Three Ways to Realign Procurement with Business Objectives
By Hugo Britt | December 1, 2020
Getting procurement aligned with the business – and staying aligned – takes a lot of work. It’s not something that procurement should do only once and consider the job done, however. Alignment involves keeping informed of ever-changing priorities among stakeholders and moving with them in lock-step as the business continually evolves.
What happens when procurement isn’t aligned with business objectives?
Picture a meeting between the CPO and CFO, for example. The CPO walks into the meeting full of confidence because procurement (in her view) has had a great quarter. She fires up the slideshow and cheerfully takes the CFO through all the achievements of the past three months: savings delivered, costs avoided, suppliers consolidated.
The CFO listens until the end of the presentation without saying a word, before commenting:
“This is all fine in terms of cost savings, but what you’re doing hasn’t been a priority for over six months now. Haven’t you been paying attention? The business is focused on risk reduction.”
In other words, becoming unaligned with business objectives means procurement will focus its efforts on the wrong areas. This won’t help procurement’s quest to become more influential in the business or to gain a seat at the decision-making table, either. By focusing on the wrong things, the function risks becoming irrelevant and falling behind the times.
Unfortunately, alignment isn’t something that procurement as a profession is known for. The problem may lie with the inward-facing nature of some procurement functions, our over-reliance on procurement lingo, and a general lack of understanding of the drivers for other functions. Whatever the cause may be, it is holding the profession back.
It’s clear, therefore, that procurement needs to make every effort to get aligned with the business. This involves:
- Keeping a close track of changing business goals and priorities. A well-connected procurement function should be aware of these even before they are published.
- Reviewing procurement KPIs to ensure every single one reflects not just a procurement goal, but an organizational goal as well.
- Conducting regular and ongoing “alignment checks” to ensure procurement’s activity remains relevant and focused on the right things.
Why aligning with enterprise-level strategy isn’t enough
Is the answer simply to get hold of a copy of your organization’s enterprise-level targets and make sure procurement’s activity is aligned with these? Well, it depends on your organization.
In some organizations, “enterprise-level” is a polite way of saying “vague.” High-level goals and targets may exist, but they lack detail and can be summarized on the back of a napkin. On the other hand, some organizations may have developed exhaustive, 100-page documents explaining enterprise goals and targets point-by-point. Some businesses update their goals and targets every six months while others haven’t changed for a decade.
Enterprise-level strategy alignment is a good starting point, but for true alignment with business objectives, procurement should dig a bit deeper by aligning with Finance, IT, and People Strategies.
This should be a given, particularly in the many organizations where the procurement function reports to the CFO. A close alignment with the finance team will help procurement stay aware of current priorities.
Is the business in a growth stage? Or is the current strategy to focus on consolidation and protecting profits? What is the current balance equation between cost and risk? How exactly can procurement help finance meet its targets?
In an era where seemingly every procurement function is undergoing a technology transformation, procurement needs to get aligned with the IT function or risk making a very expensive mistake in terms of IT investment. More importantly, procurement must become familiar with future IT architecture and plan ahead to align with this.
A CPO may have grand plans to expand the procurement team (and expand the value the function can deliver), but will run up against a roadblock if they are unaligned with HR’s overall people strategy. Get familiar with this strategy to understand how big a team the business intends to employ in five years, the diversity strategy, and what sorts of skills are sought after.
Depending on your organizational goals, membership in a group purchasing organization could be the secret weapon that will help procurement get aligned and start delivering real value. Get in touch with Una to learn more.