HCKT-2015-World-Class-Procurement_Public

World-Class Procurement I The Hackett Group I 1© 2015The Hackett Group, Inc.; All Rights Reserved. | CR_6000162
Improving the stakeholder experience is becoming essential for procurement
organizations. This is especially true for world-class organizations, where further cost
savings and efficiency gains are increasingly hard to come by and new sources of
value have to be unearthed. Raising stakeholder satisfaction levels will build trust and
help procurement gain the organizational permission to take on higher-value work.
A structured approach to improving the stakeholder experience is most effective.
Ultimately, procurement has to rebrand itself as a customer-centric organization. This
will require rebalancing the service portfolio to focus on the areas with not only highest
demand but the most potential to contribute to company revenue. Success will also
hinge on procurement’s ability to market itself in new ways to build awareness.
By Christopher S. Sawchuck and Patrick Connaughton
Despite ongoing economic and business environment challenges, world-class procurement organizations continue
to outperform the peer group by a wide margin, up to $5 million in cost savings for the typical company.1
They
deliver services at 17 percent lower cost (Figure 1) with greater effectiveness and require 26 percent fewer full-time
equivalents (FTEs) per $1 billion in spend (Figure 2). For many, efficiency gains have reached their practical limits.
To raise procurement’s value contribution to the next level, world-class organizations have adopted a new approach,
breaking down traditional geographic, information and process boundaries. This includes optimizing the service
placement model globally, embracing analytics to gain new insights, and extending process transformation beyond
the enterprise to include suppliers. Achieving world-class procurement performance can take five years or more.
However, a company is likely to see marked improvements within two. These early wins are pivotal, establishing a
foundation for more sweeping successes down the line.
Key takeaways
• Eighty-three percent of world-class organizations (versus 44 percent of peers) report high utilization of dedicated
resources who act as liaisons between procurement and the business.
• World-class organizations that spend more time aligning with internal stakeholders generate 41 percent higher
savings than organizations that spend little time.
• Most procurement teams segment suppliers, but grouping key stakeholders can be just as important to ensure the
best alignment of resources.
Procurement Executive Insight
Management Issue
June, 2015
Com
plim
entary
Research
How procurement organizations are
reinventing the stakeholder experience
The world-class performance advantage:
FIG.1 Cost of procurement
as a percent of spend
Source: The Hackett Group, 2015
Peer group World class
17%
FIG. 2 Number of FTEs per
US$ billion of spend
1
The cost savings calculation is based on a company with $10 billion in revenue.

Getting started on your road to world class
Analysis of data from thousands of our benchmarks and hundreds of our performance
studies revealed that the capabilities most strongly correlated to procurement success
are also the drivers of organizational high performance.
Rise to trusted advisor status. The Hackett Group’s annual analysis of its procurement
database confirms that world-class procurement organizations continue to invest in
activities that elevate their role to that of a trusted advisor. Their situation stands in stark
contrast to the peer group, which is still struggling to get beyond perceptions that it is
merely a gatekeeper.
Action step: Assess the broader organization’s view of procurement through interviews
or tools like a stakeholder survey.
Deliver greater value across the board. Procurement organizations that are viewed
as valued business partners report 68 percent higher savings than those viewed as a
gatekeeper (Figure 3). Companies in the world-class group have realigned their service
portfolios to deliver more value to the business and increase demand for their services,
emphasizing capabilities such as on-demand analytics and market intelligence. This
in turn has increased the scope of their spend influence, the savings they are able to
capture, and value delivered beyond just hard-dollar savings.
Action step: Identify key stakeholders for each high-value activity and ensure a
procurement team member is assigned to each one. Determine the best cadence for
interaction with each stakeholder. Consider utilizing a stakeholder assessment tool to
measure the level of support, and level of influence, to assign action steps to improve
acceptance.
Turn procurement inside out. In essence, while in the peer group procurement is
still considered mostly a back-office function, world-class organizations have turned
procurement inside out to become client-facing service providers that are deeply
embedded in their stakeholders’ teams.
Action step: Define a customer-centric mission for the procurement organization that
focuses on high-value, high-return activities. Gain team buy-in to this mission statement
and associated activities.
FIG. 3 Procurement organizations that are viewed as a valued business partner report
higher savings
Source:The Hackett Group, 2015
Gatekeeper Valued business partner
COST AVOIDANCE
COST REDUCTION
2.8%
4.7%
2.1%
3.5%
1.2%
0.7%
68%
FIG. 2 Number of FTEs per
US$ billion of spend
26%

