News Snippets, Strategy

Can Innovation Go with Procurement?

Sebastian Chua is currently the Head of Procurement at the Health Promotion Board (HPB), a Statutory Board under the Ministry of Health, Singapore.

 Abstract: The ability to innovate is increasingly seen as a necessary skill set to possess because it enables procurement to stay relevant to the business’s needs. However, there are challenges to innovate in procurement and this paper establishes that the cause may be intrinsic. This paper seeks to address the question of whether innovation can be integrated with procurement. It brings to light the challenges of innovating in procurement by identifying common misconceptions that have hindered this process and goes on to recommend adopting new ideologies that can help alleviate the problem. Instead of focusing on technical skills, the paper establishes the mindset and attitude of the  procurement professionals as its focal point. The need to establish strong stakeholder relationships and its pivotal role in innovation has also been emphasized.

 

INTRODUCTION

Traditionally, procurement has been viewed as a non-strategic function that is only responsible for purchasing desired goods or services at the lowest cost. However, with the advent of the modern era, this can no longer remain the case. With an increasingly competitive environment and an unpredictable economic landscape, companies have to innovate to remain relevant, sustain growth and control costs. A survey conducted by McKinsey, more than 70 per cent of procurement professionals reflected that innovation would be one of the top drivers of growth for organisation in the future (Barsh, Capozzi & Davidson, 2008). With the focus of procurement leaders shifting towards innovation, there is a need to explore this trend to a greater depth.

MYTHS OF INNOVATION

Shaping the culture of innovation has to start from us and as procurement leaders; we have to drive this behavioural change. The first step would be to dispel the myths that shroud the truth about innovation. The problem with myths is that they are subjective truths that often do not reflect reality. Moreover, in some instances, people are fearful to challenge these myths, as they are afraid of the consequences of doing so. In the case of innovation in procurement, these myths hinder our growth. As leaders, we bear the responsibility to create the space to allow innovation to happen. To begin with, let us correct the three myths of innovation.

  • “We cannot rock the boat.” – When trying to drive innovation, there might already be existing solutions that we have yet to explore and many assume that it is the tools and technology that are key factors. However, the true key to innovation lies in our ability to change our attitudes and mindsets, but there is a challenge to this. It is in our nature to prefer the status quo to uncertainty as many of us tend to be risk-averse, and this is associated with the fear of failing when we try new things. While these may be valid concerns, we need to look beyond the uncertainties by welcoming fresh ideas and adapting to new realities.
  • “We cannot fail.” – The decision to innovate comes with its associated risks and we cannot be oblivious to the fact that there is potential to fail. Knowing this, we must still have the tenacity to keep trying and accept that, sometimes, failure is inevitable when we attempt something new. It can also be argued that, in some instances, failure can serve as a stepping-stone to success. Why is failure so important for success? Out of the many reasons, we particularly resonate with these three:
  • Failure creates opportunities
  • Failure encourages problem-solving
  • Failure makes us courageous

In essence, failure is important for leading organizational learning towards success because it creates opportunities for improvement, encourages problem solving to bridge knowledge gaps, makes us courageous to accept change and adopt innovation. It is only through failures that organizations learn more effectively (Raspin, 2011).

  • “We are too junior to make a difference.” – With a “bottom-up” approach, all employees are treated as equals and the departments themselves will propose innovative solutions to the management with plans to implement them. Diana Belcher, Senior Director of Product Management at Harvard Business Publishing Corporate Learning, said, “In today’s overly complex, ever-changing world, every employee at every level needs to be thinking strategically, looking for new opportunities – for the business, as well as for their own career growth” (Post, 2017).

By doing so, they are empowered to challenge these myths and grow to be better procurement people. The ideologies that should be adopted would be:

  • “We can rock the boat when it is the right thing to do.”
  • “It is not about failure, but learning and adapting.”
  • “Everyone and anyone can make a difference.”

Only by breaking through these mental blocks that we have created for ourselves, can we even begin to think about innovating.

IS INNOVATION EASIER SAID THAN DONE

In both public and private sectors, we face tightening fiscal and manpower constraints, and yet we are expected to deliver our jobs faster, cheaper, proper and better. To achieve these, we need to find new ways of doing things, and not rely only on the tested solutions, including how we innovate procurement.

