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Procurement Leaders invites Deutsche Bank’s VP global sourcing Justin Pennington to explore how procurement functions can shape and improve much needed credibility across their wider organisation. Following his first post on building confidence in procurement’s numbers, here he looks at the relationship between complexity and benefit delivery.
Several years ago, I was introduced to a wonderful book by John Ward and Elizabeth Daniel, which examined how to drive greater value from IT investments1.
One of the central themes to their thesis, was discussing the need for greater emphasis on understanding the benefits-dependency of complex projects. Their hypothesis was that if we spent greater time identifying the critical enablers for successful delivery and weaved these into the early approval stages of a project, then initiatives would have a higher success rate of delivery vs. the originally intended benefits.
Within the procurement world, the success formula’s used to be quite straightforward - change the price (A), multiply it by the items purchased (B), and we would automatically capture savings to the bottom line (C). As the value proposition of procurement has expanded, the complexity in procurement-related projects has increased too. How many times have procurement organisations had to respond to issues of credibility, associated with savings not being delivered on time or in full?
One of the major factors for this is due to the interdependencies that are now present between discrete organisational functions - how many variables now influence whether an initiative actually delivers the forecasted value?
This brings us full circle to that hypothesis set out by Ward & Daniel around benefits dependency, and that is why we still see instances of procurement solutions still primarily judged and implemented on one dimension – a notional savings figure. As an industry, we are in danger of not fully examining an expanded set of variables when judging procurement business cases.
How powerful would it be if we begun analysing projects based on perceived cost and an increased understanding of complexity?
With the advent of Total Cost of Ownership (TCO), procurement professionals accepted the need to consider supply, demand and governance as levers to successfully lowering costs. Procurement business cases should therefore reflect this complexity, and ensure that we minimise risk to financial delivery and resource redundancy. If we took a typical life cycle of a project from inception, approval, implementation and benefits delivery, then the approval phase holds a critical juncture for ensuring adoption of the solution as planned.
Key dimensions that should be answered, and have an associated complexity, will create a more holistic picture of what needs to happen to ensure a high yield vs. the business case:
These qualitative questions are somewhat less of an issue in traditional supply-side projects. As we expand into TCO though, where a large end-user base can significantly impact the aggregated savings, these checks and balances must be agreed, adopted and implemented prior to launch.
If we are able to implement standards around how these are analysed, and ensuring consensus at the critical point in the decision process, we can create a value chain that becomes repeatable, predicable and enduring – the very tenets of credibility.
1John Ward & Elizabeth Daniel (2006) Benefits Management. West Sussex: John Wiley & Sons.
Justin Pennington is vice president of global sourcing at Deutsche Bank. Follow him on Twitter: @JLPennington.
The views expressed in this post and throughout the series are Justin’s own and not intended to reflect the views of Deutsche Bank or any associated organisations.