High Performance Procurement: Getting More Savings to the Bottom Line, Faster

By Bernie Donachie, Managing Director
Supply Chain

 

 

 

Only a low percentage of chief procurement officers and chief finance officers feel that they have “very effective” sourcing, according to the most recent research we conducted among 400 procurement and finance professionals. Effective sourcing equates to 10 percent or more in savings year over year. Unfortunately, finance executives say only a small fraction of those potential savings ever make it to the bottom line, according to our survey. Operational variables — overspending, changing needs, and buying from unauthorized suppliers — were among the primary causes for suboptimal savings, along with invalid savings assumptions, unrealistic savings projections, and a failure to effectively track realized savings.

Our full survey results will be released later this month, and there are definitely positive and encouraging findings — but they are not the majority. I thought it would be instructive here to examine the responses of self-reported top performers in the three areas below to see what traits they had in common — specifically, how they analyze spending patterns, align with other business functions, and establish an effective savings governance program.

Spend Analysis

Over two-thirds of our top performers consider their spend analysis to be robust and routine. These professionals do not consider analysis as an afterthought; rather, it is baked into their budgets, planning and strategy from the beginning.

Our data suggests that, as companies perform more robust analysis, their ability to minimize financial leakage greatly increases. The categories benefiting most from this trend are duplicate payments, unrealized credits, and paying non-contracted prices.

Notably, over half are using a third-party spend analysis tool, rather than in-house assessments. Clearly, they’ve decided it’s an expenditure that’s worth making, and find, or expect, it to help them drill down into spend data to drive insight, identify savings opportunities, and support budgeting and future planning efforts.

Organizational Design and Relationship

Most of our top respondents have centralized finance and procurement departments. They describe the relationship between procurement and finance as “collaborative decision making.” This relationship is crucial for visibility and understanding of the savings that the procurement team is generating.

Savings Methodology and Tracking

Given the strong relationship between the two functions, it makes sense that almost all of our top respondents feel that their finance and procurement teams are aligned on cost saving initiatives. For this to be the case, initiatives must be clearly conveyed, strategized and executed. Over two-thirds of these respondents felt that the savings from procurement are properly tracked and well understood.

For the most part, the answers of the top performers paint a picture of confidence and solid understanding of the need for strong connection between procurement and finance. For those not yet there, I have the following recommendations:

  • Start with spend analysis. A formal, robust spend analysis is perhaps the most essential building block of procurement success.
  • Consider investing in third-party spend analysis tools.
  • Track and measure savings. Top procurement functions quantify the value they generate, as well as how effectively they document and communicate that value to the rest of the organization.
  • Ensure that negotiated savings make it through to the bottom line. Ultimately, procurement’s objectives should include making the organization more profitable, driving competitive advantage and exerting a positive impact on the bottom line.
  • Understand the value of cross-functional collaboration. Establish a consistent, enterprisewide view of spending and value to help enable sustainable savings.
  • Align with finance. All organizations should assess the extent to which a gap is evident between the two functions and identify ways to close it as quickly as possible.

Our report, complete with full statistics, methodology, and participation by title, will be released later this month. To be notified of the release, click here.

Digital Transformation Success Requires Looking Inward First and Never Wearing Blinders

By Gordon Tucker, Managing Director
Technology, Media and Communications Industry Leader

 

 

 

To stay relevant in the digital economy, technology, media and communications companies must evolve on two fronts: externally and internally. The trick is that they must do both in tandem — and many find this difficult.

External evolution relates to the role the company is playing to help propel the digital wave forward. Namely, what new and game-changing digital products, services and business models is the company innovating and bringing to market successfully? This type of evolution is also about how the business positions itself among its competitors in the digital market and responds to new market demands and rapidly changing consumer expectations. Are those approaches effective? How does the company know?

Internal evolution, meanwhile, is about the ability of the organization to strategically transform its business processes, technology infrastructure, workforce culture and more to compete effectively in an increasingly digital age. Evolving internally is vital to supporting the company’s external evolution. Yet business leaders don’t always make that association.