Increase responsiveness and agility. To achieve agility, companies streamline the buying
experience and create an organizational model where procurement is closely aligned
to its primary stakeholders so that it can react quickly to changing requirements. For
example, as category managers and buyers relocate to places like China to be closer to
suppliers, procurement is following suit.These efforts are paying dividends: procurement
organizations that spend more time on designing this level of stakeholder alignment and
this type of organizational model report 28 percent higher savings (Figure 4).
Action step: Market procurement’s new mission and value proposition through internal
communication channels. Clearly articulate business value and how to access support.
Create liaisons between procurement and the business. Eighty-three percent of world-
class organizations (versus 44 percent of peers) report a high utilization of dedicated
resources who act as a liaison between procurement and the business.2
Beyond doing
things as quickly and efficiently as possible for internal customers, the role requires well-
honed interpersonal skills and the ability to recommend and sometimes even challenge
proposed solutions when a better alternative is available.
Action step: Hone client-facing skills. Develop talent that is able to speak the language
of the business. Schedule and plan check-in meetings with stakeholders for high-value
categories. Integrate procurement into planning and budgeting processes, and involve
procurement early on on in the requirements definition.
Align procurement’s scorecards to stakeholders’ success metrics. As requirements
change, so does the definition of procurement’s success. For a company that is growing
quickly and is highly profitable, innovation and agility may be the biggest priorities. For a
more mature company, efficiency gains and cost savings may be more important.
Action step: Continually adjust the alignment between procurement’s goals and its
stakeholders’ objectives. Our research shows that world-class organizations that spend
more time aligning with internal stakeholders generate 41 percent higher savings, as
shown in (Figure 5).
FIG. 4 Organizations that spend more time aligning with internal stakeholders generate
greater value
More time spent Moderate/Extensive
Time spent on alignment
and organizational design
Extent to which procurement
performance measures are aligned
to key internal stakeholders metrics
COST AVOIDANCE
COST REDUCTION
3.6%
4.8%
2.9%
3.8%
1.0%
0.7%
Less time spent None/Low
2.8%
3.4%
2.3%
2.8%
0.6%
0.5%
41%
28%
2
Procurement benchmark data, The Hackett Group, 2015

A closer look: How your procurement organization can rise to the
challenge
Perceptions about procurement will take time to change, a fact that is not made any
easier by tight operating budgets. Compounding the challenge is the ever-present and
growing variety of risk – regulatory, commodity volatility, and talent. To stay focused and
increase the odds of success, procurement needs a structured approach to improving
the customer experience. This requires:
1. Identifying different stakeholder groups and understanding how they interact with and
think about the procurement organization.
2. Developing formal customer satisfaction surveys tailored to each stakeholder group.
3. Analyzing and sharing measurement results.
4. Taking a holistic approach to customer service. (Figure 6)
Value Proposition
Increase business value
derived from spend
Trusted business advisor
and change agent
Spend/ budget consultant
and relationship manager
Supply expert, team leader,
project manager
Negotiator
Buyer/planner
Reduce demand activity,
complexity and variability
Shift from lowest
price toTCO
Right goods and services
at the right price
Right goods/services at
the right time and place
Role of Procurement
Price
Total cost of
ownership
Demand
management
Value
mgmt.
Supply assurance
FIG. 05 Procurement’s evolving value proposition
Source: The Hackett Group
FIG. 6 A structured approach to improving the customer experience is required
Identify
customers
Improving
the customer
experience
Measure
success
Analyze
results
Take
action

