Geraint John (GJ): What does "world class" mean in the context of procurement? Is it primarily about excellence at a strategic or an operational level?
John Taylor (JT): My starting point is if we assume that we are working for organisations that are striving to be world class, then for me world-class procurement is about making a significant and valued and measurable contribution towards your organisation's performance. I look at it through the eyes of my internal customer, rather than in terms of the function I lead.
Heather Rodgers (HR): I'd echo that. We've positioned ourselves to make sure we're integral to the business strategy. To me, that's one of the key things that differentiates procurement departments today.
Michael Walsh (MW): I have two answers. One is almost the opposite perspective, which is our goal as custodian of the supply base to make sure it delivers advantage to the business, relative to the best competitors we have. But the other answer is, I think, a much more technical one, which is that across all the range of processes, strategic to operational, there is a set of standards against which you can calibrate yourself. My hesitation there is I don't think there are too many examples of businesses that are excellent on every dimension that any one company should aspire to. So it feels an incomplete definition, but it's necessarily incomplete because excellence is industry specific.
John Collington (JC): My view is that to be seen as world class we have to take into consideration views from four constituent parties. The first is the board level in terms of support for the procurement strategy. Where you have a best-practice procurement capability, invariably you can tie that back to executive buy-in at the CEO level. Too often that board-level sponsorship and appreciation is missing. The second, at the tactical level, is the people employed within procurement. It's important that people deliver the strategy with a degree of passion and enthusiasm, and that they believe they are working in a world-class organisation. The third and fourth constituents are the customers within the organisation and the suppliers who deliver the goods and services. I think if you can get a view from each of those four constituents you can determine how far advanced you are in attaining world-class status.
At the organisation I've just joined, the Home Office, we are embarking upon on a journey, and that journey is fairly radical and we've got an unforgiving public and a demanding customer base. The challenges are incredible, but we have no option, we've got to achieve best-in-class status from a public-sector perspective for us to achieve our commitments to the Treasury and to the taxpayer in delivering value for money.
Ian Wilmot (IW): I think it's dangerous if we start looking at just a procurement function being world class. We need a business to be world class in how it procures from beginning to end. Procurement functions are potentially the ambassadors of change management to make that happen. But we can't operate as a separate function in the business. Considering yourself to be world class sets you up for potential derision internally, but there's also the danger that you take your foot off the gas. So it's an opportunity for continuous improvement if we're not conceited enough to call ourselves world class.
Andrew Boyd (AB): I would view myself and the Britvic procurement department as world class if we are clearly supporting the drive for corporate goals. And those will change over time. I agree with Ian's point, in that to me the world-class label has actually been a hindrance for the last 12 months, because we've been through a benchmarking exercise with a consultancy where they looked at every department and procurement came out as world class. To some extent this became a barrier with other parts of the organisation.
David Gilmour (DG): In answer to the second part of the question, whether it's excellence at a strategic or an operational level, I don't think you can divide the two. You can have a top-class strategic organisation, but if the delivery departments are incapable of doing or implementing the clever strategies that you have in place, then the whole thing falls apart.
Jon Kirby (JK): It's important not to lose sight of the execution part. There are many organisations I've worked with where people are absolutely fascinated about how we compare with everybody else. I think it is important that you make that connection at the board level, but it's also very important that you get down to the customer level - our internal customers and our external customers - and really understand what it is that the business is trying to deliver. I think if you asked anybody within Barclays what does world class look like as a customer of sourcing, they would say "You understand what we're trying to do and you can tangibly evidence that you've helped create more value", rather than we're great against XYZ company.
Beverley Tew (BT): Being world class is quite fashionable if you are in a support service. If you're not world class then you are looked down upon. For many of us, whether we are in finance, HR or procurement, I think we strive to be world class, or to demonstrate that we're world class, because it gives us credibility in our organisations.
Philippe Courregelongue (PC): What we find with our customers is that the aspiration to be world class is generally part of a broader range of initiatives in the company. Searching for a definition is perhaps challenging, but through benchmarking we find common threads that can be driven into very specific attributes in the business, both in terms of the effectiveness and the efficiency of the procurement organisation. In particular, both the investment in enabling technology and the upskilling of procurement staff are key characteristics of organisations striving to achieve and maintain world-class performance, leveraging platforms that enable supply management strategies as well as transactional execution support.
