It’s 2:30pm on a Thursday and John is nervous.
He’s about to walk into a meeting with the CFO to present the project that he’s been working on for the last six months; his bonus for this year is on the line and he desperately needs the savings to be “signed-off”.
John’s excel is precise and the presentation that he’s prepared is a perfect pyramid. His documentation is airtight, and he’s been feeding the CFO information throughout the project… the “strategy”, the “baseline”, the “savings methodology” – he got the CFO to sign them off all individually.
At 3:30pm, John walks out and all the hard work has paid off – based on the agreed methodology, the baseline and compelling MS office documents, there was no way for the CFO not to sign it. That’s $3m savings signed-off and the bonus hit.
If you can relate to this narrative, it will be no news to you that this does not mean the job is complete – in fact, it’s far from it.
“John” hasn’t achieved anything in his project, yet. So far, the 3-6 months he has spent on it has cost the company at least $30k. The “sign-off” represents a change that might happen in the future, but at 3:30pm on that Thursday, the real savings/value count is still at zero.
Nine times out of ten, there are likely to be several assumptions in that excel file that don’t hold true – it’s just one of a set of possible forecasts. It is probable that little thought has been put into how the end-buyer will understand and use the amended deal/supplier/situation, and John will likely be refocused onto a new project to generate more signed-off savings. Often, no one will end up running the implementation or it will be thrown back to the business to implement.
This is the behavior pattern when signed-off savings is the primary measure. In this set-up, procurement will talk big and deliver little to the business.
If you are “John” or you run a team of “John's, please take control and put an end to this cycle of paper promises.
Hold yourselves and your teams to a higher standard than “signed-off savings”. Ultimately, as a service to the business, satisfaction should be a key metric but when choosing a financial target, choose tracked impact or realized value.
In the “signed-off savings” framework, John has no incentive to worry about implementation difficulties and has a real incentive to make the scope as large as possible, and to optimize against whatever is in the baseline (usually 12-18 months of historic spend). In this model, you can meet your targets, but people will still challenge the value of procurement.
If you change to a “tracked impact/realiszd value” model, John is incentivized to focus on the future as well as incentivized to ensure that the positive change happens. He will start thinking about implementation and the end-buyers from day one.
In this model, meeting your targets is indisputable and helps procurement take steps towards the top table.
Experiment with the option. You’ll likely deliver slightly less on paper, it might take a little longer in calendar time and you’ll have to work out how to track the benefit, but the business will be happier and there’ll be no challenge on the value. Overall, it might just change the way you view procurement completely.
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