1. Identify key stakeholders.
Who are the customers? Which are most approachable? Who will be a good champion
for procurement? Who are the greatest consumers of procurement’s services? These
are the types of questions that must be asked in order to identify the key stakeholders.
Most procurement teams have initiatives in place to segment suppliers, but grouping key
stakeholders can be just as important to ensure the best alignment of resources.
Action step: Segment customer groups based on attributes like importance and level
of influence within the organization, creating the foundation for an engagement plan
customized to the needs of each stakeholder type (Figure 7). Documenting the mapping
of stakeholders to procurement liaisons is recommended, not only taking seniority
into account but also language, culture and even personality. This mapping will give
procurement leaders confidence that customers have someone aligned to them who
can meet their needs. It also provides a vehicle for uncovering potential issues with
misalignment early enough to take remedial action.
2. Develop formal customer satisfaction surveys tailored to key stakeholder
groups.
Today, 44 percent of world-class and 25 percent of peers conduct formal customer
satisfaction surveys. While adoption of these surveys is higher among world-class
companies, there is still quite a bit of room to grow. The way these surveys are designed,
administered, analyzed and acted on makes all the difference in their value. At some
organizations, customer satisfaction surveys are conducted once annually and are the
only source of feedback. But other organizations regularly poll different customer groups,
both ad hoc and on a structured basis. Moreover, they supplement this data through
follow-up conversations (group and one-on-one) to gain deeper insights into how well
procurement is meeting the needs of customers and the quality of their experiences.
Action step: Develop a multifaceted approach to gain a well-rounded picture of
customer satisfaction. For example, structured interviews can be an effective tool for
gathering useful feedback from executive stakeholders. They can also be used to build
better relationships with company leaders. Short online surveys are more appropriate
for gathering data from large populations of individuals. Brief spot surveys are often
conducted online after individual interactions with procurement staff or the self-service
tool (Figure 8).
Questions to ask when taking
an inventory of the current
customer experience:
Channel management: What’s
the most effective path to access
procurement’s customers?
Demand management: Does
procurement understand current
customer demand for its services?
Customer account management:
Have account management roles
been defined? Are they designed to
optimize the customer experience?
Brand management: What is
procurement’s “brand”? Does it
even have one? Is the brand widely
understood by stakeholders?
Customer support: How much
and what kind of support does
procurement provide?
FIG. 7 Understand the influence and importance of key stakeholders
Importance
Influence
Monitor
and inform
occasionally
Minimal
effort
Key players
Engage
actively and
keep satisfied
Keep
informed

