There is one characteristic we see that is common to organisations that achieve savings. You might think that it would be a strong procurement team? Or, strong corporate policies? Or embedded technology such as ‘procure to pay’? (As professional associations, auditors and technology providers would have you believe). But the number one element that differs between those organisations that achieve savings and those who do not is…
A strong culture in any organisation can move mountains. It can drive revenue growth, deliver tricky projects and create a positive environment for all staff. It can also be the number one thing that enables effective spend management.
You may have a strong procurement team but it lacks executive support. Very difficult if not impossible to deliver on the remit. If you have the latest technology, the best P2P systems – it amounts to little without compliance. Policies alone are not enough to deliver results. In fact, policies can limit the results that should otherwise be achieved… we see this often but more of that at another time.
For our business, we have always known that culture is important and we invest time and effort on fostering the right culture in our team. We know that internally our culture works however what will happen when we put 180 partners and members in a room together?
After waiting 10 years for a Supply Clusters annual conference, we finally reintroduced the event in August 2019. How would 180 attendees get on? What would the vibe be? …and how would the event represent our brand?
One of the things that blew me away based on the feedback of my team, our suppliers and many of our customers was one simple thing. And that was the culture of everyone who attended. The room was full of open, warm and transparent individuals. All were looking to leverage the knowledge in the room to achieve business outcomes. This was the profile of our customers who attended. This mirrored the profile of our people and what we look for from our partners. We came to the realisation that we were attracting like-minded individuals. Those that had bought into our thinking, our business model and our culture…
The number one factor that delivers savings
Organisations that have a strong ‘savings culture’ behave very differently to other organisations. Culture goes well beyond creating a ‘burning platform’ when the business is performing poorly and leadership is under pressure to put in place company-wide cost-cutting initiatives. A savings culture extends beyond a knee-jerk reaction that applies pressure on procurement and finance teams to deliver extraordinary savings in unrealistic time frames!
Creating focus around expense management can be a challenge. Often especially so for financially strong organisations. Too often, we see businesses with a strong financial history face a sudden change or disruption in their industry. One that places the organisation in an uncomfortable predicament. They now need to shift gears quickly and ‘instantly’ rather than having embedded a savings culture over time.
So what does a ‘savings culture’ look like in an organisation that is performing well? How do you create a savings culture when there is no ‘burning platform’?
The key point is that cultural change never happens overnight… period.
More important, it is much more about having an overarching strategy for managing costs. One that cuts across the entire organisation and backed up by consistent behaviour, systems and processes. The strategy is specific to each organisation based on its goals and objectives. The behaviours are consistent across all job titles and are embodied by the leadership of the organisation. It is not where the CEO flies first class on all flights whilst the employees travel economy on long haul international flights. It requires consistency of behaviour across the whole organisation to ensure a strong culture.
It is also interesting to observe how staff behave and what they are saying.
For example, are staff across the business ‘spending to budget’? Or are they questioning whether there is a ‘return on investment’? Are they saying that they ‘need to spend on this expense’? Or are they asking ‘where else should we consider investing’ or ‘what would happen if we didn’t spend at all?’
So what defines a savings culture?
There are 4 common elements that we see in organisations which work with us that achieve savings consistently:
It is puzzling to see how many organisations have goals or priorities that are not aligned across departments. It is especially frustrating for many of our procurement members. Those that work in organisations where the leadership or policy (or a combination of both) impedes the delivery of savings.
It is important that everyone is working towards the same goal. We see many procurement teams working to achieve savings without executive support to deliver the right outcome. Sometimes months of hard work is undertaken yet dissolves in the final stages. It may be due to an existing relationship at a senior level with the incumbent supplier. If there are suppliers or areas that are “embargoed”, then this should be made clear upfront.
We also see cases of suppliers engaged without the support of managers or leaders to ensure all parties respect the agreements in place. Either no compliance or partial compliance may be the result of a lack of support. Having a procurement function not empowered to deliver what they are doing across the business is wasting time and money.
Do the employees of your organisation have personal accountability when it comes to spending ‘company money’? Do they treat their expenses as though they are spending their own money? Or is it spent with little or no real concern? How often do you hear ‘…put it on the company tab…’
Do your leaders make their teams accountable to the company strategy and culture about expenses? Do your leaders walk the talk? Do they ensure that individuals in their teams are accountable when they are not compliant with a policy or process?
And the key question… Does the executive make themselves accountable to a ‘savings culture’? Or do they enjoy a special set of rules that separates them from the ‘rest’. As with most cultural aspects of a business, the tone is set by the top leaders about what is and what is not acceptable. Spending company money is no different.
Answering these questions will give you an idea of where your organisation sits on accountability.
Now, integrity is one of those words used in company values. You know those aspirational values that look great on a poster on the wall but may fail to materialise…
There is no such thing as ‘corporate integrity’. Only people can have integrity. So we are talking here about the leaders and entrusted individuals who are responsible for making decisions.
For example, if a procurement function has made the call to rationalise supply or change suppliers. Will your business take up the opportunity quickly? Or will it agree at a functional level but allow the decision to be undermined because not everyone agrees?
Far too often, procurement processes become a waste of time simply due to a lack of trust. If procurement is in place as a function, the business needs to trust their decision making. Procurement needs to trust that the business will support its implementation. Even at the risk of making mistakes! Not every decision from any department is right 100% of the time, not even from procurement.
Many years ago, one of my first mentors gave me a very simple piece of advice about execution of a strategy. He said:
“Poor execution kills strategy”
How willing is your organisation to buy into your strategy or initiative? How well have you articulated the benefits to the organisation? Have you considered what an effective change management process looks like? How well will you implement it?
Poor compliance is often a direct result of a poor process, a poor solution or a poor culture. Compliance as a metric does not reveal much about the success or failure of a savings initiative at a point in time. It needs to be measured over a period of time. A better metric you may wish to consider is how long does it take to gain full compliance.
When procurement find themselves battling internal stakeholders ‘who know better’ – a lot of time can be wasted ‘herding cats’. Interestingly, for those of our members who attended our recent annual conference in Sydney in August 2019, compliance was still ranked as a key issue for only 22% of our attendees… So how big of an issue is compliance for your organisation?
Keep it simple
A savings culture is without fail, the defining characteristic to achieve savings. Whether it is led by the procurement team, finance or other leaders – they are supported by a savings culture. One that helps them achieve their targets. It is a culture where procurement is able to act as an enabler and support everyone who is a buyer in the organisation.