Hybrid procurement operating models: The best of both worlds or the worst?

COE/ SSC/ Org StructuresStrategy & Org Design
Hybrid procurement operating models may create more problems than they solve

Centralise procurement and risk the function’s links to the business, go the other way and lose leverage in the supply market, so goes the conventional wisdom.

 

Hybrid procurement operating structures, which combine a central procurement base with distributed teams of buyers, are designed to strike a balance between global and local governance. Scale and adaptability combined. Yet do they work in practice?

 

By all measures, respondents to a series of Procurement Leaders ‘pulse’ surveys reported hybrid operating structures to be less effective than centralised ones in supporting procurement’s objectives. The analysis found centralised operating structures more effectively supported the generation of cost savings, alignment with stakeholder needs, functional efficiency, innovation rates and more.

 

What’s more, those respondents with hybrid structures were more than three times as likely as those with centralised ones to agree that changing their operating model from its current form would enable them to achieve their objectives faster. While there was insufficient data to make such comparisons with decentralised structures, the findings suggest hybrid models are at best difficult to operationalise and at worst ineffective, comparatively speaking.

 

Amid the disruption caused by Covid-19, savvy procurement professionals will be alive to the opportunities to enhance the function’s value offering. One such opportunity could come in the form a subtle tweak or a wholesale transformation of the procurement operating structure. Prior to tearing up or even tinkering with their models, though, leaders should be clear on the benefits, drawbacks, risks, challenges and trade-offs of the options before them.

 

In theory, hybrid operating models promise balance and agility where centralised and decentralised models offer zero-sum tradeoffs. Yet hybrid organisations can be complicated and confusing and unproductive, as the aforementioned analysis suggests.

 

In cases where there are global-local interdependencies, the relationship between global and local teams is sometimes politically charged. The latter often sees the former as occupying a kind of ‘ivory tower’, churning out policies and strategies without appreciating the sourcing realities on the ground. Reporting lines can easily be mismanaged in hybrid structures, too, making roles and responsibilities unclear, even detrimental to employee’s career development.

 

Yet these are not insoluble problems. Many organisations have found creative solutions to the challenges posed by hybrid operating structures, and indeed centralised and decentralised structures. The common thread running through these examples is that of effective leadership. And no operating structure is a substitute for that.

Harry John
Posted by Harry John

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