At some companies, external dynamics — shareholders’ views, consumers’ sentiments, market perceptions about the company’s brand or reputation — are the impetus for external evolution. To respond, these businesses are constantly channeling resources into developing new products, services or campaigns, often at the expense of addressing internal issues that could cause the business to falter, or even fail, over time. Siloed business processes and weak cybersecurity practices are examples of such issues.

In other organizations, too much change is undertaken too quickly, both internally and externally. These businesses launch sweeping digital initiatives that aren’t backed by well-thought-out strategies. They also fail to evaluate the competitive landscape thoroughly. They focus on trying to outpace known and well-established rivals, and overlook or underestimate emerging players that have the potential to disrupt the marketplace and erode their market share.

In both examples, these businesses are making digital journeys with blinders on. One group is focused on short-term wins that don’t spark meaningful or lasting change. The other group is barreling toward a finish line in a race without an end, paying little or no attention to emerging threats and changing conditions in the field around them. In either case, the decisions these companies make are unlikely to position them for long-term digital success. I suggest a better approach below.

Look inward first

Using technology to improve operations internally is one way for companies to further their digital transformation and bring it to a broader scale. Evolving internally builds a safe foundation that can support their external evolution. For example, a business that has the right digital processes in place and is not burdened by legacy IT systems undermining its agility can score a number of operational successes — from simplifying or automating repetitive or labor-intensive business processes to implementing new tools to enhance workforce communication and collaboration. These successes can then be translated externally into the ability to innovate quickly, deliver better service to customers and meet the expectations of stakeholders.

I recommend reading Protiviti’s white paper, Catching the Digital Wave of Change, which explains how the way a business embraces technology can, in turn, help to change the way employees and customers perceive the organization. Change from the inside shines to the outside.

Tear off the blinders

When setting the strategy for a digital initiative, businesses must analyze the markets in which they are operating, as well as the competitor landscape. In their quest to achieve digital transformation, they must be careful not to miss what’s happening in the “ecosystem” around them.

Ron Adner, a professor of strategy and entrepreneurship at Dartmouth College’s Tuck School of Business, explained in a 2016 Harvard Business Review article that the “nature of disruption is changing … [and now] occurring at the level of ecosystems,” rather than at the product or service level. He posited that businesses need to “approach their competitive strategy with a wide lens that captures ecosystem dynamics” if they want to succeed in an Internet of Things world.

Adner pointed specifically to the example of a well-known company that produces imaging products with its historic basis in photography. That company’s long and painful journey to becoming a digital company as an example of what can happen when leadership “does not appreciate the dynamics of the broader ecosystem around it.” The company did not respond fast enough or appropriately to changes in the digital imaging ecosystem, and it cost the company dearly. Adner wrote that the “lesson for today’s leading firms is that risk lies not only in a lack of attentiveness to disruptive change but also in embracing the wrong part of the change.”

I don’t have much more to add to Adner’s insight other than to say that wearing blinders — not looking at the whole picture — in the digital era is likely to cause a company to lose or never find its way. Businesses may miss the right moment to pursue transformation or make the wrong decision about how and what to change. And no matter how innovative the business may be today, if it’s focused only on achieving one type of change or pursuing only one goal blindly, it’s bound to be overtaken or pushed off the track by competitors in the future.

Retailers, Tech Firms and Financial Services Providers: It’s Time to Shape the Future of Mobile Payments — Are You Ready?

By Gordon Tucker, Managing Director, Technology, Media and Communications Industry Leader; Rick Childs, Managing Director, Consumer Products and Services Industry Leader; and Jason Goldberg, Director, Financial Services Business Performance Improvement

 

The global mobile payments market is projected to reach US$780 billion by the end of 2017, according to research firm TrendForce. That figure seems impressive until you consider that the ability to pay for goods and services with a mobile device has been a reality for years. It’s been nearly a decade since Starbucks, one of the biggest mobile payments success stories to date, launched its app and rewards program. And recent research by the Mobile Economic Forum found that one-fifth of global consumers have made a mobile payment in-store. Given the exponential growth in smart device innovation and adoption over the past decade and consumers’ inherent desire for convenience and speed when making a purchase, it is logical to think that the mobile channel would dominate as the avenue for payments by now. It’s where we’re headed, to be sure. But some formidable obstacles have been impeding the growth of the industry, such as:

  • Persistent concerns about fraud, privacy and security: Even though most consumers are aware of “digital wallets” — apps on smartphones that store credit card information and facilitate mobile payments — many remain wary of the risks. Fraud has been a problem, with weak authentication practices and identity theft at the root of many incidents — including those involving well-known brands like Apple Pay and Samsung Pay.