Andy Collopy (AC): We talk about category management, strategic sourcing, supplier management, purchase to pay. These are all good things that we aspire to. Does that make us world class? It's a big question mark for me, because is that in service of what the business is trying to achieve? Maybe we don't need to be world class, maybe in some areas we need to be good enough, in others we need to be excellent. It's really trying to understand those things that matter to the business.
GJ: What specific characteristics do you associate with world-class procurement, in terms of people, processes and technology?
AC: I think on the people side of it, we have people who are technically proficient at what they do, whether they are good negotiators or they understand contracts, but that's not enough anymore. What we've found inside our organisation is that some of the softer skills are becoming much more important. Can we get in front of a room of people and be engaging, tell a story, sell a strategy that's in support of the business? I think that's a shift that quite a lot of people struggle with.
JT: I would add to that list leadership. Our CEO has made it very clear that he expects this function to create dissonance in the organisation. If you're create dissonance, because you're pushing the boundary, you need people who can actually lead, actually take the organisation through those difficult change steps. So I've got a huge focus on developing and coaching leadership in my senior managers. In a complex, decentralised organisation like mine you've got to have your antennae up, you've got to understand the environment, because it's different in different divisions in different geographies, then being able to navigate your way through that without creating enemies. Your traditional hard-nosed negotiator isn't necessarily well equipped to do that.
Ben Jackson (BJ): One of the things we've done in Network Rail is bring in dedicated change people. That's really helped us, because those people have a different mindset. Increasing the diversity creates a more motivated, focused function and we get more connectivity with our customers. In terms of pushing the boundaries, it sounds like a small thing, but moving from a model that is just policy driven to one that says let's have a policy, but also an approach where we've got efficient, competent people who can engage and follow the processes that are in the purchasing manual as a matter of course has been huge in terms of the mindset.
DG: Not all of our people are stars, not all of them can be stars, there's at least 70 or 80 per cent of them who are solid people doing a good job. How do you get them to continue to do a good job and to improve, and to keep them interested? You give them a good solid system to work with. Over the last seven or eight years Pilkington has rolled out one standard MRP system that everybody can use. I agree with Ben that the problem we have is sometimes an overemphasis on making sure that people adhere to the process, rather than using their individual creativity.
IW: Yes, it's the way that process is executed by people that matters. Technology drives the speed at which you go through that process. Where the problems start coming in is where there perhaps isn't a degree of consistency across the business and everyone wants to have their own process to do their own thing in their own way. You end up with a bit of a muddle.
AB: We've installed SAP so that everybody in the organisation has got access to electronic ordering. But I don't think we as an organisation are world class yet. My drive is really to understand what technology can do to keep our minds focused on strategic issues and engaging with the business, because at the moment while everyone can order through the system, there are opportunities for supplier enablement systems and more extensive use of other e-tools. So we've got a phase 2 to go through, and at the moment the drive is really getting those processes and the technology into an efficient place that allows the buyers to focus on the strategic agenda more heavily than they are now.
BT: The key word for me is simplicity. The process should be so simple that people don't mind going through it. Some of the people who I want to use the process are production assistants in fields. They are brilliant and creative at what they do, but they're not purchasing people, they just want to get on the system and order their cab or get their chairs delivered, or whatever it is they need. In this day and age, it is so easy to buy a book from Amazon or book a flight on Expedia. We're rolling out SAP SRM in the BBC at the moment and my internal customers absolutely hate it. They're involved in building bbc.co.uk and they cannot understand why the BBC can't give them a system like the ones they're used to personally. I think we're a long way from having world-class processes, and I personally haven't seen any corporate purchasing solutions that are anything like as simple as buying a book off Amazon.
GJ: To what extent are customers and suppliers important in contributing to your goal of being world class?