To ensure a productive and fulfilling journey when venturing into innovation, we have to put in place some guiding principles. These principles are based on your values and they create a culture in which everyone in your organisation prioritises the same things (Broudy, 2011). Not only will this help set a direction for your business, but it will also embed a strong sense of culture and values in your colleagues.

We can start with these three As of Innovation:

  • Ambition – We must uphold ourselves to a strong sense of ambition by striving to build a better future together.
  • Action – We must act vigilantly instead of being paralysed and consumed by the fear of failure. It is only through practising what we have learned that can prove what works and what does not.
  • Alignment – The solutions to our problems today intercepts with the domains of different stakeholders. We need to draw connections between different areas of work, as well as, between the buyers and sellers.

With these three As, procurement can influence and thus encourage innovation in many different ways, for instance, through consolidating demand aggregation contracts (Action), setting regulations and expectations (Ambition), liaising with suppliers to underline specifications (Alignment), or enabling an efficient and professional tendering procedures which pave our direction towards innovation (Uyarra, Edler, Garcia-Estevez, Georghiou & Yeow, 2014).

With the right principles in place, we then need to establish some performance indicators (i.e. find out what defines a procurement success). We define procurement success by the quality of our business conversations, as we believe that it determines the quality of our procurement decision or action. Every successful procurement partnership begins with a quality conversation. On the other hand, a disappointing conversation creates a poor perception of procurement. Often, it is our response that drives our stakeholder’s perception of us and procurement is commonly not perceived to be innovative.

Innovation does not mean we have to achieve big things. There is no best practices or seeded solutions to cultivate innovations (Joanna Barsh et al, 2008).  It can start with this simple principle:

“THINK BIG, START SMALL, AND ACT FAST.”

Most importantly, we need to be clear of the objectives to be achieved in advance and understand the trade-offs.

And to answer the question of “Is innovation easier said than done?”: Yes, it is easier said than done. Any process that challenges the status quo, like innovation, will face resistance and there may be times when the situation seems bleak. However, we have to remain committed to the cause and continue putting in the time and effort for us to reap the benefits.

STAKEHOLDER LEADERSHIP

Stakeholder engagement is the Achilles heel for many procurement decision-makers. It is a known fact that one of the biggest challenges for procurement has always been stakeholder leadership. On a global scale, approximately two-thirds of procurement professionals reflected “internal stakeholder engagement” to be a challenge, out of which 14 per cent stating it as an “extreme” challenge (Young. M, 2019). Some common claims that have contributed to this sentiment are, business units:

  • Do not value procurement
  • Resist the change that procurement wants to make
  • Do not involve procurement early in the decision-making process

The aforementioned claims may be a consequence of poor communication between functions. In a survey conducted by Bearing Point, 29 per cent of procurement directors reflected the lack of support from other departments to be one of the main barriers to innovation in procurement (Bearing Point, 2013). On the other end of the spectrum, the common perception that other functions have about procurement is that we slow down their business requirements and that we can be a hassle to work with. As a result, procurement is being left out of important business discussions at the early stages. This is counterproductive for the business, as the silos in operations resulted in duplicated efforts in procuring similar services and without economies of scale. The full value of procurement function is therefore not optimally leveraged in achieving the company’s mission and goals. A strained relationship can hinder the organisation from achieving its goals. As such, the onus lies on both parties to alleviate the asymmetry of information that exists between them and work together to improve their relationship.

A common goal that many procurement leaders share is to garner the support and trust of their internal stakeholders and customers (Porteous, 2016). One way to achieve this is to demonstrate procurement’s value by investing in regular face-to-face engagement with stakeholders wherever possible. This would nurture the desire in people to want to be involved with procurement, rather than simply having to abide by the standard operating procedures. It is also important for us to use terminologies that our stakeholders are familiar with and avoid procurement jargon. This helps to convey information across effectively to the other party while minimising the risk of miscommunication or misunderstanding. These engagements serve as a platform to build credibility.

Procurement needs to embed a service culture into our way of working. This can begin from a conversation with an end objective of establishing a genuine partnership. To transform, we must show that we C.A.R.E and are willing to get involved.

