How Finance Can Really Change Behaviour Of Procurement


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How Finance Can Really Change Behaviour Of Procurement

  1. 1. How Finance Can Really Change the Behaviour of Procurement and Drive Invoice Matching into the 90s A One Day Masterclass Facilitated by Casandra Daubney An Executive Brief Summarising Essential Learnings from the Day Presented by
  2. 2. Overview accepted and unchallenged for decades. The general consensus in the room as this However, amidst all of this the role of Finance Masterclass opened up was that in order to has been seeing a change. Traditionally Finance secure high first time match rates in Accounts has been about book keeping and statutory Payable, then Procurement had to support reporting. Now it’s more about forecasting and Finance’s intentions. In most organisations management accounting. The role has moved Finance and Procurement operate as silos. This from recording activity accurately, to speculating blinkered approach has meant that any part of future activity based on knowns. This in itself is the P2P process which sits outside Procurement’s moving Finance from an administrator to a value ‘bit’ has not been seen as ‘their problem’. add function. Going is the age where finance just keeps the books accurate and up to date. Procurement and Finance are different beasts. Finance has often been considered the poor relation and Procurement has often been seen as Systems Don’t Change Behaviour the golden boy of the back office, adding serious This session opened up with the discussion value through negotiating excellent terms with around using systems to change processes. strategic suppliers, and focusing on ‘purchasing 1. Change should take up one-third of your power’ and discounts. budget and time. North Americans spend more time on post-system Finance has often been seen as the maid, coming implementation and as a rule their in after Procurement to clear up after the party. implementations are more successful. Finance is driven by paying suppliers on time, 2. We tend not to do communication from managing cash flow and processing invoices the user perspective. We have a habit of efficiently. If an invoice costs £16.00 to process focusing on what is being said (ie today, their attention is on how to get that down crafting a beautiful email) rather than to under £4.00. focusing on what is being heard. 3. When systems are put in, rarely is It’s very clear that if significant cost reduction per enough effort invested into behaviour invoice is to be achieved, then all the data on the and how people used the old system and invoice has to be complete and accurate. This why, and what behaviour needs to responsibility lies in the hands of forces outside change if they are going to get the most Accounts Payable (AP) – in the, sometimes’ out of the future system. Once a system ‘carefree’ hands of Procurement who largely see is live users will typically carry on doing raising POs before the purchase as low priority. what they always did unless there is a very structured change programme put This Masterclass focused on how to change in place, designed from the users’ priorities in Procurement. perspective. 4. 85% of strategic initiatives fail because Introducing Casandra Daubney of people related issues. Processes and Casandra has worked in private and public sector systems are generally ok, but wherever shared services environments. Whilst at Abbey there is a human touch point there is an she had a team of 18 in invoicing. Like most opportunity for error. SSCs, Casandra was looking at which tools to 5. Leadership is about behaviour. Effective implement in order to secure attractive savings. leaders understand that human They developed a business case for scanning and behaviour is more than just a factor in this promised to reduce the team to 4. They change, it IS the change. pressed on, but 12 months later they still had 18 6. We always need to challenge why we do FTEs in invoicing. The reason? Slow adoption things and how effective if is. For and resistance to change. When Casandra finally example, one company employed 4 left Abbey the team had decreased to 4 and people to analyse their franking activities finance had become part of Procurement. and look at whether money was being largely spent on first class or second Now Casandra is forcing process improvements class mail. The results were not at the NHS Royal Free. In the public sector more meaningful so the assessment was so than in the private, change can be hard slashed and 4 heads were saved. because patterns of behaviour have been © 2008
  3. 3. Positive Political Intelligence is important to put consequences in, in 1. Never talk negatively about yourself. order to change certain behaviour 2. Learn to live with your customers patterns. weaknesses – many qualities will not be 5. With individuals who are very damaging changed – so changing your response to and influencing the mindsets of others, them will have a greater impact. look to remove them from the 3. Whatever is your customers priority environment as quickly as possible if should be yours – what keeps them indeed they are becoming a liability. awake at night should keep you awake. 