Happy Sourcing Change year: first fix what is inexcusable and downright awful

First resolution of 2011: fix what is inexcusable and downright awful

2010 saw us conduct exhaustive studies of enterprise sourcing customers to understand better how they can find new ways to drive productivity and revenue growth (innovation) and take better advantage of Cloud business services.

The one common theme that kept cropping up, was their overwhelming admission for  more effective change management and communications, business transformation and governance programs.  To put this all in a nutshell, many customers must radically change their whole approach to sourcing to break free from inflexible old-world business models, IT strangleholds and rate-card purgatory.

So this year, we are putting a major research emphasis on what measures customers need to address to get moving with their sourcing agendas.  And, as if by some higher form of sorcery, we’ve been graced with the presence of Deborah “Sourcing Change” Kops herself to help steer our sourcing change research agenda this year. Over to you, Mrs. Kops…

Happy Sourcing Change Year

My friends at HfS are forecasting a meteorologist’s dream for the sourcing industry— high pressure combinations of Cowboys and Indians, a blizzard of new deals, and very Cloud-y days. In the face of these anticipated patterns, how should buyers prepare for the stormy weather that ultimately impacts results for their organizations? Perhaps it’s time to prepare for the change sourcing represents a bit differently. Here are my top five recommendations for staying warm and dry in 2011.

Approach sourcing as “disorganizing event” Buyers usually restrict their ambition for sourcing to make existing conditions a bit better, faster and cheaper in a more scalable structure.  Yet the act of sourcing is a profound opportunity to make indelible changes to the way the organization works—enabling work in new ways, setting new rules, delivering different outcomes, even changing the culture. Think about how you want to change the organization, and solve for it, rather than build a better mousetrap. What do you want sourcing to enable you to do?

Focus on “worst practices” Think about it–the best practices always take care of themselves, yet the worst practices fester and fester. Want to delight your customers by making their lives better? Stop painting a picture about a sourcing nirvana where 200 basis points of the cost of an invoice will solve all ills, and design a solution to get rid of their biggest headaches—inaccurate data, late close, lackadaisical staff on boarding, excessive system downtime. First fix what is inexcusable and downright awful, and customers will start to believe the vision.

Allay all fear The aim of sourcing is about as altruistic as corporate initiatives get. Few dare to argue that the business case benefits aren’t exceptionally compelling. Yet what stops it in its tracks is fear—fear of pushing too fast or treading on important corporate toes on the part of the sponsoring team, fear of not performing on the part of the delivery team, and fear of loss of control on the part of the business lines. If you can allay your own fears, and those of your internal customers, you’re halfway there.

Ditch procurement Is traditional procurement deeply involved in M&A activity? Corporate strategy? Business transformation? Not a chance. While our friends in the CPO’s office have an important role to play in procurement process and governance, they cannot be the major arbiter of taste when it comes to sourcing true corporate change.

Deborah Kops, HfS Contributing Analyst

Deborah Kops, Contributing Analyst, Sourcing Change Management, HfS Research (click for bio)

Get moving The mantra for sourcing change is the opposite of “speed kills.” Take it as a given that you’ll never please everyone nor get all aspect of the solution right. The sourcing exercise is not a proxy for singing a kind of corporate “kumbaya”—sitting around until everyone holds hands around the campfire. Obvious change is like a revolution—there is a before and an after. Everyone may not like the after, but there is movement, ostensibly to something better.

During the course of the year, Sourcing Change will be working closely with HfS Research to not only help you think about change management differently, but also dimension similar challenges. You’ll know when to put on those boots, and when to put on sunscreen, when an umbrella is in order, and how to batten down for a tornado.

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19 Comments

  1. Stephen Cohen
    Posted January 2, 2011 at 6:10 pm | Permalink

    Great to see HfS staring 2011 in the same spirit as always…no frills, to-the-point, laying on the truth :)

    Stephen

  2. Posted January 2, 2011 at 8:07 pm | Permalink

    A good start for 2011….

  3. George Defreitas
    Posted January 2, 2011 at 10:15 pm | Permalink

    Deborah,

    If sourcing customers can fulfill 50% of the recommendations you outlined, they will make tremendous progress this year.

    Especially agree on the procurement point – about time it was said!

    George Defreitas

  4. dkops001
    Posted January 3, 2011 at 9:15 am | Permalink

    George, i know we both appreciate our procurement friends. Heck, i even was one of those guys in a former life. But when the act of procurement takes priority over the fact of procurement, we limit what we achieve from sourcing.

  5. Posted January 3, 2011 at 1:16 pm | Permalink

    Can someone explain to my why ‘sourcing’ isn’t just another world for ‘procurement’ which you’re ‘ditching’?
    How do you see your ‘sourcing’ role if it is not a type of procurement? Have you got a definition somewhere that makes the distinction clear – I’m confused….!

