As an analyst, I know the benefits that maturity models can provide businesses, but in working side-by-side with procurement teams of all levels, itís clear that maturity models often do not provide businesses with specific, actionable information that they can use for improvement.
Back to Basics
Itís important to measure how your business has matured and improved over time, but evaluating yourself within a vacuum isnít enough. In order to figure out where you stand, and more importantly the direction to move in, you need to look outside and understand what your competitors are doing compared to you. This is when a maturity model comes in handy.
Maturity models can help you to determine:
The baseline: how youíre performing today
How you are doing against your peers
Where you stand on your journey to greater value and what lies ahead
If the current value delivered can be boosted or enhanced
How to prove your current worth and potential to your business
To lay out your business case and plan for greater excellence: strategy, objectives and timelines
Most importantly, a maturity curve provides you with a vision for what your organization should be striving towards. This vision can help you lay out a business case and plan to achieve great excellence within your organization. Understanding what the premier procurement organizations are doing can help you better identify your strengths and where you have room for improvement.
Who Are Maturity Models For?
When I was a Gartner analyst I often discussed the value that procurement brings to the business with CPOs and vice presidents and directors of procurement. More important, though, were our discussions about the opportunities to enhance this value. Using maturity models helped me develop an actionable road map to guide my clients to achieve great success.
And now, as a strategic services provider, I find maturity models quickly level-set a discussion, remove emotion and change the tenure of a business discussion to one that enhances value. Using them can help answer and facilitate conversations around questions such as:
What do we need to do to move the needle?
What metrics will help us leap to tomorrow faster?
What skills are we lacking in our team?
What are the numbers we need to make our business healthier?
What does a successful road map look like?
The Problem with the Maturity Model
If it sounds like maturity models could be a helpful tool Ė youíre right! However, they need to be looked at as a means to an end. Maturity models tell you where you stand in comparison to generally accepted industry best practices. What they donít tell you? How to move forward keeping in mind company-specific hurdles and what your stakeholders want to see.
Even the best maturity models are based off benchmark or survey data, and while this means that there is quantitative information to back up their claims Ė itís not personalized for your company and specific challenges. For example, a maturity model doesnít take into account that youíre working with a five-person team, have limited supplier options for your product and are undergoing changes to the executive team. These real challenges will invariably change your viewpoint of what needs to happen when and make you think about the approaches you utilize to solve the day-to-day problems.
Because a maturity curve canít recognize these nuances, all that the model can truly diagnose are the ďsymptomsĒ and outputs of your organization; leaving it up to you to investigate and determine the causes of the weaknesses. Although difficult to do, diagnosing the causes of the weaknesses is where youíll find the true value of using a maturity curve Ė because itís where you can actually make changes.
Identifying the processes, people and behavior that are resulting in unfavorable results is the first step to improvement. The challenge is that itís almost impossible to perform an unbiased evaluation of yourself and your team. Itís hard to come to the realization that a project youíve been working on for years, spending late nights and early mornings to tackle, is not truly beneficial to your business. In order to provide an unbiased point of view and plan, many companies choose to turn to an outside consultant to assess their team. Unfortunately, this approach often brings some change to the business but typically costs millions and erodes once the consultants move on.
So Whatís the Alternative?
In order to move up the maturity curve, and truly make an impact on your business, you have to move beyond the self-evaluation and external consulting assessment. Instead you need to seek feedback from people that you directly impact: internal stakeholders, the executive team, business end-users, suppliers and customers within the company but outside of procurement. Doing so will provide you with an unbiased view of how your team is performing, but theyíll also understand the nuances, challenges and culture of your business.
Once you determine who you should be speaking to about procurementís performance, Iíd suggest starting the conversation with these three questions:
Does our procurement organization look forward to the cost/value trade-offs in terms of return on investment to the bottom/top line as a standard practice? Is this value also measured in terms of our whole trading network, products, markets and geographies?
Does our procurement team derive its monetary value in terms of business results such as Operating Margin, Gross Margin, Return on Assets (ROA), Return on Invested Capital (ROIC) and Earnings per Share (EPS)?
Does our procurement organization operate as a Center of Excellence (COE) focused on procurement, sourcing and supplier relationship management strategies, strategic commodities/categories, best practices, innovation, knowledge sharing and best practices?
For better or for worse, the answers to these questions may surprise you, but I guarantee that they will help you to create a foundation for improvement. This feedback will also show you not only where the team is aligned with customer expectations but also where the team is misaligned.
As you find out where you are misaligned, take the time to understand the root cause of that. Alignment theory suggests that most obstacles are driven by people having different data, definition or drivers. Surprisingly, although most people are quick to blame different drivers for their misalignment issues, most are actually caused by people having different definitions of the goals and metrics they are working towards.
Using the feedback from your stakeholders and your understanding of the causes of organizational misalignment, create a plan that lays out important milestones that you hope to reach. Communicate this plan to the customer base; report in to your customers the changes the team is making and the results from the changes. Reaching these milestones should be triggers to reassess and evaluate where your organization stands, how far theyíve come and what youíre striving for next.
In short, itís all about the journey Ė not the destination. Your plan must be reassessed over time, specifically at the completion of each milestone or phase, to ensure that everything uncovered and implemented will stick, and that the road map still focuses on the most pressing business priorities.
There are few groups, outside of procurement, that have the levers to influence profits, revenue, margins and working capital. What an opportunity! Be honest, be disruptive, and develop a plan for success. Soon enough youíll see your hard work pay off.