4. Develop a positive reputation - positivity is infectious – don’t only speak with ABC: ABC: Antecedent — Behaviour - people when something has gone wrong Consequence Consequence otherwise they’ll resent meeting with Change is caused by this: an event happens (the you. antecedent). This causes a reaction (behaviour) which therein causes another reaction (the consequence). An example being: The J Curve This describes the emotional curve which cannot A) A buyer places an order over the phone be avoided when change comes into play. without a PO Change means the ‘death’ of something – from B) The Supplier sends the non PO invoice to death of managing a process in a certain way to AP for payment the death of a relationship. The J curve is the C) AP applies the same payment treatment route followed when people are suffering to it as a PO invoice and the cycle bereavement. It is the journey grief takes. repeats itself The J Curve has three stages: Denial, Anger and If the aim of change was to change A then C Acceptance. The level at which you leave the would need to be considered. For example: curve is typically better and higher than the level at which you entered the curve, suggesting that A) A buyer places an order over the phone going through the change will improve your life. without a PO The interesting fact about the J Curve is that, B) The Supplier sends the non PO invoice to although you can adapt the speed at which you AP for payment navigate the curve, you cannot ‘short-cut’ the C) AP either rejects the invoice under a No stages. So when managing change within your PO No Pay scheme, or pays the invoice organisation, try to move your team through the to an extended term of 15 days under three stages quickly, recognising that they will the new contract, or reduces the invoice indeed visit each stage. payment amount by £30 to cover the admin fee for a Non PO invoice. Tips for the J Curve 1. If you are going to change something By focusing on C and sticking to C and being don’t tell people till you need to and then rigid in your application of C, you will change A. keep going. You can try and make the curve more shallow In this session Casandra also talked about some 1. Focus on moving people through the facts about change: curve quickly 2. People in the anger stage try and 1. Change typically happens top down personalise the change. Always look to 2. There will always be an outcome from a bring the agenda back to business in behaviour – either positive or negative order to take the emotion out 3. Most organisations do not manage 3. To help move people through the curve behaviour properly quickly, pick out the loudest individual 4. Successful companies with good culture and three quieter ones and work on do not always know why this has been really getting the loudest one to be your achieved ally 4. Often you will come across individuals When companies are undergoing process re- who like conflict and welcome being in engineering, they typically focus on the the anger stage. For these individuals it performance of the lowest 10% and look to © 2008
  4. 4. change this. Perhaps a smarter approach would Motivation be to look at the behaviour of the top 10% and monitor their behaviour and understand what She stressed that if an organisation was going to they do different. Recognising this, the company be a high performer, it needed these four areas would then create a template for the other 90% to be healthy. However she stated that out of to copy. the 4, Motivation was the most important. What is good management? • Do all – company = high performance 5 steps • No Direction = chaos • No Competency = bankruptcy 1. Know what you want – What do you • No Opportunity = frustration want to achieve? Why and how? Don’t • No Motivation = Lethargy focus on what you don’t want. Be very clear about your objectives. We were born to want and seek praise. 2. Tell people about it – The art of communication – make sure they know Labels and Behviour what you want, get them to mirror back This session was very interesting. In the what they have heard. Ensure you do business world we use terms, but many terms not rely on email to communicate your are based on perception rather than fact. For objectives. example the term ‘Professional’ is based on 3. Look for them doing it – People do perception and is therefore a label we give not come to work in the morning wanting someone. Using perceptions means there can be to do a bad job. People feed off raise a difference in what is understood, and therefore and feedback. They seek signals that a disconnect in desired behaviour. For example, what they are doing is right so that it a boss’s view of ‘Professional’ may be that you gives them permission and confidence to come in on time, stay late if you have to, don’t keep going. So gather your evidence in swear etc. The employee’s perception may be order to prepare your feedback. that they just need to be competent and do the 4. Provide feedback – Usually we only job well. This means expectation levels are talk to staff when there’s a problem. different, and employees don’t really know where Change this. Otherwise staff will always the bar is set. So in order to communicate be defensive and feel negative if you call intentions clearly, it will aid you to be very a meeting with them, rather than excited specific in your communication. This is where or curious. Ensure that meetings are pin pointing will help you. associated with productivity, not negativity. Often managers believe Pointing Pin Pointing feedback can be banked and then shared This is about selecting the critical behaviour that during appraisals – ie once to four times impacts results. If you are in a meeting