Traditionally, one of the inherently daunting challenges in Procurement and Sourcing is to quantify and report on cost savings, cost avoidance and/or cost reductions, which can be collectively referred to as "added value." One very effective way that I have been able to successfully communicate added value and metrics to many C-suite members is by positioning it in a different way. I have found that by using the terminology and calculation for “Equivalent Revenue,” it is generally better received. Since it is a much more common business term and quantification, the C-suite can relate to it and it can be directly measured against the company’s overall revenue. As such, it is more widely accepted than trying to describe such value as only cost reductions or savings.
Perhaps most importantly, it is really as simple as taking the actual quantified “added value” and dividing that figure by the company’s overall net profit. A quick example: If the total aggregate added value amount is agreed to be $10 million, and the company’s overall net profit margin is 8%, the Equivalent Revenue needed to generate the same amount of that net profit would be $10 million divided by 8%, which equals $125M. By representing the figures in this light, C-suite members can readily identify and appreciate how much time, effort and expense would be needed to generate the same amount of sales revenue, and therefore clearly recognize the importance of an efficient and effective Procurement and Sourcing organization.
Guest Blogger, Dave Gallaer, Head of Procurement and Sourcing, NatWest Markets/Royal Bank of Scotland Securities, Inc.
Of the many laws that affect the international outsourcing space, one of the most important must be that of diminishing returns. At its heart outsourcing is about efficiency – a provider can only offer a decent value proposition, and turn a profit, if it can achieve a desired output more efficiently than can a would-be buyer of its services – and yet there’s only so much money in the hypothetical pot to invest in driving efficiencies: as a very basic example, if one can spend $x to achieve 10% savings, by the fifth investment of $x the savings made are only around 60% of what was achieved with the first tranche. The returns diminish. After a while, it becomes less and less worthwhile to invest $x in that project, when the same amount put into another deal can yield significantly more.
Finding the right balance between investment and returns (and knowing where is the line beyond which further investment will yield returns too paltry to justify) is vital in any business, but especially one as efficiency-based as outsourcing, where relationships have historically often featured buyers demanding constant and consistent efficiency gains and savings – and, moreover, where the necessary investments in technology and people can be gigantic. Hence the desire on the part of providers to share the value gained by any given investment across as many clients as possible – and the complications resulting from buy-side demands for bespoke work and customisation without a simultaneous understanding of why this of necessity means higher costs, which need to be passed on somewhere, somehow…
For the past 60+ years, the standard joke about Artificial Intelligence (AI) has been that it is “the future.” In 1950, Alan Turing questioned whether machines could think like humans…and less than ten years later, Marvin Minsky founded the AI lab at MIT. For decades, people tinkered, pondered and philosophized about robotics. Factories installed automation to remove workers from redundant tasks…but advancements in office settings didn’t progress at the same level. People hypothesized about flying cars, but few could imagine cognitive computing. I think it’s finally safe to say that the future is now. AI and Robotic Process Automation (RPA) are no longer conceptual ideas…they are business strategies that will continue to impact our lives in radical ways.
A recent Forrester study predicts that by 2021, 6% of U.S. jobs will be replaced by robots. While it may not sound like a lot in the grand scheme of things, consider that it represents growth from 250 million in 2016 to 2.9 billion in 2021. Sure…we’ve all dealt with AI and technological advancements already: call centers that put us through a series of (irritating) steps before you can finally talk to a human; travel aggregators that find the best deal across all airlines…ads that stalk you online after one quick search for a new printer…but until recently, it was hard to see how it would really affect the world of sourcing and procurement.
The word “revolution” gets thrown about a fair bit at present (not least by me…) when discussing the new wave of automation technologies which are transforming the way organizations do business. But are we talking about “revolution” or “evolution” – sudden and dramatic, or gradual change? Well, it’s a bit of both: the technology itself is evolving. We can trace, for example, the evolution of IBM Watson back to the Deep Blue chess computer which beat Gary Kasparov back in the mid ‘90s...which can in turn be seen to have evolved from its predecessor Deep Thought...which itself was a successor to ChipTest (developed in the 1980s at Carnegie Mellon University)...and so on, back to Turing and beyond. While there have been revolutionary moments along this path – the transistor, the integrated circuit etc. – it’s clear that this is an evolutionary sequence, at a pace which may seem very far from “gradual” to those who’ve been alive to observe it but which, nevertheless, consists of successive advances built upon what’s gone before.
With a new U.S. Presidential Administration, I have been thinking a lot about the future of my little nephew, who is just a toddler now. Like other aunties, I worry about the longterm impact of current votes on our Earth, our communities and our economy. My nephew is considered a "Centennial.” I thought I'd take a moment and learn more about the Centennials and what tools they will have to combat some of these "orders" and "choices."
Centennials, or Generation Z, are kids born in 1997 or after. They are 25% of the population of the United States (about 78 million people). Nearly 48% of them are minorities. They seem to have an excellent grasp on the challenges they face in their generation; those of decreasing environmental resources like water and increasing cultural issues like religious wars. They have learned that being different is okay. They have learned not to be too risky. However, they have also learned to adapt by working around challenges and building their own solutions. Remember, this is the first generation to live entirely with the internet. They have been surfing the web their whole lives. So this makes for a more serious, more open-minded person, albeit with a short attention span.
Mary Zampino, Senior Director of Global Sourcing Intelligence, SIG
At dinner recently, a guest held us all entranced as he described his current work: a post-doc at a prestigious London university, he has been working for nearly two decades in artificial intelligence (AI), specializing in trying to teach computers how to teach other computers. While much of his work is simply too esoteric to explain here (that's my code for "it went right over my head"), what was very obvious to me was the extent to which things have advanced since we first met - as he was just setting out upon his journey in this field - and how rapidly theoretical advances are becoming practical innovations which then, in turn, move out into the mainstream. Problems he and his peers were wrangling with only a few years ago now seem like ancient history, he said, and while "the future is always infinitely far away, tomorrow seems closer than ever."