DG: Absolutely crucial, because if internal customers don't give you the authority you need in order to insist on positive changes, then nothing will happen. I think suppliers also have a role, especially where you have, as we do, a complicated system such as transportation across Europe. Our suppliers know far more about transportation and networks than we ever will. So we learn a lot from them, depend on them to get it right, to keep the supply chains as short as possible, so that our customers get the product when they need it.
Rob Woodstock (RW): There are some industries where the customer product is highly influenced by the supplier - for example, the high-tech industry, where you have rapid cycles of product development. In other industries it would be less relevant. One of the things I've found across industries is that listening to suppliers always provides insights and new ways of doing things. Quite often the suppliers have got more to offer than procurement is taking advantage of, because we're following a process and not necessarily doing it with the right amount of creativity. And it is building cost in as a result of that.
JK: Driving change through the supply chain is a business process, it's not a sourcing process or a procurement process, so it's absolutely imperative that we have both the suppliers and our internal customers engaged. I think it's always really telling when you go into a new organisation to sit down ask people how much time in an average week they spend outside the office with customers or suppliers. Often it's only one day. We're trying to switch that completely the other way around, so that two days a week you're in the business and two days a week you're in the supply base. We can't sit behind a desk, we've got to be out working with the customers and with the suppliers.
GJ: What are you finding to be the most challenging aspects in terms of becoming world class?
BJ: We reckon there's probably about 750 people across Network Rail in a commercial, supplier-facing kind of role. A lot of our expenditures are construction based, and the project managers always take a very heavy interest in the commercial delivery of the programme. There's a healthy tension between more traditional procurement versus the commercial management of that relationship. That's a big challenge for us at the moment.
JC: Speaking five weeks into my new role, I feel comfortable and confident that I've got the backing of the Home Office board, which is terrific. The most challenging aspects to becoming world class for me will be in transforming the way the supply base is managed; balancing the processes that are in some cases extreme in the sourcing of suppliers, because of regulatory requirements, to minimal when it comes to managing those suppliers on an ongoing basis. I'm very keen on what's happened in the automotive industry in terms of supplier partnering and developing products with suppliers. None of that seems to happen terribly well from a public-sector perspective from my very early assessment, but I'm looking forward to discovering where it does happen well and delivering changes within the Home Office.
HR: One of the biggest challenges we have is making sure we look after the end-to-end relationship. I don't want my procurement people just to dip in and then walk away again. So it's making sure that up and down our organisation we are talking with one voice. I often find that the suppliers know our company network far better than we do, and so corralling people together and talking with one voice is a big challenge.
IW: One of our challenges is moving away from 17,000 buyers in the bank to 17,000 requisitioners. We're very lucky to have total support from our managing director and finance director for driving procurement change through. However, how that's then cascaded through the business is about change management and people appreciating the art of the possible.
JT: I've got two challenges, both of which have been touched on. One is getting communication right and getting middle management, in particular, to walk the talk. You can get the messaging right at the top table, you can get your own function to understand it, it's the people in the middle - how do you get them to consistently adhere to what we've said we're going to do? The other thing is around process consistency. I'm working internationally across different divisions, everyone says "Yes, we should have process consistency, as long as it's my process"! Cracking that nut takes time.
JK: One of the biggest challenges I had going into a financial institution was ensuring that people within the sourcing group understand how the bank makes money, through current accounts or loans, for example. The question is: how does what you do every day translate into that value being enhanced? Until people can have those conversations at the business level with their functional partners, they will always be seen as somebody who is on the outside trying to help rather than somebody who is an integral part of delivering success.
MW: I'd say the biggest transformation challenge for retailers in general is on the indirect side, where the whole dynamic is of many hundreds of stakeholders not accustomed to using or deploying great sourcing practice. So the challenge there is articulating what are we trying to get to and what does it mean for you? And actually it's not at the CEO or director level, it's those other senior people in the business where most of the work will take place. There is a transfer of control that underlies a lot of these changes and there's a natural reluctance for parts of the business to give some of that up.
AB: The biggest challenge for me is ensuring that we use our suppliers more effectively to develop our big brands. Our 2,000 suppliers could be more effectively lined up to our corporate objectives. More can be developed in terms of their innovation capabilities, for example.
GJ: What value and results does a world-class procurement function deliver?