with a a year. If feedback is going to be reportee and the intention is to talk about effective, it needs to be shared on the behaviour which you would like to change, spot. If you wait till appraisals evidence opening with ‘I want to have a conversation is hard to example certain ‘behaviour’. about your professionalism’ will not serve you. 5. Align consequences – Ensure This is based on perception rather than specific everyone is clear on what the objectives fact and will open up room for a large debate. In are and then why consequences are as situations like this, it is important to keep points they are. If consequences are not of debate to examples which are specific, evident aligned to your objectives, your and measured. For example, “I want to have a intentions are naturally undermined. conversation about why these 10 invoices were paid late”. If you keep the pointers very specific and based on evidence, where it has been DCOM Model measured, then solutions are easily found. It During this session Casandra addressed the also keeps the discussion ‘in the corridor’. This importance of the DCOM model. means it keeps the debate focused and to the point. Often in debates your adversary tries to Direction ‘open doors’ and take the discussion off to a Competency different ‘room’. It’s important to keep bringing Opportunity them back to the ‘point’ and ‘close the doors’. If © 2008
  5. 5. your point of discussion is very specific, it is more change the response to that behaviour, ie the likely for a solution to be found and effectively. consequence. NORMS of Objectivity Consequences are: This session looked at what NORMS are. NORMS • Positive or Negative are rules which you apply when you are looking • Immediate of Future to change behaviour: • Certain or Uncertain 1. NOT AN INTERPRETATION ie the • Positive or Weak behaviour which you are looking to change needs to be based on fact. The power of a consequence is when it is 2. OBSERVE ie the behaviour you are Immediate and Certain. The Power is in the IC. looking to change needs to be observed Effective consequences can either be Positive and by one or 2 people. If the behaviour you IC (ie PIC) or Negative and IC (ie NIC). A very are looking to change has not been simple example is Peter and the Wolf. Peter observed, then it is relying on cried wolf once and there was no consequence to interpretation again. his misleading behaviour, so he carried on. Had 3. RELIABLE ie the behaviour you are there been a consequence, he would have likely looking to change is reported in the changed his behaviour and survived! same/similar way by at least one other person. Like most things in life, the Positive is more 4. MEASURE ie the behaviour you are effective in the longer term than the Negative. looking to change has been observed, For example: and quantified. You have facts which represent a scale, or measurement ‘If you process 60 invoices accurately a day for illustrating the gap between where they the next 2 weeks I will give you a £50 shopping are and where you want them to be. voucher’ will in the longer term serve them and 5. SPECIFIC ie You must be specific in the you more than ‘If you do not process 60 invoices way you are looking to change that accurately a day in the next 2 weeks I will make person’s behaviour. you stay late every Thursday to get the job done’. So although a NIC is effective, a PIC will REMEMBER: ‘You never process your invoices serve you better in the long term. properly’ is VERY different to ‘you haven’t processed 76 invoices properly.’ Take smoking as an example. It is hard for people to change their addictive behaviour and PIC NIC and ABC give up, because there is no NIC. Instead there This session looked at how behaviour can be is a NFU. Smoking could lead to lunch cancer (a changed based on the CONSEQUENCE. Through Negative) but this is in the Future and is out this masterclass it was generally understood Uncertain (FU). Therefore it is not compelling that you cannot change behaviour as such, but enough to change smokers’ behaviour. you can change your reaction to certain behaviour, which therein will change behviour. An example of this in P2P is: if a Supplier sends an invoice electronically and quoting a PO it is To serve as a reminder: paid 5 days early – on or before day 25 (under a net 30 arrangement). If a Supplier sends a Antecedent = An event that activates paper invoice without quoting a PO it may be behaviour. it’s a prompt, instruction or signal paid to terms. Behaviour = An action that is a direct result of the antecedent If the above is routinely stuck to, then the Consequence = An event that follows consequences are PIC or NIC, but it is the IC behaviour which will have an impact on changing behaviour. Every day we see ABC running on a loop and we begin to notice that one person’s behaviour is an CONSEQUENCES ARE 4 TIMES MORE POWERFUL antecedent to other people’s behaviour. If you THAN AN ANTECEDENT. monitor a behaviour as a cycle which you wish to break then, in order to change that, you can © 2008