Consumers also worry about how companies are collecting and using data, including purchasing history and even geolocation. How and if that sensitive information is being protected from hackers is yet another concern. Tokenization helps to secure valuable transaction data, but data stored in digital wallets or merchants’ payment systems may still be vulnerable. Also, new entrants to the market may lack the security sophistication needed to protect sensitive data from compromise.

  • Bad timing: When solutions like Apple Pay, Google Wallet and Android Pay were being rolled out by mobile manufacturers and tech providers a few years ago, EMV chip card technology was also hitting the market. Retailers were initially confused, and frustrated, about whether to adopt mobile payments or EMV chip card technology. Most prioritized the latter. Now, adoption of that technology is near-universal in retail, even though EMV chip card transactions are slower than mobile payments or even traditional credit card payments.
  • Lack of a consistent experience: Merchants of all types have been racing to launch their own digital wallets. But it is unlikely that many will achieve long-term success with their ventures because consumers are already overwhelmed by choice in the market. Plus, these offerings are diverse, which means the mobile payments experience for consumers also varies. That works against efforts by retailers, and the mobile payments industry to engage consumers and convince them to pay with their smart devices at every opportunity. And there’s another ingredient for mobile payments success that not all retailers can capture: A key reason that apps from brands like Starbucks, Taco Bell and Dominos are so popular is that consumers do business with these retailers frequently — sometimes daily.
  • The fact that old habits die hard: One more dynamic that’s working against mobile payment adoption is the simple fact that it’s still easier and faster, in most cases, for consumers to pay for goods and services with cash, debit card or credit card. They’re comfortable with these methods, so they’re in no hurry to change. And many businesses that offer mobile payment options fail to do enough to incentivize consumers to make the switch — for example, they don’t provide compelling rewards to customers who use their app frequently.

A Growing Swell of Expectations From Consumers

The picture is not all bleak. There are other strong trends in motion that will help to drive mobile payments innovation as well as consumer adoption and use of these solutions. Here are some of the dynamics to watch:

  • New shopping trends will help mobile payments grow — a lot. Showrooming — where consumers examine merchandise in a traditional brick-and-mortar retail store or another offline setting and then buy it online, sometimes at a lower price — is just one example. It’s a retail experience that’s made for mobile — and it’s expanding as large e-commerce players like Amazon and Microsoft get in the game. Retailers can use mobile payment apps to incentivize shoppers to buy items in the store by offering discounts, special rewards or free delivery.
  • Mobile shopping apps are becoming more experiential for consumers. The core purpose of a mobile payment service is to facilitate transactions, of course, but that’s not enough to engage a consumer. Mobile shopping apps are evolving to help customers discover and research products before they are at the store and then help them locate those products while they’re in the store. These apps can also store shoppers’ receipts, gift cards and shopping lists; present discounts and coupons; enable comparison shopping; make the checkout process simple and fast, and more. Look for customer loyalty programs to evolve, as well; for instance, using data insights, a retailer could offer individualized incentives to mobile shoppers and reward them for specific behaviors.
  • A friction-free experience is becoming an expectation, fast. Mobile payments success hinges on creating a simple, seamless, value-adding and branded customer experience. Leading players in the person-to-person (P2P) payments space are setting the standard for the frictionless consumer experience — and winning over mobile-minded millennials. Recent research from Bank of America found that 62 percent of millennials use a P2P service.

