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THE JOURNEY TO PROCUREMENT TRANSFORMATION: AFTER LAYING YOUR PLAN, THE NEXT STOP IS BUY-IN

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By Alex Klein, COO at Efficio

 

In part one of this series, I made the case for a solid, well conceptualised procurement transformation plan – the importance of which cannot be understated in any attempt to reduce cost. But, it’s equally important to note that this is only step one. After all, a plan without action is just a speech, and you can have the most revolutionary idea for your organisation, but without buy-in to facilitate that plan, nothing will happen.

For this reason, the Chief Procurement Officer (CPO) must pitch transformation to the board as a business proposition – something along the lines of, “If you give me X, I will bring you Y in savings.” And that begins with a baseline savings plan.

The hardest part is deciding where to start – which part of third party spend to attack first, with so many enticing options on offer. For example, you could approach it by business unit, or you might do it supplier-by-supplier. With the first option, you’ll forgo any scale opportunity and the advantage of leveraging spend across the business; but with the second, you’ll have no competition in play. The best, most effective way to go, however, is to implement it by category. Travel expenses could be one; and devices, laptops and desktops could be another.

This method of plotting out spend into categories – that include the annual spend, an estimate of addressability and a potential savings range, divided into “sourcing waves,” – paves the way for a clear, direct, and focused and savings plan. This plan can then be used as a skeleton to flesh out your approach to spend, addressing five to 15 categories at a time.

By addressing spend in this way, you are provided with a natural portfolio effect that works by spreading risk across categories, since you are attacking many different categories with different budget-holders and suppliers at once. Some of these categories may not generate the outcome you’d hoped for, but another couple could provide a hefty 25% saving, which would counterbalance the shortfall of another. Whilst this is certainly a simple enough logic, in order to make it a success, there are a number of factors that must be taken into account first:

  • Measuring spend on the addressability scale

First on the agenda is addressability. Failing to factor this in and declaring that “we can deliver 10% savings across 100% of the spend” is a classic mistake. The problem is not the 10%, it’s the erroneous assumption that 100% of the spend will be addressable. Not only will you never include the various one-off purchases in your tail spend, but spend will also ‘disappear’ on you as you progress down the sourcing process. We jokingly call this Shrinking Spend Syndrome (SSS).

For example, you have a big outsourcing contract with IBM for 10 years that can’t really be touched, business unit X has pulled out of the effort, and it turns out that about 30% of the purchases in your category are bought on behalf of customers on a pass-through basis, therefore lowering savings. These situations will creep up on you, and you still end up saving the projected 5-10% – but on a hopelessly smaller base. To account for addressability, this risk should be anticipated at the start by discounting each category by at least 25%.

  • Category prioritisation

There will be as many as 40-50 categories for most businesses, so where do you start?

Enter the “category bubble chart”. By plotting categories on a chart based on savings potential and implementation difficulty, CPOs can have a clear view of the categories easiest to pursue, while also providing the biggest rewards. These rewards – or rather ‘savings potential’ – should be based on several factors, including the addressable spend, the current state of procurement sophistication, the competitiveness of the supply market, and the existence of concrete supply and demand-side improvement opportunities. For the other axis of the chart, to determine the implementation complexity, the CPO must consider the following:

Are there credible supplier alternatives?

How complex and costly is it to switch suppliers?

Are there any internal obstacles that must be overcome to push this through?

In addition to picking high-value, quick-win categories in the first instance, it is also important to consider the categories that have strong budget-holder buy-in and iterate your chart depending on business priorities.

  • Managing expectations

Finally, timing is a crucial consideration when building a sourcing savings plan. Often, the time it takes to execute such a plan is vastly underestimated. On average, it takes six months to strategically source a category, two months for developing the baseline and agreeing the strategy, and four months to issue the RFP, conduct negotiations, and select suppliers. There is no denying it is a lengthy process, and it needs to be thorough – cutting corners or rushing simply isn’t an option. Yes, you will have push-back from the wider business during this time, and yes, you will have to fight your corner. But if a transformation doesn’t feel uncomfortable, then is it really transformation?

 

Building a procurement investment business case

Once your sourcing savings plan is in place, you need to estimate the level of investment required in the procurement function to achieve those desired outcomes. When building such a business case, you must consider the various costs associated with hiring additional strategic procurement resources, upskilling, or training existing employees, new IT systems or tools – and, finally, any external consultancy support that might be needed.

The procurement transformation business case then consists of pledging to deliver a specific savings target in return for these investments. If your spend is of reasonable magnitude, then the return on investment (ROI) should make for an attractive proposition.

