Category Archives: Strategy

7 Tips to Align Procurement with the Boardroom

A recent article by Alexander Arsath Ro’is of Benefit, an Amsterdam Procurement Consulting Company, provided 7 tips on how to “align procurement with the boardroom” that are worth a second look. Based on research they conducted with two Dutch universities, which led to the construction of the “Benefit Boardroom Alignment Assessment Methodology”, they concluded that the following best practices would benefit any company that wants to align procurement with the boardroom and wants to start with an accurate assessment of the current state.

  1. Tell the Board First
    Make sure your Board understands the challenges before you start an assessment of your current state.
  2. Be Absent from Assessments
    This will allow the CEO, CFO, COO, and other CXOs to speak freely about their expectations of Procurement.
  3. Put Your View Across
    Initiate dialogue with the Board to challenge views in a positive way and talk about opportunities that will arise from a proper alignment.
  4. Remember, It’s a Start
    Alignment isn’t a precise measure — it’s a way to get perceptions in tune with reality.
  5. Ascertain What Others Want
    The goal is to be on the same page with what the Board expects and what your internal customers want.
  6. Create Understanding
    Effective alignment will only result when Procurement fits with the rest of the organization.
  7. Ask: Are You Ready
    An assessment won’t help if the organization isn’t ready for an accurate assessment of where things are and isn’t willing to do what’s necessary to get where it needs to be.

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Three Tips to Get Strategy Right

A recent blog entry on “strategy on the morph” from The Conversation over at the Harvard Business Review had three great tips on how to get your strategy right in these turbulent times that need to be highlighted.

  1. Distribute the right to make strategy throughout your organization
    Strategy needs to be a collective effort — not an edict handed down from on high — and people need to be empowered to make the right decisions.
  2. One process does not fit all decisions
    Some processes need to be long and drawn out because the decision will affect everyone at all levels of the organization … others, that involve decisions that will only affect a single department, can be made more quickly. The key is knowing what process to use when, and distributing that knowledge throughout the organization.
  3. Resources — money and talent — needs to move as fast as decision making
    A strategy needs to be executed. Otherwise, it’s just another pointless decision.

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What’s Your Procurement Value Level? … or Transformational? (III)

In Parts I and II I reminded you that Pierre Mitchell of The Hackett Group invited you to participate in a study designed to help you identify where you were on your procurement journey by way of 18 value streams that range from “naive apprentice”, where you’re measuring performance at an elementary (tactical) level, to “expert sourcerer”, where you’re extracting procurement value at a very advanced (transformational) level. Then I covered some of the seven tactical value streams and some of the six strategic value streams. In today’s post I will cover the final five transformational value streams, which range from:

Internal Procurement process cost savings are found from process re-engineering
through
Benefits due to currency hedging, inflation hedging, options/derivatives, etc.
to
Revenue uplift from supplier collaboration (e.g., innovation, diversity advantage, joint marketing, etc.)

Very few companies are transformational in their procurement. A company that is transformational goes beyond just taking cost out of the supply base, but finds ways to take costs out of all aspects of company operations while making the entire company leaner, meaner, and smarter about it’s organizational finances and processes. A truly transformational Procurement department positively impacts every area of the organization.

Internal Procurement process cost savings are found from process re-engineering

Instead of being reactive and trying to reduce costs after 70% to 90% of costs are baked in during the design phase, Procurement works with Engineering and R&D to help them select materials and specifications that will be the most cost-effective in the long run when multiple options exist. Instead of shaving a few percentage points off of list price, Procurement can be shaving a few dozen percentage points off of total cost by going out to market with designs that are much more cost effective to produce.

Benefits due to currency hedging, inflation hedging, options/derivatives, etc.

Instead of just looking at the total cost in today’s market, Procurement looks at the expected total cost over the lifetime of the contract and works with finance to select options that will insure the expected cost reductions are realized in spades over the contract duration.

Revenue uplift from supplier collaboration (e.g., innovation, diversity advantage, joint marketing, etc.)

Once a Procrement organization has truly embraced transformational procurement, it works with its suppliers to not ony take cost out of the end-to-end supply chain, but also to inject more value that will allow for greater revenue on each sale. Cost are reduced, revenue is increased, and the company’s profitability becomes world class.

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The Talent Innovation Imperative

Any company that competes on the global stage must, in light of today’s changing workforce, rethink the way it manages people.

