Translate opportunity into tangible benefits by optimising three key areas of your cost reduction programme.
In a way, Procurement has it easy. Targets can typically be expressed in monetary value, and writing a business case is relatively straightforward. Your CPO has developed a plan, and the CFO is excited to see the numbers hit his bottom line. That’s usually when the dreaded question comes in: how ready is your business for change?
Successful cost optimisation programmes have three things in common: strong leadership, adequate resourcing, and a healthy balance of short- and long-term interests. So, to answer the question, you first need to evaluate how well your programme aligns with these three common success factors.
Before approving any programme, rethink its leadership. We all know teams should be cross-functional, and every consultant has advised you to ensure relevant business representation on your steering committees. However, companies often take a short-cut and rely on the obvious candidates to lead the charge. Ask yourself:
- How will a CFO-sponsored programme be perceived by the business?
- How does leadership impact team motivation?
- Who can lead by example?
A small change at the top can drive a whole new dynamic in your organisation.
One leader in the Oil & Gas industry had been through several procurement transformations and was looking to take Procurement to the next level without upsetting the function. To frame a successful procurement programme, top management focused on three critical elements: setting the right ambition, assigning responsibilities, and defining a communication strategy.
For the company, this meant moving away from a sole focus on the identified savings target of €100m+. Instead, the Executive Committee positioned the programme as a key contributor to its broader business targets: transforming operations, promoting innovation and sustainability, and developing the next generation of talent.
The cost reduction target is now a by-product of a company-wide strategy to cement its position as a leader in sustainability and as an attractive employer. This was further enabled by a management-led drive to share objectives across business silos: Procurement aligned its targets closely to the operational transformation team, which shifted focus from fighting over “who delivered what”, to jointly delivering on a holistic target.
Finally, a comprehensive change management programme sponsored by the CEO meant Procurement suddenly gained visibility it had never before experienced. Management updates are now provided in a regular fashion, success stories are shared on corporate news boards, and the broad focus of the programme ensures employees across the business can identify with the value Procurement adds to the organisation.
A change in focus beyond traditional procurement objectives, an inclusive approach to target setting, and comprehensive communication strategy have put the business on track to deliver on identified cost reduction opportunities, and beyond.
Having addressed leadership, resourcing is next to scrutinise. Successful companies are realistic about their capacity and capability to deliver. They open doors for the project team to “jump the queue” and act decisively at the top of the organisation. They make deliberate choices to bring in external support, perhaps to plug temporary gaps or to upskill their team ahead of the next challenge. Ultimately, they navigate the delicate landscape of benefits, pace, and cost of delivery.
Following a merger, a newly established US software firm found itself with an opportunity to reposition Procurement as part of the post-merger integration process. It had identified substantial Procurement synergies, but also a large integration support need and significant maturity gap between the two legacy companies. It quickly realised success would hinge on its capability to deliver. Acting at pace, it ensured the right sponsorship, capacity, and capability.
Sponsorship was provided on an Executive Committee-level. To drive cross-organisational and cross-functional buy-in, a broad team of executives was lined up to drive the programme. Procurement was given “a seat at the table”, which significantly enhanced its ability to act early and intercept potential value leakage.
Beyond sponsorship, the company made a conscious decision to consider all options for delivery. It reviewed its teams historical track record (where is the proven capability?) and capacity (are all areas covered?). It then mapped this against upcoming needs and assessed permanent versus temporary surge capacity requirements. These structured considerations around business readiness allowed the company to rapidly conclude that outside expertise would be instrumental to deliver the identified synergies at pace.
Indeed, consulting support not only ensured the company is on track to deliver on its synergy savings targets, it also enabled a significant capability uplift through on-the-job learning and coaching of the newly merged function.
The third and final readiness test is the business’s ability to look beyond the initial cost reduction exercise. Too often we see companies deliver fantastic short-term results, but without a clear vision on how to retain the benefits over time. Management priorities shift, newly agreed deals are not fully implemented, and there is a lack of follow-through to ensure change is embedded in the organisation.
Sustainable success hinges on a company’s ability to codify, embed, and spread the delivered improvements. A procurement-led opportunity assessment led a UK waste management provider to recognise its reliance on outdated systems and tacit knowledge as a barrier to long-term success.
As part of its cost transformation, it is now looking to invest in systems and people to significantly simplify compliance, and control and retain critical knowledge within its organisation.
Having experienced the impact of poor transformations in the past, it also recognises the importance of embedding new ways of working and spreading these throughout the business. Whilst early in the journey, this proactivity is what will set it up for success: its owners are challenging the organisation to identify training needs, map out influential potential promoters (e.g. at local sites), and plan time for train-the-trainer rollouts to ensure local adoption of new policies and processes.
Divide and conquer
In summary, don’t buy your teams’ plans at face value. Challenge them to think through the critical topics of leadership, resourcing, and long-term impact, and consider what you can do to help. Elevating Procurement can be a step change to your business, but it requires your leadership and support to truly make a difference.
Cost Reduction Guide Part 1
Why Opportunity Assessments Matter
This guide is designed to help you get the most out of an Opportunity Assessment – whether it is self-delivered, with a third party, a one off, or part of ongoing opportunity identification efforts.Download Now