3. Analyze and share the results.
Once the results of customer satisfaction surveys and interviews are reviewed and
consolidated, it is important to close the loop with stakeholders to let them know that
their feedback is taken seriously and, where needed, an action plan is in place to address
any issues. As with the approach for gathering the feedback, multiple channels may be
used to share the results (Figure 9).
Action step: A simple scorecard can be effective for executives. For broader stakeholder
groups, procurement can hold information sessions that showcase procurement’s plans.
Newsletters can also be used to communicate across the entire company.
4. Take a holistic approach to customer service.
It is simply not possible for procurement to provide a personal experience to every
customer. Much of the interaction is going to be self-service and enabled by technology.
Deployment models like software-as-a-service have broken down the barrier to entry
so that virtually anyone can have access to procurement software. Further, customers’
expectations are rising as the smartphone apps they use in their personal lives support
ever more actions, hiding complexity behind intuitive and easy-to-use interfaces.
Just as Uber has put customers in control, letting them make buying decisions based on
their choice of parameters (cost, vehicle type and quality, location pickup) and real-time
feedback about drivers, procurement must reinvent itself and its processes, making
service available 24/7 and easy to use. Otherwise, as traditional taxicab companies have
learned to their dismay, customers will leap at any chance to bypass its slow, expensive,
legacy infrastructure.
Action step: Make self-service tools available to answer common inquiries and provide
real-time visibility to order status. The tools must include enough intelligence to let
customers make educated decisions about trade-offs like cost, quality and delivery
speed. And finally, customers must be able to view feedback from other buyers of the
same service. Ultimately, the most effective approach will be a holistic one that spans
governance, service design, training and education (Figure 10).
FIG. 8 A differentiated approach to soliciting feedback by stakeholder is key
Executive-level Management-level Individuals (post-project surveys)
• Method: In-person, structured
interview (open questions,
predetermined format)
• Duration: 30 mins. or less
• Sample: 10
• Frequency: Annually
• Method: Online survey (closed
questions and a few open
questions)
• Duration: 5 mins. per level
(max. 20 mins.)
• Sample: 100
• Frequency: Annually
• Method: Online survey (closed
questions)
• Duration: 30 seconds per
event
• Sample: 1,000
• Frequency: Monthly
Customer-centric procurement
A customer-centric program should
include a scorecard with metrics
that reflect different facets of the
customer experience and provide
guidance for future strategies and
actions. In addition to being relevant
to customer experience, an effective
metric must have several other
characteristics:
• Credibility: How widely accepted
is the measure? Is it based on
a scientifically and academically
rigorous methodology? Will
management trust it?
• Reliability: Is the metric a
consistent standard that can be
applied throughout the customer
life cycle and across multiple
channels?
• Precision: Is it specific enough
to provide insight? Does it use
multiple related questions to deliver
greater accuracy and insight?
• Accuracy: Is the measurement
right? Is it representative of the
entire customer base, or just
an outspoken minority? Does it
capture self-reported importance,
or can its importance be derived
based on what customers say?
Is there an acceptable margin of
error? Is the sample size realistic?
• Actionability: Does it provide any
insight into what can actually be
done to encourage customers
to be loyal? Does it prioritize
improvements according to the
biggest impacts?
• Predictive capabilities: Can
it project future behaviors of
the customer based on their
satisfaction level?
FIG. 9 A multi-faceted approach to stakeholder interaction
Listen
to the customer
Engage
the customer
Share
the results
• Global customer satisfaction
surveys
• Support team and customer-
care center surveys
• Project-based surveys
• Ad hoc feedback
• Relationship managers
• Customer forums
• Focus groups
• Advisory boards
• Think-tank sessions
• Executive scorecards
• Information-sharing sessions
• Customer/employee
newsletters
• Action team reviews
• “Voice of the customer”
spotlight sessions