  6. 6. Assertiveness Common Problems This session looked at how to prepare for confrontation: Goods Receipting Behaviour: 1. State the issue yourself based on NORMS • Workloads too much 2. Describe the problem in terms of • Not a priority behaviour • GRN perceived as ‘not my role’ 3. Define your goals • Buyers claimed that they did not receive 4. Pick your fights – ie pick the P2P fights goods that actually matter • Communication = bad – split delivery but 5. Write a DECO script to prepare one of the two parties didn’t know • Different view of ‘goods’ – ie do legal DECO services need a GRN? Describe – Say what you do and don’t like • Overloaded PO – too much information Express – Say why you do or don’t like it which confused the Buyer Specify – Specify what you want to change Outcome – State what you want the outcome to Quantity Mismatches Behaviour: be, and that something will be done different and • Invoice held on the system because how it will be different. incorrect GRN • Negative noise blaming the system The Ego States • Fear around losing job P-A-C = Parent – Adult – Child • Lack of communication between Purchasing and Payments and no Notice in confrontational situations, that very knowledge of the P2P process – no quickly your adversary can take on the Child knowledge of how it works state. This can result in you taking on Parent characteristics. When someone takes on a Child Exception invoice been sitting out in the state, they ‘open up doors in the corridor’ and business too long and causes late payment: start blaming factors outside themselves and • The person who has made the purchase listing excuses as to why they haven’t performed. or received the goods, has done their Their intention is to take the discussion away ‘bit’, so they don’t care – it’s payables from the playing field on which it is playing out problem now and create their own boundaries. The intention • The PO was raised but a person has here by you is to keep the discussion focused, since moved on and specific, and in the corridor, and forget • Fixing the problem is not seen as core distractions which take you away from ‘the point’. role, not a priority Distractions may sometimes warrant their own • There may be a back log of exception discussion, but these need to be saved for invoices which are being ‘sat’ on another time. • The invoice has been sent to the wrong person You may be familiar with the notion that the • The problem on the exception invoice is more senior the professional, the more likely it is too hard – can’t fix it for them to slip into ‘Child’ state. This is because • The person doesn’t have access to the senior professionals are less used to being system to resolve the problem challenged on their behaviour and given a • The person fixing the problem invoice consequence. doesn’t know who to go to, to fix the problem One challenge is how do you drive behaviour of someone who will still receive their bonus if they Solution Internally fail to raise POs or follow a process? One way to 1. Communication – many of the above are solve problems with these individuals is to find symptomatic of staff not realising the out from an organisational structure and from implications of their non-compliance. gathering other information who their key Therefore one key solution would be a influencers are. Then approach them via their training programme, detailing the effort influencers. Spot the individual who will make and expense that comes as a result of the most effective communicator according to non compliance. Communication is that individual. iterative, so focusing on follow up face to face communications is key. Having a © 2008
  7. 7. one-off comms approach is leaving it to 2. You cannot change other people’s chance. behaviour – only your response to their 2. Feedback – some ‘white noise’ from the behaviour business might not be moaning, but a 3. Know your ABC genuine complaint that systems are not 4. Remember consequence has 80% impact available for people to, for example, on behaviour book in GRNs. If this is the case a 5. People tend to change behaviour in the proper investigation and resolution is longer term based on a positive than a required. negative 3. League Tables – Once it is clear to staff 6. People are like water and take the path what needs to be done to comply with of least resistance – don’t be afraid to the process rules, it is reasonable to create boulders (‘pain’) if you need publish a compliancy table. But on its patterns to change own, this is not enough. 7. The most effective way to change 4. Bonus Schemes – So in addition to behaviour is to make the consequence League Tables needs to come a ‘prize’. Immediate and Certain, and Positive People respond well to praise (ensure a rather than Negative fuss is made of the League Table results) and ensure that the top performers are publicly financially rewarded. This evokes competition which is a great driver for people to change behaviour. Bonus schemes makes this personal, affecting people at a personal level which is also effective. 5. Road shows – This is a great way to use recognition as a prize. Take the top 2 entities which excel at raising POs and take them on a road show to ‘failing’ entities to educate them on the importance of process compliancy. 6. Charge back – Charge an entity €50 for a non PO and €6 for a PO invoice and make this information publicly available. Solution to Suppliers 1. Reject all non PO invoices and sign contracts with them stipulating that non PO invoices will be rejected 2. If you can, charge the supplier €40 for a non PO invoice 3. If you can extend the payment terms on a non PO invoice by 15 days 4. Move your non PO suppliers no Non Preferred Suppliers 5. If possible black list Suppliers who consistently non comply, and leave them there In each case look to make the consequence Immediate and Certain. Summary 1. Avoid parent and child © 2008