When Protiviti conducted a procurement survey, Bridging the Gap Between Finance and Procurement to Maximize Value, in 2017, the responses of organizations in the financial services industry (FSI) appeared to suggest that the industry has been the most successful among the industry groups represented in the survey at finding the balance between procurement and finance. On closer inspection, however, two challenges remain for FSI enterprises to address in order to effectively bridge that gap: Many midmarket organizations are not hitting their savings targets, and large banks that claim to have the maturity, capability and collaboration necessary to see savings drop to the bottom line are still not seeing the result.
The Data
The data, which is not included in the published report but is presented here for the first time, shows that 82 percent of FSI respondents feel that their organizations are managing direct costs, or operating expenses, effectively. Slightly more (85 percent) of these respondents believe they are effectively managing indirect costs. And 80 percent of industry respondents feel that their sourcing process is effectively delivering value and cost savings.
These statistics are promising, especially when compared to those compiled for other industries. But challenges remain. Although well over half of the respondents provided positive replies, others do not feel that they have effectively managed operating expenses or indirect costs, or a sourcing process that delivers value and cost savings.
Even some of those who gave positive replies do not feel that a significant percentage of savings fall to the bottom line. Sixty-eight percent of respondents believe that less than 40 percent of savings achieved by procurement show up as bottom-line savings. Only 4 percent estimate that 80 percent or more is actually showing up as bottom-line savings.
Call to Action
In order for the financial services industry to overcome procurement challenges, organizations must first understand why their savings are not materializing as net income. According to our survey, the top three reasons are:
- Lax enforcement of budgets, and savings being spent in other areas (48 percent)
- Invalid savings assumptions, or changes in the assumptions used to calculate savings (33 percent)
- Ineffective tracking of realized savings (31 percent).
These findings indicate that procurement functions need to enhance their performance in several areas: Firms should start with a robust spend analysis and consider investing in third-party spend-analysis tools, which, according to the survey, have served leading financial procurement departments well. A further differentiator for leading financial services organizations’ procurement functions is how well they quantify the value that they generate and how effectively they document and communicate that value to the rest of the organization. Leading organizations also have integrated procurement and third-party risk management programs, understanding that these are related and not separate processes designed for minimizing risk and maximizing value. For further elaboration on these points, see my colleague Bernie Donachie’s post.
The general message of the survey is that closing that gap between finance’s and procurement’s respective views of procurement performance is essential for maximizing savings. You can download the procurement survey report here. For specific industry insights from our survey, leave us a comment or contact us on our website.
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