  6. Posted January 3, 2011 at 7:08 pm | Permalink

    @Peter: Hi Peter – good to hear from you. I experienced the “Sourcing = Procurement” confusion when working in the supply chain world of AMR Research. Procurement and Supply Chain folks commonly use the term “sourcing” to mean “purchasing and procurement”, and assume a procurement professional is also a sourcing professional. In the “outsourcing” world, when companies look to outsource IT or business processes, the industry-side folks (i.e. vendors and consultants) frequently prefer the term “sourcing” to its more commonly-used phrase “outsourcing”, to avoid political stigma and making employees nervous when the deaded “o” word is muttered. So, in this context, Deborah is talking about actual “outsourcing” under its politically-correct guise “sourcing”. And her point is that procurement folks simply don’t understand outsourcing – they need to get beyond rate-cards to get into the real issues about selected a provider and making a business case…

    Clear as mud :)

    PF

  7. dkops001
    Posted January 3, 2011 at 7:32 pm | Permalink

    Thanks, Phil and Peter, will clarify the mud! When companies buy goods and services, they look at the lifecycle broadly as source-procure-pay. In the context of the blog, i consider sourcing as determining the what why when of the decision, indeed designing a solution to fit the business need, which might be better-faster-cheaper, or truly transforming the way delivery works,sometimes one deal at a time, sometimes as part of a portfolio of corporate delivery. In my experience, procurement is the act of managing the process and contracting for best value. When the process starts at the procurement phase, it often results in selecting a provider based primarily on price and acceptance of contract terms.
    A good procurement specialist who understands the sourcing of services is invaluable. But most do not have enough context (no fault of their own) to deal with all the complexities of outsourcing. Ergo, we see the rise of global sourcing teams at leading companies–folks who work with the businesses to determine the right solutions in context of business conditions, investment in enablers such as technology, timing, the organization’s ability to adapt, and so forth. They work closely with experts who deal with procurement risk, contracting, policies and procedures, rate cards, etc.
    Hope this helps.

  8. Posted January 4, 2011 at 3:29 am | Permalink

    Thanks Phil and Deborah!
    Very interesting – and suggests some challenges for ‘traditional’ procurement folk if that is how they are perceived, because of course major ‘sourcing’ type decisions (in/outsource etc) are amongst the most important any organisation can make. So if I’m leading a procurement function whose invovlemenet is not required in these activities, I better look at my capabilitities / positioning within the organistation!
    If I can ask one more question – Deborah, you say “we see the rise of global sourcing teams at leading companies”. In general, where do these teams report? I assume they’re not reporting into the CPO / procurement functional leader? Are they within IT or elsewhere?
    By the way, I would completely agree that selecting a major outsourcing provider “based primarily on price and acceptance of contract terms” is a route to almost certain disaster! I can think of some good examples…

  9. dkops001
    Posted January 4, 2011 at 8:48 am | Permalink

    Peter, you encapsulated the challenge well in your first para. There is no earthly reason why procurement functions cannot add these capabilities.
    Re the positioning of global sourcing teams: reporting is variable depending upon the organization. I’ve seen the function report to the CIO, the CFO, the CAO…

  10. Posted January 5, 2011 at 5:06 am | Permalink

    Phil and Deborah,

    Peter picked up this issue after I posted it on to the Purchasing Practice Linkedin group, where it has received some interesting comments.

    Peter raises the key point, that sourcing or outsourcing, whatever you want to call it is a sub-set of procurement. Even goods purchased ‘traditionally’ have previously had a decision made to outsource them.

    Phil and Deborahs comments are valid only as far as many procurement functions are at differing levels of maturity (competance). Clearly, only the more mature functions – likely to have a CPO will play a key role in BPO, whilst the less mature – unlikely to have a CPO will play a much reduced role. The procurement profession recognises that standards need to be raised to bring ‘laggards’ up to standard.

    The most concerning issue is that Hfs chose to adopt a somewhat sensationalist headline grabbing approach by advocating ‘ditch procurement’. The only consequence of this can be to marginalise Hfs from increasingly important allies – the CPO and his/her team and also to diminish Hfs’s contribution to a broad based raising of standards.

    The increasingly recognised importance of ‘procurement’ is not going away and more and more procurement functions will reach the desired competency levels. Hfs would therefore be best served applying their considerable talents to support this ongoing process rather than engaging in sensationalism, as advocating a ‘sourcing’ split from procurement is a non starter.

  11. Posted January 5, 2011 at 7:16 am | Permalink

    @Dave: thanks for your comments, Dave. If the procurement function is incapable of offering strategic support with supporting outsourcing change programs, and only provides “transactional” assistance with contract administration and spend management, then why would you get benefit from involving it on a change journey?

    Hate to be “sensationalist”, but remember what happened to the HR function over the last 10-15 years, because it focused largely on “administrative” tasks… smart procurement needs to avoid going the same way and getting “put in a box”. The CPO needs a seat at the corporate table to be effective, and that means providing strategic value in core corporate areas, such as outsourcing change programs. Currently, we – and many of our industry colleagues – are not seeing many procurement leaders step up their role in helping manage these types of initiatives beyond the transaction.

    Peter Smith describes the issue superbly here:

    So are procurement folk too narrowly focused when it comes to outsourcing and other more strategic commercial activities? How can we make sure we are seen as contributors, not people who get in the way? What do you think?