Entrants in the P2P space are also focusing on the back end, trying to simplify operations and bake in security wherever possible without undermining the consumer experience. Good infrastructure that supports a secure and seamless customer experience is essential to the future of mobile payments. In the coming months on the blog, we’ll be exploring topics that retailers, technology companies and financial services providers, specifically, should consider when developing their mobile payments strategy. These topics include operational effectiveness, risk and compliance issues, technology strategy, and security and data privacy. Each of the industries mentioned above has an important role to play in helping to shape the evolution of the mobile payments industry. It will be through their collaboration, cooperation and innovation that the mobile payments experience can become what businesses and consumers alike envision it can — and should — be.

The Power of Small Changes in Pursuing Digital Transformation: A Retail Perspective

By Rick Childs, Managing Director
Consumer Products and Services Industry Leader

 

 

 

Adaptability has always been critical to retail success. But in the digital era, where disruptive change is constant, many retailers find it difficult to evolve fast enough to remain competitive — let alone relevant. That is especially true for companies burdened by the weight of legacy business models, inefficient back-office processes and outdated technology infrastructure. A proof point: The massive wave of brick-and-mortar store closures seen so far in the first half of 2017 involving many well-known retailers that simply didn’t adapt fast or well enough to change.

Most retail executives recognize that their businesses need to embrace digital transformation if they are to survive. These leaders yearn to get ahead of the curve — or at least, ride along with it comfortably — but struggle to create a viable digital strategy. One reason for the struggle is that digital transformation is a nebulous concept. It’s vast and complex and evolving. Discovering and defining what digital transformation means and looks like for the business is a journey for any organization, particularly one encumbered by a legacy business model with longstanding brand promises.

To bring digital transformation into focus and develop viable business strategies around it, it helps to understand the four key drivers for pursuing this type of change:

  • Improving customer engagement
  • Digitizing products and exploring new business models
  • Improving decision-making
  • Driving operational efficiencies

These are major challenges for any business, but retailers are under relentless pressure to deliver consistently on all fronts. Many become fixated on trying to develop and execute a sweeping digital transformation program but end up overwhelmed and falling further behind the curve instead. That’s because a do-everything-at-once approach is not realistic. It places additional stress on an already hectic business and results in the company overlooking the value of achieving substantive change through smaller, value-adding steps.

One example of an incremental step is the move to mobile technology for retail audits. While not one of the flashiest digital transformation initiatives and not necessarily a strategic move by any means, it nevertheless allows technology to be used to create more efficiency in back-office processes. And greater efficiency can increase operational effectiveness for the entire organization.

More than a decade ago, Protiviti forecasted that internal audit functions in retail would expand their use of mobile audit technology to streamline processes, increase analytic capabilities, and supplement traditional store audits with continuous monitoring and standardized store self-audits. In our most recent report on this topic, we note that “… the adoption rate and maturity of mobile audit technology have increased to the point where retailers not actively pursuing mobile store audit technology initiatives risk falling behind regulatory and shareholder expectations.”

Here’s a quick look at some of the ways that this simple but important technology change in the back office aligns fundamentally with the four drivers of digital transformation:

  • Improving customer engagement: Internal audit’s “customers” are business owners. Mobile technology for store audits helps to streamline and accelerate the audit cycle. That helps to improve the experience for auditees and keep them engaged in the process. And by making the audit process more efficient, the business can address risks and make improvements to external customer-facing processes more quickly, ultimately creating value for the retailer’s external customers, too.
  • Digitizing products: An automated mobile solution for store audits can eliminate paperwork, delays and errors. Audit findings also can be analyzed sooner; data is entered only once at the store into a web-based reporting system that delivers real-time results.
  • Improving decision-making: Store audit technology can provide management with instant feedback on current store performance as well as real-time insight into compliance trends. Organizations can use that insight to detect and resolve ongoing problem areas before they become insurmountable issues, and improve the company’s overall performance.
  • Driving operational efficiencies: As we note in our store audit technology report, “Self-assessment, coupled with improved productivity from a mobile reporting solution, not only allows auditors to physically audit more stores, but also effectively increases audit reach to all locations by providing convenient, easy-to-use means of comprehensive store-level data collection and analysis.” This is what operational efficiency is all about.