DG: When we help our business win business from our customers. A fundamental business of Pilkington is making windscreens, and a large part of the added value is making sure that we procure parts at the lowest cost and that we benefit from supplier innovations. We're an essential part of putting the bid together. So you can see the value that purchasing is adding.
AC: It's about competitive advantage. If we can buy better than our competition, that's probably the best measure of it. I think the second aspect is really around risk. Every time you deal with a third party you potentially import risk into your organisation, so part of our role is managing that risk in a very strong way. My third point would be about bringing innovation and insight; are you working with your suppliers in a way that they come to you first? While BP is a very big company, there are lots of other people who want things like steel. We can bring value to the business by being a customer of choice in what is a scarce marketplace. Sometimes that is undervalued.
JK: We have cost-reduction targets that we have to hit, that's never something that we'll never get away from, but the risk piece is really interesting. When I joined Barclays I asked our COO what success looked like and he said "No more bad deals". What he meant by that was no deals that would get in the way of what the business is trying to do. We acquire businesses, divest businesses, go into new markets and try to expand new products. We need to develop relationships and agreements that support the business objectives, providing flexibility or exclusivity if that's what is important.
JT: There is another intangible value that we deliver when we're world class in that, unlike a lot of other support functions, our footprint cuts across many organisational boundaries. What we are developing is a cadre of staff who know how to deliver change and process improvement across the organisation in a very collaborative way. I think that is a skill that will be very much valued in organisations, as they're trying to be fast, as they're trying to be flexible, as they're trying to reshape. Now, in my own organisation, I don't yet have a critical mass of staff with all those skills. But that's my aspiration. I can't put a dollar value on it, but I know it's valuable.
AB: We're relatively efficient in terms of processes, but it's the effectiveness of the teams that work with the business to drive value that matters. So, for example, my direct buyers have been working with brands teams to take cost out of existing products, so it's not just about buying more effectively, it's about can we improve the formulation, can we improve the packaging? It's really having the understanding and the commercial awareness to drive those discussions and know what profit margin we make out of each of those individual brands.
GJ: How would you summarise the difference between a procurement function that is world class and one that is some way off that?
BJ: A substantial impact on business performance is probably what I would say.
IW: For me it's the difference between a procurement function that has to go into the business and try to convince it to use its services, versus one where the business comes to procurement and asks it to be involved from day one because it knows this project or that strategy would not be as good without its input. So it's about credibility.
RW: I would say there are three points of maturity: first, results from procurement aren't believed, and there are still many organisations in that position; second, results are believed but they are very financially orientated, they're about cost-reduction targets; and third, there's added value, where the discussion isn't about costs being delivered, but of course procurement's involved because it is helping to achieve some specific business goals.
HR: That's right. I think the biggest accolade is when we are invited in without being asked because people think you're the centre of expertise and you can help them achieve what they want. That means far more to us than benchmarking other companies.
GJ: To what extent do you benchmark your performance against that of other organisations, whether they are world class or not? And how important is that to you as part of this whole transformation exercise?
MW: I think it's a very good practice to look to the outside world, whether you call it a benchmark or an anecdote, to see what others are doing and to learn from them. The watch out from my side is you've got to cast your critical or cynical eye over that and judge what that really means for you. If you become too reliant on benchmarking-type information to guide your agenda, you end up defaulting to being a follower. And I think that's an unhealthy mindset to have.
JC: I'm a keen advocate of benchmarking and certainly for the foreseeable future I'll be looking to benchmark my own function's capability against the best in the public sector. Her Majesty's Prison Service is a good example, because it's been competing against the private sector in a competitive environment for the last five or six years. So it is a public body that's had to drive cost savings and efficiency given the market it is operating within. The Department of Work and Pensions is another good example I am keen to learn from and benchmark against. I'm also very open to measure against the best in the private sector, whatever that best might be, because I believe strongly that you can always learn from others.