 

Ensuring program structure and governance

Delivering on a procurement transformation plan is a cross-functional effort – it requires engagement at all levels, and this is where a solid programme structure is essential. The transformation programme is typically divided into several workstreams. On one side, there are the sourcing teams responsible for executing the new strategic sourcing process. On the other side, there are the functional improvement workstreams – organisation and operating model redesign, recruitment, sourcing, supplier management and P2P process design, roll out and training, as well as IT system partner selection and implementation. The sourcing teams, in particular, should be well resourced and truly cross-functional in nature. The most successful transformation projects are co-driven by the business, rather than just procurement driven.

 

Turning a plan into action

If you’ve followed the above steps, then congratulations – you’re ready to embark on your procurement transformation journey. All the aspects should now be lined up, ready to pull into an 18-month programme timeline. Most crucial to its success, however, will be executive sponsorship – not only with  regards to financial sponsorship, but in C-suite time and effort.

Making sure that every player is in agreement – the CEO, CFO, COO, CIO, and the various business unit heads – you can proceed with a united front towards your goal, ensuring the necessary approval en route. This is what facilitates true engagement.

But you can’t relax just yet. Once your plan has received sign off, you’ll need to act quickly – it’s not enough for your plan to be revolutionary, it must be detailed in the extreme so that you can get off the start line without hesitation. Delivering the plan to any success will rest upon buy-in and visibility across the business, which, ultimately, will depend on cross-functional alignment. Once this is in place, the true profit potential of procurement and can reached.

 

Business

OUTSOURCING YOUR IT SOLUTIONS CAN SAVE YOU FROM COSTLY DOWNTIME

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Amir Hashmi, CEO and Founder of leading IT and Cloud services provider Zsah, discusses why you need full-time professionals if you want to avoid the money pits of IT downtime

 

A lot of wealthy business owners will uphold the following infamous statement – time is money. Many CEOs believe that it should be at the heart of your business strategy. They aren’t wrong, and it is no different when it comes to IT. Therefore, it is high-time that businesses consider the real risks and costs associated with IT downtime, and do all they can to avoid it

In the midst of a post-pandemic technological revolution, it’s now more important than ever to carefully consider who manages your technology. It is essentially the motor that drives productivity, efficiency and growth, and if therefore, if there isn’t a thorough and dedicated system in place, businesses risk system failure, which can risk everything.

Something so essential to a company deserves to be taken more seriously than just to deploy the services of an IT help desk when there’s a significant issue. The answer isn’t necessarily to consider ways in which you can fix a problem once it arises, but instead to ponder upon ways of preventing an issue from occurring in the first place. This is what leads us to managed IT support services: your personal, dedicated team of IT experts that not only fix issues when they occur, but that also constantly improve the software and hardware so there is less chance they ever take place.

 

The real cost of downtime

Whenever your IT isn’t functioning at its full capability, you are losing money. Even the shortest of gaps in service can severely impact the customers’ experience, your reputation, and the output and efficiency of your entire staff.

In 2017, ITIC sent out an independent survey to measure downtime costs. It found that 98% of organisations say that a single hour of downtime costs over USD $100,000, with 81% putting the figure at over $300,000. For 33% of businesses, 60 minutes of downtime would cost their firms between $1 million and £5 million.

Figures from Statista.com reveal 24% of organisations worldwide reporting average hourly downtime costs amounting to between USD 301,000 and USD 400,000, with 14% reporting greater than USD 5 million in costs.

Elsewhere, IHS Markit surveyed 400 companies and found downtime was costing them a collective USD 700 billion per year – 78% of which was from lost employee productivity during outages.

 

Managed IT solutions are the key

Though we may never know the full cost of downtime, it is evident that it costs individuals and businesses a large amount of money. Don’t wait until your next emergency to remedy a problem; get the professionals in now to prepare for the future, rather than just fix problems in the present.

When you work with a managed technology services provider, your network and infrastructure are supervised 24 hours a day, all year round. As with any IT service, this means that issues will be fixed – however the real advantage is more long-term. As technology service providers perform regular proactive upkeep, there will be a reduced chance of suffering from issues in the first instance, and when (or if) they do occur, it will be far simpler to recover data thanks to full cloud integration.

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HOW TRADITIONAL INSURERS CAN USE TECHNOLOGY TO IMPROVE THEIR RELATIONSHIP WITH CUSTOMERS

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The customer experience with insurance is anomalous, in that one is only required to engage with their insurer if things are going wrong for them. To add value to the relationship, new technology and methods should be adopted, in turn driving loyalty and business growth, writes Oliver Werneyer, CEO and Co-founder of Imburse

Oliver Werneyer

Insurance is one of the oldest industries in the world and it is still, to this day, considered a grudge purchase. Looking back, insurance has a history of having a challenging relationship with its customers. According to an IBM study, in 2008, only 39% of consumers trusted the insurance industry. This percentage has stayed largely similar over the years, having reached only 42% in 2020. For any business with growth ambitions, good customer relationships are crucial.