Looking ahead
The next-generation procurement organization will feature a new type of talent, one
that is comfortable with technology, able to speak the language of the business, and
knowledgeable enough to navigate complex organizations in order to drive change.
In some ways, procurement will become very much like a management consulting
company. The best consultants know how to ensure that their clients are happy but can
also challenge them when there are opportunities for better performance.
There are no quick fixes here, no single action that will elevate procurement’s brand
and value proposition. Rather, ongoing self-reinvention is required for sustainable
improvement. It may sound like a heavy-duty investment, but as you’ve seen from The
Hackett Group’s results of world-class performance, the payoff is huge. Considering the
challenges facing today’s procurement organization, it’s an investment worth making.
Related Hackett Research
“Procurement’s Key Priorities in 2015: Harnessing Big Data and Renewing Training
Programs to Promote Enterprise Agility,” January 2015
“The New CPO: A Roadmap for the First 100 Days,” December 2014
FIG. 10 Over time, build a more holistic approach
Strategy
Understand stakeholder needs and translate to procurement’s
strategic roadmap.
Governance
Create coordination mechanisms between procurement and
stakeholders.
Communication Communicate the value of procurement.
Relationship
management
Empower team leaders or dedicated relationship managers to
address service delivery failures.
Service design
Design procurement’s services from a customer-first
perspective.
Channel
management
Design an effective multi-channel (voice, email, web, chat)
interaction model.
Training &
education
Train and educate employees on soft skills (negotiation and
conflict handling, cultural awareness).
Knowledge
management
Build knowledge repositories both for employees to enhance
training and update of FAQs for end users.
Talent
management
Manage retention to an appropriate level by service, to allow
development of business acumen and relationships between
procurement and customers.
Capabilities required to enable
customer-centric procurement
• Procurement reviews customers’
annual operational plans.
• An explicit customer-management
role is designed and performed.
• Procurement and the business
participate in each other’s
strategic planning processes to
improve alignment and maximize
opportunities to add value.
• Procurement’s operating and
service delivery model are
continually refined to meet the
changing needs of the business and
ensure appropriate capabilities are
in place.
• Feedback from external customers
is analyzed and used by
procurement to improve product
and service delivery in real time
through a formalized process.
• Procurement works with the
business to find the best model
for combining customer and
commercial knowledge. This could
involve hiring someone from the
business to work in procurement
in core spend areas or using
outside experts for noncore, niche
categories.
• Procurement acts as a service
provider within a larger service
delivery strategy.

The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices
implementation firm to global companies. Services include business transformation, enterprise performance management, working capital
management, and global business services.The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human
capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle EPM and SAP practices.
The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of
the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 51% of the FTSE 100.These studies drive its Best Practice Intelligence
Center™, which includes the firm’s benchmarking metrics, best practices repository, and best practice configuration guides and process flows. It is
this intellectual capital that enablesThe Hackett Group’s clients and partners to achieve world-class performance.
Email: info@thehackettgroup.com
www.thehackettgroup.com
Atlanta +1 770 225 3600 London +44 20 7398 9100 Sydney +61 2 9299 8830
Atlanta | Chicago | Frankfurt | Hyderabad | London | Miami | Montevideo | New York | Paris | Philadelphia | San Francisco | Sydney | Vancouver
About the Advisors
Christopher S. Sawchuk
Principal & Global Procurement Advisory Practice Leader
Mr. Sawchuk has nearly 20 years of experience in supply management,
working directly with Fortune 500 and midsized firms around the globe and
in a variety of industries to improve all aspects of procurement, including
process redesign, technology enablement, operations strategy planning,
organizational change and strategic sourcing. Mr. Sawchuk is a regular
contributor to business publications, a frequent presenter at industry
events, and co-author of ePurchasingPlus. He has been recognized by Supply & Demand
Chain Executive magazine as one of its “Pros to Know.” Mr. Sawchuk’s background
includes engineering and operation roles with both UnitedTechnologies and IBM.
Patrick Connaughton
Senior Research Director
Mr. Connaughton leads the development of The Hackett Group’s
intellectual property in the areas of strategic sourcing and procurement.
He has over 15 years of experience in supply chain and procurement
research and advisory roles. He has published groundbreaking research
in areas like spend analysis, contract life cycle management, supplier risk
assessments and services procurement. Prior to joining Hackett, he was
principal analyst at Forrester Research, where he focused primarily on helping executives
mitigate risk through more effective supplier relationship management. Previously,
Mr.Connaughton was a consulting manager at Manhattan Associates and Accenture.
For more papers, perspectives and research, please visit: www.thehackettgroup.com Or to learn more
about The Hackett Group and how we can help your company sharply reduce costs while improving business
effectiveness, please contact us at 1 866 614 6901 (U.S.) or +44 20 7398 9100 (U.K.).
This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice.
You should not act upon the information contained in this publication without obtaining specific professional advice.

HCKT-2015-World-Class-Procurement_Public

More Related Content

What's hot

Viewers also liked

Similar to HCKT-2015-World-Class-Procurement_Public

HCKT-2015-World-Class-Procurement_Public