    I couldn’t agree more with Phil’s ‘needs’ – although I would argue that the best procurement people are already acting in this way. But not enough perhaps… Anyway, a good debate and questions to start 2011!

  12. Posted January 5, 2011 at 7:49 am | Permalink

    Phil, your response misses the point.

    Peters comment is a question to you. Not a statement of fact. I think all CPO’s will keenly await your answer.

    The truth is that some procurement functions are capable of and do, offer strategic support during outsourcing change programs and there are many that are not. We all know and accept this.

    The issue is this: do ‘you’ really believe that outsourcing should be split from procurement – which the ‘ditch procurement’ headline suggest, or do you promote bringing procurement laggards up to speed. After all, in my experience organisations/ CEO’s get the procurement function they themselves create. Those that have invested in procurement get the skills needed to contribute at the strategic level. Those that don’t invest get the laggards.

    So either Hfs advocate raising the understanding of the benefits of procurement excellence and help raise standards across all industries or Hfs advocate permanently writing off procurement as just transactional and setting up a separate ‘strategic sourcing’ group. Whoops isn’t that already a procurement initiative.

    The CPO’s of this world would like an answer.

  13. dkops001
    Posted January 5, 2011 at 9:47 am | Permalink

    Dave, the point about “ditch procurement” is in the context of “sourcing change,” not the traditional value that strong procurement programs deliver.There is no question that outsourcing requires the skills brought to the table by a procurement department, but buying “goods” is on a very different plane than sourcing a series of processes that change the way an organization operates. The skill sets must be broader to deliver successful change. Not saying

    If you have come across a procurement function that really delivers all aspects of sourcing change as part of its remit, I would love to know about it. I have not yet come across one. I am talking about a mindset to make change–that sourcing is NOT just procurement. So I am not advocating that procurement is “ditched” from the sourcing process; i am saying that the capabilities required are broader. If procurement can get there, great.

  14. Posted January 5, 2011 at 10:28 am | Permalink

    Phil, thanks for the clarification.

    We do not differ on the skills and mind set required to successfully conduct BPO.

    In my experience there are just as many organisation who don’t even possess these skills outside of the procurement function in the wider business. So it becomes a matter as to where these skills should rightly sit and be developed. In my view this is under the remit of the CPO where business wide expertise can be harnessed.

    If it sits with the CIO – they are no more expert in outsourcing other functions such as HR or Legal than the CPO. Likewise the CFO is not expert in operational areas of the business.

    The argument for the CPO is that they span the entire business and bring independence from the the self interest that can lie in the stakeholder functions (yes it exist). In this way a centre of excellence is developed around BPO as in all other types of procurement, within the business residing in procurement.

    Thanks for the debate.

  15. Ben Tulloch
    Posted January 10, 2011 at 11:06 pm | Permalink

    Folks – The perfect BPO ‘sourcing’ lead within an organisation would i) be a business process expert, ii) be a sourcing / procurement expert, iii) have worked for a vendor and understand their side of the world and constraints, iv) be a change management expert, v) be an IT expert, vi) be a solid strategist, vii) have worked in the business functions being outsourced, viii) understand the outsourcng industry (where it’s been, where it’s going), ix) be a transition expert, x) be a process transformation expert, etc….

    There are very very few individuals that come close to this, and that’s probably why it’s such a struggle to get good transactions done efficiently that drive long term mutual value. Lets shift the focus to competency development, and away from where this would sit in an organisation.

  16. dkops001
    Posted January 11, 2011 at 9:26 am | Permalink

    Ben, amen to you. Again, my comment deals with looking at sourcing deals as a procurement act. You rightly bring up the fact that capability is critical, but its home is irrelevant.

  17. klfoss
    Posted January 11, 2011 at 10:07 am | Permalink

    2010 was our year to evolve our sourcing programs to the Managed Services Sourcing model. Luckily, the first IT area out of the gate has a very supportive executive in charge. She completely understands the value and importance of an effective change management program to ensure outsourcing success. She gave us the resources needed to build a change management program to support our sourcing endeavor complete with communications, training, mentoring, and a partnership / co-sponsor on the business side. I am very proud of the work that we achieved, not only in maturing our sourcing models, but the very successful change management program that we developed and executed! It made a world of difference in how IT and Sourcing are perceived by our business customers and other IT support organizations.

  18. dkops001
    Posted January 11, 2011 at 10:15 am | Permalink

    KL Foss, thanks for comment. Change management is indeed the secret sauce of sourcing success, and sourcingchange.com is pleased to be joining forces with HfS to dimension the challenge. Would very much like to learn more about the elements of your program.

  19. S Moore
    Posted December 28, 2011 at 3:28 pm | Permalink

    Yikes! As a BPO Consultant in our Procurement Organization I will attempt not to take offense. While I agree that far too often Procurement doesn’t take a strategic role in sourcing, it’s a tad unfair to throw all of us under the bus. There are many who clearly recognize that a cost only approach will lead to disaster. Some of us have built gain share models that incent providers to bring innovation and have sought to find ways for providers to grow revenue while expanding the value they bring. Hmm, I’m thinking of starting a blog on consultants. :)

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