While the retail industry’s general adoption of mobile technology for store audits has been years in the making, increased regulation and compliance changes over the past 10 years have created more of a pressing need for a digital solution. It’s an important reminder that real change takes time and is brought about by necessity, even in an era of rapid digital disruption. It is also a reminder that each thousand-mile journey begins with a single step.

Strategic back-office technology improvements are one such step. Such changes can add significant and lasting value to retail businesses in multiple ways. They can also help retailers become more agile, creative and adaptable — qualities that are essential to achieving digital transformation on a broader scale.

Proving Procurement’s Value to Stakeholders: Show Them the Money

By Tony Abel, Managing Director
Supply Chain

 

 

 

There is no doubt that procurement organizations deliver value, through strategic sourcing, category management and other means. What distinguishes procurement organizations perceived as top performers from the rest is how well they quantify the value they deliver to the company.

Recently, I had the opportunity to moderate a panel discussion about the challenges of demonstrating procurement’s real value to the rest of the organization. I was joined by Kathi Cox, Senior Director of System Integration and Innovation with Texas Health Resources; Richard Waugh, Vice President, Corporate Development with Zycus; and Rene Urbina, Vice President, Finance Shared Services with Curtiss-Wright. Below, I want to share some of the key takeaways from our discussion that attendees found helpful.

Develop governance structure upfront
By creating a governance structure early on, procurement organizations can obtain buy-in from the main players by having them at the planning table rather than trying to gain their support after the fact. Procurement, finance and business unit stakeholders should form a cross-functional team and collaborate to create a cohesive procurement process that leverages the right tools and expertise. By developing the governance structure in this manner, procurement can demonstrate its real value upfront, rather than having to prove it later.

Use the right tools
Once the organization has designed and implemented an effective savings methodology, it’s important to solidify and retain the benefits of the deployed solution. There are procurement technology solutions that support end-to-end, source-to-pay functionality, including capabilities that support the management of an effective savings methodology. The right technology can demonstrate procurement’s value by increasing visibility (though automated access) and allowing everybody involved to be on the same page.

Have ongoing tracking and reporting
While transparency and collaboration throughout the procurement process are both extremely important, tracking and reporting are most critical to its continuing success. If the benefits generated by procurement, or even a particular sourcing event, are not tracked and documented on an ongoing basis, questions will be raised, such as:

  • Were the estimated savings ever realized?
  • Why is my budget being reduced, when the reductions in cost are not visible to me?
  • And ultimately, why do I need to work with procurement on this?

The discussion doesn’t end here. In addition to the takeways above, during the webinar both Kathi Cox and Rene Urbina shared their first-hand experiences with developing a savings methodology and a governance structure, and how that helped realize benefits for their respective companies. You can access the free recorded version here. For even more insights, download our white paper, The Dollars and Sense of Procurement’s Real Value.

From Tiny Tech to Populism: Latest Issue of PreView Scans the Global Risk Horizon

jason-dailyBy Jason Daily, Director
Risk and Compliance

 

 

 

Imagine a DNA-programmed nanoparticle capable of hacking cancer cells, a plankton-sized carbon tube that can remove pollutants from water, or food packaging that changes color in the presence of dangerous bacteria. Nanotechnology, with a market predicted to reach almost $13 billion by 2021, has the potential to change the world, and every industry — from healthcare to the military — has a stake in its advances.

Use of Nanomaterials by Industry

With that potential, of course, comes risk. Nanotech may be applied in controversial ways — such as surveillance, or weapons capable of attacking people, plants or livestock at the molecular level. The technology is not visible to the naked eye, raising concern among some, who worry that self-replicating nanobots could destroy the planet if not properly controlled.

Nanotech is only one of the macro-level trends we’re watching as part of Protiviti’s ongoing PreView global risk series. We evaluate emerging risks according to the five global risk categories established by the World Economic Forum. In the January edition, in addition to nanotechnology, we consider the risk of a global water crisis and the “morality” of thinking machines, and we look ahead at the risk of marching populism and what cybersecurity means on a national and global scale.