  • C for Customer experience – Our stakeholders’ experiences can be improved by changing the way we interact with them. The change only happens when we have made an impact to the peoples’ needs.
  • A for Accountability – To be accountable, we need to understand the motivations and drivers of the people around us, and these are so critical when it comes to unlocking their powers in the organisation.
  • R for Relationships – To take our relationships from compliance and savings to be a critical business enabler, it needs to be built outside of work. We need to show that we are now doing things differently, rather than doing different procurement things. To remain relevant, we should not just manage the processes to meet functional objectives. Instead, it is more critical for us to manage relationships to meet business strategy.
  • E for Empathy – This is very important, but hardly mentioned. We do not have the obligation to help others, but our empathy matters to the business. Paying a little careful attention, attending a question with sincerity and exchanging some positive words are ways of showing our empathy. Buyers who display a high degree of Supplier Empathy are also logically more likely to embrace the relational exchange approach than those with a lower degree of empathy (Brandon‐Jones, Ramsay and Wagner, 2010).

Being able to relate with others is just as important as working with them. As the saying by Scott Fitzgerald goes, “To be kind is more important than to be right. Many times, what people need is not a brilliant mind that speaks, but a special heart that listens.”

It is common for stakeholders to want procurement to deliver on these values: savings, speed, quality and efficiency. What is more challenging for procurement is to deliver on the additional expectations:

  • “I am not keen about your procedures, just sort out the maze.” (i.e. putting compliance in order) – Stakeholders are not keen on handling the bureaucracy that comes with procurement practices. As such, they depend on procurement to simplify the processes for them as much as possible.
  • “Tell me something I do not already know.” (i.e. what is new to me?) – Procurement is expected to provide new information or insights that may potentially impact business units.
  • “Have you made me feel special?” (i.e. have you gone beyond your means to make me successful) – Procurement is expected to go the extra mile to value-add and ensure the success of business units.

A crucial aspect of the procurement job is to persuade, challenge and influence the business leaders for better decisions. As procurement professionals, we have to seek clarity and put some thought into these questions:

  • “When engaging the business, have we care?”
  • “Do we know their motivations?”
  • “Do we see our stakeholders as our customers?”
  • “Do we speak their language?” (i.e. growing more business, providing customer value, and driving speed to market.)
  • “Do we examine what their experience is in dealing with procurement?”

Because, ultimately, we do provide a service to them. The truth is that these challenges will not go away unless we make them disappear. Speaking at the eWorld Procurement Conference 2018 in London, Jamie Foster, Group Procurement Director at McLaren Group shared that essence of stakeholder engagement is whether you get along with the other party or not. Foster posed the following question: “If they are walking down the corridor, do you pretend to look at your phone or are you going to engage with them?” (Churchill. F, 2018).

There is no magic trick to win over the confidence of business units. It requires a lot of passion, patience, and perseverance to build credibility with other functions and deliver them success. The extent of the success may be small initially, but it will grow when we become more engaged in business. When we start to win, people will start believing in procurement. This is where collaboration is formed, and collaboration is key to any innovation.

A high procurement performance does not correlate to high customer satisfaction. We must make sure that we are performing on areas that are of real importance to the business. The key factor to customer satisfaction is to focus on business contribution and not so much on our performance. It is only together with our business leaders, can we deliver a truly superior procurement journey. Sometimes, it is not the procurement outcome (performance) that defines our value, but the engagement journey that matters.

THE FUTURE OF PROCUREMENT

What do we see in a procurement role?  We see procurement as a complete business-oriented role. We believe that as procurement professionals we must lead with our heads, hands, hearts and guts.

Firstly, we must lead with our heads to understand the totality of the business and take ownership of it. The head signifies two things:

  • The leader
  • The brain that can understand and process information

The CPO has to behave as if he or she is the CEO of their organisation and to do so, they have to understand all aspects of their business. Only then can they execute their responsibilities effectively.

Secondly, we must lead with our hands. The hands signify the willingness to do work. When more work is done, one gets equipped with credible experience and hence, establishes a healthy record of accomplishment. When you work more on the ground, you will interact and work more effectively with other functions. This cross-functional experience becomes an added advantage when it arms you with finance and legal knowledge. Additionally, we must also be aware of the opportunities and challenges created in Industry 4.0. According to Glas & Kleeman, “Procurement 4.0” is a fundamental conceptual element of Industry 4.0. It connects different supply chain partners and enables dynamic and rapid cooperation that transcends organizational boundaries (Glas & Kleemann, 2016).

Thirdly, we must lead with the heart that values and respects all partners. Having empathy is crucial for procurement people and we need to be able to put ourselves in their shoes. By doing so, we can understand the problems that our stakeholders are facing and, as a result, we will be better equipped to help alleviate them.

