Today, procurement must not just find ongoing opportunities to reduce cost, but also mitigate risk, improve supplier performance, improve cash management, unlock innovation, support CSR objectives and a long list of other goals. Those increasingly include ensuring agility in the face of Covid-19 and the next crisis. As the list of procurement’s objectives continues to expand, continuous improvement is essential. It is not just the number of goals but their broad scope that make transformation a must, and a lengthy journey. Success requires mapping the right path, continuously tracking progress and course-correcting along the way.
As renowned management guru Peter Drucker famously said, “if you can’t measure it, you can’t improve it.” Unfortunately, all too often, procurement leaders can’t measure everything they need to or measure it in the right way. When looking at any challenge, it often helps to investigate how the very best operate and what distinguishes them from the rest. So Ivalua partnered with Forrester to take a broad look at Effective Procurement Performance Measurement across over 400 organizations globally. The study showed a marked difference between the performance of the most advanced procurement teams and the rest (categorized as either beginners or intermediates), and similarly noticeable differences in measurement.
The Best Measure More
On average, procurement teams that are most advanced measure roughly 50% more KPIs than beginners (and around 30% more than intermediates). They don’t just measure more, their performance reviews and bonuses are tied to those KPIs.
Now, more does not necessarily mean better. They might be measuring the wrong things, after all. But the gap is driven by measuring more strategic KPIs. Everyone was measuring standard KPIs such as cost savings, spend under management, etc. But more advanced organizations add the measurement of strategic KPIs such as client satisfaction and time to market for new products. If you aren’t measuring such strategic KPIs, the odds are slim that you are driving effective improvements or even incentivizing that behavior.
They Also Measure Better
29% of advanced teams measured KPIs weekly (and over half at least bi-weekly) compared to 3% of beginners and 14% of intermediates. Well over half of beginners (74%) and intermediates (61%) only measured performance against KPIs monthly or far less, some only yearly. Perhaps weekly is overkill, but if you are not checking in at least monthly, I’d argue that you are losing a lot of time to find and course-correct problems.
And the data suggests that the lower frequency of measurement is not a voluntary decision but due to an inability to measure more frequently. When looking at the nature of measurement, on a scale of categories ranging from ad-hoc (worst) to optimized (best), only 6% of beginners and 8% of intermediates said their process was streamlined, compared to 24% of advanced. The numbers flip for ad-hoc and other poor categories. Less advanced procurement teams don’t have the data, processes and systems to make more frequent measurement of KPIs possible. Or, if possible, it is extremely manual and time-consuming.
Getting to Great
So what is holding back so many procurement leaders from improving measurement? And how can they overcome the obstacles and put in place a measurement system that closes or at least narrows the gap with their better-performing peers?
On September 9, I’ll discuss the issues in more depth, as well as the answers to these questions at the virtual SIGnature Event. I hope you’ll join me to listen, ask questions and share your own experiences measuring for success.
SIG's virtual SIGnature Events bring together sourcing and procurement leaders from Global 1000 and Fortune 500 organizations for a day of team training, learning and connecting. SIGnature Events are forums that facilitate best practices and build community so you can achieve your goals and make a difference every day. This is not just another webinar; it is a live online event. Join us!
Alex has spent over 15 years of his career evangelizing Spend Management, shaping its evolution and working closely with hundreds of customers to support their Digital Transformation journeys. As CMO at Ivalua, Alex leads overall marketing strategy and thought leadership programs. Alex also spent 12 years at Ariba, first building and running the spend analytics business as General Manager. He then built and led Ariba’s international marketing team until successful acquisition by SAP, transitioning to lead business network marketing globally. Earlier, Alex was a founding member of Zeborg (acquired by Emptoris) where he developed vertical procurement applications. He began his career in the U.S. Cavalry, leading tank and scout platoons through 2 combat deployments. Alex holds a B.S. in Economics from the U.S. Military Academy at West Point and an international M.B.A. from INSEAD.