JK: I think benchmarking is important, but you have to have caution around how you do it. Just doing it wholesale against other organisations is quite dangerous, whether it's particular processes or categories. I wouldn't benchmark how good we are at buying marketing against other financial services institutions; I'd benchmark ourselves against how Procter & Gamble do it, because it's a critical part of their business, so they are going to be world class. World class for me is initially being world class for Barclays, not benchmarking ourselves against other financial institutions, because I think that's the wrong benchmark. We also view our recruitment process as a benchmarking opportunity - bringing in people with diverse industry and company experience.
AB: We do benchmark and I do find it useful in terms of highlighting best practice, but I don't get too hung up about it. I think it's good for pointing you in directions, looking at areas where you might be behind or for spotting opportunities. Look at recommendations or gaps, then decide as a business versus corporate objectives whether you want to follow them or not.
PC: For most of our customers, being able to reference themselves against a set of metrics around being world class becomes something, if not defining for them, at least a key driver for the type of transformation they need to go through when it comes to productivity and the effectiveness of their processes. As part of our Overdrive programme, Emptoris asks its customers to participate in a systematic benchmarking of their entire supply management activities across hundreds of metrics. They find it a valuable exercise usually.
GJ: What are the most important metrics in terms of this concept of world-class procurement?
AB: The metrics we look at are the value we get from our direct spend, because we spend a third of our turnover on everything that goes into our products. It's about effectiveness of the value of that spend over time.
BJ: The voice of the customer is a big one for us. It's quantitative, but also qualitative, in terms of what they think of the sourcing processes. That's probably the bit of paper we look forward to most each year. It has a lot of credibility across the business because it's conducted in a very professional, independent manner.
RW: The span of influence of procurement across the organisation's third party spend, and then the quality of that influence. So is it at the back end of the contracting process or right at the inception of the project? I think that tells you a lot about the role of procurement. Then on the transaction process, a very simple one is the number of invoices that arrive without a purchase order.
In terms of high performance of the business overall and then breaking out into procurement, Accenture has done some research in that area that shows there's a link between what we call "procurement mastery" and the level of effort put into supplier relationship management, as opposed to doing the deal in the first place. Then how you access talent and how you treat talent in the organisation. Those that have people with recognised procurement mastery reward their employees with a higher variable component of their pay, for example. It's to do with their creativity in the way they manage their talent pool, as much as any technical metrics.
JT: Another measure for us is are we a net attractor for the top talent in our enterprise? Because if we're actually running world-class processes and we're a world-class service function, it ought to be a place that people want to be. We all know there's a war on talent, we're all struggling with getting the right sort of size and shape of people into our organisations, to behave in the right way, to have the business understanding. So for me one of the key measures, if I'm getting there, is am I a net attractor? Am I getting the people who are the movers and shakers in the future of my organisation doing a tour of duty in my space? That's beginning to happen, and that for me says I'm on the right trajectory and going to where I need to be.
GJ: Can you ever fully achieve world-class status, or will it always be more of an aspiration?
MW: I think the answer is that you can never get there, because by the time you have someone else will have moved on. So for me it's a never-ending journey.
DG: That's right. The pressure will never stop, our competitors will never stop improving, the market will never stop changing, customers will always come up with newer and more wonderful things that they want.
BT: To use a sporting analogy, you might win the season but the next season starts very shortly afterwards, so it's absolutely a journey.
BJ: I think you can achieve world-class status. It doesn't mean you're the best or better than anyone else, it means you've got your organisation to a good place with a very effective procurement function that works with the business. The challenge then is to stay there.
JC: I would suggest it's the people within the function who sometimes are, and can become, world-class performers. We have to drive more of that achievement.
JK: I think the reason we're all successful in what we do is that we never settle for where we've got to. We keep trying to push it a little bit further, that innate curiosity that's in all of us that says "OK, that's done, now what if I did it this way?" is what drives us forward. The moment I say "I've done it" is the time for someone else to come in with a fresh pair of eyes, or for you to go somewhere else and see what you can do there. You can certainly take a step change from where you are today in your organisation, but then you keep going. That's the nature of who we are.
Free downloadable podcasts featuring video and audio highlights of this debate are available at www.cpoagenda.com/debates. Edited versions of the five other European debates we are holding - each on a different topic and in a different city - will also be posted on the site over the next few months.
