Monthly Archives: August 2011

An Idea for Aligning the Non-Competing Finance and Procurement Agendas

About two weeks ago, in What Competing Agendas, SI pointed out that, where Finance and Procurement are concerned, there are no competing agendas. Furthermore, as far as the doctor is concerned, whomever said that the dynamics and sometimes competing agendas between finance and procurement are widely known doesn’t get it. At all. Remembering that the ultimate goal of any organization is to derive value for the stakeholders — employees, customers, and shareholders alike — both organizations are trying to find the right balance between cost cutting and value generation to meet the company’s goals and shareholder return. Just because Procurement is always spending while Finance is always trying to cut spend doesn’t mean that the departments are in opposition. Finance knows better than any other department that companies have to spend money to make money, as long as the money is being spent wisely, and a good Procurement organization has better spending as its ultimate goal. There is no competing agenda.

However, since Finance and Procurement sometimes speak a different language, because Procurement hasn’t learned to Speak the Language of the CFO, the agendas aren’t always aligned. And while they both plot a route to the same goal, the routes barely intersect. And any good financier as well as any good sourcerer knows that taking two planes from New York, New York to Mumbai, India with one routed through Frankfurt, Germany and the other routed through Sydney, Australia, is wasteful. Thus, the agendas have to be closely aligned for optimal performance.

But how do you align the agendas?

One idea could be to use balanced scorecards as a shared framework. Back in the early days, SI ran a post that asked if you need a Chief Strategy Management Officer. Back in 2006, CFO Research Services published a short paper that summarized the highlights of their annual executive conference in New York, New York. Part of that report was a mini-paper on aligning the finance function to strategy execution based on a presentation by Robert S. Kaplan, co-developer of the balanced scorecard and co-author of Alignment: Using the Balanced Scorecard to Create Corporate Synergies with David P. Norton.

At the conference, Kaplan discussed various approaches for aligning the finance function more strategically with the goals of business units and corporate leaders, including:

  • the use of balanced scorecards as a shared framework to run the business, guide the operating agenda, and evaluate progress against strategy
  • the use of activity-based budgeting to link the strategic planning capability of Balanced Scorecards with the operational budgeting mechanism of a time-driven ABC (activity-based costing) model

And, as I suggested in my original post, I think it’s a great idea. And I still see no idea why it can’t work for Procurement. In the process of creating a balanced scorecard, Procurement and Finance will have to agree on budgets and savings / avoidance targets, payment terms, working capital objectives, inventory turnover, and a host of other supply management issues. And by scoring themselves on the same metrics, they will have to stick to the plan to collectively succeed. Now, getting the right scorecard might not be easy, but the exercise will get the organizations to a deep alignment that will pay off in the long run if each goes in to the discussions with an open mind and a true desire to work together.

Perfect Procurement Processes Will Not Save the Public Sector

There’s lots of hmming and hawing on both sides of the Atlantic about how the Public Sector has to reduce spend to help get deficits under control and how it needs better procurement processes to achieve this goal. Why, I don’t know, because even perfect procurement processes won’t save the public sector. I could write a treatise, but until the following fundamental problems are solved, there’s no point.

  • Past Performance Does Not Affect Current Awards
    This is so ridiculous its absurd. No private company in their right mind would say “you just screwed up this 500 Million system overhaul, but here, please bid on this other 500 Million system overhaul”. None. Nada. Zip. Zilch. (At least not if they wanted to stay in business.)
  • X% Must Go to Minority/Domestic/Preferred Suppliers
    And while we’re at it, let’s just tag on 10% for the United Way. After all, they claim their overhead is now under 15%. (FYI: The overhead of a best-in-class, private, Supply Management Organization is a fraction of that.) Supply Management is about the best buy. Period. Diversity/Domestic/Preferred should only come into account when all other factors are equal or if they bring value that outweighs additional costs.
  • Salary is based on pay scales out of touch with reality
    Supply Management success requires top talent. And if you’re only going to offer 50% of the going market rate, you’re not going to attract anyone who’s any good. While there should be pay scales to insure fairness, they should be adjusted annually based on regional averages and existing employees making less than the minimum when the pay scale is adjusted should automatically be adjusted to the minimum before the annual raise and/or bonus is calculated.

Your Job Advertisement Actually Attracted a Good Candidate – Now What?

Unemployment may be approaching a long-term high, but in some sectors, including supply chain, we’re still in a major talent crunch because of the lack of appropriate skilled resources while the need for those skilled resources is still rising. That’s why, if you’re lucky enough to attract an application from a good candidate, you have to make sure you keep their attention. But how do you do that?

SI would recommend you start by writing a grateful acknowledgement of their application with a request to promptly schedule an initial call, at their convenience (within reason — either within your normal operating hours or at times you can guarantee availability). The focus of the call should be on selling your company and position to them, not on them selling themselves to you. Once you have verified that they are who they say they are and a real candidate (and not a placement form pushing a stretched resume of a junior resource at you), it’s time to explain why they want to work for you. This should involve a discussion of:

  • a day in the life in the role
    and a no holds barred discussion of the good, the bad, and the ugly and how you hope they can help you improve the role (and not just put another coat of lipstick on the pig)
  • the stakeholders they will be interacting with
    and how they fit into the organizational structure
  • the corporate culture
    and why it really is a great place to work, even with its beauty marks
  • the commitment to employees
    with a focus on the training and personal development options available to employees
  • the decision making processes
    in terms of selecting the new hire and executing the role
  • the goals for the role
    and what will be expected of the successful candidate in the first 30, 90, 360 days

However, be very careful to:

  • manage expectations
    Do not oversell the role, the culture, or the benefits. If the offer is more than fair, the benefits will sell themselves. If you are sincerely happy in your role, convey that, and if you click with the candidate, a soft sell will sell the culture. And any talented resource knows that every role has an interesting side and a boring side. It’s what you do to minimize the boredom that counts.
  • not throw money around
    If you offer too much money, a smart candidate will suspect something is up. If the role has a market value of approximately 125, and you’re offering 195 as a base, they’re going to wonder if you’re a bad place to work (and have to bribe people), dumb (and unaware of true market rates), or wasteful (and running out of rope as a result). While top talent wants to be paid well, they understand fiscal responsibility (as that’s their job) and will happily work for the high-end of market average with a good bonus structure, that should be performance based and unlimited.
  • get too personal
    While talent wants to feel like they will be able to communicate and work with you and other employees comfortably and productively, they other expect an air of professionalism on the job and know that there’s a time for work and a time for play.