-in-class companies have a yearly hiring management plan that covers all hiring levels and includes contingent plans for unanticipated hiring needs.

The Aberdeen report offers the following recommendations for action:

  • align talent acquisition strategy with the overall corporate strategic plan
  • measure workforce performance based on quality of hire over cost per hire and time per hire
  • recognize that “one size does not fit all”: what works for talent acquisition in one company might not work for every company
  • eliminate paper and spreadsheet based processes and use technology solutions
  • focus on a long-term plan for talent acquisition
  • manage the whole workforce

These are all good recommendations, but you should also note the following:

  • job boards and employment sites are great, but with their increasing popularity you need to remember that the same candidates they deliver to you will also be delivered to dozens of your peers, so make sure you have a compelling brand to fall back on
  • your best channel will always be referrals from your own top employees, make sure to track each and every one – even if a candidate referred to you is not available now, or not the right candidate for the position you need to fill today, it does not mean that she will not be available tomorrow or the best fit for the next position that opens up
  • metrics are good, but positions filled with highly capable individuals are better – and it’s really hard to measure “quality” (on the other hand, productivity is often more easily captured if you make a product or bill a service)
  • although spreadsheets are not the best solution, don’t throw away Excel just yet – a good product will integrate with Excel and save your staff from having to learn a new interface (and save you training time and dollars)
  • one size may not fit all, but that doesn’t mean you shouldn’t at least explore ideas that have worked for other firms – sometimes only a few small tweaks are required