WEF Global Risk Categories

The flip side of risk is opportunity. While governments and industries grapple with the shortage of fresh, clean water, particularly in developing countries, opportunities for water applications of nanotechnologies abound. As artificial intelligence increasingly replaces humans in making key decisions, opportunities to improve the underlying algorithms can translate into market share and increased profits for the early movers. And finally, with cyber the new warfare, governments and companies have an opportunity to stake a claim in the cybersecurity space by designing products, as well as policies, that protect both digital assets and societal freedoms.

Several of the topics in our current issue are a continuation from previous issues. This trend will continue, as the risks we are keeping an eye on evolve over time and their implications change, sometimes quickly. Whether continuing or newly emerging, such as populism, all of these risks are fascinating to follow, and imperative to take into consideration in mapping long-term business strategies. That’s probably one reason why our PreView series is among our most popular publications.

I encourage you to both read and share our latest issue with your board and executives, to spark discussion and help ensure these emerging risks are part of risk discussions. And, we encourage a discussion here as well. Tell us what you think in the comments.

Navigating Risk and Complexity by Integrating Contract and Supplier Management

chris-monk-croppedBy Christopher Monk, Managing Director
Supply Chain

 

 

 

Most organizations spend between 30 and 70 percent of their revenues procuring third-party goods and services. This level of expenditure can present significant opportunities to drive operational performance, value and innovation if managed effectively – or it can pose a significant risk if left unmanaged. To realize the former, contracts that govern these transactions and the management of these contracts – and the supplier relationship as a whole – must be viewed as an end-to-end, dynamic process, with risk considerations at the center of it.

I recently spoke about this at a webinar Protiviti co-presented with Determine, Inc. and the International Association for Contract and Commercial Management (IACCM) titled “Improving Business Outcomes by Managing the Link Between Suppliers and Contract Management.” Without summarizing the entire discussion here, I want to call out below the aspects of contract and supplier risk management I consider the most important, along with advice on how to avoid common mistakes.

Sourcing and Supplier Selection

Selecting the right supplier is all about striking the right balance between time, cost and quality – and most importantly, risk. The likelihood and impact of various risks – operational, legal, reputational, compliance, etc. – stemming from a particular supplier need to be understood and addressed before or at the time the contract I signed. In an end-to-end process, it also means that the company needs to consider the four factors of time, cost, quality and risk past the sourcing process and into the drafting of the contract, as well as throughout the lifespan of the contract and the ongoing management of the risk and performance of the supplier.

Contract Management

Often, companies spend countless hours and resources drafting an extensive contract only to end with no clear hand-off and no clear accountability as to who is managing the contract. In an end-to-end process, the hand-offs at each point are clearly defined, taking advantage of workflow and master data to connect contracting process activities and provide validation, or linkage between the supplier profile and the resulting contract. A contract performance plan (CPP) can help summarize the key terms of the contract, including which elements need to be monitored and measured, against what criteria and by whom.

Supplier Performance and Risk Management

The deal is done, now what? Now, whoever is responsible for managing the contract has to track the supplier’s performance and ongoing risk exposure. Performance is easier to manage as long as the contract is well-written and clearly defines scope, objectives and deliverables. Risk, on the other hand, is dynamic and needs to be monitored and managed continuously.

To manage supplier risk effectively, it helps to differentiate between contract owner and supplier relationship owner, each of whom owns the risks respective to the particular contract or the relationship overall. When it comes to managing risk, the contract itself is not enough to rely on, as the risk environment on the day the contract gets signed is not necessarily the same as the risk environment several weeks or months later. For this reason, it is important to have ongoing visibility into the supplier and contract. All facets of contract and supplier risk and performance need to be accessible by the business. An effective way to manage supplier risk is through exception management – with alerts and thresholds when action is needed, as well as with dynamic workflows, based on either event- or milestone-driven activities.

As with many other areas, the effectiveness and value derived from supplier relationships hinges on the successful intersection of people, processes and technology. The processes and organizational structure outlined above must be fully enabled by technology that allows for robust and scalable contract and supplier management processes. Technology was covered in detail during the webinar, so I recommend listening to the entire discussion online.