Spend Management Maturity: Hackett Dials Up the Amp to "Eleven" (Part 1)

Jason: Could you give some context to Spend Matters readers about your new capability maturity model: How the heck is it different from all of the other triangles, ladders, 10-step plans, etc. that everyone else publishes as well?

Pierre: In creating our model, we were looking for a way around how to organize true best practices. This starts with specific capabilities which either an organization has (or does not) and measures these capabilities relative to the level of returns or excellence demonstrated. We also wanted to push the limits of thinking at the top levels of performance past the norm today.

Jason: To your last point, you show your past as a child of the 1970s and 1980s by describing how the new model goes to 11. Spinal Tap analogies aside -- and don't spontaneously combust on me here -- what is so special about your final stage, Stage 4? Why does it really go to 11?

Pierre: First, let's do a level set on the maturity model. The four stages are reactive, planned aligned and strategic. The first three should not be news to organizations, though I hope the details we provide go beyond what is available elsewhere. The fourth level, strategic, is different (pardon the lack of creativity in the name). Rather than take an inside view of procurement, it looks at what's possible -- how do you go the other way and look at procurement as change agent of the business, taking into account how supply markets can change business strategy. Ultimately, this means getting procurement into the business strategy process. In other words, as we describe it in the actual, model, strategic organizations be beyond "just reducing spend" and instead look to harness "the power of supply markets to maximize the value from that spend and to both enable and influence business strategy and tactics."

Jason: That's heady stuff. Who is there today, if anyone?

Pierre: Very few organizations -- even World Class ones, as defined by our methodology -- are closing in on levels 4 and 5 today. For Level 4, many organizations have set up "customer account management" processes and governance models versus just fragmented stakeholder management processes led by disparate supply-centric commodity teams. It's sort of how management consultants organize with industry-focused relationship partners backed up by functional practices serving as the centers of excellence -- although many Procurement organizations might not like the analogy of being compared to consultants! An example company is Alcoa -- they've presented publicly on how they do customer management out of their Global Business Services group -- but we've many other clients who've moved to this model as well. For Level 5, P&G is a good example of driving external supplier innovation -- although it took Lafley to set the vision that 50% of innovation for P&G should come from outside P&G vs. the 15% level it was at earlier in the decade.

Every industry has breakthrough opportunities. Take mining -- the purest of commodities businesses. What if you could partner with your heavy equipment suppliers to automate mining itself to get miners out of the mine and drastically improve safety while reducing costs? Also, if you get back to the notion of a "business services" delivery model that I mentioned before (which goes hand-in-hand with "center-led procurement") is a good example of a place where procurement can be more proactive is the area of what we call "Business Process Sourcing". Don't think about this as procurement playing a role in outsourcing (or procurement outsourcing decisions), but about procurement's involvement in business process sourcing. For example, how do you source not just manufacturing processes, but all business processes? As a matter of course, these advanced organizations look at all of their processes and then they take it the outsourcers as well as evaluating other options for shared services, internal delivery, etc. Here, procurement might even volunteer or proactively suggest areas to evaluate rather than waiting for the business to come to them.

Stay tuned for part 2 of this discussion with Hackett's Pierre Mitchell in the coming weeks.

- Jason Busch