If any of us at the table had had any doubts before that we're on the verge of tremendous social change as a result of automation and smart technology - and I don't believe anyone did have such doubts (as one would have to have had one's head thoroughly buried in the sand not to be aware of the whirlwind approaching us), they would have been thoroughly dispelled by the end of our companion's passionate and impressive address. But, of course, how to react to the automation revolution is immeasurably more difficult than simply to assert that it's coming...
As a marketer, I know the value of branding. The largest and most successful companies in the world have teams of people dedicated solely to branding. Branding is no longer about using the same logo, trademark, tagline and/or color scheme on all your marketing material. Branding is composed of different components including: brand identity, brand image, brand character, brand culture, brand personality and brand essence. Marketing agencies and consultants charge anywhere between $75,000-$250,000 to develop and manage a company’s brand.
Now here’s the kicker with branding that every marketing professional will tell you – they have no idea how it impacts their bottom line. Branding is the most difficult type of marketing to measure because you can’t easily quantify it. So, why are organizations across the globe spending so much money and time on branding? Quite simply – effective branding creates consumer confidence. Establishing a brand with a clear voice and values will enable your consumers to be loyal and confident when they buy from you. People have a natural desire to evolve with a brand whose products and services help give their life or business meaning and significance.
It’s not just businesses that need to focus on effective branding. If you care about your future as a professional in the world of work, you need to focus on your own personal brand. Personal branding is critical to establishing who you are and what you represent to those around you, the equivalent of a company’s consumers. They are your employer, your manager, your co-workers, your peers and anyone else that comes in contact with you in a professional setting. I’m not just talking about ensuring that embarrassing picture from your cousin’s wedding isn’t visible on Facebook... I’m talking about preparing for the future by branding yourself as a leader in your industry now.
As February started, an important conversation got underway: SIG was back in the City of London with a highly engaged group of procurement professionals to explore the latest trends and topics that are shaping their world.
The role of the CPO has come a long way over the last 20 years and change is exponential; happening across the what, how and who of procurement
What: organizations are buying new products and services (everything "As A Service," digital and digital-enablers, RPA and other automation tools and services)
How: new tools and techniques are being deployed in procurement both because these new products and services need to be acquired in new ways and to drive productivity and effectiveness through analytics and better insight
Who: a growing millennial workforce and digital workforce presents new opportunities and challenges for operational management of services
A recent study from IBM shows that the highest priorities for the CPO are to contribute to revenue growth, to drive innovation across the supply chain and to protect the enterprise brand. Cost is mentioned nowhere, but more because it goes without saying and not because it is no longer a priority.
So, the CPO and their teams are making a strategic contribution to the organization but still find themselves a step removed from the centers of power as they report in through another function and are rarely represented on the board. In a period of exponential change is this procurement’s opportunity to rise to the challenge and enable safe, profitable, innovative growth to earn their place on the top floor?
I’ll admit it. I was pulling for the Falcons. Even though I lived in Atlanta for six years, I didn’t really have a stake in the game—I was never a big fan. It’s not that I’m not into sports—I was a huge Braves fan when I lived in Atlanta (when they went from worst to first) and I can tell you the names of every Golden State Warrior who was traded for Kevin Durant. Seriously. But this Super Bowl for me was a little like the election—I was rooting against one team more than pulling for another.
Now picture this…we’re watching the game at a friend’s house. We wisely recorded it so we could enjoy the good commercials and skip through the bad. It’s the 3rd quarter and the Patriots finally score a touchdown. Knowing that the Pats would still need two touchdowns, two 2-point conversions and a field goal in order to TIE the game, the odds were against them. Seemingly impossible. Now fast forward to the final two minutes. Under Tom Brady’s leadership, they’ve tightened the score to 28:20 and are driving the ball. And then it stops. What?! The DVR had STOPPED RECORDING THE GAME. That’s right. One of the best 4th quarters in Super Bowl history and the only one to ever go into overtime and we missed it.
To say I was shocked by the outcome would be an understatement. Atlanta had controlled most of the game. But as I reflect on the day, I can’t help but think of the valuable lessons it reinforced:
Last week I had the honor of giving the closing session at SIG’s latest event on my side of the Atlantic: the SIGnature event in London, hosted by Mayer Brown. At that event, Peter Dickinson, global co-lead of Mayer Brown’s Business & Technology Transactions practice (and a great friend of SIG) gave a fantastic presentation in the morning on “Reimagining Sourcing for the Digital Age” where he looking at emerging technologies and services, the benefits and challenges that they provide, and why a new approach to sourcing is required when it comes to operating in this brave new world.
Sourcing and outsourcing lawyers benefit from a very useful – if hard-earned - combination of perspectives, in that they are as deeply immersed as anyone in the minutiae of specific deals while at the same time needing to maintain as broad an understanding as possible of the macro-level trends and developments driving the evolution of the space: it’s impossible to serve a client adequately, let alone superlatively, without knowing what’s happening far beyond the confines of one deal and/or partnership. Peter demonstrated to our London attendees just how potent that mix of perspectives can prove with a fascinating “state of the nation” address examining how the key emergent technologies are driving change in the outsourcing landscape, in how providers are serving their clients (and who’s doing both buying and selling), and in how corporate strategies and behavior are being transformed by an extraordinary complexity of overlapping factors – all illustrated on a micro level by well-chosen examples pulled from the extensive experience of Peter and his team at Mayer Brown.