Lastly, having guts indicate that we are strong advocates of change management and are unafraid of manageable risks and managing conflicts. Having fear is good as it protects us from scenarios that may potentially sabotage the organisation. However, there is a need to overcome that fear, especially when advocating for a positive change.

Often, in making tough business decisions, procurement is not confined within a fixed set of rules or processes. Instead, we rely on our heads, hands, hearts and guts in making discretionary decisions. Rather than having a transparent decision-making process, we need to set a clear objective of what needs to be achieved and understand the trade-offs. Good decisions come from experience, but experience comes from bad decisions.

Having technical skills will allow you to conduct basic procurement but to be exceptional; one has to focus on building their interpersonal and entrepreneurial skills. The modern CPO should be less of a functional master of procurement, but more of an enterprise leader who manages the business. However, what are the enterprise skills that are relevant to procurement? We would summarise them into the following abbreviation: C.I.P.S.

  • C – Challenge conventions. Critical thinking, Creativity and Curiosity to understand the business needs and market capability, with the intellect to connect both with solutions.
  • I – Innovation, Intuition, Influencing skills, Integrity and Investing in your stakeholders.
  • P – Provoke new thinking. The Passion, Positive thinking, Predictability, Perseverance, Persuasion and People management skills.
  • S – Solve problems. The Service orientation mindset, Salesmanship and Speed-to-sell ideas can help to make procurement successful.

Other than enterprise skills, what are the 4 key attributes to adequately embrace and drive digital transformation?

  • Intellectual curiosity – To deliver faster insights for business decisions, analytical skills will be in high demand. Procurement needs to know how to ask the right “why” questions, detect patterns in data, find cause-and-effect relationships and challenge the status quo.
  • Technology-savvy – Procurement does not need to become data scientists, but we need to be, at least, familiar with new technologies. With that, we can have intelligent conversations with IT personnel and quickly adopt new tools that do not require IT intervention.
  • Business acumen – As a business function, procurement needs to have a thorough understanding of the company’s operations, value drivers and competitive environment.
  • Storytelling skills – Data is the mechanism that makes digital business possible, but the delivery mechanism is a story. Even the best digital technology might not be able to change the mind of the CEO unless the outcome can be expressed in the form of a story, business problem or solution.

The aforementioned attributes might not seem relevant if you have yet to embark on your digital journey but fret not. Like most disruptive technologies, benefits do not necessarily go to the early adopters. Success goes to companies who know how to absorb, adapt and manage change.

KEY TAKEAWAYS

The title that comes with being a high-ranking procurement professional will be reduced to just being a label if that individual does not possess the necessary basket of traits and skills. Procurement leaders need to be bold and act as enablers, on top of being drivers. We can begin with this principle: “Think BIG, Start SMALL, Act FAST.”

Some key take-aways:

  • Remember these 3 buttons which appear on your computer’s keyboard: CTL-ALT-DEL
  • CTL (Control) – Review areas that require more or less control
  • ALT (Alternate) – Always on the look-out for better alternate solutions
  • DEL (Delete) – Be bold to delete unproductive, costly and unnecessary processes that are evident in our procurement culture
  • Digitalisation alone cannot transform any business. We need both human skills and digitalisation to transform our jobs. Digitalisation is not the target, but an enabler. We need to focus on how it drives values and results.
  • We cannot solve our problems with the same thinking we used when we created them.
  • We can only deliver a truly superior customer journey with the support of our stakeholders.

CONCLUSION

Over the decades, procurement’s role has evolved to be strategic and dynamic. Traditional procurement emphasised a lot on delivering savings and this made the relationship with other business units very transactional. Nowadays, procurement is expected to deliver greater value by also contributing to profit maximisation and growth efforts. For the modern procurement function to thrive in today’s time, we have to adopt innovative strategies that enable the business to remain competitive and relevant. Many of the barriers to innovate stem from fears and doubts we subject ourselves to. Technical skills required for procurement can be useful to a certain extent but only by cultivating good behavioural traits can we effectively overcome these barriers. On top of the hard skills, the procurement professionals have to focus on building a cohesive ecosystem where there are trust and transparency, and where effective communication channels are established to ensure the seamless exchange of information between stakeholders. Embracing all of these aspects will deliver success to both procurement and the business.

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