In their book, The Power of Alignment: How Great Companies Stay Centered and Accomplish Extraordinary Things, Dr. George Labovitz and Victor Rosansky write, “Organizations are aligned when:
• All staff have a shared purpose
• All staff are aware of how their contribution drives the core strategies of the organization toward the accomplishment of its purpose
• Work, processes and actions are executed toward the accomplishment of the purpose
• Priorities become simple and clear – efforts and resources that move toward the mission always get precedence.”
When these alignment principles are compared to the average procurement organization and its ability to optimize towards growth and profitability against the business strategy and broader business enterprise, procurement is obviously misaligned. Thus, procurement’s value contribution to operating margin is barely 8 to10 percent and return on invested capital is lucky to hit 9 percent. Procurement’s biggest opportunity is aligning itself to the rest of the organization.
Most Procurement organizations are great at setting direction and achieving cost savings and spend under management, but they barely touch the greater business financial requirements of growth and profitability.
To make a substantial financial business impact, procurement must instead focus on the bigger and broader picture, optimizing resources within the business to obtain substantial results. Critical steps from the average procurement performance to superior sustained external shareholder results include:
Procurement Assessment: Best-in-class companies put a stake in the ground to understand where they are on the journey towards excellence. Procurement is a main contributor to shareholder value and needs an assessment as well. Once you know your location you can plan towards your success.
Organizational Misalignment: Procurement’s present location on the path toward excellence is important, but even more critical is where procurement is misaligned with the rest of the company. You can’t move forward until you are aligned with business stakeholders. Three “D” points will cause misalignment: data, definition and drivers. Removing the barriers requires a focus on the “D” points, a strategic and integrated business plan and execution.
People, Process & Technology: Crucial to success is the right mix of people, process and technology. Too many procurement teams rely on working hard vs. working smarter. The company mindset of procurement as a back office support function rather than a critical path to shareholder results has kept procurement substandard and unable to garner support for change. Procurement excellence requires the right mix of people, process and technology; and this mix will change as the team evolves.
Change Management & Outside Help: The best companies must change for the better to survive in the global world. Procurement must learn to seek help to secure change. Look externally for service professionals that become a part of your business excellence plan so you can deliver substantial business results.
The best businesses will continue to evolve, deliver results and thrive; Procurement’s impact is critical to this journey. Steward B. Johnson said, “Our business in life is not to get ahead of others, but to get ahead of ourselves – to break our own records, to outstrip our yesterday by our today.” Businesses must start demanding and funding this mantra for procurement; substantial shareholder improvements of at least 14.6 percent operating margin and return on invested capital of 12 percent depend upon it.