Too many companies are wasting their resources — their people and their financial leverage — by perpetuating outdated approaches to talent management. They structure jobs rigidly, forcing many people to work a 9 a.m. to 5 p.m., Monday through Friday, workweek. They focus their training on functional skills, not on aligning employees’ capabilities with the strategic objectives of the business. For leadership development and career advancement, they rely on long-standing training courses that don’t reflect the contributions that people can make in today’s flat, flexible, and entrepreneurial organizations. And their compensation systems do not adequately link to performance or hold managers accountable for developing the talent of their staff and their direct reports. In short, the talent management in these companies is not arming them with the decisive, experienced, globally minded visionaries that they need at every level.
  DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett in The Talent Innovation Imperative

This opening paragraph from the Autumn issue of Strategy + Business is, in a word, AWESOME! Creativity and Innovation doesn’t work on a 9 to 5 schedule, there are millions of people in India and China with the functional skills in demand in today’s knowledge economy, and you never get anywhere if all you do is stand in line. So why are you queueing your employees instead of helping them reach their full potential? And more importantly, why are you putting talent management innovation off? The midst of a global economic crisis only heightens the need for talent at the top of their game. Furthermore, the commitment of employees is most needed in a crunch, and it’s not likely to be there if they feel you don’t respect them (and think they’re lucky to have a job). And if you think you’re not losing their loyalty, think again. As quoted in the article, as per surveys conducted by the Center for Work-Life Policy, between June 2007 and December 2008, the number of employees expressing loyalty to employers plunged from 95% to 39% while the number trusting their employees fell from 79% to 22%. Surveys in 2009 were even more dismal. Voluntary attrition has spiked by as much as 31% — among the people you need most to get you through these troubled times.

So what can you do? Embrace new employment structures, differentiate capabilities, accelerate performance, develop leadership, and foster a talent culture.

Embrace New Employment Structures

Allow for highly responsible part time work, telecommuting, contracting, and lots of flex time. Retain your aging workforce with their experience — who don’t want to work full time any more but don’t want to completely retire either, and use them to mentor your junior hires. Let people work from remote areas and maintain their community links. Let people work contract until both parties are comfortable and ready for a direct relationship. And let them work on their schedules as well as yours.

Differentiate Capabilities

Understand the key capabilities, not functional skills, required for competitive advantage, determine the skill gaps in your current workforce, and develop talent strategies to close them. Then develop new and diverse attraction and retention values that include competitive compensation and benefits packages, innovative job designs, flexible schedules, career development opportunities, strong leadership, a distinctive culture, and a welcoming work environment. Furthermore, you should pursue a workforce that is global, diverse, and gender balanced, with discontinuous career progressions, in which high-potential employees may take time off or work for different types of organizations along the way.

Performance Acceleration

Organizational success hinges on the collective daily decisions and actions of hundreds, perhaps thousands, of individual employees. To ensure that the decisions are in tune with success, reinforce meritocratic pay and promotion decisions, follow through, and measure outcomes.

Leadership Development

Leaders today must be able to master enormous complexity, but too few leaders have the right combination of skils and experience. Companies that want to improve their leadership development must evolve the leadership competencies model, promote and develop people who match the competencies (and who cultivate a team that performs well), and build the leadership bench, because one leader is no longer enough (and a bench will be needed to seat them all).

Talent Culture

A talent culture is made up of the value, beliefs, behaviours, and environment required to attract, engage, and retain committed and competent employees. A great culture is not accidental, it is the result of engagement, proper organization, and a commitment to the “talent brand” and a visible “talent culture”. Engagement is key, as more than 100 studies have demonstrated the correlation between employee engagement and business performance. Right now, at most 1 in 4 employees is “engaged”. If you want to lead the pack in today’s economy, getting employees engaged is the surest way to do so.

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Playscripts? PLAYSCRIPTS? Are we going back to Kindergarten?!?

I was a little annoyed with the chosen focus of a recent article by Mr. Michael G. Jacobides and very annoyed with the terminology chosen in “Strategy Tools for a Shifting Landscape” (subscription required), a recent article in the Harvard Business Review. While I agree that some companies need to reinvent the way they develop strategy, I’m not sure that strategy should be “defined” by narrative plots, subplots, and characters and definitely convinced that the last thing we want defining corporate strategy is a “playscript”.

Business is, well, business. Not playtime. And while it shouldn’t be duller than necessary, it shouldn’t be all fun and games either. Businesses exist to benefit shareholders. And unless you’re a production house generating content for web, TV, and Movie studios, writing scripts is not going to benefit your shareholders in any way. And while I agree that plots, subplots, and characters might be the best way to describe your strategy to all of the members of your organization, who might otherwise speak different languages (mechanical, programmatic, sales, etc.), a strategy should still be backed up by some research, which is typically expressed in the “maps, graphs, and numbers” the author is telling us to avoid.

And while I also agree that the typical frameworks used by industry analysts (five forces and maps) and blue ocean thinking (value maps and value curves) are better at managing the strategy process than enabling the creative and critical thinking required for success, the last thing we want to do is replace one insufficient framework with another, less sufficient framework. While a story might make a great vision, you can’t execute a story. You can only execute a plan, and that requires more than plots and subplots — it requires processes, steps, and success metrics, captured in traditional maps, graphs, and number formats. So while anything that encourages creativity is great, if all we do is focus on the production of play scripts (instead of including them as another tool in our creativity toolbox to get people brainstorming), our strategies will never progress beyond the imaginative vision of a kindergartener.

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