I believe that now more than ever, the insurance industry not only needs to continue investing in improving relationships with customers, but to really think about new ways of doing so. At a basic level, the moment of truth for an insurance customer is when either they need to pay or are getting paid. Insurers can have the best policy wording, quick claims processes, apps and advisors, but if the experience to pay premiums or to receive a claim is bad, the customer immediately loses trust.

The pandemic has exposed this tenuous relationship between insurers and its customers. The need to move everything online and provide personalised services has exposed significant shortcomings in the service insurers provide. The industry has been too slow to adopt newer technologies and move engagements closer to the customer (self-service and empowered). This is largely due to the legacy systems and processes that insurers failed to modernise over previous years.

This means that the better-positioned incumbents have stronger customer relationships and benefit disproportionately from the pandemic, as they are able to win more new customers and convert customers from other insurers. They also benefit from significantly lower customer acquisition costs and much better growth, as illustrated in this McKinsey report. Even new entrants or InsurTechs are benefitting massively by focusing on improved customer experience and customer relationships.

However, it is never too late for insurers to build better relationships with customers. The main way to build a good relationship with a client is to make life easier, live up to promises and add value through the relationship with them. By working on these key elements, insurers can start building strong relationships with their customers, and, through the right partners, deliver this in a timely and non-disruptive manner.

 

Embedded Services

Insurance products often get a bad reputation because they cost money, but the benefits might only come much later, or never. Customers don’t get to experience a positive relationship with insurance products, either because they never claim and feel like they lost out, or they claim and they’re in a bad situation. By either embedding other services into the insurance experience to deliver a more transactional engagement, or embedding insurance products into general customer experiences such as online shopping or rewards, insurers can enrich customer relationships to generate value.

This way, insurers become a value-adding part of the customers’ everyday activities and not just a product that they have to pay for and may never get anything back from. One example is to embed micro-savings capabilities, often found in banking, into pension savings and insurance products. This can allow customers to save more for pension, attract younger customers and build a portfolio of fiscally disciplined customers.

 

Tailored journeys and personalisation

Customers have come to expect personalised journeys and engagements from product providers. Streaming services, social media, e-commerce or mobility services have shaped the customer expectations. Now, customers are also expecting personalisation for insurers.

Insurers need to invest very heavily in delivering personalisation and customisation to customers as they engage with their products. Failure to deliver this puts renewed strain on the value perceived by the customer and their relationship with the insurer. This applies not only to customer interfaces, but to aspects such as payments. Insurers should make it easy and pleasant for customers to pay and get paid. As the main moment of truth, payment experiences need to work optimally.

 

Perceived customer value metrics and delivery

The value customers derive from insurance products is, generally, monetary. Therefore, insurers must invest in product enhancement to increase its perceived value. Perceived value is not tied to a monetary value. By being able to choose between multiple payment options, such as a $300 pay-out to a bank account or a $320 Amazon voucher, the customer has a higher perceived value of the payment. This can be achieved by leveraging non-insurance products that can be purchased at a discounted price, exclusive access that the customer would otherwise not have or conversion into a form that is more useful to the customer.

Payments, for collection and pay-out, are at the core of delivering this value. An excellent payment experience immediately influences the customer to be positively inclined toward a product (PwC report). In order to offer this, insurers need to leverage multiple technologies and providers, offer any speed of transaction in any market, and deliver faster automation and better risk control. The key is to transform insurance products into transactional value-adds to customers’ lives and use this opportunity to continuously build on relationships with customers.

The main roadblock for insurers is still the operational implications of these activities and the costs that arise. In looking to build a better customer relationship, insurers need to look at partners that are operational enablers to deliver this. Partners that can solve the integration and speed-to-market problem so that insurers are enabled to deliver new capabilities, not bombard them with new ideas and no path to delivery.

Imburse, for instance, enables insurers to access all the global payment providers and technologies available in any market. Through a single connection, insurers can deploy any payment capability into any channel, for collection and pay-outs, without ever again needing to build a direct operational integration to the providers. This gives them full freedom to leverage payments as a key value driver and customer experience enhancer.

Building a better relationship with insurance customers is key for the insurance industry to close the protection gap. Incumbents are in the prime position to look at Insurtech and Fintech partners to rapidly and significantly modernise, digitalise and transform their own capabilities to deliver major enhanced value to their customers.

Imburse is an advanced universal payment connector that enables businesses to gain cost-effective access to complete global payments technology, regardless of the service provider. To learn more, please visit www.imbursepayments.com.

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